UNO May 2022

UNO +1 Interview with Antón Costas by José Antonio Llorente

Interview of Antón Costas by José Antonio Llorente

Antón Costas (Vigo, 1949) is one of the most important Spanish economists. He is the author of an extensive work on economic policy, institutional reforms, liberalization processes and the economic and political situation of Spain and Europe, and is a Professor of Economic Policy at Barcelona University. He has also played a leading role in heading up civil society institutions–he was the President of Cercle d’Economia (the Economic Circle)–and of official bodies. He is currently the Chairman of the Social and Economic Council of the Government of Spain.

In this conversation, we review some of the questions he addressed in his latest book, “Laberintos de la prosperidad” (Labyrinths of Prosperity]): the potentially creative and beneficial relationship between the market and the State, the need to have good companies that create good jobs, the digital and ecological transformation within the scope of European funds and, above all, the challenges of forging an inclusive economy that he describes as “a new social contract focused on good jobs”.

Llorente: In recent years, some social groups have not only lost prosperity, but the expectations of recovering it. In your latest book, Laberintos de la prosperidad”, you have spoken about renewing the social contract to recover this inclusive prosperity again. What type of social contract do we need to reactivate the economy in a just manner?

Costas: We need a social contract that combines a vibrant and innovative economy and a just society in a balanced fashion. To achieve that, this social contract must focus on good jobs for more people and in more places in the country. If not, the lack of expectations and opportunities that many people suffer from, particularly in small and medium-sized cities and in the rural world, will lead us into a very conflictive society and toward polarized and authoritarian politics.

The idea of the social contract stems from the response to the following question: what makes a liberal, pluralist society with a market economy system work harmoniously, whereby growth is reconciled with social progress and democracy avoids regressing into barbarism? This is not attained automatically with a market economy.

What is needed is social “glue”—a moral and political commitment from those who are doing well under the system to those at risk of falling behind or, in many cases, of falling into the gutters of unemployment and zero income, to lead a dignified life and educate their children.

In the past, this glue was the social contract of the postwar world, focused on the redistribution and construction of the three pillars of the current Welfare State. Nowadays, to the extent that inequality and poverty primarily stem from unemployment or poor-quality employment, we need a social contract that focuses on the production stage in which jobs are created and salaries set. This also applies to the pre-production stage, through good education and dual vocational training in which companies have a fundamental and undeniable responsibility.

Perhaps another of the things we must renew is a vision in the form of the dichotomy of the State and the market. We must imagine new forms of cooperation between the State and the market, between the public and the private sector. How do you see this relationship?

This dichotomy is Manichaean and profoundly disturbing. In a liberal society, market and State are not rival, but are complementary mechanisms. Modern economic development cannot be explained without the combination of both. But not just with both parties. Prosperity has a third pillar: the community. Recently, Raghuran Rajan, the prestigious economist at the University of Chicago and former Governor of the Bank of India, published a book in which he tries to explain the root causes of the profound discontent and polarization that exists in the United States. The title itself is illustrative of the argument it contains: “The Third Pilar. How Markets and the State Leave the Community Behind”. In Spain over the last 30 years, we have also forgotten those who have been harmed and relegated throughout the country by the consequences of deindustrialization. We must once again provide opportunities and expectations of progress to communities that live in small and medium-sized cities and in the rural world. To do that, we need industrial policies, innovation and development focused on communities. This is no easy task, but it is essential if we want to once again reconcile growth with social progress.

In a liberal society, market and state are not rival mechanisms, but complementary.

There are also another couple of ideas that we have seen for quite some time now as a dichotomy, but which probably aren’t: on the one hand, economic efficiency; and on the other, social justice. We now know that both things can and should go hand-in-hand.

The idea is that a fairer society can only be achieved at the cost of reducing the efficiency of the economy is another dichotomy frequently used in public and political debate, which we now know to be false. When I studied my bachelor’s degree at the faculty, I was made to read and learn the so-called Okun’s law: a North American economist who was very concerned about inequality and yet who found, by surprise, that the data he processed in the 1970s showed that there was an inverse relationship between a fair society and economic efficiency. This is the famous image of the pie–whether to distribute it better at the risk of not growing or to grow to later see how to distribute it better. Now, for a little over five years, using better data and statistical techniques than Okun was able to use, we know that this is not the case: a fairer society gives rise to a more efficient, innovative and productive economy. I feel that this is a true “epiphany”–a very important and yet, little known, revelation.

And part of the problem to be solved is that of employment. The creation of good jobs by companies. How can we manage to recover good jobs, the lack of which is one of the reasons for the feeling of discontent in a large part of society? 

By committing to the creation of good jobs for more people and in more parts of the country. The question is, who creates jobs? Firstly, good companies. We must promote and encourage the existence of good companies. To achieve that, we must firstly strengthen the innovative capacity and productivity of the broad business fabric, which is Lilliputian in many cases, and of the tertiary sector. Secondly, the number of jobs also depends on the good management of the aggregate demand of the economy, especially in times of recession. In the 2008 recession, we managed this badly, through the so-called “austerity”, and employment and economic activity sank into the black hole of a depression for five years, something unprecedented. In the pandemic recession of 2020, we managed the situation better: employment did not plummet and economic activity was quickly recovered. We must take away the lessons learned from these two experiences. Every time we have managed a crisis badly over the last 30 years and allowed recessions to last for many years, we have added an additional layer to long-term unemployment. I hope we have now learned not to repeat this.

Now, in the wake of the pandemic, we are entering into a phase that we hope will amount to economic recovery, although the war in Ukraine will significantly hinder this. Moreover, this coincides with two huge transformations: on the one hand, the ecological transformation and, on the other, the digital transformation. What challenges and opportunities do you see in this dual process?

If this coincides with a new era of war and prolonged geopolitical conflict and instability in global supply chains and strong fluctuations in the prices of basic raw materials, we will have to find the right balances between the digitalization and decarbonization processes and guarantee the continuity of economic activity and employment.

These are times to recall the maxim of Saint Augustine in his “Confessions”, when he asked the Lord to “grant him a punishment, but not right now”. Something similar will happen with decarbonization. The idea of a “just” digitalization and decarbonization is powerful, but not easy to achieve. Let me once again stress the need for policies focused on those places that particularly cater for the territorial impacts of decarbonization and ensure that what happened in the deindustrialization at the end of the last century does not happen again.

As regards to digitalization, new technologies may be used to replace jobs for humans or to improve the capacity for innovation and productivity of people. There is no fatalism in that. It all depends on the direction we give to the technological change. In my opinion, what is fundamental is to quickly achieve basic digital literacy of society as a whole.

The decision to create the European “Next Generation” funds is a “Hamiltonian moment” for the EU.

What opinion does the rollout of novel European tools deserve, such as the European funds? Do you feel this amounts to an example of what we have learned from the lessons of the past and that we can now do things more imaginatively?

The decision to create the “Next Generation” European funds is a “Hamiltonian moment” of the EU. By using this expression, I refer to Alexander Hamilton, the First Secretary of the Treasury of the United States in the Government of George Washington, who achieved the assumption of the debts of the individual states following the War of Independence, the issue of the first federal debt and the introduction of industrial, innovation and development policies that forged the great nation that the United States is today.

I think that the Next Generation EU funds, the issue of European debt and the new industrial and strategic innovation policies are this “Hamiltonian moment” of the EU. A classical old maxim says that “there is no favorable wind for the sailor who doesn’t know where to go”. The Next Generation EU funds amount to an extraordinarily favorable wind for the transformation of the private economy and the Spanish public sector. We just need to set the course for this transformation.

In the end, the question is always how can we use the economy, economic ideas and the tools we are given for the common good?

My lecturers at the faculty, particularly Professors Fabián Estapé and Ernest Lluch, taught me that, when well-used, the economy is an extraordinary driver of the common good. And I believe that. Governments can do a great deal and do it well for the well-being of people. And the combination of a dynamic and vibrant economy and a just society is the best combination to make capitalism civilized once again, reconciling it with social progress and democracy. This is one of the main tasks pending. And I believe we can do this. As our parents and grandparents did after the Great Depression of the 1930s and World War Two: with a new social contract that now focuses on good jobs.


Antón Costas
President of the Economic and Social Council of Spain.
A Technical Industrial Engineer and Economist. A Professor of Political Economy at Barcelona University. Author of “El final del desconcierto. Un nuevo contrato social para que España funcione,” “La nueva piel del capitalismo,” “La Torre de la arrogancia. Políticas y Mercados después de la crisis,” and “La crisis de 2008: de la Economía a la Política y más allá.” He is a columnist for the dailies El País, La Vanguardia and El Periódico de Cataluña. On the business side, he is a member of the Boards of Directors of Laboratorios Reig-Jofre S.A., Banco Mediolanum S.A., Grupo Bodegas Terras Gauda S.A., and Barnaclínic S.A. He is also a member of the advisory boards of Grupo Hotusa S.A., Roca Junyent Abogados S.A., Ingeus S.A., and Knowledge Sharing Network (KSNET.) He has also been Customer Ombudsman at Endesa (2000-2005) and Chairman of the Advisory Board of Endesa in Catalonia (2005-2012) as well as director of several companies. On the institutional front, he has been President of the Economic Circle (2013-2016) and was President of the Economic Circle Foundation (2018-2021.)
Jose Antonio Llorente
Founding Partner and Chairman of LLYC Spain / U.S.A.
Jose Antonio Llorente as a specialist in Corporate and Financial Communication, over the course of a career spanning more than 25 years, he has provided consultancy services on numerous corporate transactions: mergers, acquisitions, divestments, joint ventures and stock market floatations. Mr. Llorente was the first Spanish professional to have received the SABRE Award for Outstanding Individual Achievement, a European award presented by The Holmes Report.Mr. Llorente worked at the multinational Burson-Marsteller for ten years, where he was Managing Director. He currently sits on the Board of Trustees of the Euroamérica Foundation and the Steering Committee of the Spanish Association of Minority Shareholders of Listed Companies. He is also a member of the Advisory Council to SMEs of the Spanish Confederation of Small- and Medium-Sized Enterprises, the Steering Committee of the Agencies of Spain Association and the Advisory Council of Executive MBA in the Management of Professional Services Organisations organised by Garrigues. José Antonio has a degree in Information Sciences from the Complutense University of Madrid, and specialist in Public Affairs at Indiana University of Pennsylvania and The Henley College. @jallorente [United States - Spain]

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