Interamerican University of Puerto Rico
Metropolitan Campus
San Juan, Puerto Rico

The Basque Country: Strategy for Economic Development
Case Study

Manuel Joglar
M00057903
BADM 5600: Entrepreneurial Strategy
Prof. Dr. Milan

Historical Background:
Autonomous region of Spain with strong distinctive cultural roots, an autonomous government with a vision of important economic and social development, have made this region become a leader among other regions of Spain and some countries in Europe.
The Basque region has been characterized by its history of maintaining a progressive vision of economic development, where the government has always played an important role, establishing plans and designing strategies for the development of industries in their economy.
In the middle ages the development of the iron, shipbuilding industries and arms subsequently laid the foundation for the growth of the economy. The geographical location of the region gives an additional advantage because it has ports and navigable estuaries which facilitate trade, plus it is on the trade route between Spain and northern Europe. Because this development was one of the most important of the time in Spain, the Basques developed laws , and began to establish schools for research and development that attracted many European scientists.
During the Industrial Revolution, large investments in transportation, communications and schools were made. Entrepreneurs began to modernize traditional industries and new industries such as paper, textile and food and drink were created. The development of the Bessemer process for making steel increased the demand for iron, causing many foreign investors to associate with locals to develop iron ore mines in the Basque Region.
The iron and steel industries grew large scale due to the development of the steam engine and the ship industry. The industrial activity grew in fields of railways, ships, metal products, tools, machinery, chemical, hydroelectric power generation, electrical machinery and equipment. This growth brought many advances in the Region, the Bilbao stock exchange was established and banks of Bilbao and Vizcaya were among the five largest banks of Spain. The rates of savings per capita as well as the rate of new business creation were the highest in the Spain.
The government and private entities continued establishing technical schools, universities specializing in engineering and commerce, achieving a literacy rate and proportion of employees with higher technical education in the Country. Professional associations and unions of workers were created and the GDP per capita was higher than the average of Spain and close to the most advanced European economies.
Under Gen. Franco’s regime, Spain’s economy began to weaken. Although the Basques tried to maintain their autonomy under Franco's regime, troops invaded Araba and Gipuzkoa and later the Nazis bombed Gernika. Bilbao, the largest city, fell in 1937. During the Franco years the Basque language, Euskera, was banned and Basque nationalist movement was very repressed.
The Civil War in Spain, together with the Second World War caused the Spanish economy to collapse and despite the economic reforms undertaken by the government of Franco, the economy did not improve until 1957 where the government selected a new economic team and established new strategies. In the sixties the Spanish economy began to emerge and between 1959 and 1973 the growth rate in Spain was highest in Europe.
This Spanish growth during the sixties was replicated in the Basque region, causing the government to focus on industries already developed and although their primary market was Spain, some companies began to export their product. Many workers migrated to the Basque Region seeking opportunities for jobs, registering the highest rate of population growth in Spain. In these moments of political repression, economic and social deterioration the movement Euskadi Ta Askatasuna (ETA) emerges, seeking independence for the Basque region and using violence and organized crime as a political strategy. In the seventies with the global oil crisis, employment shortage, political uncertainty and terrorism by ETA, the Basque economy suffered a hard hit and major industries such as steel and shipbuilding collapsed.
In 1975 with the death of General Franco and the seizure of power by King Juan Carlos the democratization process began across Spain and the autonomy of the former autonomous regions was returned. In 1979 the Basques and the Spanish Parliament approved the Statute of the Basque Autonomous Region. In 1980 a new elected Basque government began the negotiations for the transfer of powers between Spain and the Basque region. In 1981 the Economic Agreement between Spain and the Region is renewed. This agreement gives the Basques the power to impose and collect taxes after the total tax was not lower than in Spain. The Basque economy had to contribute 6.24 % of the Spanish spending to cover defense costs, government core functions and redistribution of wealth to the less prosperous regions. These agreements provided the basis for economic strategies that Basques place during the eighties, nineties and early twenty-first century.
Strategies for the economic development in the Basque Region:
Through the history we can see how the government has been an essential part of the industrial and economic development of the Basque region, being, in many cases, that creator or facilitator of opportunities for the development of new industries. This government involvement is one of the strong advantages that had the economy of the region. The Government has not only been responsible for establishing public policy for economic development, but has also been efficient in recognizing what were the strengths and weaknesses at different stages, in macro and micro economic terms. During the eighties the government established the Agency for promotion and industry restructuring. This would be responsible for providing the necessary support to companies to help them overcome the crisis and start growing. The agency created mechanisms and support units as SOFAD to assist in mergers and bring new technology. Agencies were established to promote export, entrepreneurship and international growth. Technology centers for research and development, innovation and business and the government investment capital firm were created. At the end of this decade, a strategic plan is developed to steer the economy by establishing clusters. Nine clusters were identified, machine tools, automotive, steel, logistics, paper, financial services, fishing, tourism and agro industry. This model would be developed in the nineties. In these years we can see that the government's strategy was to strengthen and develop industries, sometimes at a micro level, trying to save companies on the brink of failure and also creating companies in traditional industries. To regain the confidence of citizens, entrepreneurs who migrated, businesses and corporations, was one of the most important challenges due to the deterioration that had taken the economy, and the terrorism by ETA. It is seen as the government is aware of the problem that generates the loss of business, affecting competition and reducing economies of scale. Strategies also seek to expand the market and encouraging exports.
In the nineties the government focused on improving the competitiveness of industries. Basque corporations lack skills in strategy, knowledge of customers and market, marketing and international trade. The government took care of that in their development and technology centers, where they trained these firms so they could continue to progress in the industry. The government began advertising campaigns outside the region, particularly in Europe to improve the image affected by terrorism, including international investors to invest in the region. At this historical moment we see the Basque government changing from managing bankrupt business and day to day problems at a micro level to a government establishing plans and policies to reinforce and develop the economy for future years. . The establishment of clusters and training centers for research and development makes possible the creation of new companies. The government is beginning to expand the market, increasing the presence of Basque entities in other countries, mainly in Europe.
In the early twenty-first century, the Basque government focused on what they called the second economic transformation of the Basque region. They began the transition from an economy dominated by the steel industry and outdated technology, to a diversified industrial economy focused on international markets, quality and technological innovation economy. The economy continued to improve and today due to the Basque Region maintained its industrial design and workforce development is one of the best European and Spanish economies. We can appreciate how the government transition to an economy of the future, create biotechnology industries and specializing professional service companies, the latter, being one of the sectors that more influences in the region's GDP today. They begin to measure the performance of industries, and evaluating results after the implementation the governance body in each cluster. The Basque government has demonstrated an ability to manage the economy better than other independent countries. During the most critical years of economic transformation demonstrated a thorough understanding of their resources, their industries and the need to have development plans beyond political ideals to generate long-term and sustainable growth. The government was very assertive in establishing strategies in each historical moment, leaving the major industries, mainly steel as backbone of its economy. Developed new industries such as biotechnology, where the essential variables for their development were present. They recognized the importance of foreign capital and the benefits it brings in terms of investment, competition in industries, and development of new technologies. They have built a strong economy, contrary to other countries that relied in the housing and finance markets and are facing a real economic crisis they stick to manufacturing and heavy industry creating a good base for continuous economic development.