We'll Build Our Way Out Of This Mess

This is the unreal reality of the local economy. It is hard to ever categorise construction as a strategic industry, but in Majorca that is pretty much what it is. It is a strategic industry in that it creates a cycle of employment and wealth generation and thus is, in effect, a glorified subsistence industry. The government, with little else to turn to, is left with little alternative but to prop it up. And propping up is what it is doing.

It cannot be denied that certain public projects, such as the upgrading of water-treatment plants and the planned extensions to the rail network, are necessary or to-be-desired infrastructure developments and job creators, but one does have to wonder as to the efficiency of the capital being handed over to local construction firms. The current economic malaise is one created by many factors, but debt and therefore business collapse are the consequences. Take the Drac Group, the company presided over by Vicente Grande, he also of the Real Mallorca football club to which Freddy Shepherd has turned his covetous eyes. Drac has applied for the suspension of payments to creditors. A financial restructuring may yet save the company, but it is, to all intents and purposes, bankrupt. A substantial player like Drac going almost or totally belly-up obviously means that supplier firms are left with unpaid invoices, cascading the economic problem down through the economic chain of the island. This is the debt-payment alleviation to which the government is willing to divert funding.

I have no way of knowing the ins and outs of the Drac situation, but the construction sector stands (and appears to also fall) as an example of why things are in a mess. Many construction companies have been like Leeds United; they have bet the future with easy credit that has of course now dried up. Again, I make no comment specifically about Drac, but one has to ask - in a wider context - about the management and governance that has brought this situation about.

The government is left with a Hobson's choice - and that is to support an industry that has become de facto strategic in the absence of alternatives. If nothing else, this should all be exercising the minds of Balearic politicians as to diversification, and a shift away from the relationship with the construction sector, a relationship that seems to enable firms in difficulty to go cap in hand for a bail-out and for more public funds and therefore more borrowing to jump-start the sector. The construction industry may be in difficulty, but it virtually can hold a gun to the government's head. Let firms go under and that means unemployment, more grim economic news, and the blame will be lain at the government's door, which would be only partially true. And don't think this is all a consequence of an acquiescent Socialist-led government; it would have been no different under a PP administration.

But what, one might well ask, would happen were there to be a sudden collapse in the tourism sector, which can more genuinely be called a strategic industry? Would hoteliers and others, faced with debts from unsold holidays, be able to get the government to dig into the coffers for assistance? Aid because of, say, a natural disaster is one thing, but aid occasioned by market failure is another. Which brings one back to the notion of diversification. There is just the possibility of a "shock" that could derail the tourism sector; it cannot ever be discounted. But the question of course is diversification into what. I don't know that anyone has a good answer to that.

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