The effect of the economic model after a black swan event

English: Black Swan in a Pond

Black Swan in a Pond (Photo credit: Wikipedia)

A black swan event is something considered unexpected and highly improbable that suddenly appears.

A recently example can be the crisis that began in 2007 due to the subprime mortgages in the USA and produced a destabilizing effect on the economy of the European countries.

Nowadays, we continue suffering the effect of that unexpected situation but not all the countries have the same difficulties to preserve a healthy state of their economies.

This can be analyzed in terms of complexity and resilience. The most resilient countries should be in a better situation to maintain the economy under unexpected events.

Complexity gives us a correct viewpoint to know the capability of an economy to endure an external strong knock. But this is only a component of a management action. We must know how complexity can affect our economy, but we need in addition to determine actions to reduce it in the future.

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Graph 1 Distribution of Employment in the Spanish Real Economy. Year 2007. Data Source OECD

An interesting thing that governments should analyze is the productive model of the Spanish economy. The previous graph is showing the distribution of the employment. This analysis is not considering the jobs in the public and financial sector because I am only interested in the productive part of the economy. Following David Ricardo, the financial activity creates value, not wealth.

As we can see the Spanish manufacturing sector was less important (in terms of employment) than the construction sector in 2007.

This is not very useful if we do not compare it with other countries. We will be able to see that the German economy is completely different.

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Graph 2 Distribution of Employment in the German Real Economy. Year 2007. Data Source OECD

In that case, we can see that the main differences between the two countries are the percentage of people employed at the manufacturing and construction sector. The construction sector in Germany is not very significant for the employment.

These two sectors have different characteristics. Manufacturing sector usually provides goods that are consumed or assets with a short life, but construction sector provides permanent assets, or at least assets that have a long life.

Continuing with the initial discussion, it would be interesting to analyze the evolution of the sector after the black swan event. This is shown in the two following graphs.

We will be able to see that the effect of the crisis can have a clear and direct effect on the Spanish economy in 2008.

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Graph 3 Evolution of the Sectorial Employment in Spain referred to 2007. Data Source OECD

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Graph 4 Evolution of the Sectorial Employment in Germany referred to 2007. Data Source OECD

As we can see the behavior was very linear without a significant change except the Spanish construction sector and the Spanish real state, renting and business activities sector.

We can see too that this effect is easily understood as the construction sector was destroying employment in Germany and it was creating employment in Spain.

We can notice that the origin of the black swan event was near the construction sector in the USA too. This can be a reason joined to the great importance of this sector why this effect was especially hard for the Spanish economy.

In order to fulfill the analysis before anticipating some conclusions I want to show you the same graphs for the Italian economy.

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Graph 5 Distribution of Employment in the Italian Real Economy. Year 2007. Data Source OECD

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Graph 6 Evolution of the Sectorial Employment in Italy referred to 2007. Data Source OECD

The Italian case is an intermediate case between the German and the Spanish ones, although they have not suffered a sudden decrease of the employment in the construction sector.

As conclusion I propose to think about the following issues:

          There were indicators of the Spanish economy that showed the effects of the crisis due to a black swan event in the early 2008.

          Governments should search for resilient models of growth. The manufacturing industry provides more repetitive incomes through more perishable assets than the construction one.

          Construction sector can provide wealth stores, as gold, but employment should be more driven by value providers instead of wealth stores. Wealth stores tend to be turned into bubbles easily when the assets can be negotiated freely in the markets through complex financial products.

          The Spanish economy should be moved from the construction economy towards a knowledge based one before 2007. This was one the main strategic policies established by the EU, and a lot of research funds were assigned to reach this aim for every European country.

          The current differences among the Euro economies are due to political causes, as usual. The selection of a growth model based on construction instead of industry could provide the “Spanish Miracle” but politicians could not see when this riskier model had to be finished, in spite of the efforts of the EU and the Spanish private innovation sector.

          The Energy Sector is a powerful main driver of the economy that can generate a lot of indirect jobs, although it has not a great effect to provide direct jobs for many people in every economy.

 

 Luis D. Saco

 

Mr. Luis Díaz Saco

Executive President

saconsulting

advanced consultancy services

 

  Nowadays, he is Executive President of Saconsulting Advanced Consultancy Services. He has been Head of Corporate Technology Innovation at Soluziona Quality and Environment and R & D & I Project Auditor of AENOR. He has acted as Innovation Advisor of Endesa Red representing that company in Workgroups of the Smartgrids Technology Platform at Brussels
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