Spanish Economy: State Intervention & Infrastructure (1898-1929)
State Intervention
Another feature of the Spanish economy was the restriction of competition between companies and consistent state intervention in the economy. Companies established agreements to fix prices. This led to higher sale prices in Spain compared to other countries. The steel industry, particularly the company Altos Hornos de Vizcaya, clearly exemplified this restriction of competition, practically monopolizing Spanish iron and steel production.
State intervention manifested in two directions:
- Granting aid (tax exemptions, subsidies, etc.) to stimulate private investment.
- Increased protectionism to prevent foreign competition.
These protective measures adversely affected the Spanish economy by maintaining industries with low productivity and competitiveness abroad. However, they also had positive effects: they promoted technological advancement, contributed to market articulation, and fostered the emergence of new industries.
Infrastructure Development
- Road Improvement: The kilometers of state roads doubled, and early road surfaces appeared.
- Railroad Expansion: The railroad network was significantly expanded.
- Telegraph Network Electrification: The telegraph network grew significantly, improving transmission quality.
- Telephone Growth: The telephone network also experienced growth.
State interventions to encourage economic expansion increased public spending, worsening the chronic deficit of the Spanish treasury.
Economic Evolution
Economic Recovery
The 20th century began with the consequences of the disaster of 1898, which ended the Spanish empire. However, the effects were less severe than expected. The disappearance of colonial markets hurt exports and made goods imported from the former colonies more expensive. Nevertheless, the crisis was quickly overcome. The early years of the century saw low inflation, reduced public debt, and the repatriation of capital, which stimulated the creation of new banks and enterprises. In the longer term, the crisis was favorable for the economy as it forced a renewal of the productive structure, stimulating industrial production and energy exchange (electricity) growth.
The Impact of World War I
Spanish neutrality during World War I (1914-1918) led to significant economic expansion as Spain became a supplier of industrial and agricultural goods. Increased foreign demand stimulated production growth, benefiting Basque steel, Asturian mining, metallurgical industries, and Catalan textiles. For the first time, the balance of payments showed a surplus. However, the Spanish popular classes experienced a worsening of living standards due to rising costs of living, leading to strikes and worker demands. The end of the war and the decreased demand from belligerent countries ended the economic euphoria and triggered a major crisis (1920-23). Many companies closed. The working classes faced increased unemployment, and social discontent manifested in long strikes.
Effects of the 1929 Crisis
In 1929, a worldwide economic depression began due to the crash of the New York Stock Exchange and the collapse of shareholder value. The influence of the Great Depression was felt in the most dynamic economic sectors, which geared much of their production towards foreign markets. The international crisis had repercussions in Spain, leading to a depreciation of the peseta.