Spain - National Industrial Institute

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National industrial institute

Spain's industrial sector was marked by the presence of a major subsector controlled by the government. Some of this subsector was under the control of the Directorate General for State Assest (Direccion General del Patrimonio del Estado--DGPE). By far the largest component of the public sector, however, was contained within the National Industrial Institute (Instituto Nacional de Industria--INI), which, since 1968, had been under the supervision of the Ministry of Industry and Energy. The Franco regime adopted extremely protectionist policies early, and it opted for a high level of direct state intervention in the economy. When INI was founded in 1941, it was intended to create or to subsidize industries in key sectors of the economy where private enterprise alone was insufficient to achieve self-sufficiency. INI, which used both direct investments and collaboration with sources of private capital, studiously avoided any involvement in the banking sector; it especially favored industries related to national defense. INI was granted powers to take over existing enterprises and to create new ones when necessary.

Few of INI's original purposes were realized. With the signing of base agreements with the United States, the armed forces, beginning in 1953, became dependent on the United States for arms equipment. INI's efforts to fill gaps in the economy were not very effective. Instead of creating efficient new industries, it tended to establish inefficient ones and to hamper the activities of private enterprise. Political favorites of the regime were permitted to unload badly run, deficit-producing firms on INI, and many of its top positions were political sinecures.

Efforts were periodically undertaken to bring INI more into line with the rest of Spanish industry, and, as a result, a more realistic approach toward the financing of industrial companies was instituted. Government subsidies were permitted to cover the deficits of those INI firms that were considered to have incurred losses unavoidably. For example, the coal-mining conglomerate, Empresa Nacional Hulleras del Norte (HUNOSA), which was set up by INI in 1967 to reorganize the coal industry, was still losing money in the late 1980s. In general, however, firms were expected to become economically viable, although many did not.

A policy change took place in 1974, however. It was decided that INI, rather than remaining in the background of the industrial sector, was to serve as the linchpin of basic industries, such as ironmaking, steelmaking, and petrochemical production, and that it was to become the prime promoter of development in high technology areas, such as electronics and aircraft manufacture.

By the mid-1980s, the companies directly controlled by INI formed the single largest industrial group in the country, responsible for 10 percent of Spain's GDP and for the employment of 200,000 workers. INI directed more than 60 firms--sometimes having 100 percent ownership in them--as well as more than 100 of their subsidiaries. INI firms produced all of the country's aluminum; most of its ships; much of its steel, other metals, paper and pulp, and transportation equipment; and many of its commercial vehicles. It also controlled most of the country's two largest airlines: Iberia, Lineas Aereas de Espana; and Aviacion y Comercio (AVIACO).

A restructuring and investment program was launched in 1984 and 1985 to reduce INI's huge losses and to refocus industrial investment and expansion. The overhaul was prompted in part by a need to end INI's reliance on payments from the central government, which would no longer be permitted when Spain completed its transition into the EC. The program had some successes. In 1983 INI posted a record loss of 204 billion pesetas, but by the late 1980s the restructuring program had steadily reduced the shortfall. In its best performance since the late 1970s, the loss was cut to 45 billion pesetas (US$421 million) in 1987. INI's improved performance was partly the result of the 1985 sale of the auto assembly company, Sociedad Espanola de Automoviles de Turismo (SEAT), which had lost 37 billion pesetas that year. The INI concerns that registered profits were the national airline, Iberia, the electric power utilities, food processing plants, and enterprises producing electronics, aluminum, paper, and fertilizers. Among the leading contributors to the deficit were Construcciones Aeronauticas (CASA), Empresa Nacional de Santa Barbara de Industrias Militares (Santa Barbara), and the coal company, HUNOSA.

INI's losses had traditionally been the largest in the "rust belt" industries--steelmaking, shipbuilding, and mining. In each of these areas, the restructuring program downgraded INI's large holdings through personnel cutbacks and the closing down of some old, inefficient plants, production yards, and mines. Investments were undertaken to upgrade industrial facilities, such as those used in a new continuous casting plant scheduled to begin operations by mid-1989. The large steel company, Empresa Nacional Siderurgica (ENSIDESA), was expected to reach the financial break-even point by the end of 1988. In addition, the shipbuilding industry gradually was beginning to reemerge from its protracted slump.

Although INI intended to liberate itself from much of its customary heavy reliance on government subsidies, massive government support would continue to sustain the ailing shipyard and coal-mining industries. Government allocations in 1987 amounted to 150 billion pesetas (US$1.4 billion). Aid to government-supported firms was designed to keep them operating in order to maintain employment.

Of particular note in INI's renovation was its partial privatization. In the mid-1980s, INI sold a 51 percent interest in SEAT to Volkswagen (SEAT lost US $231 million in 1984). Minority interests, ranging from 25 to 45 percent, were being sold in the more profitable public-sector companies through public stock offerings. Shares in two electric power companies and a pulp-paper firm were offered, and observers expected that shares in Iberia and in two electric power companies would be offered in 1989. INI spokesmen, however, were quick to point out that such developments should not be interpreted as an ideological or policy-oriented commitment to privatization. They were conceived of as part of an effort to improve management of public-sector companies and to use private-sector resources to invest in modernization and expansion. The funds gained from the sale of stock in INI companies were to be used for strengthening them financially, for expanding existing programs, and for embarking on new investment strategies.

Another part of INI's restructuring strategy called for a major expansion of research and development. In the late 1980s, 1.6 percent of INI's revenues went to research and development, which was well above the overall Spanish corporate average of 0.5 percent, but far below that of foreign technologically oriented companies. The goal was to bring research and development expenditures up to 3 percent of INI's income by 1992. The plan also emphasized training and retraining for both white-collar and blue-collar workers.

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