In well functioning market economies, companies make risky investments. When they turn out well, they keep the profits; and when they go wrong, they accept the losses. If these losses are sizeable, they go bankrupt and shut down. This is how capitalism eliminates failed ideas from the system and holds on to good ones. In fact, this is one of the mechanisms that ensures that the capitalist system is superior to all other economic systems that have existed until now.
In some countries, many companies live off the state, the BOE's regulation (1), political influence and the protection from friends in the public sector. I say this because this past Friday, in Spain, Vice President Sáenz de Santamaría announced that the state will pay around €1,350m to a private company that conducted some gas drilling that went badly wrong (the exploration was called "project Castor" and caused earthquakes off the coast of Alcanar and Vinaròs).
Instead of losing the money they had invested and facing bankruptcy, which is what free market rules stipulate, Spain will compensate the company for its losses. This money won't be coming out of Ms. Soraya and her colleagues' own pockets. It will be taxpayers' money collected over the next 30 years. That's right! It's not a typo: 30 years!
This is yet another proof that Spain's isn't a free market economy but, rather, what César Molinas called "castizo" capitalism (which is crony capitalism, Spanish style): certain companies use state influence to steal tax-payers' money for their own benefit. A type of capitalism where, instead of going under and giving way to someone who might do things better, certain companies manage to survive and get rich thanks to political favors.
Molinas assures us that, in Spain, many of these indecorous deals are made in the VIP boxes of Real Madrid's Santiago Bernabéu stadium. In Santiago Bernabéu, I hear you say? Blimey! What a coincidence! It turns out that the company which was "rescued" on Friday by the State and will receive €1,350m is called Escal UGS, 66.7 per cent of which is owned by ACS. And who is the owner of ACS? (Surprise, surprise!): Florentino Pérez!, lord and master of the Santiago Bernabéu stadium (2). Who would have thought! Maybe Molinas was right and, indeed, the executive box at the Bernabéu is used for more than just welcoming the rival team's directors.
Last Friday's ministerial farce is further proof that the Spanish economic model has nothing in common with a free market economy but, rather, with a system where a few clever clogs manage, via incestuous political relationships, to end up parasitizing taxpayers' income.
(1) N.T. Spain's BOE (Boletín Oficial del Estado, or Official Bulletin of the State) is an official publication of the Spanish government where laws, decrees and other official announcements are made.
(2) N.T. Florentino Pérez has been the chairman of Real Madrid C.F. since 2000, with a three-year hiatus from 2006 to 2009.