Independence and the location of firms

The Spanish government keeps pushing its scaremongering agenda, looking to defeat the process that might lead to Catalonia's independence. Its messages aim to persuade the public that independence would cause an economic catastrophe and a highly conflictive situation.

However, reality and facts say otherwise. Many prestigious experts have recently carried out studies proving the financial benefits of independence for Catalonia. Additionally, facts prove that -so far- the independence process hasn't put off foreign investors, as 2013 was one of the strongest years in Catalonia, in terms of foreign investment attraction: the figure grew over the previous year, reaching a total of €3,511M. Also, the words of the US ambassador in Spain, who recently admitted that businesses would adapt to any changes, point in the same direction.

An argument often used by those who oppose Catalan independence is that it would scare away businesses, especially multinational companies. They claim that an independent Catalonia would bring political and social instability, would be too small a country, might suffer a trade boycott from Spain and would be expelled from the EU.

First of all, we must agree that companies want political, social and economic stability. So far, the process has not caused any instability. Therefore, it's very important that it forges ahead in a peaceful, democratic manner so as to create as little uncertainty as possible. But it is equally true that choosing a location for a firm depends on many other factors. For instance, the geographical location and the availability of resources in the region (raw materials, transport network and infrastructure, technological resources, availability of workforce); cultural factors (business culture, quality of life, language, how sensitive the country is to foreign investment); characteristics of the markets (size, growth and accessibility); and favourable economic policies (taxation, industrial, labour and so on).

Catalonia's independence might be a great opportunity to embrace economic and fiscal policies that are more favourable to the country's productive fabric than those of the Spanish government, which are not aimed at Catalan businesses. They could also adopt economic policies that encourage new businesses to set up in Catalonia. For instance, Ireland's taxation policy has been a great incentive for companies to relocate there thanks to a very low business tax rate.

Building a new state is also a great opportunity to set regulations that are more conducive to the creation of new companies. According to "Doing Business" -a yearly World Bank business survey that looks at how easy it is for someone to start a new business in a given country-, Spain ranks 115 out of a total of 189 countries. The new Catalan state should try to do better than that.

Secondly, the relatively small size of Catalonia shouldn't be an issue as far the location of businesses is concerned because what matters is how open an economy is. Catalonia's level of free trade is high and this allows the country to be very competitive, which multinational companies particularly appreciate. It is small countries like Switzerland or Sweden that top the ranks of wealth and competitiveness worldwide and their size is similar to Catalonia's. Other relatively small nations, such as Ireland and Belgium, have attracted a great deal of direct investment in recent years.

Thirdly, a trade boycott shouldn't be a major problem, either. Experience has shown that such boycotts have a limited scope and focus on emblematic products. In addition, only a third of all sales to the Spanish market are consumer goods. The rest are intermediate products used by Spanish companies in their production processes. The effect of a boycott on them would be less than on consumer goods. Assuming that such a boycott had some effect, though, it's been proven that the possible harm would be greatly offset by the benefits of having no fiscal deficit.

Finally, there is no end of practical reasons to think that an independent Catalonia would remain in the EU. But even in the event of the new Catalan state being born outside the Union and having to wait some time to join, you could argue that no trade barriers would be imposed in Catalonia. These would conflict with the interests of all the multinational companies located in Catalonia, Spanish and otherwise, and would not benefit anyone.

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