This essay ponders the interplay of risk, debt and optimism, with specific reference to the expansion of Spain’s high speed railway network. It summarises the renaissance of AVE expansion, reconciling different approaches to risk in the construction of transport infrastructure. The interaction of external finance within the Spanish societal structure is hypothesised as reliance on external debt with no internal counter-balances – a virtual economy characterised as Gross Domestic Optimism. The postscript asks what it means to invest in state, with reference to two evolving models – people and perception.
“On the Wings of Hope” is the final essay in a sequence of four titled, “The Art of Public Competition“, which together explore the competitive model underlying Spanish public transport. An anthropological analysis of the tension between this internal model and that of globalised economics, reveals the distortion of external finance on the internal workings of the art of public competition. The first essay in the sequence establishes the policy context for the liberalisation of public transport in Spain. The second explores the workings of the art of public competition using the example of interurban buses around Barcelona. The third examines how the art of public competition functions when one of its most important competitors is absent, using the case of post-Independència Catalunya.
AVE or Bust
Given all that has so far been described in this sequence of essays, it should be self-evident that grand public infrastructure, of the type Catalans and Spaniards came to expect in the early 2000s, can no longer be funded publicly. That the Generalitat de Catalunya’s post-Independència hiatus merely emphasised a reality first exposed by the 2008 Crisis. There is some evidence that the Generalitat, the regional government of Catalunya, had already shifted policy prior to the Referèndum, for example its 2017 proposal to replace the tolls levied on users of recently built strategic roads (those still under concession), with an annual “vignette” (tariff) paid by motorists for access to all such roads – which would generate a constant revenue stream with which to fund subsequent network development. With half these roads still administered centrally by Spain, Catalan policy would have to be shared with the Spanish government, which is itself deciding whether to maintain tolls when concession periods end. The 131st President of the Generalitat‘s personal commitment to the non-payment of tolls during 2012’s #NoVullPagar campaign, highlights how road tolls are a thorny issue in Spanish politics, not least in the wake of the recent financial failure, and consequent government rescue, of several high-profile highway concessions around Madrid. Funding the construction of new roads via private toll-raising concessionaires is broadly accepted (even if only by historic precedent), while perpetuating tolls on roads that are ostensibly already paid for resembles state taxation (even if the proceeds are hypothecated into transport projects). The resulting shift between private and public sectors has complex, long-term socio-political connotations. In the meantime, the evidence suggests that, unlike the Generalitat de Catalunya, the government of Spain has not accepted the “reality” that grand public infrastructure can no longer be funded publicly, and that it only need better risk management to achieve its pre-Crisis policies, as best illustrated by its current approach to high speed railways:
For several post-Crisis years Spain pursued ugly engineering compromises to maintain the illusion (in its Anglo-Castellano meaning of both ambition and deception) of a high speed railway building programme it could no longer afford. For example, by re-using historic railway alignments, even where those alignments mock “high speed”, as is the case for the ongoing integration of the 30 km/h Loja curves (on the line to Granada) into a network intended to reach 300 km/h. The “AVE” from Valencia to Castellón epitomised the problem: Implemented by dual-gauging (Iberian and International) one of the existing two tracks, (International gauge) AVE trains operated no faster than other trains on the same track, thus offered no additional utility beyond what could have been achieved by simply passing the AVE rolling stock through a gauge-changer. The claim that Castellón had been added to Spain’s high speed railway network was met with a good degree of Valencian cynicism, and did nothing to assuage the view that the government in Madrid ascribed a low priority to the Mediterranean Corridor (along the east coast).
2018 heralded a return to pre-Crisis high speed railway building, particularly in the north of Spain where none of the intended network had been completed beyond Valladolid – the Crisis having left an eclectic mix of disconnected infrastructure in its wake, from stations served by no trains, to depots maintaining no rolling stock. Works agreed in 2018 include Bilbao station, the most expensive railway station project in the history of Spain, a 720 million euro investment that makes the 240 million euros lavished on the temple to AVE that is Zaragoza Delicias, look cheap.
Compared to Castilla, the geology of northern Spain increases construction costs, as the Norte discovered in the 1860s – its route from Madrid to Irun cost around 550 thousand Pesetas per kilometre, compared to 208 thousand Francs per kilometre from Madrid to Zaragoza (the two currencies directly comparable because the Peseta and Franc maintained parity via the Gold Standard – although it should be noted that the Norte was actually dealing in “Reales de Vellón”, in a decade when the Spanish currency changed twice). Modern engineering techniques, such as the New Austrian tunneling method, may make many AVE route alignments possible, but such construction carries increased geological risk, as epitomised by the Pajares tunnels on the route to León and Asturias: Construction costs have more than tripled, to over 3 billion euros, as has construction time, from the five years anticipated in 2003 to perhaps twenty – while water leaks from punctured aquifers, and relentless landslides, raise doubts as to whether the line will ever open to its intended specification.
Risk is not necessarily so visual: For example, in the case of the failed highway concessions around Madrid, land purchases were budgeted on the assumption the land was categorised as rural, however that land was ultimately judged urban, greatly inflating the cost of acquiring it. Similarly, project management, even of relatively unambitious projects such as Girona’s concrete box of an AVE station, can get bogged down in local political disputes – not to mention the equivalent project in Barcelona, which was stalled for several years by anti-corruption audits. That ADIF-AV budgeted half a billion euros in 2017 to deal with litigation by its own construction contractors paints a dismal picture.
In 2017 the Spanish government legislated to moderate risk in public contracting: To spread risk across more contractors by encouraging the participation of smaller contractors through the contesting of more minor contracts, splitting large contracts, and measures such as ensuring prompt payment and improving transparency. And in parallel, to transfer risk to contractors, notably by limiting the modification of contracts with the private sector to no more than 50% of the original bid price. On genuinely risky projects, this dual policy of spread and transfer naturally tends to contradiction, since only larger companies can carry larger risks. Mid-sized construction companies remain unconvinced that the Spanish government’s approach to procuring transport infrastructure has actually changed. That the new legislation is simply patching up the cracks in the original (internal societally structured) model, is borne out by the counsel of the larger Spanish construction companies, who consider risk as a far more fluid, flexible component of project financing than the government: Shifting risk to reflect the capacity of each sector to manage it, adding value through the private sector management of projects over a longer period than the political electoral cycle, and conversely reacting faster than the public sector to offer short term flexibility. Not least because of their temporality, these are unmistakably lessons from the external, globalised environment in which these companies now operate.
Since the Crisis of 2008 Spanish construction companies have learnt to thrive in markets outside of Spain, their global dominance now second only to China: Their technical competence is not in doubt, nor is their ability to work effectively in different societal and administrative environments. Which makes their domestic environment all the more intriguing. Spanish national transport infrastructure is theoretically ripe for the application of externalised risk models:
- The Spanish construction industry are both willing and able to adjust to more external organisational models. That adjustment does not necessarily suppose a radical change in epistemology. Rather that the internal societal model of knowable groups has the potential to be arranged differently, should it be exposed to a different environment.
- The existing internal societal model has never worked well at the scale of national transport infrastructure, as described in The Expectations of Competition. Indeed the purpose of such transport infrastructure’s “presence” is precisely to bind groups that cannot know one another through the base societal “family” model.
- The theological root of infrastructure presence – the boundary at which the state manifests the external (God) in nature – is surely just as capable of delivering alternative external concepts.
The inhibiting factor is elementary: The nation of Spain, by Westphalian definition, cannot be global. Spain, like other sovereign nations, is predicated on its ability to differentiate itself from the global whole. Since every element of the external that Spain accepts weakens itself as an entity, it is crucial that it uses external elements to strengthen itself as an entity. Since losing the European intellectual hegemony to the Dutch Republic, the question of what strengthens itself as an entity has plagued Spain, because its internal strength manifests in a different manner to the way the external (at least northern European) world measures strength. AVE is a contemporary example – its presence strengthens the internal idea of Spain, while its utility strengthens the external notion of economy. In practice a compromise between these internal and external assessments which perhaps satisfies neither adequately. A relentless tension – here between presence and utility – rather than a happy equilibrium be found, with respite ominously implying isolation. Given the stakes, exposure to externalised risk is moderated by the state: Unfettered external finance could weaken Spain more than it strengthens her, or might negatively alter the balance between presence and utility.
Gross Domestic Optimism
The return to pre-Crisis high speed railway building only became possible once Spanish government debt had been reduced below 100% of Spain’s Gross Domestic Product (national economic output), as required by European Excessive Deficit Procedure. The completion of this rather arbitrary target was treated as a return to fiscal normality, regardless of the fact that:
- Prior to the Crisis debt stood at the considerably lower proportion of 60% – which Europe still expects Spain to reach, albeit at just 2% per annum – an expectation not widely shared by the Spanish financial community.
- There is considerable disagreement between monetarists over both the accounting of GDP and the accounting of debt, notably the liability of the nation for the debts of its autonomous communities.
- The most unstable global environment since the 1950s implies increased risk of short-term economic variability, especially on key imports such as oil – the events of May almost immediately challenged the assumed economic inputs and outputs agreed in April.
While the traditional right-wing policies of the ruling Partido Popular naturally emphasise presence in national governance, its leadership has demonstrated little capacity to fundamentally re-evaluate the means by which policies of presence are delivered. Even accepting the official prognosis of fiscal normality, it remains curious that one of the first reactions of a minority government beset by claims for additional spending (not least on pensions) is to commit billions of euros to new high speed railway infrastructure which is unlikely to achieve presence within the current electoral cycle. AVE investment doesn’t even make short-term sense to the national railway (Renfe, ADIF and associated interests), whose public competitiveness is being challenged, especially within the autonomous communities of Madrid and Catalunya, but whose principal actions are locked into a handful of long-term mega-projects, none of which address those challenges directly. The implication, that none of those functionally “responsible” are able to modify their commitment to AVE investment, is borne out by the earlier hypothesis (in Public Competition in Post-Independència Catalunya) that external finance unbalances the art of public competition, without also converting the rest of the societal structure into external epistemology: So AVE investment perpetuates within knowable groups, still attaining presence, both as if entirely internal to Spain. But with no effective internal counter-balances – distorted public competition – AVE is primarily constrained by the supply of external finance.
This AVE hypothesis challenges the idea that external globalised economics universally opposes the internal societal structure of Spain: External finance appears to provide a similar function to the art of public competition, replacing an internal mechanism with an external mechanism that still effectively manages the twin internal processes of knowable groups and presence – even though knowable groups eschew objective transferability, and presence is an anathema to utility – apparently disregarding two implicit assumptions of much globalised economic theory. The synergy between external finance and internal societal structure, in contrast to the lack of synergy between external competition policy and that same internal societal structure, suggests that external finance is built on a different basis to external competition policy. This should come as no surprise: External competition policy tends to an analytic, objective structure – precisely why its techniques so readily fail to comprehend the art of public competition, as discussed in The Expectations of Competition. In contrast, external finance has been increasingly virtual since the rise of fiat currency and the demise of the gold standard – the contemporary transfer of loan functions from banks to bonds simply reinforces the idea that the value of modern bonds and associated financial instruments derives from shared perception: A social knowledge within a discrete group, not necessarily the universality implied by the objective knowledge that underpinned prior notions of currency with absolute value. A perception of currency-style transferability none-the-less remains – that virtual wealth inflation be freely converted into absolute currency – the epistemological circle naturally difficult for any economic theory to square, not least one wedded to an absolutism that assumes an analytic sameness, and thus cannot countenance inflation beyond the whole.
The pattern of the AVE hypothesis is remarkably familiar to contemporary Catalan Indepdendentism, a subject detailed in the Patria and Patrimonio sequence of essays: The independentist hope for the external (especially European) world to somehow deliver ever more better, which among those that share the same social knowing, has successfully maintained the “il·lusió” within a framework of presence (bounded territory). Successful except when actually declaring independence, because it is incumbent on these structures that they are never resolved, never be converted into the absolute sovereign world that arithmetically can’t deliver ever more better from the same whole. The need is to feel, but not achieve. As explored in The Moral of Sovereignty, Enlightenment philosophical frameworks (notably of Kant and Hume) serve this need (to feel, but not achieve) within nations, but Westphalian sovereignty (the formal structure of nation) continues to presume a totality of humanity which, in Western philosophy, is still understood through pure reason. Pure reason is not a limitation for classical monetary economics, that which assumes analytic sameness and objective transferability, but makes less sense of a virtual economy. The use of virtual debt by a supposed absolute nation state thus forces a reassessment of the elementary rationale for the moderation of externalised risk by government that was described at the end of the last section (that nation cannot be global).
Spain is a particular curiosity because, as described in The Act of Referèndum, the philosophical Idea of Spain maintains that which is external to Spain in an independent, but independently unchallengeable idea, by means of the simultaneously different perception of precisely the same thing by different groups, whose mutual perception bounds and binds the group. Different perceptions of the same is the sort of logical nonsense that feeds the virtual economy, and helps explain why such external finance penetrates straight into the internal structures of Spain. Such permeability is a blessing for a nation that, much like Britain, has been damned by the overachievement of global empire to thereafter hope for more than its nation can produce internally. The corollary curse, that Spain is internally exposed to shocks in an external financial system it has relatively little influence over. The consequences are potentially extreme, should external finance substitute for the internal counter-balances otherwise provided by the art of public competition: A veritable cancer with the potential to infect Spain between its knowable groups, a vulnerability it can scarcely appreciate it has.
In the meantime complicity is intuitive, and quite impossible to argue against: Invest only what can be raised from Gross Domestic Product – such as tax on work done – and the resulting investment programme will be minimal. Invest on the basis of Gross Domestic Optimism – mimic the virtual model underlying the rampant inflation seen in housing or bond markets – and the resulting investment programme will be ambitious. The skew between these approaches is already indicative in the vast differences between highly internalised municipal budgets, like that of the Ajuntament de Barcelona, and highly externalised regional budgets, such as the Generalitat de Catalunya, as described in Public Competition in Post-Independència Catalunya. GDO isn’t just a requirement for new grandiose railway infrastructure: Those (municipal and operator) budgets without access to it struggle to fund ongoing capital investment, like replacement trains. None except the Generalitat could ever triumph in Catalunya’s own post-Independència administrative turf war, because none except the Generalitat had access to external finance – a pattern the Spanish government is evidently aware of: With the revival of the Generalitat in May 2018, the Spanish government immediately sought control over the Generalitat’s GDO, what it calls FLA, in an attempt to prevent Catalunya spending its optimism on its hope for the better. That is, spending its optimism on its optimism. Spain’s crude internal debtbook diplomacy also apparently averting the spectre of an infinite regress.
Postscript: Investing in State
Hope begets hope where totality is mere perception. The stronger the perception, the greater the scope for hope, but the more mutual that perception must become. On the Spanish “family” model, more mutual implies stronger but smaller knowable groups, more fragmented overall. Thus the more hope, the more reliance on the societal glue that fills the gaps in transactional responsibility between knowable groups. The internalised art of public competition serves this role, as apparently does externalised virtual debt. As ever more gaps open up, it appears to be the glue of external virtual debt that is filling them. External finance may keep internal inflationary hope in check, but like that hope, it is only as robust as it is perceived to be. Should confidence falter, that which relies upon external finance could find itself exposed to an absolute totality that its hope has long since exceeded.
The Spanish state tends to invest in what binds itself, in the societal glue, which, objectively, is not the same as investing in the people that constitute the democratic state. Indeed as a “state of knowing”, the only role of government is to bind disparate knowable groups, since by definition knowable groups should know their own. Spanish government maintains an apparently paradoxical approach to people: Spain’s largely public healthcare and pension systems contribute to one of the longest life expectancies in the world, yet Spain’s birth policies are among the worst in Europe – the net result is a rapidly ageing population, and an accentuated economic burden on the working population in the decades to come. Crudely, people that don’t belong to any knowable groups yet – because they haven’t been born yet – cannot be administered to by a state that only balances such groups. Explicitly, the further embedded a person within a knowable group – which generally occurs across the duration of their life – the easier and more necessary it becomes for the state (which binds such groups) to relate to that person. The importance of the later pattern is exemplified as one of the few exceptions to the doctrine of “same pay for same work”, which otherwise defines collective agreements: Veteran staff are often paid a higher rate for their work solely because they have attained a decade or more of service. In the extreme case of Renfe, driving staff can spend years as fully qualified “interns”, their trust only rewarded toward the end of their careers with a far superior “permanent” contract (a model of organisational stability that will prove extremely reluctant to embrace any liberalisation process that alters pay structures, as the CNMC has already discovered among freight drivers). While knowing, as familiarity with group, thereby accumulates over life until it culminates in a pension, there are some important cultural differences with Anglo-American pensions:
- With a culturally weaker temporal perspective, the present tends to dominate, rather than the idea of saving for the future. Pensions tend to be expected by right, where the word “right” evokes the gap in transactional responsibility that prevents people from directly linking cause and effect, and leads to an expectation that the state simply be responsible. Pension payments already account for 40% of central government’s annual expenditure, which combine with ever more retirees, and ever fewer reserves, to trigger a funding crisis that cannot be communicated through a political environment dominated by the displaced responsibility of “rights”.
- Spanish pensions often serve to distribute state funds into family groups, which the family then arranges within itself. Instead of offering individual retirees “a well earned rest”, retirees may financially support their impoverished children (which was especially common at the peak of the Crisis), or provide a service such as child care for their grandchildren – all of which might otherwise directly cost the welfare state. While this model of government redistribution fits the societal model perfectly, it utterly fails as a means of wealth redistribution from rich to poor, which is often seen as the prime role of government in “neo-socialist” Europe: Pension payments would need an inverse relation to prior working income. As is, the pension system thus adds a further inequality, in addition to skewed patrimony (inheritable property), to a society that – because its equity is by group and not whole – is overall one the most unequal in Europe.
When José Luis Escrivá, whose job as president of the Autoridad Independiente de Responsabilidad Fiscal (AIReF) is to worry about many of the public fiscal challenges raised by this essay, suggested using pensions to fund infrastructure, his reported argument was temporal – both pensions and infrastructure imply long term investment – and utilitarian – infrastructure usage payments create a revenue stream with which to pay pensions. Distinctly external logics that reflect how private pension funds operate – albeit funds whose historic yields were often built on inflation in the virtual economy, not the utilitarian, and thus mere usage is unlikely to produce sufficient revenue to fund pensions. The pairing of pensions and infrastructure is none-the-less intriguing from a more internal perspective, because pensions and infrastructure are some of the most widely understood, and thus intuitively shared, concepts across the wider Spanish society: Pensions enjoy much greater universality than, for example, working income between different industrial sectors, while, as discussed in the context of presence, physical infrastructure is the epitome of commonality. From a certain perspective of state, pensions and infrastructure are interchangeable, and thus potentially arranged in some form of self counter-balancing structure. Conceptually such an approach could even accommodate the tension between utility and presence (and therein individual vs nation, and a host of related generational democratic shifts), without attempting to impose any particular external rationale. Of course none of this investment in physical infrastructure may matter to contemporary Catalunya, as May 2018 heralded a subtle, but perhaps fundamental, shift in state toward one of pure perception:
The plurality of Catalunya’s society was lost in the run-up to October 2017’s referendum, the ability to hold multiple perspectives swamped by a binary question that could not be juxtaposed internally because the subject was that which constrained it, Spain. Since the Catalan independence movement proposed no philosophical independence, it continued the only way it knew how, regardless that its ambition had exceeded itself and ultimately rendered its practical method nonsensical: Spanish policymaking’s internal system of debate via regional legislation that is subsequently rebuffed by Spain, is logically flawed when that legislation denies Spain. That Catalan politicians consistently played by the rules of the game, albeit exceeding the game in their play, is easily overlooked amid charges of rebellion. If Spain were a video game, these “Nogg-Aholics” would be labelled exploiters and given a two week ban while the software developer furiously patched up their code. But Spain is no Turing machine. Spain’s internal “bouncy castle” of a state encourages such human expression, traditionally constraining the result, however messy, within state. That Catalan independentism so readily exceeded Spain’s internal requires state introspection, lest Spain be overwhelmed by future repetitions. While Spain, and especially Catalunya, are easily characterised as having exceeded their internal capacity for hope, and thus become reliant on the external (especially the European Union), their philosophical construction supposes the separation of internal and external – not, as in the hypothesised role of external virtualised debt, an externally derived glue that internally binds societal structures. That this external infects Spain precisely in the gaps between the knowable groups of its societal structure, makes it difficult to comprehend and moderate: It comes as no surprise that when – as in the wake of the Crisis – external finance dries up, the society reacts to its absence in ways that are not internally manageable. The implication is that, as mused at the end of Public Competition in Post-Independència Catalunya, more external finance needs to be accompanied by a more externally modelled administration.
For an often virtualised internal society, which is increasingly bound together with external virtual finance, the physical arena becomes the only realm rooted in absolute totality – the only hard limit remaining in state – in addition to being the only realm of common comparison for the modern political state. Adherence to this physical model of political state explains why Catalan independentism is expressed territorially, when in the final analysis sovereignty is a means, not an end. An adherence which, according to Santi Vila, Carles Puigdemont maintained through the post-referendum turbulence: “I do not see myself as a virtual president, from a virtual country, in an emotionally and institutionally devastated society.” A politics of pure perception would, none-the-less, remove the only hard limit in state, both on absolute totality and on inflationary hope. Of course pure perception raises its own set of problems, from reworking Deus sive Natura, to managing those physical vestiges that do not share the one pure perception. Problems that evoke liberal concern internationally, especially given the latest President, Quim Torra’s, 1930s style of nationalism. Of course, by virtual societal definition, all Catalan politicians should be considered tokens, not selves, pieces in a game of non-absolute power that defines all leaders as “puppets”. Regardless, the Hispanophobia that (at least momentarily) frames popular Catalan Independentist discourse, especially in private, should not be conflated with Xenophobia: The Catalan totality of pure perception is fuelled externally, a paradox that will surely come to define it.
If the earlier AVE hypothesis is correct, that policies sustained by external finance are carried by an internal societal momentum that none within can easily change, and external finance is broadly interchangeable with more nebulous notions of externalised hope, then some form of Catalan Independentism may become a “permanent fixture”. If “Espai Lliure“, the proposed split of Catalan “Republican” institutions between the Catalan totality and the external, is reconciled as a palatial Vatican-style enclave linked by a daily “AVCat” train from Barcelona, then all these conjectures will have been for naught. But if Espai Lliure transpires to be mere metaphor, implying a notion of state that had become purely one of knowing, then whither transport infrastructure investment?