Industrialization Challenges in 19th-Century Spain
Railways and Market Development
The Construction of the Railroad
The construction of the railroad network was promoted by the Ley General de Ferrocarriles (General Railway Law) of 1855. Previously, only two railway lines existed: Barcelona-Mataró and Madrid-Aranjuez.
The first major expansion included lines connecting:
- Madrid to Alicante
- Seville
- Cadiz
- Barcelona
- Zaragoza
- Madrid to Irun
However, the financial crisis of 1866 led to the suspension of construction due to the low profitability of the railways.
A significant effect on the economy was the choice of a wider rail gauge, which hampered trade with the rest of Europe.
Internal Market
Guilds were abolished to increase the number of producers, and fees and indirect taxes on trade were eliminated. The railroad was a vital tool for providing Spain with a cheap and fast mass transport system that could encourage the exchange of people and goods between different regions and increase internal trade.
However, the low purchasing power of much of the Spanish peasantry impeded production growth due to a lack of demand.
External Trade
Exports grew in two major stages: a first period of modest growth followed by a second period of significant expansion in international trade. Trade relations with the outside world were affected by the loss of the American colonies, which had been Spain's main partners. Spain became increasingly linked to European markets, and its former colonial markets were replaced by France and Britain.
Free Trade and Protectionism
The tariff policy of successive Spanish governments evolved from an initial stage of progress towards free trade to a period dominated by protectionism. It seems an exaggeration to blame tariff policy alone for Spain's industrial backwardness.
Finance and Public Debt Policy
In 1845, a tax reform was implemented to eliminate preferential tax rates and increase revenues based on the principle of equality before the tax.
The public debt was a constant problem, which further increased the deficit and caused continuous indebtedness. The state had to declare bankruptcy due to its inability to meet interest and depreciation payments.
The Financial System
This was addressed by the Law on Banks and Credit Societies in 1856. The Spanish Bank of San Fernando was created in 1829 as a state bank with the right to issue currency. The Madrid Stock Exchange was founded in 1831. In 1856, the Bank of San Fernando was renamed the Bank of Spain.
Conclusion: Factors in Delayed Industrialization
The reasons that Spain did not develop a full industrialization process in the nineteenth century were diverse:
- Spain's geographical position.
- Agricultural backwardness and the low purchasing power of the vast majority of the Spanish population.
- The large amount of capital absorbed by the Treasury due to public debt.
- An unfavorable allocation of energy and raw materials for industrial development. In Spain, coal mines were plentiful, but the product was of poor quality.
- The impact of political destabilization.
Key Economic Concepts
- Free Trade
- An economic policy that removes barriers to international trade and postulates the free movement of goods.
- Protectionism
- An economic policy hindering the entry into a country of foreign products that compete with national ones.