6. Conclusions

The overall impression from the analysis of this report is of a Basque economy that continues to improve in many areas relative to other European regions, and that is delivering results for its citizens in terms of economic and social wellbeing. This is not only a question of generating wealth, but also maintaining low levels of inequality and poverty, and strong reported wellbeing. Indeed, the positive evolution of these social outcomes suggests that the recovery is proving to be fairly inclusive, avoiding until now the ‘dual development’ scenario discussed in the 2015 Competitiveness Report. Yet it is important to note that this picture of overall performance comes in the context of a friendly global economic environment over recent years, and also that it is likely to hide diverse realities.

Indeed, there remain key areas where further research into outcomes would enable a more complete picture. In particular, given that economic wellbeing is better measured by the income available to households to consume, invest or save, further analysis of the factors which have prevented household disposable income from increasing to the same extent as GDP per capita is needed. Moreover we know that it is important to use a broader spectrum of indicators to measure wellbeing, such as those related to the Sustainable Development Goals or included in the Social Progress Index. There is a pending issue here with regards better measuring the impact of increased production on natural resources and the environment. A territory is only competitive if that competitiveness is sustainable over time, and future growth and personal wellbeing are not compromised by its negative impact on the environment.

In terms of diverse realities behind the headline figures, the report presents a mixed scenario with regards unemployment, a perennial concern in the Basque Country. While the statistics show that unemployment levels have fallen, the Basque Country remains poorly positioned in employment and unemployment indicators with respect to other European regions. There is clearly still capacity to activate sectors of society and create jobs, especially for young people and women. However, it is not just a matter of creating jobs, but of those jobs being high quality, offering both appropriate remuneration and stability while allowing for work-life balance. Trends point to an increase in automation in the future and greater job insecurity, which is becoming systemic as a result of new methods of production and labour relations. This opens up another important line for further research and applied analysis. Aspects of new employment scenarios need to be explored in depth to generate the conditions to create high quality jobs and ensure the right skills in a changing context, and to implement measures which ensure personal wellbeing when faced with a working future different from what we have been used to. This will require more strategic collaboration between training organisations, firms and government.

In a scenario where the final outcomes are generally positive it is important to avoid complacency and continue to work on weaknesses in the underlying determinants of territorial competitiveness. This is particularly so given the cyclical conditions in Europe that have accompanied the indicators analysed in recent years but that look much more uncertain in the medium term. Indeed the report notes that the recently strong export performance is likely to be related in part to the specialisation of the Basque economy in sectors that are more dependent on the economic cycle. As the tailwinds generated by the fall in interest rates, energy prices and monetary depreciation abate, a slowdown is expected. This may particularly affect the Basque Country given that, in comparison with the European average, its economy has a higher level of indebtedness, more dependence on foreign debt and high rates of openness. There are also significant uncertainties regarding demography, the environment, resources, social cohesion and geopolitical factors that could rapidly precipitate significant changes in markets and trade. In this scenario it is more necessary than ever to build a deep understanding of what drives Basque competitiveness and to foster continual improvements in the conditions and behaviours necessary to continue delivering strong economic and social performance. This inevitably includes focusing on some of the ‘weak spots’ that are already well-known and particularly evident in small firms in the Basque Country. In general it means continuing to improve in innovation, productivity, internationalisation and strategic investments in key areas of specialisation.

Innovation is central to long-run economic performance, and while the analysis of this report points to an increase in efficiency in innovative activity, the Basque Country still has a way to go to achieve noteworthy levels in several of the innovation indicators considered. Given the positive financial position of firms, it seems feasible that they will return to more active innovation behaviour, again increasing R&D and innovation investments. But it will also be important to encourage a larger number of SMEs to introduce both technological and non-technological innovations which make possible higher sales of innovative products. It would be dangerous if the increase in efficiency – achieved in many cases in a passive manner due to a reduction in R&D expenditure – meant that a more explorative route to innovation had been abandoned. As mentioned in previous reports, it is ambidexterity in different spheres, among them balancing exploration and exploitation in innovation investments, which ensures that it is possible to continue increasing productivity into the future.

It has in fact been the increase in productivity alongside pay restraint that has made the positive trend in unit labour costs possible (although productivity increases are evident to a greater extent in the economy as a whole than in the manufacturing industry). This current strength in unit labour costs compared to other territories suggests that it is now possible to relax long-standing pay restraint. This would allow an increase in wages and salaries, to the benefit of greater wellbeing for workers. Competitiveness would not be damaged if productivity increases are maintained through continuing to advance in the efficiency of innovation behaviour supported by strong education, training and skills. In this regard the indicators analysed in this report point to a population which is continuing to educate itself through both formal education (academic and vocational) as well as non formal education. However, the importance of education and training to boosting productivity and facilitating higher wages, as well as supporting new, emerging specialisation paths, suggests this as a key area for deeper research.

When it comes to the current specialisation of the Basque economy, the report highlights various strengths. In general, the high rate of exports, commercial specialisation and positive relative balance of trade in the metal and mechanical industries are reinforced by corresponding scientific and technological strengths. However, there are some gaps worth considering for an efficient rollout of the current smart specialisation strategy. For the biosciences/health priority it should be noted that that data continues to indicate a lack of scientific specialisation, although technological developments in recent years have resulted in a slight specialisation in the chemicals industry (especially pharmaceuticals). Exports have also not yet established themselves in this priority area, nor in the opportunity niche related to food.

There are also some warning signs for the advanced manufacturing / Industry 4.0 priority, where weaknesses are identified with regards commercial specialisation in computer and electronic products and in electronic materials and equipment (despite the positive balance of trade achieved by the latter). There is also a significant technological under-specialisation in electronic engineering which could compromise the development of innovations in this industry, unless they are offset by scientific specialisation in related areas. This is combined with an identified lack of ICT specialists to support the development of digital services. And although the development of digitalization is generally well implemented in the Basque Country, a higher rate of use among households is still needed.

Finally, the strong performance of Basque exports is a notable feature of the internationalisation landscape in the recent period of economic expansion. It is particularly positive that exports have performed so well in a period when increasing Spanish domestic demand could have dampened firms need to look to international markets. There is a growing base of exporters which, in many cases, make small volumes of exports. This is encouraging in that a wider pool of regular exporters are becoming established. It is therefore advisable to strengthen measures which place importance on export intensity, supporting those firms that have embarked on this path to enable them to increase volumes of foreign sales and consolidate their presence in international markets.

In conclusion, this is a report that evidences good progress in a wide range of indicators that reflect Basque competitiveness. However, the relative position of the Basque Country has deteriorated in some of those indicators, re-enforcing the need to continue monitoring progress not only in absolute terms, but also in relative terms. Ultimately competitiveness implies improving relative to others. In particular the comparison with reference regions, those which have structural conditions most similar to the Basque Country, is generally not so positive, suggesting continual monitoring, analysis and action. Analysis and action should also factor in the existing uncertainties and emerging trends in the European and global economy so as to anticipate and respond fast to both threats and opportunities in a volatile global scenario.