I remember that in the IESE Business School back in the 90’s they explained to me the virtues of financial leveraging as a model for growth. The exploitation of this model is what has brought us to the point that in Spain in 2010 only 1 of 2 small and medium-sized businesses obtained the credit that it requested.  Previously, when credit was easy and inexpensive, the business model was not examined. Now even though it is being examined, there is no understanding, nor is there confidence, nor is there money. Or could it be that the majority of business models of the small and medium-sized businesses no longer work for the bank analysts and for the current financial situation?  

The reality is that without finding a solution for these three NO’s, it is going to be impossible for us to emerge from the crisis. It is the virtuous circle that maintains our system and that allows the creation of business and jobs.   

If the business model is not understood or if this model is not profitable, but is merely for subsistence, it is difficult to capture the attention of the investors who help it get started. Moreover, the entrepreneur must be conscious of his own valuable contribution to the market in which he will operate.  Why are they going to buy from him and not from someone else and until when?  This is the first step in constructing this virtuous circle, the creation of a breeding ground for ideas that allows for the creation of new business models that are sustainable and profitable. This first step entails more than just the technological models, since these, in themselves, will not solve the unemployment problem that we have in Spain, since their objectives are the elimination of human participation in the value chain. One example: I would center on developing business models in the tourism sector, which requires intensive hiring, and which, at present, reflects a year-on-year income growth rate of 4.6%.  

Source Bank of Spain

 

If there is no confidence, one of the bases of the economic system is destroyed: the multiplication of the money supply and the velocity of circulation of money, basic factors for the growth of the economy. If there is no confidence in the market nor in its agents, the market stops, nobody wants to exchange. The matter becomes more complicated if the investment in assets is reduced and the public expenditure is not productive, which is currently the case. The agents, from the government to the consumer, to businesses, labor unions and communication media must transmit confidence, without regard for their personal interests. Let’s focus on the good and not the bad in our economy, let’s focus on what we are able to do and not what we have done, and in so doing, we will create confidence in ourselves and we will generate confidence in our businesses.  

Source Bank of Spain
Source Bank of Spain

If there is no money – liquidity — even if the two previous conditions function, the circle does not close.  We must definitively resolve the matter of our financial system’s solvency, no matter what this entails, for as long as this does not happen there will be no liquidity. If there is no liquidity, there are no transactions, and if there are no transactions, then there are no jobs. As long as there is no credibility, the financial entities will not capture more resources with which to provide liquidity to the system, since the resources that they have are needed to finance themselves and to meet their own requirements and to finance the public administrations.  Why should we drain off more liquidity by helping certain moribund entities?  We must manage the mechanisms that inject liquidity into the market, thus freeing them up and not channeling them toward economic situations generated by political interests or the status quo.  

If this circle is closed, we will see unemployment drop since THERE IS UNDERSTANDING, THERE IS CONFIDENCE AND THERE IS MONEY.  

Felipe Santiago

Three NO’s: There is no understanding, there is no

confidence, and no money.


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