The Professor of Economic Analysis at the University of La Laguna Gustavo Marrero, [Name], who is also a member of the Center for Studies on Social Inequality and Governance, spoke as an expert yesterday, Thursday, October 3, at the committee reviewing the Economic and Fiscal Regime (REF) convened by the Parliament of the Canary Islands. His full intervention can be viewed at [link to relevant website]. released recording by the regional legislative body, starting at minute 58.
In his speech he highlighted two facts that, although current, have been caused by processes of the last 30 or 40 years and call into question the growth model and economic policy in the Canary Islands during this time: on the one hand, low productivity and, on the other, high levels of inequality in both income and wealth.
In the Canary Islands, all indications suggest that the contribution to capital growth has exhausted its capacity to generate growth since almost the mid-1990s. This model of incentives for capital accumulation may also have generated wealth inequality, since capital income is generally accumulated by the wealthiest classes. The current REF (Special Economic Regime) is not aimed at continuing to accumulate the same type of capital, and therefore is not helping the Canary Islands to overcome its low levels of productivity.
In fact, according to the expert, the current REF is generating at least five types of distortions, which are inefficient and negative in the economy because the capital they incentivize is very unproductive: first, a distortion in the accumulation of productive factors that favors physical capital over labor and knowledge.
There is also a sectoral distortion, favoring some sectors that are not necessarily the most productive over others. Similarly, it is causing companies to invest in a pro-cyclical manner and take on debt at certain times to make highly unproductive investments in order to avoid repaying previously obtained tax benefits. Therefore, in their opinion, the new REF (Special Economic Regime) must avoid creating investment incentives when doing so is inefficient.
Furthermore, the system favors established, profitable companies over new businesses, while offering no benefit to potentially very promising business ventures. This can lead to existing companies becoming dominant in certain markets, preventing new companies that could introduce highly productive new technologies from entering the market because they cannot compete for market share.
On the other hand, many new companies have their business model based on more intangible capital and strong investment in knowledge, aspects that are not included in the incentives of the current REF instruments.
Marrero explained that the new REF must avoid generating the distortions that are currently inefficient. Furthermore, the system should be seen as a powerful instrument that can not only promote productivity but also equal opportunities and shared prosperity—two of the challenges that Europe has set in its economic policies. If successful, the REF would not only contribute to growth but also help reduce inequality.
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