Madrid- Palacio_de_Comunicaciones

A burgeoning start-up scene in Spain shows how Spain, just like London, is turning crisis into an opportunity for entrepreneurs.

Ask a London based entrepreneur, over a certain age, why they did it? And if their start-up is a Fintech, pay particular attention. Odds are good that they will say something like this: “After 2008, I lost my job at an investment banks, and thought, time for a change.”

According to the Financial Times (FT), Madrid is enjoying a booming start-up scene, with Google choosing Madrid as the home or one if its three innovation campuses, while a Fintech incubator has been set up in the city by BBVA.  According to the pink-en: “There is also a rapidly growing number of Madrid based start-ups such as ride-hailing app Cabify.”

So why?

It does seem as if Spain’s economic crisis has had something to do with it. As the FT put it: “There is an abundance of well-trained engineers and IT specialists, willing to work for salaries that would seem derisory elsewhere.”

Economists believe that a recession leads to a permanent loss of wealth, that a contraction in GDP is never fully replaced.

But is that right? Maybe economists are not getting psychology. Necessity, as they say, is the mother of invention, and when times are tough, the tough get . . . well you know where this is . . .  going.

On the other hand, isn’t that a rather depressing theory?  Recessions are not pleasant things, shouldn’t policy makers do all they can to try to limit the extent of a recession, and smooth out the economic cycle? From the end of the 1991/1992 recession, right the way up to the 2008 crisis, the UK enjoyed its longest ever run of uninterrupted economic growth. It was a period in which economists, policy makers and central bankers celebrated their cleverness. But maybe this period also sucked a degree of dynamism out of the UK economy.

Now it is not being suggested that we should celebrate every economic crisis because it will herald a burst of creativity. Some countries, such as Argentina, never seemed to recover from a downturn.  It could be argued that the economic troubles of the 1930s led to the second world war, and let’s face for it, for some, recessions are awful.

Timing is important, the 2008 crisis occurred at a time when technology was opening up all kinds of new opportunities. Creativity cannot create miracles, the technology explosion we have seen over the last ten years or so has been important. Smartphones/tablets, big data, the cloud, social media, and now blockchain, may have made Fintech possible. So maybe we were also lucky that the City experienced a crisis when there just happened to be a new opportunity emerging.

But this may also be a lesson in zombies. If a country. Or indeed banks, react to a crisis by propping up failing businesses, that may reduce the scale of a downturn, but it may also suck dynamism out of an economy. Instead, maybe a crisis, such as the one we saw in 2008, is time for governments and banks which have a more long-term agenda, to focus on the new.