Underground, Overground, Infrastructure Isn’t Free

It is easy to forget just how much Mallorca has developed in a relatively short period of time. The island’s “industrial revolution” is not even 50 years old; mass tourism in terms of massive tourism across Mallorca didn’t become fact until the ’70s. It is unsurprising, perhaps, that the infrastructure to support this revolution has taken time to become a reality.

Gas, natural gas, is the latest infrastructure development. The connection from the mainland came on-stream in late 2009. One of the things holding up the creation of the network is the inevitable process of getting agreement from all parties, not least owners of land who will be affected by the installation of pipes. The first phase of taking the gas into the regions, from Palma to Andratx, has run up against exactly this obstacle.

Objections are not solely being made on grounds of environmental disruption. There is also the safety angle, and the objections seem bizarre, quaint even, for those of us used for years to natural gas in the UK. Local fears are of the unknown, of the new-fangled. Yet, you couldn’t get much more old-fangled than what natural gas would ultimately put an end to – butane supply. Natural gas would have an enormous benefit not just because of its convenience; it would mean an end to hernias and pulled back muscles. The “butaneros” of Mallorca may find themselves out of a job, and so may many a chiropractor.

Natural gas would have an additional benefit, that of putting a stop to the butane scams. Two separate actions by the police forces are currently ongoing. For this reason alone, the arrival of natural gas will be a huge bonus, as it will also be if it means not seeing the flames flicker and then go out on the hob and having to go outside in a howling gale and horizontal rain in order to mess around with changing the gas bottle.

The supply of gas has not, as yet, run up against a different obstacle, one facing electricity cabling from the mainland. How exactly does it happen that a town hall, Sagunto in this instance, can suddenly turn round and say that the supplier, Red Eléctrica, does not have permission to occupy land in the mainland municipality and also has to pay a tax in order to continue work on laying the cable to the Balearics? The how probably has something to do with this latter aspect. Some bright spark at the town hall eyes up the opportunity for some extra revenue.

Whatever the infrastructure development, there is some hassle associated with it. A new road, such as the so-called “via conectora” in Palma to take some strain off of the creaking road system around the city, becomes mired in objections. The siting of train lines encounter similar squabbles. Re-development of Playa de Palma, ditto. It makes you wish for the old days when a Franco-esque official would have come along one day, nailed the order for works to commence to the head of a passing peasant and the next day sent in the boys with the shovels.

And back then, whatever was built would have been as cheap as chips. Today? How much might we end up paying for natural gas? Don’t bank on it being cheap. Don’t bank on it being operated in a fashion that might be competitive and with the consumer first in mind.

Telecommunications are another element of infrastructure which has come on in leaps and bounds. Sort of. Time was, really not so long ago, the start of the ’90s, that parts of the island weren’t able to moan about Telefonica because they had no lines to moan about. Parts of the island still can’t, because phone lines can’t be laid across some of it. But where it is, the service is neither inexpensive nor satisfactory. Let me give you a personal example.

For some time there has been a problem with my ADSL. It has finally emerged that I have been paying for three megabytes (only three) which cannot be adequately supplied because of the distance I am from the exchange. I have, in fact, been getting little more than one megabyte. The internet provider, Orange, does at least see my argument, that perhaps I am entitled to some form of recompense.

Regardless of this, internet provision is absurdly expensive. And one also has the honour of forking out for Telefonica’s line rental when the phone itself is barely used. This rental brings you to another sort of rental, that of the “potencia” contract for electricity supply.

Can anyone explain this to me? It seems to have no rhyme nor reason, other than to stuff the coffers of Endesa. It was not something I paid much attention to (I seem to be one of the few people in Mallorca never to have had much of a problem with electricity bills, while my “potencia” is low) until some correspondence I received and some checking with neighbours highlighted the apparent iniquities with this charge, to say nothing of why it is made in the first place.

Yes, Mallorca has developed greatly in a relatively short period of time. Developed in terms of constant objections, expense, uncompetitiveness and the Heath Robinson; current-day utilities don’t get much more Heath Robinson than faffing around with a butane bottle. Not yet 50 years of industrial revolution. In another 50, they may just have got round to something like reasonably priced efficiency.

Any comments to andrew@thealcudiaguide.com please.

Is The Price Right? Yes and no

What was I saying yesterday? The year has barely started and the recurring theme of prices, their alleged excessiveness and their control is already being aired. As every year. And as ever, the discussion is littered with anecdotal evidence that can be cited to support an argument of excessive prices. My personal favourite remains the one about the cost of a packet of paracetamol. Five euros at a supermarket, lamented a tourist letter-writer. An example of rip-off Mallorca. Yes, it was a rip-off, but more importantly the supermarket had no right to be selling the drug; the example was the right symptom but the wrong diagnosis.

For all the talk of high prices, the Balearics’ consumer price index is one of the lowest among the regions of Spain. The most recent data related to price increases, those for November, show that the Balearics’ increase was in the lower range. Statistical information, though, does not give the whole picture, certainly not when anecdotes can be dragged out to contradict it. For the most part, the debate is biased towards individual experiences of price, be it for a meal, a coffee, this or that product which are then used as a basis for a call for someone to do something; this something often being the demand for price control.

Price regulation does exist to an extent. In the case of tobacco, for example, it is not only prices that are subject to control; so also is the distribution chain. It is an example of price regulation that might be said to work. It doesn’t create a shortage of supply or any obvious black market, two disadvantages of price control in the form of a price cap. Generally, as with the control of all medication through chemists alone, the market mechanism functions to the benefit of the consumer, eliminating any need for a more liberalised market.

Could a price-control approach be applied more widely? To the bar and restaurant sector, for instance? It’s hard to see how. Unlike the sale of tobacco through the licensed tobacconists, bars and restaurants are too diverse. Even items such as a coffee are far from being homogeneous. There are too many types of coffee, too many types of bar in too many different locations with too many different circumstances.

Price controls can bring with them certain downsides. One is a loss of quality, assuming the cap is set too low (and set too high would make a nonsense of the attempt at control). Another is the sheer complexity and cost of enforcement. Yet another is that controls run counter to the principle of the free market which, by and large, Mallorca and Spain abide by. And the free-market element has an historical political factor. Current-day market liberalism is the culmination of dismantling any vestiges of what once existed under Franco – that of price control and centralised, statist regulation of most economic activity.

The market dictates, which is how it should be. That a coffee or a plate of steak and chips might seem expensive (or cheap) is the consequence. When President Zapatero, quizzed about the price of a coffee on Spanish television, gave his reply of 80 centimos, he also offered the caveat of “it depends”. And it does depend. Depends on the market and on the bar or restaurant owner being allowed to fix his own prices. If he gets them wrong, that’s his problem. No one else’s.

It is not for government to intervene where it has no right to intervene, and one thing that the local government can do little about is the in-built disadvantage of Mallorca in terms of its isolation and its limited resources, land most obviously. Nevertheless, it is here that government should be more involved.

The costs of this isolation cannot be underestimated. The director of the small to medium-sized businesses organisation (PIMEM) has said that transport alone adds some 30% to the cost of production in Mallorca. And transport cost applies both to businesses importing as well as exporting. For the local producers, they also have to factor in the cost of land.

The vice-president of the local chamber of commerce has called for an end to the speculative acquisition of industrial and commercial land that has pushed the average cost per metre to buy a plot and establish a factory to roughly six times as much as it would be in, for example, Aragon on the mainland or over a third more than in somewhere even more isolated, the Canaries.

A further pressure on cost comes from what PIMEM’s director has described as the “minimal installations for goods transportation at competitive prices and the lack of competition between shipping companies”. This, combined with other factors, goes a long way to explaining why there is a lack of competitiveness in Mallorca, which has seen its industrial base decline by nearly 30% since 2005 (far greater a decline than in any other part of Spain). It also goes towards explaining why certain prices in Mallorca, because of the island’s geographical competitive disadvantage, are what they are.

Any comments to andrew@thealcudiaguide.com please.