Book Review: Patronage Capitalism – How Elites Manipulated Political Power

Author: Carlos Sánchez Sanz
Reader: Abdelrafi Zannoun
Publisher: HarperCollins Ibérica
Publication Date: February 2024
Language: Spanish
Edition: First
Number of Pages: 173

The book “Patronage Capitalism,” published by the Iberian branch of the American publishing house HarperCollins, is organized into eight chapters discussing four main themes related to the historical underdevelopment of Spain, the formation of a new economic aristocracy, the implications of policies for economic closure and opening on the processes of elitization, the nature of the relationship between various interest networks, and their mechanisms of influence on political, legislative, and financial systems. Furthermore, it examines the clientelistic dynamics that fuel tendencies towards self-governance and separatism, particularly in the Basque and Catalonia regions.

The author, Carlos Sánchez Sanz, born in Madrid in 1956, studied political science, international economics, and financial policies. He began his professional career in media and investigative journalism in 1984, taking on various roles in print journalism and television, specializing in investigative reporting.

Sánchez is recognized as a researcher who addresses issues of conflict of interest and the exploitation of public responsibilities for personal gain through various reports and contributions to collective works. The book under review is the latest in a trilogy where he expresses his vision of the transformations of the Spanish economic aristocracy and its levels of influence on Spanish public decision-making.

The first book in the trilogy was published in 2003 titled “Fresh Money,” followed by a second book about the new hopes for Spain in 2007.

In this book, political analyst Carlos Sánchez Sanz addresses the hereditary roots of democratic and development issues in Spain, employing an approach that melds political analysis (examining the distinctions between lobbying groups and interest networks and their impact on the public agenda) with journalistic investigation, providing a narrative frame to track the evolution of corruption and clientelism that undermine the political/economic system in Spain. This analysis draws on data collected over varying periods from the Primo de Rivera dictatorship (1923-1930) to the restoration of democracy, passing through the Second Spanish Republic (1931-1939) and Franco’s regime (1939-1975).

Sánchez attempts to answer the pressing question that has occupied researchers in political and economic history: why did Spain lag behind in the industrial revolution? To address this issue, he starts with the hypothesis linking Spain’s economic backwardness to the lack of competition, the entrenchment of a rentier economy, and the “formalization” of patronage channels in assigning positions of responsibility. He supports this with findings from some specialists in Spanish economic history, such as economist and political scientist Joaquín Costa (1846-1911), who, through his study of the causes of decline in Spain, identified the persistence of local leader patterns (Caciquismo) in new forms, wherein the political system granted governance of regions and provinces to local leaders who possessed the material and symbolic resources to obtain mandates from the central authority to serve common interests, resembling a subcontracting system for the crown.

In this same vein, Professor José María Jover suggests that the social system in Spain remains trapped in the pragmatic alliance between the monarchy and influential minorities, with numerous barriers preventing the emergence of any Spanish version of a Magna Carta that would place the king and his government under the law and frame the relationship between political, economic, and social systems. Additionally, Wenceslao Fernández Flores (1885-1964), through his work in parliamentary journalism, concluded that industrial capitalism in Spain remained closely tied to the political elite, reinforcing a model of companies that could not survive without favoritism from power. Throughout the study, the author cites other researchers to illustrate what he describes as the “continuous hijacking of power” by clientelistic conglomerates wielding influence that surpasses the state: the Basque and Catalan bourgeoisies, religious factions, bar associations, engineering guilds, and Castilian grain producers, among other entities that have entrenched a clientelistic system (Sistema Clientelar) fed by political corruption and clientelism, channeling public resources to serve narrow interests (p. 13).

The book fits within the literature on elite studies that examines how minorities influence public capabilities, relying on Max Weber’s definition of elites as groups of special interests surrounding power (p. 24). It discusses the economic history of Spain in light of the role of lobbying groups in directing public affairs to serve private benefits, with a focus on the banking elite who built the banking system to their liking, and civil engineers who gradually became actual power brokers within the state, controlling the scheduling of “Pharaonic” public works that the economy did not need, and building roads leading nowhere (p. 4).

To counter any perceived uniqueness in studying the influence of minorities on public resources in Spain, the author acknowledges from the outset that no state lacks lobbying groups, including major industrialized countries, and that capitalism, by the nature of its emergence, relies on clientelistic values. However, the Spanish case indicates the existence of what the researcher calls a tacit pact (pacto tácito), which solidified a pragmatic, not ideological, alliance between economic elites and political power. On one hand, interest networks systematically influence public policies under ministers who utilize state privileges for the benefit of their capitalist overlords; on the other hand, the industrial and agricultural bourgeoisie were mobilized to counter threats to the political system (disasters, disturbances, famines…). The Spanish model is also characterized by the clientelistic use of economic interests in establishing a separatist tendency, citing early symbols of Catalan politics such as Francesc Cambó, who contributed to mobilizing Catalan and Basque businessmen against the central authority in Madrid. Regional claims to distinctiveness were exploited to control the banking system under the Banking Regulation Law, which officially and institutionally reinforced the power of the banking oligarchy through the facade of the Supreme Banking Council, which was long tasked with overseeing the banking sector rather than the central bank. On this point, it seems the author may have overstated Cambó’s (1876-1947) clout over economic policy, neglecting his intellectual role in establishing a conciliatory political line between conservatism and rationality through his responsibilities as Prime Minister of various regions and his diverse writings that reflected the desire to achieve balance between central authority and the periphery through reforms aimed at integrating regional economic elites (6).

The author argues that Spain’s delay in progress primarily stems from the weakness of its regional base, as political transformations have solidified a decentralized state characterized by the vulnerable position of the capital both economically and politically compared to peripheral regions that have become economic magnets. This is reflected in the average regional income of Madrid, which has always been lower than that of Bilbao, Valencia, the Balearic Islands, and Barcelona, which benefited from the early establishment of industrial centers and customs protection measures. Meanwhile, the Andalusian economy remained lagging due to a lack of sufficient capital and qualified labor, coupled with weak reliance on mechanization, not to mention the distance from trading centers and energy sources in Europe. In this context, Carlos Sánchez holds the economic elites responsible for reveling in the revenues of rent-seeking under the guise of democracy, contrasting with European capitalism that invested in free initiative and competition to accumulate wealth. In Spain, the international competitive drive was absent among businesspeople who preferred to dominate political power to secure long-lasting monopolies in energy, agriculture, industry, and finance. This tendency would later solidify a prevailing culture that glorified rent-seeking and clientelism instead of competition and entrepreneurial spirit, which fostered the dynamics of capitalist transition in advanced European countries.

The author continues with comparisons, asserting that the historical backwardness of the Spanish economy can only be diagnosed in relation to countries like the Netherlands and England, which underwent their agricultural revolutions, while Spain remained a prisoner of old techniques and monopolistic behaviors that solidified the grip of agricultural lobbies on the food basket. The same applies to manufactured goods; unlike Northern European countries, successive Spanish governments did not prioritize leading industrialization—the historical economic engine—opting instead for the simpler route of relying on external sources from businesspeople close to decision-making circles. This facilitated the emergence of a new economic aristocracy that continuously resisted any attempts to reduce tariffs and open up to foreign competition that threatened their interests, even at the cost of destroying the national economy (p. 45).

Among these attempts, the author refers to the establishment of the Customs Reform Association, which mobilized to confront the lobbying of major industrialists led by Finance Minister Luis Rodríguez (1804-1872), a pioneer in political economy in Spain with his numerous publications on banking philosophy and the debt dilemma. His work on “Banking Freedom” highlighted the damage inflicted by monopolistic banking lobbies on the national economy (7). Within this context fell the efforts of Spain’s free trade pioneer, Laureano Figuerola, Minister of Finance in the government emerging from the “Glorious Revolution” of 1868, who fostered an open trade policy by reducing tariffs and signing trade agreements with European countries. He also sought to promote economic liberalism that fueled the second industrial revolution in England, particularly the ideas of Adam Smith and Jean-Baptiste Say. However, Spain’s protectionist model (la España proteccionista) quickly resurfaced after the last Carlist wars, which began in 1875, led by a new oligarchy that found solace in the protectionist theories of Friedrich List and Alexander Hamilton, using them to provide ideological justifications for restricting foreign trade.

Overall, the protectionist approach in Spain prevailed until 1953, the year a cooperation agreement was signed with U.S. President Truman’s administration, under which American capital and consumer goods entered the market in exchange for generous loans and economic assistance to a regime seeking to escape economic collapse (8), while facilitating re-integration into the international financial system by returning Spain to the United Nations and joining Bretton Woods institutions. This reality spurred the Catalan upper bourgeoisie to demand expedited economic reforms by banker and Catalan republican, Juan Sardà Dexeus, a student of John Maynard Keynes, the social democracy thinker whose recommendations helped rescue capitalism after the 1929 crash; Sardà directed a memorandum to the Ministry of Finance in February 1959, advocating for fixing the exchange rate and devaluing the peseta to enhance its strength in international trading markets, as well as tightening credit and eliminating price supports to provide flexibility for foreign investments. He also confronted the church and conservatives who viewed liberalism as divine punishment (p. 88).

In this regard, the author points to the negative role of religious elites in delaying the emergence of commercial capitalism, drawing on the conclusions of certain foreign researchers, especially Marjorie Grice-Hutchinson, an English expert on the Salamanca School, who argues that the Inquisition granted immunity to close observers of power to benefit from the situation through the plundering of properties belonging to Muslims and Jews who were forced into expulsion (p. 34). The prohibition against property ownership in earlier stages compelled these communities to specialize in “non-Christian professions,” especially the borrowing prohibited by canon law. The expulsion of Jews led to the dissolution of this financial activity that had been the backbone of economic enterprise. Due to financial liquidity problems, Spain had to rely on loans from major usurers in Genoa, France, and England. The ideas promoted by the Salamanca School also alienated wealthy classes from business and scientific progress (9).

On this conclusion, the author invokes the role of Protestant movements in fostering economic progress in Germany, in light of Max Weber’s interpretation in “The Protestant Ethic and the Spirit of Capitalism,” critiquing the conservative Spanish Catholic perspective on Christianity by highlighting certain paradoxes. For instance, in the year Denis Diderot and d’Alembert published “The Encyclopedia,” summarizing Enlightenment knowledge (1772), the University of Salamanca was still debating whether it was appropriate to teach Newton, Hobbes, Descartes, and Locke in classrooms. Consequently, the emergence of liberal ideas was delayed due to the church’s, crown’s, and economic and social elites’ fears of the values stemming from the French Revolution, with waits extending until 1858 for the adoption of the compulsory modern education system under the “Moyano Law,” named after jurist Claudio Moyano, who convinced the church to abandon its education monopoly (10). The same gap appeared in the establishment of higher institutes; the Spanish Academy of Physical and Mathematical Sciences was only established in 1847, almost two centuries after the British Royal Society was founded. While France created a political science institute (Sciences Po) in 1872, its Spanish counterpart did not appear until many years later, with significantly lower specifications than the French model, reflecting the political system’s fear of the impact such institutes might have on producing “troublesome” elites that could affect governance and the decision-making environment (p. 37).

Historically, Carlos Sánchez claims that “the monarchy’s capitalism” was behind the concentration of economic magnet regions in Spain within the Bilbao-Barcelona-Madrid triangle, as most titles were granted to local elites, helping them amass wealth and increase projects, disrupting the economic and demographic balance of other regions, leading them to become poorer and more illiterate. It is no coincidence that the largest business aggregations were born in Barcelona and Bilbao, groups that began controlling Spain’s policies. Catalan industrialists opposed trade agreements that dared to reduce the protectionist level of the 1891 tariff. Similarly, old noble families sought to contribute to the financial sector to control political decision-making, such as Urquijo Urrutia (close to the Rothschild family), who came to control some sensitive activities such as metals and electricity enabled by flooding Madrid elites with loans.

In this context, the researcher posits that Spain’s decline results from the minority’s appropriation of wealth in the name of the public interest; the wealthy’s entanglement with the state has woven a clientelistic network exploiting natural resources, acquiring preferential loans, and maintaining monopolistic control over markets. Thus, the state has become a victim of the “spoils” being divided among interest networks in the midst of a Catholic marriage of wealth and power, leading the capitalist oligarchy to compete for lobbying opportunities rather than focusing on wealth production. Despite the emergence of some bold reforms, the pragmatic alliance soon stifled them in their cradle, as seen in the case of Santiago Alba Bonifaz (1872-1949), leader of the progressive current within the liberal party, who attempted to capitalize on the repercussions of World War I for the benefit of the Spanish economy. During his second term as finance minister in 1918, he presented a strategic plan to strengthen tax collection capabilities and curb tax evasion, compelling major companies benefiting from Spain’s neutral stance during the war to pay new taxes on profits, contributing to the repair of damaged public budget balances due to mismanagement and the costly repercussions of the Rif War in Morocco led by Mohammed Ben Abd al-Karim al-Khattabi in the 1920s. Alba’s plan also sought to draw inspiration from British Prime Minister Lloyd George’s experience in addressing minimum labor demands and strengthening social legislation. However, these reforms faced fierce rejection from industrial and banking conglomerates in the Basque and Catalonia regions, arguing that the plan served the interests of Castilian bourgeoisie, not the Spanish economy (p. 21).

Building on that analysis, Carlos Sánchez asserts that industrial capitalism in Spain originated within the state’s embrace and was unable to continue without ongoing assistance from the state through privileges and various forms of favoritism. The infiltration of a rent-seeking culture has subjected successive governments to the industrial clientele complex, which stifled every minister attempting to modernize the economy within a framework of competitiveness and transparency, starting from the first signs of industrialization during the Primo de Rivera era, which aimed for openness to foreign investments interested in hydroelectricity and railway industries—sectors monopolized by the Basque and Catalan bourgeoisie for decades, uniting their efforts under the National Industry Union to counter foreign investments under the pretext of threatening Spanish sovereignty. Under Franco’s regime, industrial groups benefited from a retreating policy that obstructed any openness threatening their privileges, particularly firms that financed the coup against democracy on the condition of avoiding direct political engagement. They exploited Franco’s fixation on recovering a vast manufacturing deficit to seize the public portfolio through intermediaries involving leading banks that were granted a 49% stake in the National Industry Institute (INI), while the state retained remaining shares (p. 111).

The author seems greatly influenced by the power of the banking lobby in Spain, focusing on tracing its developmental trajectories throughout the book, attributing the concentration of banks in Catalonia and the Basque Country to the density of capital accumulation, given the establishment of most industrial centers in those regions, along with the massive amounts returned by major traders from the American continent since the early twentieth century. The fusion processes resulted in three main banks controlling approximately 60% of the country’s credit market, putting the nascent banking system at the mercy of financial oligarchs. Gradually, banks contributed to entrenching the clientelistic nature of Spanish capitalism in the 20th and 21st centuries due to their possession of significant influencing tools over the political system. To illustrate the power of the banking lobby, the author notes that the banking law remained unchanged in favor of bankers for extended periods throughout two dictatorial regimes, a Republic, and several democracies until 1994 when the European Union pressured for the independence of the central bank from political power and private banks. However, the reformative dose brought about by the mentioned law was quickly nullified under the influence of regulatory frameworks and favoritism policies adopted by “democratic path” governments towards the banking lobby (p. 66).

This analysis may seem to exaggerate the political influence of banking lobby groups, but anyone following the contemporary political scene in Spain knows well that the political class, both right and left, remains captive to market lobbies known informally as IBEX35 (p. 12). This has likely led the new political currents emerging from the “Spanish Spring” to distance themselves from anything related to banking interest networks, as Pablo Iglesias, political science professor, and founder of the Podemos party, has repeatedly warned against resorting to loans for campaign financing due to banks transforming into financial lobbies controlling the political landscape (14). Consequently, the party has faced a coordinated assault from the “economic dictatorship” of banks, with the director of Sabadell Bank repeatedly expressing concern over Podemos’s discourse threatening the interests of Spanish financial circles and calling for more support for parties advocating free initiative and economic development, signaling the Ciudadanos party, which has remained committed to self-financing its activities and campaigns (16). However, financing difficulties during a tumultuous period saw repeated re-elections hastening the “disappearance” of these two parties from the political scene, while the Popular Party and the Socialist Party continued to dominate the electoral landscape due to their eternal alliance with industrial, financial, and agricultural interest groups.

The first attempts to institutionalize lobbying groups were spearheaded by merchant and politician Bosch i Labrús, a proponent of protectionist ideas and a staunch defender of Catalan industrialists (p. 26). He founded the organization for promoting national production (Fomento de la Producción Nacional) to defend the privileges of the Spanish banking aristocracy that began controlling the financial axes of the economy since the late 19th century, drawn from the protective stances of influential thinkers like Friedrich List and Henry Charles Carey. Although the 1978 draft constitution stipulated regulations for creating, monitoring, and registering interest groups, the final version of the constitution lacked any provisions in this regard, nor was any legislative text issued to institutionalize lobbying groups (17), preferring to operate in the shadows, exploiting legal gaps. To quote Adam Smith, “business owners’ meetings are rarely free from the discussion of how to conspire against the public or to increase prices in a coordinated manner” (p. 166).

In his analysis of the nature of the ruling characters, the author attributes the weak influence of technical elites to the delayed establishment of engineering and business schools compared to Western countries. While business schools emerged at the end of the 19th century in France, Germany, and America, Spain’s patriarchal system delayed industrial organization teaching, with the first economics college founded only in 1943 and business training institutes starting to emerge in the early 1950s modeled after English-speaking schools, attempting to draw inspiration from the London School of Economics, which was established in 1895 at the initiative of Fabian Society leaders like Bernard Shaw and Beatrice and Sidney Webb, considered early architects of what is now known as the welfare state. Due to their technical expertise and lack of political acumen—unlike journalists, lawyers, and teachers—engineers became key players in “engineering” public policies from Franco’s regime to the 1978 system amidst intertwined relationships between political and engineering families. In this context, the author notes that the last noble title was granted by Juan Carlos to business magnate and civil engineer Juan Miguel Villar Mir, owner of Spain’s largest construction and public works company (OHLA), which received, as part of an international consortium, the contract to extend a high-speed rail line in Mecca in exchange for illegal fees benefiting the former Spanish king, a deal that sparked significant controversy regarding conflict of interest, ultimately leading to Juan Carlos fleeing the country (18).

The author generally believes that the collusion of interest networks with decision-making platforms remains a defining factor of economic policy in Spain, as the requirements of the democratic transition did not prevent the ongoing influence of economic elites in public policy-making. A new alliance has emerged between the socialist elites that rose to power and the ancient oligarchy that grew alongside them. Interest group pressures have had a bearing on the choices of the first socialist government post-democratic transition; for instance, Prime Minister Felipe González excluded nationalizing banks and major companies in 1982 while promising to support bankers to “buy” financial stability. Moreover, the industrial-financial complex steered government policies to serve agendas counter to the social democratic direction of the government, which presented a set of incentives for major players in the energy sector to accompany its decision to replace natural gas with nuclear energy for electricity generation in 1989. The financier Jordi Pujol, then head of the regional government in Catalonia and leader of the party of convergence and unity, leveraged his alliance with González and strong relations with ministers of industry and economy to influence energy policy, especially since he owned the largest natural gas company. A similar situation arose concerning politician Durán Farell, owner of the Catalonia Gas Company, who had socialist ministers, including the deputy prime minister, as stakeholders in it. The conflict of interest led to tremendous political uproar when the cabinet approved selling 91% of the national gas company Enagás to Catalonia Gas with González’s support, who repeatedly praised Durán Farell for ensuring energy supplies to the Spanish industrial artery in Catalonia (p. 11).

Returning to the beginning, the author reaffirms at the end of the book that the causes behind delayed industrial renaissance in Spain, primarily the absence of competition that stifled the economy while making it stagnant under a bloated institutional structure dominated by rent-seeking elites (las élites extractivas). The second cause stems from the approach undertaken to stimulate the economy, focusing on fortifying the networks of elites circling around power rather than fostering economic activity. These two reasons will contribute to the formation of a patronage system that nourished values of exploiting influence, evading regulations, and downgrading economic efficiency, arguing that the contemporary Spanish economy is afflicted by business associations, social organizations, unions, and interest groups that have become an “anonymous empire” (El imperio anónimo) forcing the state—through its octopus-like networks surrounding decision-making centers—to issue poor decisions that undermine promising economic sectors, neglect to penalize corrupt and monopolistic companies, and institutionalize systematic corruption that perpetuates injustices and discrimination, harming the credibility of public authorities.

In light of this, the author emphasizes that it is no coincidence that the most advanced democracies are those with lower corruption rates and higher transparency indicators. Here, it seems the author contradicts a judgment he previously arrived at concerning the rule of “economic castes” (Las Castas Económicas) underlying the deep state across different historical periods, whether in strong or weak states, or whether the political system is democratic or dictatorial (19). The fact remains that Spain has undergone a democratic experience that has become a model revered worldwide through successive reforms that have narrowed the gap between the state and society and enhanced governance indicators for public affairs management. Therefore, the author should have explicitly highlighted the chronic flaws of the democratic system in Spain that make it, in his own words, incapable of curbing clientelistic networks in their pursuits to seize the economic framework.

Carlos Sánchez has identified significant facets in observing the impacts of economic elites on public policies; however, he has not been able to grasp the entire picture, as his analysis halts at the 1990s, neglecting later periods which witnessed critical changes in the political and economic life of Spain, particularly the major economic crisis (2008-2014) that cast a shadow over the political landscape. During this time, clear instances of the influence wielded by interest groups in “fabricating” the political map of Spain emerged, such as the case of the black box designated for financing the People’s Party, sponsored by banker Luis Bárcenas, which would bring down Mariano Rajoy’s government in 2018 after a series of investigations beginning in 2009. This period also witnessed the emergence of new actors under changing realities and social rejection, causing broad sectors of society to align behind far-left and far-right currents characterized by their opposition to interest lobbies. While the author does not address these events, his analysis remains partially accurate in light of the ongoing grip of economic interest groups on political processes. The same applies to the pragmatic nature of regional elites, especially when transcending the Catalan independence declaration in 2018; the outcomes of which starkly highlight the financial and industrial oligarchies’ impact on the political landscape in Catalonia and Spain overall, where they played a notable role in the rapprochement that took place between Catalan Republican Left (ERC) and the Socialist Workers’ Party (PSOE) led by Pedro Sánchez in their efforts to form the government resulting from the July 2023 elections, in contrast to the failure of the leader of the People’s Party, backed by agricultural and Castilian lobbying groups opposing regional nationalisms.