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Angel Cabrera
Academic President

Spain's leadership default

Spain is not broke. It does have a major unemployment problem, a stiff labor market, and inadequate innovation. But its public debt is smaller than Britain's, France's or Germany's and its budget deficit--on par with America's and also a consequence of a much needed stimulus plan--is already being reined in. Why is it then being heralded around the world as the next potential global cataclysm?

Spain's biggest short-term problem is not a threat of insolvency but a misguided leadership and communication strategy. The Spanish administration prolonged a state of denial and inaction beyond any reasonable limit. It accused internal critics of being partisan and unpatriotic and external reporters of conspiring against Spain. It finally had no choice but to announce drastic measures but it did so overnight and under the pretext of external pressures.

By not fully recognizing the gravity of the situation the administration eroded the investor and consumer confidence it had hoped to build. By killing the messenger it appeared defensive. By acting by surprise it appeared to be unprepared. And by placing blame elsewhere for the decisions, it projected powerlessness. Denying the facts, killing the messenger, acting by surprise and assigning blame elsewhere are classic elements of a leadership default--rather than a debt one--in times of crisis.

The Spanish government is finally on the right track--it is tackling the budget deficit and it has announced labor reforms--but it urgently needs to convince the world that it is in control. To rebuild market confidence, the Spanish administration needs to rethink its messaging.

The best way to communicate that the administration has a grip on the situation, to regain market confidence, is to be brutally honest about the challenges, emphatic about the strengths inherent in the economy, transparent with the decision making process and determined in the application of structural reforms.

To regain the support of its political base and to secure ample room for change, the Socialist government needs to offer a new narrative that frames the goals of the reform as consistent with the welfare values that constitute its ideological backbone. Labor reform for example may reduce the entrenched rights of workers with indefinite contracts but will also help reduce the unusually high rate of sub-par employment--a more important welfare goal.

Prime Minister Rodríguez Zapatero had driven himself into a dead-end by making promises that would be difficult to maintain. Just a few months ago in Davos, he did a much better job emphasizing what sacrifices in welfare he refused to consider than in explaining how far he was ready to go to take control of the situation (staging the message between the presidents of Latvia and Greece did not help his case).

Mr. Zapatero is right to point out Spain's enormous economic achievements in the last thirty years. Under both socialist and conservative governments Spain has led the most prosperous period in the country's history. As a young democracy Spain managed to recover from decades of isolation in record time: it built modern infrastructure; it engaged in the global economy to the point of becoming the leading foreign investor in Latin America; it joined the euro and met its obligations with more discipline than other members; it produced some of the world's leading corporations in financial services, telecommunications, fashion retail, construction and alternative energies; it narrowed its per capita income differential with its neighbors; and it reached one of the highest levels of human development in the world.

But just selling the strengths won't do the trick. The current Spanish administration has a couple of years left in power. To rebuild its confidence and regain control over the economic situation the government should waste no time and adopt a different leadership and communication approach. One that combines transparent, though determined, decision making and absolute honesty about the good, the bad and the ugly. Fortunately analysts, investors and consumers don't respond to the past as much as they do to their projections of the future.

By Angel Cabrera

 |  June 9, 2010; 10:38 AM ET
Category:  Presidential leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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