Two decades of impoverishment at a record tourist pace

PalmaFor forty years, the Balearic Islands have done what, in theory, was supposed to guarantee more prosperity: attract more and more tourists. A consensus and a model that worked and placed the Islands among the richest communities in the State until the late 1980s.

But the data tell a different story. In 1985, the Balearic Islands received 4.5 million visitors and had 685,000 inhabitants, and were the second community in per capita income. Today, they receive almost 19 million tourists and exceed 1.2 million residents. Tourist pressure has multiplied by two, from 6.6 tourists per inhabitant to more than 15, and has caused "an undeniable loss of quality of life", as well as "pushing natural resources to the limit", remarks Aleix Calveras, Professor of Economics at the UIB. "We've done something wrong," he states. In fact, the Balearic Islands are no longer that powerhouse, but are getting closer and closer to the State average income, but with a much higher cost of living.

However, the enormous increase in economic activity has not been accompanied by an equivalent improvement in well-being. If in 1985 the Balearic Islands were the second autonomous community with the highest GDP per inhabitant, today they occupy the sixth position and a growing part of the population shares housing and does not make ends meet.

It is a paradox that economists and businessmen have been trying to explain for years. In fact, the recent Fénix report, which analyzes the Catalan economic model, also explicitly looks towards the Balearic Islands. The economists who prepared it warn that a model based on low value-added activities, strong demographic expansion, and high dependence on tourism can generate a paradox: the economy grows in absolute terms, but the well-being of residents does not grow at the same rate. The document recalls that GDP per capita is the indicator that best measures material prosperity and warns that, when growth is based primarily on population increase, the wealth generated tends to be diluted. In this context, the Balearic Islands appear as the main example of this phenomenon.

According to economist Ferran Navinés, the Balearic model entered a "phase of diminishing returns" in the late 1980s. In 1985, the Islands reached their maximum income per capita differential with respect to the Spanish average —more than 65 points— but, since then, this advantage has not stopped decreasing.

More population to produce more

His thesis is that the model needs more and more population, more tourists and more activity to maintain the same growth rate, but this effort does not generate an equivalent improvement in income per inhabitant. Between 1995 and 2021, the Balearic Islands registered the highest demographic growth of all autonomous communities, 47.1%, while the growth in real gross value added only ranked thirteenth. The result is "a relative loss of GDP per capita of 11.4%, a negative trend shared only by the Canary Islands, the other major territory specialized in tourism," he explains.

Navinés breaks another myth. The problem, he says, is not that tourism is unproductive. Quite the contrary. "We have an efficient business sector, which invented the buffet decades ago to make better use of staff, which adapts, which specializes in tourism. The problem is that this model needs many hands, preferably low-skilled and low-wage. When you boost tourists thinking that all indicators will rise, it's the opposite. Business performance and turnover increase, but with low tourism wages and the great need for labor that accompanies it, there is a decrease in income per capita," he adds.

The Islands hold top national positions in labor productivity growth. Activities linked to tourism —hotels, restaurants, transport, and travel agencies— show productivity levels higher than most autonomous communities. Investments in hotel renovation and digitalization after the 2008 crisis have further strengthened this efficiency. Therefore, Navinés insists that the issue is not about productivity, but about distribution.

“The Balearics are very productive, much more efficient in terms of productivity than in terms of wealth distribution, because public authorities have not done their homework. They have not managed to compensate this model with other productive systems and other activities, such as industry and technology, which truly allow for diversification and prevent this dependency and these figures that represent enormous social inefficiency,” he explains.

This interpretation aligns with that of the Cercle d’Economia de Mallorca. Economist and board member of the entity, Carlos Rullán, explains that the tourism model worked very well until approximately the year 2000. “Tourism was growing, but it was doing so within a relatively balanced system. However, from that moment on, the number of visitors has increased very rapidly, the population has also soared, and the tensions that mark today's public debate have emerged: housing, mobility, water resources, public services, and loss of quality of life, without any public leadership capable of facing a reconversion,” he laments.

Studies carried out by the Cercle put figures to this transformation. Between 2000 and 2023, Balearic GDP grew by 158%, but GDP per inhabitant only grew by 8.2%. Discounting inflation, real per capita income has practically not advanced in this period. “We have produced more, but we have needed many more people,” says Rullán, who does not believe in giving up tourism, “but rather in preventing it from being the sole engine of the economy”. “If we look at the communities with more industry, such as the Basque Country and Catalonia, we see that their economy is more solid,” he points out.

In this regard, the Cercle highlights the case of Menorca, which has maintained a more significant weight of industry and the primary sector. “This diversification means that its dependence on tourism is less and makes it a reference point for thinking about a more balanced economic model. It is what we should try to generalize in the Balearic Islands,” says Rullán.

Talking without acting

Unfortunately, “the facts and political decisions are going in the opposite direction,” remarks Aleix Calveras, who also recalls that “the left talked for years about reviewing the model.” “When the pandemic arrived, which showed us the risks of excessive specialization, they got scared. And when it passed, the discourse went to hell and no one wanted to hear about any measures,” he continues. Regarding the current Executive, the UIB economist is blunt: “They have created a table, a commission, that has repeated for the umpteenth time what we knew. But when it came to making decisions, all they have done is reactivate pools of positions that were frozen,” he laments.

The Cercle d’Economia has been calling for years for a long-term strategy based on industry, innovation, research, technology, and knowledge-intensive activities. “The goal is not to replace tourism, but to complement it so that the generated wealth is transformed into more added value and greater well-being,” Rullán states.