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 "putting natural resources to the limit", remarks Aleix Calveras, Professor of Economics at the UIB. "We have done something wrong", he states. In fact, the Balearic Islands are no longer that powerhouse, but are increasingly approaching the State's 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 charts the Catalan economic model, also looks explicitly towards the Balearic Islands. The economists who prepared it warn that a model based on low value-added activities, strong demographic expansion, and a 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 mainly 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 the maximum income differential per capita compared 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 increasingly needs 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 the autonomous communities, 47.1%, while the growth of 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 specializing 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 better utilize staff, which adapts, which specializes in tourism. The problem is that this model requires 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 comes with it, there is a decrease in income per capita,' he adds.

The Islands occupy top state positions in labor productivity growth. Activities linked to tourism —hotels, restaurants, transport, and travel agencies— show productivity levels higher than those in 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 productivity, but distribution.

“The Balearic Islands are very productive, much more efficient in terms of productivity than in terms of wealth distribution, because public authorities have not done their homework. We have not known how to compensate for this model with other productive systems and other activities, such as industry and technology, which allow for true diversification and avoid this dependence and these figures that represent enormous social inefficiency,” he explains.

This interpretation coincides 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 point on, the number of visitors has increased very rapidly, the population has also exploded, and the tensions that mark public debate today 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 capita 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 it is about giving up tourism, “but rather about preventing it from being the only 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 sense, 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 lower and makes it a reference point for thinking about a more balanced economic model. It is what we should try to generalize throughout 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 revising 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, which has repeated for the umpteenth time what we knew. But when it comes to making decisions, the only thing they have done is reactivate pools of positions that were frozen,” he laments.

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