Skyrocketing population and diminishing well-being: the effects of the Balearic economic model

PalmIf the Balearic Islands were a factory, their recent history would be that of a center that has significantly increased its production (155% between 2000 and 2023), and that has achieved the second-highest growth in the entire Spanish state, behind only the community of Madrid. But a more analytical look, such as that conducted by three specialists commissioned by the Círculo de Economía de Mallorca, reveals a key fact that explains the current situation: this factory that is the Islands has had to hire so many new employees to produce more that when it comes time to distribute wages, the result is a "very significant" inefficiency, as it says.

The study shows that the Balearic economy's numbers don't add up. "The strong growth in GDP has not translated into an increase in real individual well-being per inhabitant in the Balearic Islands," the document concludes. In fact, "not only does it not translate into an increase in real GDP per capita, but this same indicator, which we use as a measure of the average wealth of citizens, has been deteriorating even before the crises," he adds.

With a 42% population increase, the Balearic Islands have experienced "the largest increase in the State." This has caused "a very significant drop in per capita income." "We have produced more, but we have needed many more people, so real growth is very low," explains the president of the Círculo de Economía, Josep Vicens. While GDP has risen by 155%, GDP per capita has only grown by 8.2%, a percentage that gives the Islands twelfth place among the autonomous communities. "After discounting inflation (CPI), real GDP per capita has practically not grown since 2000," the authors of the study state.

When comparing the Balearic Islands with other autonomous communities and studying what has happened, it becomes clear that "producing more, without a clear model, is not necessarily an objective that should be pursued, because added value is not being generated." "The Balearic Islands are the result of an economic model that employs more people every year, but does not distribute wealth more effectively. Thus, we are losing ground in terms of per capita income, and this is very worrying," Vicens laments.

Others are growing better.

The Círculo de Economía study shows that, despite the arrival of more than 350,000 people between 2000 and 2023, per capita income has declined, unlike other regions that have evolved in exactly the opposite direction. This is the case of Galicia and Extremadura, which, with GDP per capita growth of around 30%, are four times more efficient than the islands. "What really matters for the average well-being of the population is not only that GDP grows, but that it does so before the population," explains Luis Álvarez, professor and director of the Mathematical Models Research Group at the University of Las Palmas, co-author of the study.

If we look at the population growth in these two regions, it has practically not changed, while in the islands it has skyrocketed. "It's the same thing that's happened in the Canary Islands, where the arrival of people has also increased significantly as a result of the economic model based on tourism. This increase and the inability to generate greater added value result in a GDP per capita that dilutes any growth the region may have had," explains Álvarez. "It's something that's repeated in tourist communities," notes Josep Vicens.

In the Balearic Islands, despite being the region with the second-highest GDP growth (155%), the increase in production has been diluted by the enormous increase in population, with real GDP per capita practically stagnant since 2000.

According to the professor of economics at the Balearic Islands, "It's not a problem of more or less people coming, but rather the qualifications of the people, and why they come. If you're an economy that innovates, that makes technological improvements, having more people allows for real growth." "The problem isn't how much you grow, but how," he asserts. "If you're able to import talent, you generate a lot of added value, and the impact on growth is significant. But with a low-skilled population, the result isn't the same. And that's the dilemma the Balearic economy must resolve," he adds.

The data collected by the researchers go further and go back even further in the demographic field: between 1996 and 2024, the population of the Islands increased by 61%, leading the population increase in Spain and also at the European level. Although official figures reflect a higher increase (88%), the authors of the study have introduced a series of corrective parameters to make the analysis more precise.

According to experts, the monoculture of tourism and the lack of attracting skilled labor have meant that the economic growth of the Islands has not resulted in a true distribution of wealth. The growth model of the Balearic Islands has been based on population and tourism, and this study shows that "the average wealth per inhabitant has not improved; it has increased pressure on public services, causing the region to lose relative positions," it concludes. Meanwhile, regions such as Galicia and Extremadura, with more moderate and sustainable strategies, have achieved better results in terms of well-being.

Effects on resources and services

Population and tourism growth in communities like the Canary Islands and the Balearic Islands have led to an enormous demand for services, housing, and infrastructure, putting pressure on finances, public response capacity (healthcare, education), transportation, water, energy, and more. The president of the Círculo de Economía (Economic Circle), Josep Vicens, recalls that they have been working on this issue "very insistently" for two legislative terms. "This dependence on the services sector cannot be changed in the short term, but I think we have a clear diagnosis, and what we need to do now is lay the foundations for greater diversification, with a focus on technology, for example."

Vicens emphasizes that "natural resources are not unlimited." "Addressing the specific objectives of how to reorient the island economy must be a priority. Not only because of the excessive dependence [on tourism], but also because we cannot grow in the same way as we have until now. We must focus on added value," he continues. The president of Cercle believes that "we must combine political and business leadership to take clear and decisive steps."

For his part, Luis Álvarez highlights that in the Balearic Islands "there has long been a very intense debate about saturation, resource consumption, and the need to find other ways of producing. In the Canary Islands, this debate is somewhat more recent, but it has also begun intensely recently due to the rising cost of housing."