Spain's public sector adds value: correcting a GDP calculation error

GDP sums public wages, not the value produced

A recurring debate in Spain claims that those paid by the state contribute nothing to the economy. This thesis, repeated insistently, clashes with a basic question: if a private cleaning company hired by a hospital adds value, why doesn't the same work done by public staff? The argument is not a defense of the size of the public sector or socialism. It is a matter of national accounting. GDP computes public spending as added value, just like private spending. Denying this forces one to argue that throwing money on the street also creates wealth, revealing the absurdity of the premise.

What it exactly means to add value to the economy

The initial confusion mixes three distinct things: that a service is useful, that it is efficient, and that it generates net profit. A surgeon who operates on a patient and returns them to the labor market produces a valuable service, whether paid for by the State or an insurer. The baker makes bread, the builder raises walls, the civil servant processes files. All generate use value. Another thing is whether that value justifies its cost.

This is where the relevant calculation enters. If the State extracts more wealth from taxpayers than it returns in services, the net result is negative. A service can have value and still destroy wealth if it costs more than it is worth to the payer. This distinction, often ignored by advocates of radical cuts, separates serious analysis from slogans.

The problem of calculation without market prices

In the private sector, price reveals if a service is worthwhile. In the public sector, there is no price, no voluntary demand, and no competition. National accounting resolves this by computing public spending at production cost. The perverse effect is evident: hiring more civil servants or raising their salaries increases the public sector's added value without anyone verifying that the service is worth more.

Some argue that since prices do not exist, it is impossible to know if generated value exceeds cost. Others respond that this does not make the service useless, only unmeasurable. Public healthcare, for example, is objectively cheaper than private care in many countries, even though users do not choose. The debate stalls here: without prices, there is no calculation, and without calculation, there is no verdict.

Extra costs and privileged conditions

Part of the discontent does not discuss the value of the service, but its price. It is argued that Spain is among the few countries where public salaries exceed private ones in comparable positions, and that performance evaluation does not exist. Hence comparisons with Switzerland, where public services are provided under ordinary employment contracts with possible dismissals.

The counterargument is that the rigidity of public employment protects against bribery and blackmail. A circulating example: an airline left passengers with purchased tickets stranded to give space to a sheikh's luggage. With civil servants, the argument goes, this would end up in court the next day. Job security has a cost, but also a shield.

How many are surplus and how many sustain the system

The most repeated criticism is not that everyone is unproductive, but that many are surplus. There is talk of offices where real work occupies between 10% and 40% of the day, duplications between administrations, and unnecessary agencies. A civil servant summarizes it bluntly: more than half are unproductive, and most are administrative posts replaceable by a robot.

This internal recognition undermines the staunch defense. The problem is not the concept of public service, but its oversizing. Before discussing whether a civil servant contributes, one should discuss how many are needed. The honest answer is that nobody knows, because it is not measured.

The point where the analysis stalls

Without prices, without performance evaluation, and without voluntary demand, there is no way to close the account. GDP will say that public wages add up. The taxpayer will say they pay more than they receive. And both may be right at the same time, because they are measuring different things. That is where the debate remains, without an arbiter.