Madrid: the Capital of Capitalism — Diego Sánchez de la Cruz

If you were asked to rank cities based on their level of libertarian policy implementation, it is very unlikely that at the top of the list, you would intuitively put Madrid. Of course, liberalism, classical liberalism, libertarianism, or capitalism are not usually thought of as being abundant in European cities.  But on today's episode, we are going to be discussing with Diego Sánchez de la Cruz his newest book, "Liberalismo a la Madrileña" (Madrid-style Liberalism). How and why Madrid has become the region in Spain that grows the most, generates the most income, offers the best public services, collects the most, and lowers the most taxes. 

Madrid achieved all of this while implementing the most radical liberal reforms in any European city in the last 15 years.  How exactly did Madrid become the Capital of Capitalism in Spain?

Book Link
Liberalismo a la Madrileña, Diego Sánchez de la Cruz

Transcript

Diego: Why is it that when Taylor Swift or any international singer comes over, they choose Spain and prioritize Madrid over any other city, including Barcelona, which used to be a huge concert destination, and it's not anymore? Why is it that our football team, Real Madrid, won five Champions Leagues in the past several years, while Barcelona has almost gone bankrupt?

Why is it that net inflows of population are benefiting all of these industries as well, supplying more ideas, and more entrepreneurs in areas such as food? Why is it that while Catalonia used to be the food capital of Spain, now all the restaurateurs are moving to Madrid? This whole idea of trusting people and allowing creativity to flourish and letting people mesh and keeping an open society there and a free market to support it yields great results.

Rasheed: If you were asked to rank cities based on their level of libertarian policy implementation, it is very unlikely that at the top of your list, you would intuitively put Madrid in Spain. Of course, liberalism, classical liberalism, libertarianism, or capitalism is not usually thought of as being found in European cities, but on today's episode we are going to be discussing with Diego Sánchez de la Cruz about his new book "Madrid-Style Liberalism: How and why Madrid has become the region that grows the most, generates the most income, offers the best public services, collects the most, and lowers taxes the most in Spain".

We discussed how Madrid achieved all of these things while implementing the most radical labor reforms in any European city in the last 15 years. Exactly how did Madrid become the capital of capitalism? It's the theme of this conversation. I'm excited to dive in with Diego.

Hello, Diego. And thank you so much for joining me here, live in Madrid to do this podcast. 

Diego: Hello, pleasure to be here. 

Rasheed: So I saw your book, I think quite randomly. I was browsing Casa de Libro and I saw it right there in the corner, "Liberalismo a la Madalena", and I was stunned. How could someone write a book about liberalism in Madrid? So I had to read it and I was very surprised by the facts and the details of the argument that Madrid is such a liberal city. But of course we have to start from your premise because this is not an intuitive conclusion that most people would have when they think about Spain or Europe in general.

So, Diego, how is it can you claim that Madrid is a liberal city? 

Diego: Good question. The book I would really like to write, it's called "Liberalism in Spain", but unfortunately it's very difficult right now to get our national policy moving into that direction. We've had several general elections, many political crises in the past several years, and of course there's issues such as polarization, concerns about the rule of law even, and the way the current state of play just doesn't really facilitate that conversation.

Now, luckily for us, I guess unknown to most people, Spain is one of the world's most decentralized countries. More specifically, if you talk fiscal decentralization, taxes and spending, or if you talk political authority in terms of that kind of decentralization as well, there's different indicators that position us among the top five countries in the world with the highest degree of power being delegated to regions or local community.

I guess we don't proclaim ourselves formally to be a federal state, but the fact is that we are by all means, a federal state, and this allows us to introduce several policy differentiation in the regions when a consensus emerges and facilitates that. Now you could also write a book called "Socialism in Andalusia" because that was the norm for 40 years in the region, which actually did have very good results and not surprisingly.

But in the case of Madrid, the last 25 years have been a clear move towards higher degree of tax competitiveness, smart regulation, and an overall liberal policy in the economic sense. And then our society is fairly open and tolerant and recognized to be what we would broadly described as a free society, an open society.

And I guess that began to make sense 10 years ago, but it's really started to make sense in the last several years. Following the pandemic, I think we had a great opportunity to show that mentality to the rest of the world because as everybody was shutting down, Madrid was Europe's only open capital for very long in 2020 and 2021.

And I guess that raised a lot of eyebrows. And that is why a lot of people are moving to Madrid. People are voting with their feet. They want more of this. And that's the Madrid way of liberalism that I discuss in this book. And to be honest, It's not so common that you get to see 25 years of ongoing, non-stop free market reforms coupled together with an open, tolerant society.

But that's been the case in Madrid. Sometimes I say that we'd silently become the capital of capitalism in Southern Europe. 

Rasheed: As you know, and as many listeners might know, I recently moved to Madrid a few months ago. And I didn't do it because of my perception of Madrid as being a very liberal or, you know, libertarian or capitalist city, it was just quite appropriate for my purposes.

So after I got here, I was speaking to various people and one conversation in particular I remember very well. I was shopping and I was speaking to one of the store attendants and he was explaining to me how he and his boyfriend moved from Barcelona to Madrid. Because in his view, Madrid had many more opportunities and many more employment prospects.

Essentially he was saying this place is booming and that was a big surprise to me. Because at that time, I had never been to Barcelona, but I assumed more was going on there, you know, my a priori thinking. But, of course, now I'm living here, fully in society, that is not the case. So, Diego, help me to understand how is it possible that Madrid was the first mover for liberalismo in Spain and not someplace like Barcelona or País Vasco (Basque Country), for example.

Diego: You know what? Your perception would have been right if we were having this conversation some years ago, because for most of Spain's recent history, Barcelona had been the icon of openness and the region that projected itself as a more European territory within our country and its economic power powerhouse as well. But sadly for Catalonia and happily for Madrid, there's been a big change and a big shift to the point that this no longer applies. And it's not been the case at all for the last few decades. I think the international level, of course, perceptions are harder to shift, but I don't think anyone in Spain today will argue that Catalonia, as they have moved closer to the ideas of separatism and as nationalism has become a powerful figure in the regional politics, hasn't been slowly becoming a more closed society.

Closed in the sense that only nationalistic ideas can do. You separate between good and bad Catalans, between good and bad citizens, between a good and a bad side of history, and you start imposing a collectivist notion of what this territory is and what it is not. You don't actually let people develop themselves the way they want to.

A clear example is that although we are in Spain and Spanish is the common language to all our territories, Catalan is basically imposed upon many people in Catalonia, for example, if you want to work for the public services or you want to participate in a public tender. You may be required to speak Catalan and not Español, not Spanish.

And that is an issue for the many people that fly over to Spain from Latin America, hoping to find opportunities. And they learn that they cannot speak Spanish in a region of Spain. And the same thing also happens for, of course, the people that used to flock to Catalonia from other territories within the country and are not doing so anymore. If you track net inflows of population within the regions, Catalonia was a net gainer of population from other Spanish territories, not just from the rest of the world for a very long time in the eighties and the nineties. But that stopped being so in the late two thousands and that has not been the case in the past several years.

So Madrid is winning population from the rest of Spain and the rest of the world and Catalonia is stagnating there in that nationalistic paradigm. And what you found out in a store, just casually shopping applies to the figures and the numbers. There have been periods, for example, following the last financial crisis in which there was zero net migration from other Spanish territories to Catalonia in the same period in which 200,000 people moved to Madrid.

That slowly tilts the balance. And I guess people are telling us something with these movements. They're telling us we see more of the good stuff, more economic, personal political freedom in Madrid than in Catalonia. I must also say that Madrid doesn't have much of an identity in the sense that Madrid is the capital of Spain.

It's not trying to separate itself from Spain. It's not trying to set itself as a different entity than Spain. So it's easy to come here and feel welcome to the point that right now, 50 percent of our working population or 40 percent of the general population is not from Madrid. It's from either other Spanish territories or other countries around the world.

Many of these people come from like-minded nations across the Western world, and a big chunk of them come from Latin America. So you can see that inclusiveness in this liberal model drives population growth, and of course with population comes, human capital, more ideas, more dynamism, and slowly through time, when you play this out, it's starting to create an effect.

For example, I told you before that indeed, Catalonia used to be the economic powerhouse, but that's not the case anymore. Madrid has gone from having a size of 14 percent of the national GDP to having a share above 20 percent of the GDP in the past few years. And that is clearly telling you something.

Madrid moving in the right direction and unfortunately, Catalonia is not moving in that direction. You mentioned how I tried to track the intellectual movement within Madrid. It's time to think thanks to authors and some politicians who have played a key role in providing leadership for that. Most specifically, former governor Ángel García , and current governor Isabel Díaz Ayuso, but beyond that, I must also say that the progress that we've seen in Madrid has been facilitated by the Stark with Catalonia. So just as important as the liberal movement has been for Madrid is the hindrance of political and economic freedoms in Catalonia that has made Madrid start to look even better, not just by itself, but also in comparison to the other region to which it's almost always compared for all sorts of reasons, even including football, right?

Rasheed: Even football.

Diego: Which as you know, it's a big thing. 

Rasheed: Yes, the big thing.

In your book, you recounted an early speech given by Esperanza Aguirre, and I was reading it with a very kind of a smirk on my face, because I thought that if I would just take this text and put it online, there were no quotation marks and so on, I say, "Hey, this is from me, Spanish language leader in the world".

And I asked people, "Hey, who do you think wrote this?" I bet you most people would probably say, "Oh, that's a speech by Javier Milei". Because that is the kind of strident liberalism thinking that you can find in that speech. But this was a speech by Aguirre in the 1980s. It was very shocking to me. Can you explain how her strident ideology of liberalism, developed it? And then how did she use that to push liberalism forward in Madrid? 

Diego: I think that her figure has been very relevant because she facilitated the changes and pushed forward with these reforms. And today I think these sort of, I guess, very radical positions that we've taken to open up the Madrid economy, they are fully endorsed by a vast majority of the population. But back in the day when she pushed forward with them, the intellectual movement was there, but the population was still catching up to her. And I guess she was also leading that change and pushing it forward. But you asked me, where did she get these ideas from? Well, of course, Spain had been a closed political and economic system for a big part of the 20th century. This is after a civil war and then during the Franco regime. But then on the economic front, a lot of progress took place in the second half of the authoritarian era when the economy was indeed opened up.

Unfortunately, this did not happen at all other levels regrettably. However, when political freedom became a reality for Spain, in 1975, Spain had already been catching up with capitalism for the past 15 years. So there was that link between economic freedom first and political freedom that came second. Of course, the ideal thing would have been to not go through a civil war and a regime, right?

But it did happen. So when this transition to democracy, which is, by the way, very often being praised as a very relevant moment in political history, modern political history for the Western world, because it was done peacefully and rather smoothly in just a few years with a big role by the monarchy playing a mediating power between the different political factions.

I guess the early focus was to just set up a democracy, but then it gets to a point in which, okay, democracy is a reality, we really need to start working on freeing up the creative forces of our society and letting our society be, as well as liberalizing our economy. And that's where Esperanza Aguirre jumps in.

Now she was heavily influenced by the Reagan and Thatcher years in the sense that she actually traveled to the U.S to visit and see in practice some of the changes that were taking place. For example, she worked in telecommunications and she wanted to find out what did liberalization in telecommunications look like because everyone was telling her that this should always be a state monopoly.

And she was of the opinion that, okay, if the US has a free system in telecommunications and so does the UK, then something they're telling me here is not true. So she actually branched out by herself, did some digging, I guess, and some traveling abroad. And she saw these models that worked successfully.

And she was also a daughter of the time. These are the Reagan and Thatcher years after all. So when she finally was in office, she clearly wanted to push forward with these reforms because every now and then a politician comes by that actually takes into account what the intellectuals are saying, relies on data instead of polling and, wants to study other reforms and successful case studies from around the world. And she was clearly one. So when she was given the chance to become governor of Madrid, she didn't just want to, you know, power for the sake of being in power. She wanted to transform Madrid and help move it in that direction.

And with this, the first thing she did tax wise was to get rid of the wealth tax. Now, how radical is that? You're not cutting taxes for the lower middle or high income, but you're actually going and tackling the wealth tax, which is the most ideological of all of them, but she said, look, I'm going to lower taxes for everyone.

And the first tax cut I'm doing is the wealth tax, because I don't want to punish those that are successful. I don't want to create a double taxation scenario for people who save and invest successfully. And I want Madrid to become a market in which everyone is celebrated for their success. So let's start cutting taxes.

And the first tax we're going to get rid of is the wealth tax, which he got rid of, by the way. 

Rasheed: What are some other examples of the major liberal reforms that happened during her tenure? 

Diego: Esperanza Aguirre got rid of the inheritance tax as well. And when she did this with both the wealth and the inheritance tax, no other region had done this at all.

So this was an eye opener to many other Spanish territories that, "okay, we can get rid of these taxes". Just as other European countries, even Sweden, which had been the poster child for progressive tax policy, was also getting rid of them. Talking late 2000s at this point, but then she was also adamant that there should be tax cuts all across the board like I said. And if you track all the tax cuts that started under Aguirre on all the way up to Ayuso today, there's been like literally more than 70. So far, this includes tax cuts in all income tax brackets, elimination of all regional taxes that were specific to Madrid, they're gone, cutting down other taxes, the ones that affect, for example, housing.

And then of course, the big ones with income tax, wealth tax and inheritance tax. Today, Madrid has at least a 10 point difference, positive difference in its marginal tax rate in income tax, as opposed to Catalonia or other regions. So that means that you keep 10 percent more of your salary if you're at the highest income tax bracket.

And that permeates through the rest of the tax code. It's also seen for middle and lower income families. In fact, it's interesting that although these measures were targeted for all the population living in Madrid, around three quarters of the tax savings, which by the way, amount to more than 60 billion euros yet to this date, to the benefit of middle classes, because at the end of the day, let's not kid ourselves who pays taxes?

It's the middle classes. Of course, the high income people pay more on a proportional basis, but at the end of the day, you cannot sustain a European welfare state without doing that. So the benefit has been massive and mostly gone to the middle classes to the point that an average family has saved the equivalent of one year of their salary in taxes through the last 15 years of tax cuts in Madrid.

Okay so that's interesting. 

Rasheed: Quite dramatic. 

Diego: And then some other reforms that she really pushed forward through and was successful were promoting freedom in health care, education, which was done via different systems. I guess it could become too complicated for an international audience, but we could consider this similar to the charter school model.

We call it "concertada" and there's a copayment by the parents sending their kids to school, but it's mostly a private school providing the service within the public network. And the competition element was also introduced there in which you can choose within the system. You are guaranteed to get that coverage.

It's universal, but it's not provided solely by the state to the point that lately, if you go to, for example, my son's generation, he's six now, 80 percent of the children in his age cohort have entered education within the public system, but provided by a private provider or straight forward by a private provider. Like 80 percent of new kids coming to school these days are going into a privately managed educational institution.

Another example is in healthcare. By the way, healthcare here is top-notch. Madrid has the highest life expectancy in Europe. It's a region with the highest life expectancy impressive considering that Europe overall has a very high life expectancy. And then the indicators show that waiting times are lower productivity in the hospitals is much higher.

And then treatment of like specific issues of our times, like cancer, for example, it's much better numbers and success here in Madrid. One-third of the network is managed privately on the patients have a chance to. change their hospital, change their doctor, they have power and that is very rarely given to the user in healthcare systems.

So those were her main reforms besides some privatization and of course spending restraint and good management of the budget at the outset and throughout.

Rasheed: Could you give some comparisons in terms of how the people in Madrid think about more liberal policies relative to Spain as a whole? 

Diego: I think that Madrid has always been moving the needle, and what is maybe controversial in the rest of Spain, but becomes normalized here and becomes normalized in the rest of Spain five, ten years later.

Let's take a different example. Let's talk about openness and tolerance. Madrid was more open to Latin American immigration, or it was more LGBT friendly before the rest of the country caught up with that feeling, which today is fairly shared because Spain ranks normally amongst one of Europe's most tolerant countries and societies.

So Madrid was a needle mover there, but everyone moved in that direction. Many of these tax policy changes and more technical issues that I'm talking about, also were caught on by the rest of the country and slowly moved in that direction. In fact, Madrid had the first-mover advantage, but the mentality slowly started to change when the results came in.

There's been many cases in which, for example, with taxes, we've seen a lot of dynamic effects, or like, you could also say Laffer Curve effects, that a lot of these tax cuts did pay for themselves, and the rest of Spain started to take notice because, , it's not even true that they're revenue diminishing. They're revenue-maximizing, but not via making you pay a bigger chunk of your money, but rather by bringing in so much investment and so much growth that the whole tax rate has become wider.

That has been an example of this. What Madrid has been saying and doing it's worked out well and then the rest of the country is slowly taking notice. And then with that process, you get some dynamic processes of ideological change that have been helpful to the point that right now, although Spain is under a left-wing government and fairly radical, to be frank, 14 out of our 17 territories are implementing these type of policies right now so of course, following Madrid's lead. But Madrid has been able to create cultural changes in the political and ideological system of beliefs of the whole Spanish population. And that's why I joke that my next book could perhaps at some point be "Liberalismo a la española, liberalism in Spain", not just in Madrid, hopefully.

Rasheed: You mentioned the national government, and I do want to go up to that. Now, the current governor of Madrid is Ayuso, and she is from PP, Partido Popular. And that is considered a more right-wing party in the context here in Spain. What's curious to me, is that when I moved to Spain, I was sitting in the government office, getting my ID, and on the TV were all these debates and discussions about the problem where no party at that time could get enough seats to form government.

And I was curious because it ended up being President Pedro Sanchez from PSOE, the current ruling party nationally. It's a socialist party and they were able to form the government. So why is it then that although Madrid is a powerhouse economically, has a very popular governor and the party that's in power is the right-wing party, but on a national scale, PP cannot motivate the population enough to win a general election.

Why is that? 

Diego: You know, that's a very good question, and to be frank, the only reason why the current government is in power, is because the more liberal-friendly coalition was three seats short of forming a parliamentary majority. Three seats in a 350 Deputy Assembly, which is our Congress. The margin of error here really is what it is, right?

Three seats out of a sorry, four, four seats out of 350 Congress, right? So having said that, the elections that were held last year in 2023 in the summer, resulted in a huge victory for the PP, which is the same party that has implemented these changes in Madrid at the Madrid level. It was a huge victory, one of the largest they've had.

It was only four seats short of crafting that majority. Now, what has the Socialist Party done? It has decided to craft an alternative majority by siding with seven political parties, which are not coherent between them, and include some of the following groups: Sumar, which is a communist group whose origins come via Podemos, which was funded by the socialist tyranny in Venezuela.

So we have quite a difficult mix there because it's a communist group that was sponsored by Venezuela. In the second half, you have separatist groups some of them have been involved in very serious institutional crises, like the ones that have taken place back in 2017. Many of these people have been put on trial and condemned for very serious crimes such as misuse of public funds, among others.

They are also part of the governing coalition on the condition that they get a full amnesty for these crimes, even those crimes that involve violent acts of terrorism. So the government is passing an amnesty for those convicted of terrorism, fraud, and other crimes like this. Plus there is another party called Bildu, which I guess we can describe as the political heir to the terrorist group ETA (Euskadi Ta Askatasuna), a Basque separatist group that engaged in acts of terrorism through the years, ended the lives of more than a thousand people, plus pushed dozens of thousands of people into exile out of the Basque country.

So because you win an election and you're four seats short, and the other guy, the one that is actually in power, is willing to craft an alliance with seven parties, which are not coherent between themselves, because some have far left Venezuelan links, etc. Some are right-wing separatists, but from the Basque country, very conservative.

And then you also have groups with terrorist links on those that need an amnesty for very serious crimes. That's how the alternative majority was crafted and look if you've been following the news they have not been able to pass a single law. They have not been able to pass a single budget and it is what it is.

Spain right now is at the height of political and economic uncertainty in Europe. We even have the largest number of unpaid international awards right now surpassing Venezuela or Russia with more than 26 cases pending payment in the Hague Tribunal, the Hague Court, or the World Bank Tribunal.

So go figure that the cost of this governance is a huge hindrance to our rule of law and a very unfortunate political situation. But all polls clearly show that the direction keeps moving towards the more liberal-minded groups. However, I must say, PP is one thing, PP in Madrid is another thing. So if the country is federal, the parties themselves are quite federal as well.

So PP in Madrid is basically what you could call a traditional liberal party. However, PP at the national level is a big tent right-wing party in which you have liberal groups, conservative groups, and even some social Democrats, all of that involved. That also needs to be taken into consideration.

Rasheed: Can you explain the basis and popularity of Vox? 

Diego: Vox was launched some 10 years ago, and originally it was a protest against some elements in which it was believed that PP had moved away from its original principles, mostly on territorial issues, the way of dealing with the Basque country, and so on.

There was also a lot of pushback for the tax policy and the economic policy in the first half of the Mariano Rajoy government. So originally you could call it a protest party. With time it evolved and its first or second reincarnation, let's say, was the one that proved more electorally successful with the discourse that you could probably fit into standard right-wing populism, not the likes of Marine Le Pen and so on, but certainly within the right-wing populism category in which you would mix some elements of economic freedom and some elements of nationalism.

So you could akin that to those sorts of movements, maybe like some we've seen in other countries in the EU, although thankfully not as far right as we've seen as in the case of France. And then in the last year, there's been a movement by which the economic freedom part of their discourse has been pushed out of the party and remains there in some elements, but much more limited. Most of the individuals within the group that had this discourse have been basically either shown the door or they knew it was time to leave because they were no longer that much in favor. So, unfortunately, that makes the equilibrium within everything, the right-to-center part of the political spectrum a bit harder. However, I must say that this is not an issue in Madrid because the PP does rule with an absolute majority. They do not need to rely on Vox to pass these reforms and policies we've been talking about.

However, at the national level, it could become an issue if PP has to broker agreements with Vox, which would probably center around your standard agenda for traditional conservative parties, which would want or push for a hard line on immigration that would be counterproductive because there are many different kinds of immigration.

And when you talk about immigration, all as if it's one and it is always wrong, you're leaving out many people that are adding a lot of value to our society and our economy. To the degree that can be brokered somehow, I guess the legal, and I guess less economically valuable immigration that would probably lead to some compromise on both sides.

And then on the other end, they both similarly stand on same ground in regards to separatism right now, just because separatism has pushed it to the limit so much in the last several years. So I guess that's the current equilibrium of things. Let's just say that for liberal-minded people, the second incarnation of Vox seemed to be better than the third one.

Rasheed: Let's go back down to PP in Madrid. So one thing I found curious, I guess when I first really started to get into understanding local politics in Spain, Ayuso has more followers than Feijóo on Twitter, for example. I was surprised by that. I figured the national leader of PP would have much more of a social influence and so on.

But it doesn't seem that way. Ayuso herself is a very of the times liberal. Most people. listening to this will have the idea of Milei, that's a fairly similar thing there and 'cause she, again, she is a very stridently liberal leader. Again, seeing her speaking in Congress, in Madrid, in Spain, it's a very different kind of conversation and I am very surprised by this.

What was her trajectory to become the governor of Madrid? And then how has she pushed forward the liberal thinking in Madrid and continues to do? 

Diego: If you check the age gap between her and the original reformer that was Esperanza Aguirre, you can see that she could be presented as her political daughter in a sense.

Her coming of age in political language or political speak would have to have taken place while Esperanza Aguirre was starting to pass through with these reforms. So she became engaged in regional politics when liberal reforms were starting to take place. So I guess that's always been there.

That's always been part of her journey through the political world. Also, by nature, I would say she is extremely intuitive in my relationship with her, which actually spans several years now, although we're both young, but we've known each other from a very young age because we used to do similar things as in meet in workshops or in political or workshops, or maybe just do the same TV show.

I remember just riding back home with her from the TV studio and just casually speaking about many things. And we always remain in contact. And she was always very open to ideas. I would say she's very intuitive. Now you present her with two policies of an area that she's unaware of or has never been actually very interested on and one is a liberal friendly policy and one is not, but they come with no disguise, right? They just come as it is, she will always speak out of instinct. She will know what's right in terms of liberalization, free society. She has that in her gut. And sometimes Aguirre, she was compared to Thatcher. And I think that she does have some of that wit and that intuition that you could sense from Reagan's leadership at times.

Now, more specifically as to her time in regional politics I can say that she was dealt a very difficult hand when just after becoming the regional governor, the president, as we call it here, the pandemic hit, and that's where you can test if she really believes in freedom or not, because that's when everyone resorted to the politics of fear. And she actually restored it to the politics of trusting individuals to know what's best, minimizing state intervention to that what actually matters or can be effective and justified, and keeping it as reasonable as possible, which she did. And I guess that has created Reforged Circle here, by which she trusted her instincts and her beliefs in freedom and she enjoyed and reaped the benefits off of that because the whole region prospered so much throughout the pandemic while the rest of Europe was in shambles. 

And that has actually invigorated her discourse and her speech because now she has proven against the world, against everyone, against all the naysayers and all the criticism that she can actually manage well by following these principles and that these principles work because they give and delegate power to the citizen and the individual, because they know best most times what's what should happen. And if they don't know better, they learn, and then they will know better next time. And she took that attitude and was great in during her first four years. And now she's been given a mandate to continue on power.

And probably because of that possibility, sorry, that popularity that you were talking about, she could be a big. figure in national politics one day, because she's very famous already, not just in Spain, but in Latin America and some news and beats about her on The Economist, The Wall Street Journal, Financial Times.

So she is well known already. And I also must say that she was surrounded by a good team of professionals and proven liberals, like these people within an institution that know how it works, know how to translate the big headline of a reform into actual law and crafting legislation and passing through reforms.

I could, for example, name one of them, Javier Fernández-Lasquetty. He was instrumental in both the Aguirre years and now the Ayuso years, because he played a huge role, had responsibilities in healthcare and immigration, later on in economics, in tax policy, and he obviously was that type of people that you want to surround yourself with.

And I must say that she's always paid attention to me. And I know she's always paid attention to what other people in our intellectual community have suggested to her. She beats her own drum, of course, but she will listen to us, and take what we say into consideration. I think she respects us. And she knows that those of us involved with just thinking out loud and putting ideas on the table of what Madrid could do to get better.

She listens. 

Rasheed: You mentioned something that I want to emphasize, Madrid has a very active liberalism, think tank, intelligentsia community, which is not what you would expect for, you know, a European country, of course. So could you explain the contours of this community, or the major players, and what kind of events happen?

I realize that even in terms of online, there are many very classical liberal personalities that analyze politics and economics in Spain. There are a few that have very popular YouTube channels that attract a very younger audience, so this is very, very surprising. 

Diego: If we had designed this from the top down, it would have sounded like a great plan because there's a lot of figures within the liberal world here in Spain.

And many of us are actually engaged with what's going on in Madrid. You've got your YouTuber community, your influencer community that is more surface level, but very important to change hearts and minds and to get that original click in a lot of people's minds. Then we've got the institutional side.

Which is there's a lot of think tanks, like you mentioned, that are doing great work. I'm going to highlight two of them right now. One of them is Instituto Estudios Económicos, which is linked to the Employers Federation and has produced fantastic research about tax competitiveness within the regions, economic freedom, property rights, and regulatory policy.

And they have played a great role in solidifying these ideas within the business community and convincing business leaders that although sometimes seems like, "okay, maybe get a hand out here and getting this regulation passed could benefit you". But at the end of the day, if you want your business to really thrive, what you need is a free economy and more competition.

And that click has definitely happened at the employers federation level because their think tank is pushing for these ideas. So IEE is doing a phenomenal job there. And the Instituto Juan de Mariana has been a staple of the intellectual sphere for so long it's been involved. You take pictures right now of who matters in the liberal world, Spanish speaking world, and people like Huerta de Soto, Professor Huerta de Soto, Juan Ramón Rallo, or Javier Milei, they were all featured in our last dinner at the Juan de Mariana Institute because one of them was giving an award to the other one and the other one had been a former director of the institution.

We're all connected, right? That creates a very positive situation. And there's a lot of people wearing different hats, by the way. Some reporters and journalists craft commentary on the media. And then they're also involved with these intellectual projects. So we've drawn inspiration from, of course, the US sphere where think tanks are extremely relevant for crafting and shaping policy and ideas.

We've modeled some of our institutions following the patterns in the UK, in the eighties, like the big three: Thatcher, of course, IEA, Adam Smith Institute, and CPS (Center for Policy Studies), and some great institutions in Europe have drawn inspiration for us, like Timbro, for example. There's a parallel to be made between Timbro in Sweden and the IEE here in Spain.

o that exists there. So that's fear and keeps growing and there are more think tanks involved. The Europe Liberty Forum hosted by Atlas every year is taking place in Madrid. So we're slowly pushing this idea that Madrid is becoming one of the capitals of capitalism in Europe, certainly in Southern Europe.

And if you check the local and regional policies in many capital cities in Europe it is very far left. Many times it's liberal ideas, that find some ground at medium-sized cities, and industrial cities, not in a big city, big capital, big cosmopolitan place where many of them have moved so far to the left. Berlin, Paris, but not the case in Madrid.

Rasheed: So you mentioned how Madrid has a substantial population from Latin America in particular. There are two questions there. I guess we'll say one first. The new immigrants to Madrid, new migrants, do they tend to fall under the pro-liberal camp, or do they tend to be more similar to the, I guess, what they grew up with in Latin America, more like socialist leaning type policies?

Diego: Very good question. I think that we've had two big waves of immigration coming in from Latin America. And the first one took place at the outset of these reforms in the first half of the first decade of the 21st century. And many of the people were leaving their home nations and coming to Spain, because Spain was a fast-growing European country at that point.

And it wasn't so much that they chose Madrid. They rather choose Spain. Okay. We were involved in a fast-growing period under the leadership of then President José María Aznar. There were a lot of liberal reforms and its presidency that perhaps are fairly unknown to the international community.

But if you take reformers of the last 40 years, of course, you think of Reagan or Thatcher or even some Canadian reforms at some point, like Paul Martin and all of the changes they did over there. Sweden, of course, pops to mind, Australia and Ireland have been out-performers as well. But certainly Spain under Aznar, that was a big reform in eight years and a lot of progress and a lot of growth.

Spain lived off of those reforms for a long time. So those people came to Spain because of the language and the fast growth and the opportunities. So it wasn't so ideological based and it wasn't so Madrid centered. They would come to Madrid, to Barcelona, to everything available at that point.

Many of them come from countries like Ecuador, for example, also because of ongoing situations at the time. There was a hyperinflation that was ended when dollarization happened. But by that point, a lot of people had fallen into poverty and had looked for a way out. And Spain became a way out, just like other countries, places in the world have traditionally been centers of migration, right? But in the last several years, however, the people that are coming to Madrid are driven towards the Madrid model. From Western countries in Anglo-Saxon countries, like people coming from the U.S., I guess the premise that is selling most people on Madrid is the cultural side of it.

The fun side of the city, the open side of the city, and the fact that it's also cost-effective for you if you're still living off of your U.S. salary or investments to be here. But for the Latin American population that is coming, you get both high-net-worth individuals and really poor people. But there's one common denominator, they're all fleeing socialism. 

Venezuelans, hundreds of thousands of them. We just had a big demonstration of the Venezuelan community in Madrid that is pushing for free elections back home. So they remain engaged with what's going on back home, but they are already developing their industries, businesses, et cetera. They love Ayuso.

She's very popular in this community. This community also includes many people from Mexico fleeing Lopez Obrador, maybe people from Peru, leaving so much uncertainty through the past years, of course, Argentinians. Now, I guess with Milei, they do have some hope, but they're here now. They've left because of that track record of the past several decades has not been very positive on a net basis for freedom in Argentina, of course, and then many people fleeing situations like this. And then for Latin Americans, not only are they driven by the quality of life and the liberal reforms, they're also driven by safety.

Madrid is a very safe city, even by European standards. It's even safer. So what I mean by this is that Europe is by definition safer than most areas in the world. Spain is safer than most countries in Europe. Madrid. It's safer than most cities in Spain. So that's a big selling point. And you know what, when you've lived in a country or in a city that is rather safe, that's not part of the equation.

We talk about economic freedom and other stuff like this, and it's very relevant for people's lives. But when you have suffered violence, ongoing violence, thousands of people dying every year in your country, with this sort of problems, like has happened historically. And right now, for example, Ecuador tackling a huge crisis in that sphere.

Madrid has a great selling proposition. As well, because it's fairly safe. It's actually very safe comparatively speaking to Spain and to Europe and to the world is one of the safest big cities in the world. So when you combine all of these, I think it's a good setting point. And by the way, when we talk about the quality of life, we're going to talk about the culture, the food, the leisure, the museums, the concerts, the parties, just everything that goes on. But that is also a product of economic freedom because Madrid, when you check the cultural rankings for theaters, for music, for events, for food, Madrid was nowhere near the top 20 years ago . And it is now it's clearly ahead. So why is it that we now have our mini Broadway with 15 musicals playing?

Why is it that when Taylor Swift or any international singer comes over, they choose Spain and prioritize Madrid over any other city, including Barcelona, which used to be a huge concert destination. And it's not anymore. Why is it that our football team, Real Madrid has won five champions leagues in the past several years.

While Barcelona has almost gone bankrupt. Why is it that net inflows of population are benefiting all of these industries as well, supplying more ideas, more entrepreneurs in areas such as food? Why is it that while Catalonia used to be the food capital of Spain, now all the restaurateurs are moving to Madrid?

I'm guessing that this whole idea of trusting people and allowing creativity to flourish and letting people mesh and keeping an open society there and a free market to support it yields great results also in everything related to culture, lifestyle, and quality of life, which I think is good in Madrid.

Consider that it is a big city, by the way, of course. The best quality of life is always going to be living on a big mansion and a great beach destination, great weather. Madrid is a big city. It has its complications, like all big cities do. The quality of life is very often highlighted to be among the world's highest for all big cities.

Rasheed: I can definitely see that from just day to day living in Madrid. I was recounting to some friends of mine this very recently, perhaps even last week, that right now there's so many musicals playing simultaneously or concurrently. There's Book of Mormon, there's The Lion King, there's Phantom of the Opera, all play at the same time here in Madrid it's again, very surprising.

The other point after that I wanted to say here is, this was maybe back in November. Yes, before the election in Argentina, I was in the barbershop and there were some barbers from Argentina, from Venezuela, from Columbia, and I can remember one of the Argentine barbers was explaining to the other barbers why Milei should win and dollar rice, Argentina.

I was such a very unique kind of conversation over here in a barbershop in Madrid. 

Diego: I know, but you know what, there is this saying that Ayuso has popularized that all accents are welcome in Madrid and that you know what, you're not driven to be this or that as it should be in any open society. And I think with it, that model very well.

The fact that maybe it's also a chance of luck. We were originally just an administrative capital. It didn't have much history behind it. It's a separate region, but there's not much differentiation. If you talk about what the food is like here, it's similar to Castillo. Similar to the one of the center, maybe a bit more Northern than Southern, but that is what it is.

It's not separate. Our flag is a made-up flag. No one would wear them, you would wear the Spanish flag in a demonstration. So no one would come out with a Madrid flag. It's no one's proud of their regional flag. It's just a random flag that I mean, it's just a flag. There is an anthem, like a hymn, or like a hymn from Madrid, but I think I've heard it twice because there is no, this collectivist idea of what the economy should look like or the society should look like.

And it's giving good results. I think it's very interesting. The size of the Madrid economy is as high as Portugal, okay? So we're talking about a region, but it is a big region. It is a big economic region. It's 7 million people and producing an output of around 300, targeting and moving all the way up from 200,000 and moving up to 300,000 billion in the coming decade.

Rasheed: In terms of the intellectualism of liberalismo in Spain, do you see that filtering back into Latin America? I know a lot of similar people from Latin America, think tanks, and intelligentsia, that support liberalism, they often are in Madrid, back and forth, and they live in Madrid sometimes. Have you seen that kind of increase in backfiltration of liberalism thinking?

Diego: I think so. I think there is a free exchange of ideas that has always been there and we see no boundaries there. Like I could be talking to a Chilean author, just like I could be talking to a Spanish author. And we both get each other's challenges because our societies, our cultures, our history have so much in common.

When tragedy strikes, it feels like home. Something like that goes on. And when something promising is going on, we're all excited for each other. We're happy that Argentina has some prospects for opening up under Milei. And Argentinians are happy that we've got this Lady Liberty in power that is pushing forward with new reforms like Isabel Díaz Ayuso is.

So this is good because I think that we were lacking our own references. And I am a huge fan of all the great work that has been done in the Anglo Saxon world with some fantastic think tanks like Mercatus, of course. We were just speaking prior to recording this podcast about how much of an influence Mercatus has had on me through the years.

I've named dropped some people, of course, Peter Boettke and Veronique de Rugy. Of course, Tyler Cohen and George Selgin, who just happens to be living in Spain, in a region, Andalusia, which actually moved away from socialism after 40 years in socialism and is booming. The Madrid model actually works and not just for Madrid.

It's the free model and it's working for Andalusia. So it's great to have those references. And it's great we can look into Thatcher and Swedish reforms in the 90s, but we were lacking our own narratives and stories and our local development of our own idea of what. Freedom looks like and how it should be implemented.

And I think we've been able to get that. And I think the next frontier for us is to try and help the conversation in the non Spanish speaking world by sharing our stories, successes, and some failures on the way towards liberalization in Madrid and in some other Latin American countries. And I think we should try and push for that dialogue because the Hispanic world dialogue is ongoing and it's alive and it's well, and it's reinforcing itself.

Rasheed: Yeah, that's a very good point. I think one of the things I've said recently, now that I'm getting into more, let's say, Hispanic world economic theories and conversations, is there's very little cross communication. Surprisingly enough, it's not as a difficult language barrier per se, almost like it's very kept.

Even for example, some very small dollarization policies, almost all the best work about dollarization is in Spanish. And. You see all the English commentaries of it, but if you don't read this stuff, you're missing a whole chunk of the actual work. That's a very good point. You definitely have to do more of that kind of Anglo Saxon communication for sure.

Diego: Yes. It's a common challenge. We need to be able to realize how important it is to share our side of the story, but we also need more engagement from the Anglo Saxon world. And I think like podcasts like this can actually get a lot of more people interested on these matters. I guess most of us in the liberal community are very interested in everything going on in the Anglo Saxon world.

Rasheed: Now comes the end. What are you most excited for when it comes to thinking about the development of liberal policies in Madrid in the next three years, four years, in the short term? 

Diego: Okay, so one thing that has happened in the last five years, and since I tried to play a role there and my ideas were very welcomed by the government, for which I'm extremely thankful, is the idea that we need to start thinking on making deregulation a priority.

If we allow bureaucratic inertia to creep into our legal systems we end up with thousands and thousands of pages of new legislation that is not even coherent among itself and that imposes huge, very often hidden costs on the economy. I've run the numbers and estimated that, for example, the fragmentation that we have and regulation in Spain is costing us 5 percent of GDP.

And Madrid has decided to reverse it by eliminating, specific licenses and automatically recognizing those that are given out by any other Spanish territory. And that's an achievement I'm very proud of and I played a big role there. We've also started to liberalize housing and urban planning, an area in which I think we've done the work.

The intellectual body is there, but there's been very little progress at the political frontier. And you know what, that's a big issue, especially for young people these days with the cost of housing being so high and the stock or supply of available housing being so low. I think we have the right ideas.

We've been proven right. That's why housing costs have been going up. But now we need to get politicians to commit on these reforms and it's slowly starting to happen here in Madrid and some advances, relevant advances could happen in the next years. But you see, again, I'm talking deregulation on both ends, like relation for the economy and more specifically now on housing and urban planning.

I think if we get this done and starting to happen and we can keep on going in the next few years, that should actually make a difference, make a change. Because, for example, I suggested this to Governor Ayuso and her regional minister of economics, Javier Fernández-Lasquetty, who is smart enough to take this idea and turn it into the open inbox for pushing against overregulation.

 And this inbox received hundreds of proposals. And more than 150 have already been enacted that resulted in a reduction in red tape. And sometimes the red tape is very stupid laws that restrict, for example, your ability to build or to start a business. Sometimes it's the paperwork that doesn't allow a doctor to come from Venezuela and automatically start working in the Spanish healthcare system.

Things like this. So this progress has been very good. And I think that tax policy needs to be getting better. But tax policy spending, that is very often the low hanging fruit of free market reforms. That's a common denominator that all free marketeers have in common. They've all enacted successful tax reforms, and that needs to be priority number one, because it's very visible, it puts money into people's pockets, creates supply side incentives for companies needs to be going, but that's second generation reforms. There are no longer low hanging fruit that require more work. Those are in deregulation. And that's where I believe the potential for the highest growth lies.

And last but not least, having talked about deregulation for all this time, that's my answer: deregulation. That's where there's progress going on, where I see progress coming forward and where I encourage that we can keep on making progress. Right. But having said that, our big win here. was changing hearts and minds.

So none of this matters if we stop doing that. We need to focus on explaining everybody why this matters for them, why this changes their lives. How is it that on a daily basis their life is better off through these changes, through these reforms. If we keep on doing that, I think we have good times ahead for Madrid and hopefully they can inspire other regions, countries, anyone joining the conversation.

I was just dropping the Andalusian bit very quickly. I wanted to develop on that just for a few seconds more and then I'm done. Around eight million people live there. It is a beautiful region, home of Sevilla, Granada, Cordoba, some of our most beautiful cities, but it was in under socialist rule for 40 years.

Thanks to the changes that took place in Madrid, when their regional government decided to basically emulate and even compete with Madrid in some of these policies, the population was aware of what was going on here and welcomed these changes. And now they are benefiting from it because for the last five years, they've really turned things around, which is good for us, right?

Because we could be pushing for these ideas, but if we didn't have the numbers to back them up, but we do. So we need to keep on doing that work. Deregulation. That's going to be the next challenge. 

Rasheed: Diego, thank you so much for coming on the podcast today. 

Diego: My pleasure. Muchas gracias. 

Rasheed: And yeah, everyone come over and get a taste yourselves of what the capital of capitalism looks like.

Diego: Come to Madrid.

Rasheed: That's it for this episode. For updates about the podcast, please subscribe to our Substack blog found on cpsi. media. You can also read our newsletters and long form content on Caribbean policy improvements.