1. Bilbao historically had a strong economy based on iron and steel industry throughout the 19th and 20th centuries due to its abundant iron ore and strategic location near British markets and fuel sources. 2. However, beginning in the late 1970s, Bilbao experienced severe deindustrialization as its steel industry declined due to broader economic crises and the rise of neoliberal policies. The city lost nearly half of its manufacturing jobs between 1975 and 1996. 3. In response, Bilbao launched major urban regeneration projects in the late 20th century to rebrand its economy around services and creative industries, including investing in high-profile projects like the Guggenheim Museum Bilbao, in

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Nicola Valentini
The Economic Development Path of Bilbao: from the
Industrial Revolution to Urban Regeneration
Rise and fall of Biscayan heavy industry
Bilbao historically is one of the most important economic centres of Spain. In the last
two centuries its economy was deeply intertwined with iron and steel industry. Iron-
mining here probably pre-dates Roman times. However, it was only in the second half of
the nineteenth century that an industry capable of exploiting that richness developed. It
is clear how endogenous factors played an important role in the development of
metallurgy in the area, but they alone do not explain the reasons why Biscay became the
location of Spanish iron and steel industry. Problems with fuel, transportation, and
entrepreneurial innovation were three crucial challenges the city-region had to
overcome in order to become competitive. Almost all Spanish steel industries had to
confront the problem of coal that was expensive and remote. The abundance of iron ore
and a strategic geographic position strongly favoured Biscay in obtaining fuel at very low
transport costs (Tortella, 2000). British coke was indeed cheaply obtained thanks to the
massive export of mineral ore to Britain. The ease of extraction of raw material (added
to its proximity to the Nervión river), the economic and geographic proximity to the
British market, and the consequent low transport tariffs made of Bilbao the optimal
location (Weber, 1909) for the development of a heavy industry. Immigrant workers
from other parts of Spain formed the cheap labour workforce the region needed.
Moreover, in the last decades of the nineteenth century shipbuilding grew and was
modernized thanks to the new iron and steel industry.
The introduction of the first Bessemer furnaces in 1884, which converted low-
phosphorous iron to high-quality steel, and the construction of the first Siemens-Martin
converters soon thereafter, represented the technological turning point that permitted
steel output to grow apace in the region (Tortella, 2000). Altos Hornos de Vizcaya, the

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result of the merger in 1902 of three large iron and steel companies, produced most of
the steel in Spain. At turn of the century, Biscay had the greatest population growth, the
largest railway system and the largest number of ships registered of the country. But to
better understand the results and limitations of Bilbao’s development we have to focus
our attention on the role held by the State in that period. Economic activity appeared to
be strongly embedded in and constrained by the Spanish political context. The State
mainly acted as a regulator of the national economy. The relationship between the
protectionist policies regulating commerce and the Biscayan iron and steel industry is
quite controversial. Tortella (2000) states that the tariffs imposed by the State in the end
turned out to be more an obstacle than a stimulant to growth, given the fact that also
national coal production was protected. One of the most important outcomes of these
interventions was favouring the creation of an oligopolistic structure in the sector. In
this way, the industry was sheltered from both external and internal competition and it
could respond to increasing demand simply by increasing prices, rather than production.
It is clear how, in this case more than others, economy was enmeshed in both economic
and non-economic institutions (Polanyi, 1992), and they contributed to the creation of a
distorted market.
In the first four decades of the twentieth century we can notice positive (1914-20, 1923-
29) and negative (1921-22, 1930-35) economic cycles, typical of capitalism, this being a
dynamic and unstable economic system. The process of “creative destruction”
(Schumpeter, 1943) is particularly evident in metallurgy and Altos Hornos de Vizcaya
modernized and expanded its means of production during each positive cycle
(Sagarmínaga, 1996). The Spanish Civil War (1936-1939) paralyzed the productivity of
the area and started a new economic and (geo)political phase. During the first ten years
of Franco’s dictatorship the State was the main actor in the economy of the country,
with terrible consequences for Bilbao. Thanks to the work of Tortella, we can list the
biggest mistakes that directly affected the economic development of the city-region:
 autarky did not help exchanges abroad, with the government establishing
import controls and rationing foreign exchange;
 extreme interventionism in industrial matters, which discouraged and restricted
investment;
 prices were not determined by market forces but by the government, creating
distance between Spanish and real economy.

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During the 1950s decisions and interventions of the central State continued to play a
decisive role in the economic life of Bilbao and its main industry. Two main processes
ended the oligopolistic structure in which Altos Hornos de Vizcaya was operating:
 a long and controversial liberalization of the market, started in 1949, with the
1962 liberalization of steel imports (Sagarmínaga, 1996) of particular
importance for metallurgy;
 the creation of ENSIDESA, a state-owned company for iron and steel production,
by INI (Instituto Nacional de Industria) in 1950.
In those years a very peculiar form of capitalism developed in Spain, in which a semi-
open market lived with a state-owned financing and industrial holding company
following the principles of the Italian IRI (Istituto per la Ricostruzione Industriale),
founded in 1933 by Mussolini’s fascist government. It is clear as the “nature and
institutional fabric” of Spanish capitalism differed substantially from the one of other
Western economies, especially the Anglo-American liberal markets. But how did this
new situation affect Biscayan iron and steel industry? From 1950 until the mid-1970s
there was a permanent increase in the number of industrial jobs in the region together
with a very low unemployment rate: 3.2% in 1975 (María Gómez, 1998). It is clear how
these impressive results are intertwined with and partly dependent on the positive cycle
lived by Western economies in those years. In order to compete with foreign companies,
important investments were made both by privates and the State, and also foreign
investors started to be involved in Biscayan industry. In this sense, it is worth noting the
acquisition of the 25% of Altos Hornos de Vizcaya capital by the most important steel
company worldwide, the United States Steel. But if the flow of foreign capital had
evident positive effects, the role of ENSIDESA is more debatable. If it is true that the
company contributed to breaking the monopoly and incentivizing market competition
(Tortella, 2000), it distorted that same competition, being it strongly supported by the
State (Sagarmínaga, 1996). Power relations were involved, with the central government,
once again, playing a major role in the dispute. And these relations contributed to
construct economic spaces in an asymmetrical fashion (Allen, 1997). Avilés, where
ENSIDESA was found, and Bilbao, were facing each other in unbalanced conditions.
Emblematic of this process was the merger of the two companies and the creation of CSI
(Corporación Siderúrgica Integral) in 1992, after which Altos Hornos de Vizcaya was
clearly the loser. The Basque private company indeed had to reduce its production

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capacity much more than the Asturian state-owned one (Sebastián Etchemendy, 2016),
and it saw the transfer of part of this production capacity to Avilés. At that time,
however, the economic situation in Bilbao was already dramatic. After having the steel
industry reached its zenith in the mid-70s, the crisis arrived in Biscay in the late years of
that same decade and in the early 1980s. The whole Biscayan economy gravitated to the
heavy engineering industry, up to the point that all economic activity in the province
was dependent on it (García Merino, 1975). That was the reason why the most severe
economic devastation was found within this province (Uribarri, 1975). Between 1975
and 1996, metropolitan Bilbao lost the 47% of its manufacturing jobs (EUSTAT, 1996). In
the Basque country, a quarter of the jobs in industry and construction sectors was lost in
less than a decade (1979-1985)! (Banco de Bilbao, 1989). As we know, the 1970s energy
crisis interested the whole Western world, and heavy manufacturing particularly
suffered from both the same crisis and the neoliberal policies adopted to overcome it.
Capitalism tried to resolve its inner problems by geographical expansion and
geographical restructuring, with investments in new activities and markets. The
contradiction between the geographical fixity and motion of capital (Harvey, 1982) is
central in regard to the deindustrialization process that took place in Bilbao and many
other Western industrial towns. As economic conditions changed, capital abandoned
these existing centres of production and established a new “spatial fix” (Harvey, 1982)
involving investment in different regions. In the case of iron and steel industry, a long
series of mergers and privatization, which interested also Spanish CSI, led to the creation
of the multinational corporation ArcelorMittal S.A. in 2006, whose major plant locations
are principally found in new industrialized countries. In Bilbao the service and creative
industries are instead the new controversial sources of economic development.
Remaking the image of Bilbao
The crisis of Fordism and the transition towards a so-called new regime of flexible
accumulation (Harvey, 1989a; Rodríguez, 1998) specially affected Bilbao, forcing the city
to adopt new policies in order to survive. The process of recovering from the economic
crisis have been long, painful, and hindered by the socio-political situation Bilbao was
living in those years. The service sector struggled to become the new backbone of the
city’s economy. In the 1979-1985 period, when the Basque Country lost almost a

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hundred thousand jobs in the industry and construction sectors, the jobs created in the
service sector were just a hundred and eight (Banco de Bilbao, 1989). The
unemployment rate during the early 1990s was still incredibly high. The municipalities
on the left bank of the river were the ones with highest rates, since heavy industry used
to be concentrated there.
1981 1986 1991
LEFT BANK MUNICIPALITIES 23.8 28.3 24.0
METROPOLITAN BILBAO 18.4 25.7 21.4
MECSA (1995); Prieto and Ureta (1994); Maria Gómez (1998)
We see as in 1991 unemployment rates were still slightly higher than the ones of
ten years before. The situation did not improve in the following years, and
indeed the 27.2% of the labour force was unemployed in Metropolitan Bilbao in
1996 (Banco Bilbao Vizcaya, 1998). Moreover, the terrorist activities carried-out
by ETA, a former Basque nationalist and separatist organization, terribly
escalated in those years, and Abadie and Gardeazabal (2003) demonstrated as
this internal conflict had further negative economic effects on the Basque
economy.
But in 1989, Bilbao had already started to rethink its own image, a decision that
will lead the city into a new phase of its economic path. The city decided to
undergo a process of urban regeneration through the Strategic Plan for the
Revitalization of Bilbao. Bilbao Metróli 30, a public-private institution, coordinated the
revitalisation. The main objective of the Strategic Plan was to turn Bilbao into the
economic, financial, and cultural centre of the geographic area (María Alvarez Sainz,
2012). Culture, and its ‘economisation’, has been a main feature of the plan since the
early stages. ‘City branding’ was a primary issue, since Bilbao wanted to reposition itself
and communicate the new benefits and value the city could provide. The urban planning
and regeneration was mainly based on the realization of new important attractions and

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infrastructures by worldwide famous architects. The Zubizuri bridge (Calatrava, 1997),
the Guggenheim Museum (Gehry, 1997), the new airport main terminal (Calatrava,
2000), and the Bilbao Metro (Foster, 1995) are the most representative initiatives
undertaken by the Bilbao Town Council during the last years of the second millennium.
The core of this plan was Abandoibarra, a deindustrialised area along the left bank of
the Nervión river. But to better understand the post-industrial/postmodern life of
Bilbao, we have to pay attention to the new spatial scales involved. After-Fordism is
characterized by the “hollowing out” of nation-state and the emerge of supranational
and local bodies (Jessop, 1994a; Mayer 1994). In the case of Bilbao, a number of factors
contributed to make this process of special importance for the economic development
of the city-region:
 following Franco’s death, the new Spanish Constitution was approved and
democracy restored in 1978;
 the same Constitution recognises the Basque Country as an autonomous
community, which is regulated by the Statute of Autonomy of the Basque
Country;
 in 1986 Spain joined the European Economic Community, which later
became the European Union;
 the regional and European dimensions always have been crucial for the
Basque people, both economically and socio-politically.
New actors partially substituted the national government. The Autonomous
Basque Government, the Territorial Council of Biscay and the aforementioned
Bilbao Town Council were, and still are, the three regional institutions guiding
and orchestrating the great transformation of the city. Moreover, the EU has a
strong regional policy and, at the same time, favours the creation of
international networks. After being peripheral economically, politically, and
geographically for decades, Bilbao is gaining a relevant position in new global
networks through a process of ‘glocalisation’ (Bauman, 1998; Swyngedouw,
2004), even if it seems that local culture is being erased by Bilbao’s new
economic activities.

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Xabier Gainza (2016) informs us that the focus of the city’s policies is recently
changed. Indeed, it moved from flagship facilities and large-scale
transformations to neighbourhood-level interventions aimed at promoting
spaces for cultural production. It can be considered a natural process, since the
long-term value of the use of art and culture as mere branding and marketing
tools is dubious. Administrators want new forms of culture not just to be
consumed in Bilbao, but also produced in the emerging planned cultural clusters.
San Francisco, a multiethnic working-class quarter, has been conceived as a
‘machine for culture production’. Clustering is still crucial even in a globalised
world (Porter, 2000), and untraded interdependencies (Storper, 1997) are of
particular importance in art and culture production. The new creative class
(Florida, 2002) living in the neighbourhood is the driving force of this new
economy. However, different scholars (Pratt, 2008; Mommaas 2004) believe that
also gentrification and cultural clustering create consumption-based dynamics
rather than production-based systems. Alternative and spontaneous forms of art
are turned into mainstream products by the new creative class, and ‘space for
creative producers risks becoming a space for creative consumers’ (Zukin and
Braslow, 2011).
Many opinions have been expressed regarding the regeneration policies adopted
in Bilbao. Richard Marshall (2001) enthusiastically described the revitalization of
the city as a ‘success’, and his colleague Alfonso Vegara called this process a
‘miracle’. And it is undeniable that the Strategic Plan was able to overcome a
dramatic economic and social situation. The Guggenheim Museum alone
contributed with more than €337 million to the economy of the area (Cooke,
2007) in its first two years of operation and in 2005 unemployment rate was
twenty percentage points lower than in 1996 (EUSTAT, 2002-2008). Moreover,
Bilbao today is one of the principal tourist and financial centres in Southern
Europe, and it is capable of attracting both financial and human resource flows.
In the last years, however, the way in which Bilbao and other cities branded and
marketed themselves has been strongly criticised. María Alvarez Sainz (2012)
sustained that the long history of Bilbao should not ‘be erased in the process of

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(re)building her image’. Traditional culture and identity are the unique features
places can use to differentiate themselves from competitors, but the local
government, willing to present Bilbao as a global hub, is neglecting the local
dimension.
Bilbao now has to face new challenges and answer new questions. After the
2007-2008 crisis, even if GDP per capita continued to grow (€26,225 in 2005,
€30,890 in 2012), unemployment rates have more than doubled and the cultural
industry does not seem able to create new jobs. Gentrification has not priced out
migrant population and traditional neighbours (Xabier Gainza, 2016), but it
probably is not the answer for their working lives.

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