To save itself, Greece must realise that its crisis is the result of three decades of incompetence and corruption

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Although a minority protest, 'the majority of Greeks face the crisis by trying to make ends meet'. Photograph: Louisa Gouliamaki/AFP/Getty Images

Contrary to what outsiders may think, most Greeks do not spend their time throwing Molotov cocktails, or even protesting. In fact, though the austerity measures demanded by our international lenders have affected millions of lives, some hundreds of thousands of them dramatically, the great majority of Greeks face the crisis by doing what most people do during hard times: they try to make ends meet as best they can.

Yet this does not make good television, while militants in hoods and gas masks firebombing policemen does. So, many non-Greeks believe Greeks are not just lazy but also ungrateful and, probably, mad. None of these generalisations is true: most Greeks are hard-working people, the extremists who provide such great TV to the world number no more than a thousand, and the great majority of the demonstrations that daily disrupt Athenian life are only attended by a few hundred cadres of the parties or public-sector employees' unions organising them.

This is not say Greeks are happy with their situation. They are not. But though the hardships of many, especially the jobless, are undeniable, I believe our despair is more due to ignorance than anything else. In fact, though I generally subscribe to less optimistic explanations of human motivation, the present Greek crisis reminds me of Socrates's most-often quoted piece of wisdom: that all evil is due to a lack of knowledge. I can't help thinking that if only someone (old and bearded, ideally) could reveal the essence of our problem convincingly, then Greeks and non-Greeks alike would see the truth, and implement the actions necessary to solve our problems. For you cannot have good therapy without good diagnosis.

What makes ignorance particularly frustrating in this case is that the facts are at our fingertips. Let me give you one: although 750,000 people (15% of our workforce) have lost their jobs since the crisis began, not a single one is from the wider public sector, which employs one out of four Greeks.

The story behind this figure tells us all we need to know. First: what we call a crisis is the result of actions performed over decades. Second: its creator is an ineffective, incompetent and corrupt political establishment, which transformed politics into a mechanism for exchanging favours with votes, most of the former having the effect of making the state more ineffective and costly. Third: the critical point came when this mechanism became so ineffective and costly that it brought down the rest of the economy. Of course, the international financial situation, banks, speculators, crooks, etc played their part in making things worse. But they couldn't have done so if Greek politicians had not destroyed, over 30 years, the heart of our economy.

Today, politicians are bickering about who is doing more to save the country: the loan-signers, who are agreeing to more and more austerity measures, or the loan-deniers, proposing what they call a "nationally proud solution", a catchphrase that appears in various forms in the rhetoric of extreme right and extreme left alike. But both sides are denying a truth: the loan-signers that the reason more austerity measures are required is that they are unable and unwilling to cut public spending in rational ways; and the loan-deniers that their "proud solution" is a synonym for the indescribable misery of default. Both are lying for profit: the first to protect their clientelist networks, financed by public money, the second to drive Greece to the state of chaos and misery that forms the preferred habitat of extremist politics.

Actually, we don't need a bearded old man to tell us the truth about the crisis, but a little boy. For the statement that Greek politicians are to blame is as obvious as the emperor's nakedness in Hans Christian Andersen's famous fairytale.


By Apostolos Doxiadis
Source: The Guardian
Published: February 20th, 2012

Costas Meghir argues that reforming the judiciary and the labor market should constitute priorities for structural reform in Greece. The reform of the judiciary should focus on the time it takes to resolve commercial disputes as well as on the quality of judges and their ability to deal with complex issues. Hiring immediately from amongst the best lawyers offers an immediate way of dealing with the huge backlog of cases. In the longer term incentives structures backed with better pay should be put into place both to improve effort levels and to attract higher quality individuals in the profession. The labor market regulations should be simplified and all workers should face the same regulations, irrespective of occupation. All mandated severance pay and restrictions on mass layoffs should be abolished. Liberalizing the labor market also requires reforming the way unions work and making them much more accountable to the workers they represent in the workplace. A well functioning judiciary is a key complement of such reforms because it mitigates the possibility of abuse and ensures that the few regulations are implemented. Together these reforms are key to creating a business friendly environment with suitable protection for workers and investors.

The full article of C. Meghir (a shorter version of which was published in the New Year’s edition of Kathimerini newspaper):

While we are fighting to establish fiscal sustainability and international credibility we must not lose sight of the strategy that will stimulate entrepreneurial activity, leading to growth and prosperity. Unavoidably, the path will be hard and painful with large transition costs. While reinventing Greece will require reforms in most sectors, the editor of this newspaper suggested we express specific priorities. I suggest the following.

Necessary conditions for an environment that can attract investment are the rule of law and a flexible labor market, characterized by good labor relations. The former establishes property rights and enables the enforcement of contracts. The latter allows investors to hire labor competitively, allows young people to establish careers, promotes job creation and provides incentives for investment in education and skills. So our priority has to be judicial and labor market reform.

When an entrepreneur plans a major enterprise they need to ensure that all contracts can be enforced because once they have sunk their investment they become vulnerable to hold ups by subcontractors and labor unions. The inability to ensure timely enforcement discourages major investments and job creation and leads to an economy focused on low productivity and low-tech activities.

In Greece the judiciary is monumentally inefficient to the point of complete paralysis. It takes on average 819 business days to resolve a commercial dispute compared to 518 on average in the OECD; underlying this terrible statistic are cases that take many more years to complete. According to Elias Papaioannou, Greece ranks 154th out of 183 countries in terms of legal protection for investors. This is a major impediment to growth.

In reforming the judiciary we need to deal with two key issues: (a) the time it takes to resolve disputes; (b) the quality of judges and their ability to handle complex cases. The proposed new law is a step in the right direction in some ways and we should support it.

To address the first issue the number of postponements and appeals must be curtailed and there must be strict time limits within which to issue decisions – lower than six months in the proposed law.

Addressing the quality of judges is much harder. New judges should be recruited immediately from amongst the most successful lawyers, (remunerated appropriately) improving both the quality and capacity of the system. For the longer run there is a need to link substantial pay increases and genuinely meritocratic promotions to performance so as to improve effort levels and attract better judges in the profession, equivalent to the best lawyers in the private sector. All this needs to be funded by increased legal fees paid by the losing party in the dispute. There is a need for an ombudsman/regulator who will oversee the functioning of the courts, will publish the performance of the courts and of individual judges and will deal with complaints by the public.

The next ingredient in a well functioning economy with the promise of immediate effects is a flexible and dynamic labor market. This has far reaching implications: it allows businesses to attract labor at competitive wages; it helps ensure workers are paid their productivity; it allows young people to establish productive careers; it offers the right incentives and rewards for obtaining education according to ones preferences and aspirations; it ensures labor is reallocated from declining to growing industries efficiently with the minimum of frictions; it leads to more employment – not less. Yet in Greece the labor market has been routinely overregulated. The result is high unemployment and one of the lowest productivities per person-hour in the EU. The multitude of small, low-tech businesses and the almost complete absence of large enterprises with an export orientation is due in part to the way the labor market operates in Greece.

The issue with the Greek labor market is the multitude of complex regulations, the distinctions between types of workers in relation to firing rules and the role of the unions. First, the regulations should not distinguish workers by occupation; regulations should be simplified and be the same independent of occupation. Second the regulations should allow firms to adjust the size of their labor force with ease. Indicatively, all legally mandated severance pay should be abolished to reduce firing costs. Moreover, all regulations relating to mass dismissals should be abolished so that investments in large enterprises are again encouraged. The terms of employment can and should be governed by private and enforceable agreements between employers and employees.

Substantive labor market liberalization cannot take place, however, without a repositioning of labor relations, the democratization of unions and the abolition of collective agreements. On the one hand we need to protect the right of workers to organize and be represented. On the other hand unions bust be accountable and must not be allowed to hold the economy hostage, increasing labor costs and reducing productivity. To achieve these dual aims we need to organize annual elections where workers vote on whether a union will represent them in salary and other negotiations. Moreover strikes should only take place after workplace ballots and reasonable notice. All such elections should be decided on the basis of a majority of all those employed agreeing – not just those voting. Finally, workers should always be allowed to opt for binding independent arbitration as an alternative to strike action.

The two proposals are key elements of an economy that is friendly towards entrepreneurial activity. However there is another link: deregulating a market can lead to abuse. This is why the few remaining regulations need to be enforced with vigor. No one, for example, should be able to bypass basic health and safety or anti-discrimination regulations. This is where an effective judiciary can play a crucial role for the efficient operation of markets. The implementation of these proposals would give a very strong signal to international investors about the intentions of the country and would have important implications for growth.

The problems in Greece do have solutions – however, do politicians that can implement them exist?


By Costas Meghir
Source: Greek Economists for Reform.com
Published: January 1st, 2012

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