Sophia Tsellou (31) is a political scientist and economist. She is specialized in labour relations and in the application of social policy programs. She is a PhD candidate at the University of Peloponnese and currently works at the Parliamentary Budget Office
After four years of strict austerity Greece is at a zero starting-point. The negative consequences of the crisis are affecting the Greek society more than ever. Even though there were some signs of recovery of the economy in 2014, the future course of the country seems, unfortunately, doubtful. The main factors creating such doubt are the fact that structural reforms and fiscal convergence remain in limbo, as well as the inability to reach an agreement with the institutions. The economic and social system is experiencing a cataclysm that threatens to destroy the healthy part of economic enterprise that has managed, up to now, to survive, despite the many difficulties.
Greece is the only country still on “mechanical support”, when it can be safely said that the other states, such as Ireland and Portugal, are steadily on their way to becoming economic powerhouses. Even Cyprus will shortly emerge from the crisis. We cannot blame the European structures for our condition, but rather the fact that we refuse to embrace change and prefer passive inactivity. Only radical solutions, based also on international experience, will allow us to escape from the vicious circle of failure to enact reforms. The country needs many, constant and consistent changes.
However, before we examine the problems that brought Greece to this point and what could be done, it would be useful to mention the factors that led to the current general crisis. It is obvious that the vision of conventional economists for stable and sustainable economic growth has failed, and in a big way. This happened because attention was given to excessive consumption rather than to saving and preserving capital. It would have been wise if it was understood that markets must operate freely so that they provide access to the information that leads to growth. Proper information is the force driving growth. False financial information or false political information mislead. The alliances of governments, central banks and the banking system inadvertently create misconceptions, and through excessive lending increase their profits and deposits; but as has been seen, such a course can never be sustainable. It has been understood that when credit extension ceases, growth also comes to a sudden stop (money must be restricted, otherwise it operates as nuclear energy). State intervention has been shown to restrict information and thus perpetuate the crisis and increase its intensity. When consumers, businessmen, depositors and investors have no access to correct information, they are led not to the right choices, but to decisions fraught with risk. Growth can never be achieved through government intervention, high taxes and bureaucracy. In most cases the political system provides erroneous information and deals with the market as if it were a government institution. Concerning capital, according to Austrian economists it is an edifice that in order to function must be structured properly, step by step; otherwise, it will collapse. Professor Steve Horowitz has likened capital to a Lego model, for which specific pieces are needed and these pieces must be assembled correctly. Lastly, explosive growth based on erroneous information has led to economic, but also social collapse.
Let us return to the Greek paradigm. There is no question that in recent years we have seen strongly exemplified the phenomenon of erroneous assessment of the problem and the postponement of important decisions. The causes of our current problems are sought in the actions of particular people and in what we call the institutions – structures and values. However, before we analyse these causes, we must not forget that we as individuals choose whom to elect; in this, we must be careful and decide only after we evaluate correctly the situation and always consider the long term. We must decide consciously, be active citizens, demand our rights but also ensure that the options of the future generations are not compromised. It is important to promote once again the values of free choice and justice, since we seem to have forgotten the meaning of equal opportunities and rewards, whether good or bad. If the latter (i.e. negative sanctions) had been deployed, it is certain that many of the problems of Greece would have ended. In addition, disregard of the common good, greed, lack of honesty and integrity, and absence of true democracy, generate a vicious circle that leads to certain disaster.
The political process in Greece suffers from well-known defects that are constantly increasing instead of being eliminated. They include the traditional relationships of clientelism that form the basis of the political culture, powerful pressure groups, such as trade unions, which obtain benefits to the detriment of groups that have no voice, and the prevalence of non-liberal ideas that regard markets and competition with suspicion. The above have the immediate result of ensuring the dominance of the few who prosper, while leading to gross dysfunctions in the economy (creating generations of the fortunate and of the excluded). It is imperative that the rent-seeking society be overturned. The statist system does not enhance the economy but rather destroys competition. Therefore, as noted above, the responsibility does not lie with the European structures (even though the choices made as to our borrowing proved counter-productive) but with our own institutions and structures. Institutions are a driving force for growth; several research projects, and in particular the study by Tavlas and Petroulas concerning institutions in Greece, have shown the statistically significant impact of law and order, administrative organisation and corruption on growth. The renowned economist Daron Acemoglu asserts in his “Why nations fail” that main causes of failure in countries are the institutions and the elites that look to their own interest only and not to the common good. According to a study by the Brookings Institution, if corruption was restricted the deficits could be reduced by 4 percentage points. To restrict corruption however, we need to restore moral order – a requirement that we are systematically ignoring. We should remember here the wise words of Isocrates: “The quality of a polity depends on whether it is governed by good or corrupt people”.
Unfortunately, up to now our governments have fought against the “memoranda” [loan programs] due to the pressures of interest groups, and either failed to implement the prescribed reforms or implemented them only partially. However, reforms also mean changes in political relationships. The governments undertook to reduce bureaucracy, open-up the closed professions, and reform public administration, labour relations and the social insurance system. Reforms are necessary for economic effectiveness and they yield fruit in the long-term – a fact that is not understood by the prevailing structures, the politicians and the trade unions. The country needs reforms in order to stop the oppression of society. The tactic of raising taxation discourages investment and therefore hinders growth. A reduction in public spending (especially in defence) is what is needed to reduce deficits and increase growth. At this time, we are seeing ambiguity as to the course of expenditure, with piecemeal announcements and no legislative measures.
The country needs fiscal convergence and a stable plan for growth. It is important to retrieve our lost credibility. We must leave behind the errors that have led us to economic, but also political bankruptcy. We need to convert the party state to a state typified by meritocracy, controls, without tax evasion and corruption. The many superfluous public servants created by the system, who in most cases have no education or experience, must, at last, be reduced in number. Now of course, we are seeing those who were dismissed returning to their positions. We refuse to reduce the number of public employees; indeed, each government proceeds to make new appointments. Important administrative mechanisms, such as taxation, must cease being exposed to party and political interventions. Control of tax evasion can be achieved by using technology, since the tax inspectors have not, as is now obvious, always operated in the right manner. Tax-collection mechanisms also require radical change. In brief, it is necessary to create a new tax culture characterised by independence, thus achieving transparency and accountability, concepts that we seem to have forgotten. The privatisation and exploitation of national assets can yield significant revenue. Another imperative need is to make use, finally, of the various lists (Lagard, Nikoloudis, etc.) and ensure that those who over many years profited to the detriment of the poor pay up. It is unacceptable that social justice does not exist. Justice does not function properly, even though it is one of the primary requirements of a market economy. On the contrary, it is typified by understaffing, inadequacy, delays and decisions of doubtful quality. The judicial authorities must not be appointed by the cabinet (review of the relationship between the executive and the higher courts). It is necessary to institute checks and balances in order to avoid the aggrandizement of one authority to the detriment of another. The institution of a constitutional court could operate as a counterweight to the powerful state.
From all the above, it becomes obvious that a review of the constitution is of vital importance. It is a very common perception that the Constitution leads to inequalities by favouring the economy and economic effectiveness and disregarding citizen rights. The result is that citizens become suspicious against politicians and institutions. Moreover, the issue of the election of president has had particularly insidious repercussions, intensifying political and economic uncertainty. It is also time to eliminate the positions of general and special secretaries and replace them by able managerial staff. When the administrations are derived from parties with limited political power they cannot ensure effectiveness. Also in need of review are the articles [of the Constitution] concerning the liability of cabinet ministers. Further, the incompatibility of the capacities of minister and member of parliament must be instituted. Only through a review and transformation of the political and economic institutions can we begin discussing sustainable growth without exclusions.
We are a country with culture and many important advantages; however it is not sufficient to say so – we must also prove it. We can turn to account our resources and produce competitive, innovative products. We can establish co-operatives and products with appellation of origin. Bring about conditions and incentives that will attract investment. Link all schooling, from technical to higher education, with the requirements of businesses and public institutions. Our country has some of the best brains, but unfortunately drives them to emigration. It could easily use these people and deploy them in its institutions and organisations. Currently however, we see that, sadly, the trend is towards the collapse of the educational system altogether. There is a tendency to destroy every positive element. Instead of creating the conditions for high-quality schooling, rewards and meritocracy, we are trying to achieve the exact opposite.
The immediate conclusion from all the above is that there is a need to change the manner in which the state is structured and operates, end the protection of the privileged, and reinforce the freedom of the social whole. We know that the austerity imposed by the loan programs did not help, but we too should have instituted, and now must institute, a series of specific reforms that will help us plan a growth policy without inequalities. The time has come to stop attributing blame to others for our dire circumstances and assume our own responsibilities for the common good. Our national stability or instability is what will define the prospects for a sustainable development of our economy. It is imperative to restructure our institutions and society as a whole (a system based on merit, a mentality advancing the common good). At this critical moment we need consultation, compromise, consent and creative imagination, not ambiguity; and certainly, our future lies within Europe.
- Panos Kazakos, “Regime” change and growth in the constellation of the “Memoranda”; March 2014. [title translated from the Greek]
- Panagiotis Liargovas, Reforms and development, February 2015, www.innews.gr. [title translated from the Greek]
- G. Tavlas & P. Petroulas, Examples of economic expansion, the role of institutions in Greece; July 2010. [title translated from the Greek]
- Daniel Kaufmann, Can corruption adversely affect public finances in industrialized countries?, The Brookings Institution, April 2010
- FA Hayek, Prices and Production (2008)
- Ludwing Von Mises, The theory of Money and Credit (1953)
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