Posted by: theoptimisticconservative | June 28, 2011

Greece (and the West): Enlarge the pie, already

It is sadly predictable that as the Eurozone nations negotiate a solution to Greece’s government debt crisis, the focus is entirely on “increasing revenue” through tax adjustments and “cutting spending” in a crude, linear manner.

The Greek problem

There is no doubt that these measures represent a part of the solution.  But they are incredibly discouraging for Greeks who have no freedom to do anything other than participate in their nation’s appallingly dysfunctional economy.  Almost anywhere else in the developed world, people of working age perceive themselves to have better opportunities.  There is something legal to do, other than continue at (or angle for) public-sector jobs that promise only to pay less in the future, with pension benefits turning from iffy to completely unreliable.

Greeks facing pay cuts in the public sector can’t just go home and polish up their resumes for the three dozen private companies that might want to hire them.  Many public-sector workers were hired originally through de facto political quotas, and have no marketable skills.  Families benefit from having at least one member employed in the public sector, not just because of the (previous) reliability of the paycheck and the guaranteed holidays, but because of the contacts in the state bureaucracy.  Corruption and bureaucratic whim are facts of life in Greece, and relatives in the public sector can save a family money and time in at least some of its routine dealings.

The private sector, meanwhile, is hard to get into, even on merit.  With the public sector accounting for a colossal 40% of the economy, there’s definitely less opportunity than there is in other OECD nations.  Unemployment has been on a steady upward climb for nearly three years, hitting more than 16% as of March 2011 – but the truly eye-popping figures are the 42.5% unemployment among Greeks 24 and under, and the 22.6% for those 25-34.

The US Bureau of Labor Statistics doesn’t provide exactly parallel data, but for comparison, in March 2011, the following unemployment percentage figures applied for Americans:

Men 16-19:  26.2%

Women 16-19:  22.7%

Men 20-24:  16.4%

Women 20-24:  13.5%

Men 25-34:  9.3%

Women 25-34:  9.0%

So, basically, the 25-34 demographic in Greece faces the same unemployment picture as the current crop of burger-flipper-age teens in the US, and the entire nation of Greece has no better prospects than men ages 20-24 in recession-plagued America.

Unemployment has been ugly for Europe’s young for a long time now; breaking into professional private sector employment is particularly difficult.  But Greece’s private sector is even smaller than the European average.  It simply doesn’t generate enough jobs to employ new generations of Greeks.  That is the central problem, and the root of it is the sheer size and weight of the state regulatory apparatus.

Greeks thrive in foreign climes; they are hard-working, successful entrepreneurs and professionals in the US and Canada, for example, and in enclaves of Western Europe, Latin America, and the Far East.  There is nothing wrong with Greeks.  What’s wrong is with the political, economic, and regulatory climate of Greece.  Greece won’t let her people succeed.

Lightening the regulatory load in Greece is easier said than done.  Many people’s livelihoods currently depend on its existence.  Their prospects are not merely a matter of their salaries as bureaucrats or other state employees (e.g., doctors and dentists, electric power professionals), but of the bribes they receive to get things signed off, facilitate the jumping of lines, or offer higher levels of service.

There is zero production in this parasitical segment of the economy; it’s all overhead – and much of it, even the statutory regulation, is unnecessary, as witness the numerous other economies that do better without it.  Regulation and state employment amount to a giant rent-seeking scheme that idles an enormous amount of labor and potential capital.

Greece doesn’t have to be doomed.  Greece is organized about as stupidly as possible, outside of full-blown communism.  Everything in the political economy is designed to discourage the productive employment of the nation’s most economically powerful demographic:  householders between the ages of 25 and 55.  Millions of young, healthy, alert, smart, reasonably well educated Greeks are sitting around with no prospect of legal, productive work, but instead, only of a life of economic parasitism, cloaked in the fiction of “work.”

If this changed, Greece could wipe the floor with her debt problem.  No unbudgeable, systemic economic factor has dictated this situation.  It was created entirely by politics.  It can’t be fixed by trying to balance a ledger while leaving Greeks without hope and a future.  Greeks have to be able to do what they are unable to do today because of the layers of regulation and corruption:  start new businesses, expand existing ones, attract foreign investors, and generate production, jobs, and profit.

China and Russia ready to buy Greece?

One major cost of not addressing this problem could well be the purchase of Greece’s infrastructure industries – for which there is a proposed privatization scheme – by China and Russia.  These industries include virtually the entire energy and transportation sectors, from oil, gas, and power generation to rail, air, shipping, and warehousing.  There is a legitimate fear that Western companies will be unwilling to take on the problems – the political headaches, the unlikelihood of profitability – that would come with buying out the Greek government’s holdings; whereas China and Russia operate with different priorities, seeing the privatization plan as an opportunity to gain a strategic foothold in Asia’s gateway to the West.

The Russian oil and gas industry – Moscow’s major sources of global revenue and a key arm of state policy – has Greek interests already, but Russian military interest in Greece has been heating up as well.  Turkey’s new activism and the recession of US power are driving Moscow and Athens into each other’s arms; in the context of tightening military ties between the two countries, the chief of Russia’s naval staff was quoted by Greek media in August 2010 wishing for a forward naval base in Greece.  Russia had a naval concession in the Balkan port of Tivat (in former Yugoslavia, now in Montenegro) for years during the Cold War; there is no question the Russian navy would know what to do with another one nearby.

But China is hovering as well, having stepped in to bolster Greek solvency last year, shortly after the historic visit of China’s naval antipiracy task force to the port of Piraeus.  The Chinese defense minister is in Greece this week – while the world’s attention is fixed on the debt crisis and the exertions of the Greek parliament and the Eurozone managers – negotiating “closer military ties” between Beijing and Athens.

Neither Russia nor China is in anything close to invincible economic shape.  China’s export-dependent economy is taking a beating with every downturn in US indicators; China’s countryside is wracked with an unrest prompted by rising expectations in a time of economic recession.  China has been working to minimize her exposure to US Treasury debt, but her finances are broadly and perilously exposed to global debt.  It is a myth that China is in better economic shape than other nations.  The same would be true for Russia if there were any myth to debunk, but Russia’s economic woes are widely recognized.

Competition for the future

China and Russia aren’t lining up to pick over Greece’s public-sector yard sale because they’re better positioned for an economic rescue than the West.  Their interest is strategic and geographically competitive.  While Western nations are acting from fear of Greece, and preaching austerity lest Greek weakness bring everyone down, China and Russia are acting on a strategic vision of purposeful engagement with Greece.

The West could be doing that too.  Russia and China don’t have nearly as much to offer in terms of models for political and economic freedom and long-term success.  They are after geographic position and raw materials; their ideas are centered on the getting and keeping of concentrated power, whether political or economic.  Under their tender ministrations, Greek unemployment and economic dysfunction will remain dominant; a politically connected elite will benefit, but empowerment of small entrepreneurs and the aspiring middle class will not be on the agenda.  This is the pattern wherever Russia and China invest in economically troubled nations.

The West has a better idea to offer.  Even in the deepest recession since the 1930s, economies that operate on the Western model still outperform their centrally managed, socialist counterparts.  We have all behaved foolishly with public debt and entitlements, but that’s a choice, not a pattern dictated by the inexorable workings of an indifferent universe.  We can and should treat Greece as a brother, not a leper; police up our own financial problems; and help Greece recover her economic vitality – constructively, and laying prudent groundwork for the future.  A “visit from the Chicago economists,” on the model of Chile in the 1980s, would not come amiss.  Greece needs tough love, not mere stringency or strategic exploitation.  The future of Western civilization is riding on it.

J.E. Dyer’s articles have appeared at Hot Air’s Green Room, Commentary’s “contentions,Patheos, and The Weekly Standard online.

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Responses

  1. ===But they are incredibly discouraging for Greeks who have no freedom to do anything other than participate in their nation’s appallingly dysfunctional economy. ====

    do they elect the government that runs the economy or is the economy not subject to any governmental oversight?

    I don’t understand how the people of Greece are denied any voice in the running of the place.

    In Pakistan the economy is lousy because people elect a government that doesn’t collect taxes from the relatively few wealthy folk, spends wildly on the military, and doesn’t spend much on education or development.

    I’m pretty sure that in the US we elect the people who manage to mismanage our economy. Is Greece all that different?

  2. […] post by theoptimisticconservative Category: Uncategorized You can follow any responses to this entry through the RSS 2.0 feed. […]

  3. I bet if the Greek Governments portion of the economy was increased to 50%, taxes were raised on THE WEALTHY, taxes were increased on Small Business, environmental regulations were more stringent, the Greek economy would flourish.
    Oh yes, the work week should be shortened, pay increased, lifetime tenure assured and retirement benefits should be increased.
    More union participation would be quite helpful also. The SEIU, AFL-CIO etc. could expand in Greece.
    Generations of Greeks have lived on the dole. The bill has come due. The previous generations are gone, the future citizens are not here yet. The Greeks that inhabit the country now are and will be responsible for the financial mess.
    We are all Greeks now.

  4. Greeks should also riot and splash pictures of violence and mayhem all over the world right in the middle of tourist season. That will help their economy.

  5. The Greeks have been infatuated with the most stereotypical forms of socialism for many decades, despite living immediately adjacent to some spectacular socialist failures. Class envy trumps any form of effective social organization, as we see all over the world, Even in the US and western Europe, where high school parking lots contain more wealth than large portions of socialist countries, economic ignorami lament the inequity of wealth. It’s going to be pretty difficult to get the Greeks to swallow medicine that’s being rejected by our own petit-Marxists.

  6. It’s easy to look down our noses at the poor decisions Greek politicians have made in past years. After all, the people are responsible for electing them. Yet the same thing is in process even now in the U.S. How is this possible? Look no further than the institutional press and corrupt political ties to public sector unions. People have a lousy habit of believing what the TV announcer says so earnestly – and full color HD quality video drives their agenda point home. And money coming from the unions is what powers political messaging, with the involvement of the complicit press.

    It’s hard to unravel a complicit press, but the corrupt co-dependence between public unions and politicians can be destroyed with the stroke of a pen. It must be.

  7. oh, lordy, lordy.

    as if the press is any one thing or serves any one interest group or is run by people who are somehow, for some unknown reason, not affluent and instead wickedly opposed to the interests of the affluent.

    what utter sillinesss about corrupt unions having politicians dependent upon them, as if the unions exercise even a fraction of the influence of other groups, or have influence with anywhere near to as many officials.

    we’re a nation with many competing interests groups and if your political views lead you to not like one or more them, fine and dandy. But singling one group out and making it the center of some vast pernicious nexus when labor unions have less interest then previously, when their membership is decreasing and when wealth in this country is ever more concentrated and political campaigns ever more costly is way over the top.

  8. The predominant thinking is that here in the US, the closest thing we have to today’s Greece is California. I’m curious to see the political fallout (strictly just the political, that is) if the CA economy finally succumbs like Greece’s has. I’d be pretty interested to see the political fallout if Greece collapsed too. I wonder if it would signal a rather loud step towards the end of the “blue state model,” as Walter Russell Mead would call it. I imagine the economic fallout of these scenarios would be rather unpleasant, to say the least.

    • Correction: That’s the “blue social model” not “blue state model.”

  9. […] Russian investment in Greece would be increasing dramatically, a credible promise given the level of investment Russia (and China) already had in Greek infrastructure.  As the Eurozone crisis rages – literally, at this exact moment – the second Greece-Russia […]

  10. […] Russian investment in Greece would be increasing dramatically, a credible promise given the level of investment Russia (and China) already had in Greek infrastructure.  As the Eurozone crisis rages – literally, at this exact moment – the second Greece-Russia […]


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