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The recovery of the Greek economy

By Fotis Fitsilis*

Against the recession there is a simple recipe: growth. Everyone is talking about it.

But only a few bother telling us how it can be achieved. Here we will try to describein plain words the real condition of the Greek economy. Where we are and how we

got here. An honest assessment is always a good starting point. Only in this way will

we be able to initiate the recovery of the Greek economy. We will start considering a

number of factors that affect economic growth, so called growth indicators.

Work and productivity

According to Eurostat, Greeks work on average more hours a week than any other

European. This made a huge impression to the citizens of Europe and explains why

Greek citizens do not feel like they are responsible for creating the economic crisis.

However, if we observe the corresponding indices for labor productivity, we see that

Greeks are in the 18th place in a European Union of 27. Greeks work a lot, though

unproductive.

To better understand this point, let us try to give a definition of the term

'productivity': we define productivity as the amount of work (in hours) required for

the production of a specific output (product or service). An increase in productivity

depends, among others, on improving the skills of the workforce, on advances in

technology, on new forms of organization and on an effective public administration.So, to improve productivity, it is essential to use the resources and production

processes efficiently. Harder work is less important.

Competitiveness and growth

In November 2011 Time magazine published an article from Stephen Gandel with

the tricky title The deregulation myth. The writer analyzes official data from OECD,

IMF and the World Bank and comes to a striking as well as surprising result: The

states with the highest growth rates do not necessarily display the highest indexes

for competitiveness! To calculate the competitiveness index, one has to consider

various indicators, such as the number of regulatory acts for entrepreneurship, the

level of taxation, the time for setting up a business, etc.

For example, the most business friendly countries/zones were found to be

Singapore, Hong Kong, New Zealand, US and Denmark. And yet, the highest growth

rates were displayed by countries such as China, Indonesia, Brazil, Argentina and

Russia. Consequently, the flow of capital and foreign investment is not discouraged

by political instability or complexity of the business environment (up to a reasonable

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margin). So, apparently, the factors that determine the attractiveness of a modern

economy need to be sought elsewhere.

The growth indicators

In the respective indexes the US may maintain top positions, but in reality USeconomy lacks significantly in competitiveness compared to countries such as China,

Taiwan and South Korea. This is also true in technological sectors, where the US has

been for decades the world leader. The reason is not obvious at all, because,

especially in technological products, wages are just a small fraction of the total

product cost, which additionally includes the cost for research and development,

promotion, distribution, etc.

Beyond low wages, Far East countries offer a broad range of accompanying

infrastructure and services to facilitate industrial production. We name them heregrowth indicators. So, in just a few years these countries succeeded in gathering

the biggest part of the world's electronics production.

These growth indicators are:

a) Stable tax environment,

b) Organized industrial areas,

c) Dense networks of suppliers,

d) Intermodal transport,

e) High degree of specialization,

f) Sufficient number of technical staff,

g) Flexible working schemes etc.

What happened in Greece?

The Greek entrepreneurship has found itself at a turning point. One could say it

undergoes a deep transformation. Already in the 90s a lot of enterprises diagnosed

the approaching dangers of globalization. To survive, they moved their production

facilities to countries with low labor and tax costs, mainly in the Balkans. At the sametime, they took advantage of the fact that Balkan countries were virgin markets.

Greece is not only unattractive to foreign investors, but it also suffers from

disinvestment. High wages cannot be the only reason. Moreover, Greece has not

managed to implement sufficiently even one of the above mentioned growth

indicators. Perhaps the painful wage cuts enforced by the Troika will show some

results in labor intensive sectors such as manufacturing and tourism. But in a

modern and technologically advanced state it is most uncertain whether austerity

measures will be able to create sustainable growth.

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