Monday, July 9, 2012

What Greece makes, the world needs. Really?

If Greece were a company, to run it would probably be the most attractive job in the world for a turn-around manager. Why? Because paradise on earth for a turn-around manager is when the problems are so obvious that they can immediately be attacked, and when the mess is so big that already the first few corrective steps will produce visible results.

As this NYT article suggests, when an economy's potential is as underused as that of Greece's, the pressed-spring theory says that a giant leap forward can quickly be achieved. This is what I once wrote about a 7-8% annual growth potential for Greece.

Now, public literature is full of anecdotes about the failings of the Greek economy, of Greek politics, perhaps even of the Greek state. It definitely pains to read that Greece, the country which could (should?) be the world's largest supplier of olive oil, is now reduced to a small role in the olive oil market and, to add insult to injury, reduced to the silliest and least profitable role --- selling olive oil in bulk to Italy so that Italy can re-brand it and market it throughout Europe and the world.

Does't that make Greeks look like the dummies of the world?

Again, nowhere is the upward potential greater than where reality is near bottom. And there is so much light at the end of the tunnel --- if only one would look for it. Let me just mention three subject matters:

EU Task Force
Greece ten years head (McKinsey)
EURECA (Roland Berger)

Again, if Greece were a company, the turn-around manager would already have his work cut out for himself with only these three resources. I recognize that a country can't be run like a company but there are several things a country and a company have in common.

When, in times of financial crisis, a company doesn't have competent management and good leadership, the turn-around challenge becomes so much harder, if not impossible. Particularly in times of financial crisis, during periods of painful adjustments, good leadership will always communicate with all employees about ongoing progress. The famous questions of: Where were we? Where are we now? Where do we still have to go?

I read today that Greece is now in non-compliance on about 210 points of the loan agreement. How many Greeks do even know that the loan agreement has 210 points? There are so many myths out there as regards Greece's compliance (or non-compliance) with commitments it has made! So I looked up the original memorandum of May 2010 and subsequent ones to form a first-hand opinion. Well, I gave up. Far to complicated!

The President of Germany admonished Chancellor Merkel over the weekend that she would have to make more of an effort to explain to German citizens what the Euro-crisis and the measures against it are all about. A very laudable initiative at a time where not even the majority of German parliamentarians seem to understand these issues (according to surveys).

Someone in the Greek government must start communicating with the general public. Perhaps it would be best to hire a good PR-agency to do that. It would certainly do Greeks a lot of good if they heard that there are indeed things which Greece makes and which the world needs. If they hear how foolishly some of the things are being handled at present (see exports of olive oil), they might be motivated to improve the situation on their own (i. e. without "help" from the government).

Above all, when Greeks see that there are things they can make which the world needs, this could lead to a light at the end of the tunnel. Greeks would understand that they only have to make more of these things for a better life to return. I quite like the following paragraph in the NYT article.

But average citizens have been beleaguered for too long by forces beyond their control. They were occupied by three different countries in World War II. Afterward, Europe’s richest countries subsidized Greek farmers. When Greece later joined the European Union, it was lent huge amounts of money. Now Greece is again waiting for other Europeans — especially the Germans — to decide precisely how miserable their next decade will be. The problems are overwhelming, but it’s somewhat satisfying to know that the solutions might be based on things the Greeks have long known how to do themselves, like processing olives and brining cheese.

33 comments:

  1. Klaus a possible increase in productivity (in public sector) and a process for implemending good practices (specifically oriended targets-relults) might reduce the need for more taxes and cuts in salaries (Laffer curve) which are already difficult to apply.
    Increasing productivity 15% might prohibit new planned cuts at the same level. However the big patient as OECD in many writings underlying is the inefficiency of public sector, the luck of ANY evaluation of public servants and the limited quality services in finance-admin compared to many european countries.
    Example in Greece are working more than 195000 school teachers on average (on papers...) 21-23 hours/per week. 3.5 months of the year are free, summer, Christmas, Easter etc.
    They are also poorly paid.
    By increasing the number of working hours to 27-28 on average and reducing the vacation period to 2.5 months working even Saturdays all these will reduce the total number at 135000. All the other teachers would not have to get fired but in 5-6 they will retired.
    Those 135000 teachers they will better also paid.
    However, the evaluation process in Greek schools for teacher is extremely rare almost does not exists. To other european countries ?

    PS: Elliniko might start and it would be a good oppurtunity to change something.
    The quality of public sector services with no time to loose in procedures should have been the first goal for troika and the expertise from eu countries, but still we don't want them?

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    1. One of the painful differences between a company and a country is that, in the process of increasing efficiency/productivity (as you suggest for the public sector), the company can reduce the number of employees but the country cannot reduce the number of its citizens (unless it encourages them to emigrate but that can't be a good idea, for sure).

      Thus, my approach would be to first focus on the people who are without a job and see how they can get a new job. One million unemployed cost the state a lot of money (not to even mention the emotional impact of unemployment). If, in a hypothetical case, that million would have jobs, it would reduce the state's expenses substantially. If they had good jobs, they would even pay income taxes and generate revenues for the state. But even if they didn't pay any taxes at all because of low wages, the state would still be substantially better off and so would be the people concerned. This, of course, assumes that the million could be employed productively.

      So I really think that the paramount objective is to create jobs (or rather: create the conditions that jobs come into existence because sustainable jobs cannot be created by the government).

      Elleniko sounds like a fantastic project. My only concern would be: if you create housing, shopping and parks, you first need to have people who can spend money on housing, shopping and parks. However, what Greece needs most of all is NEW value creation.

      Let me just mention something from the top of my head. Suppose the government would reserve a substantial part of Elleniko for new businesses involved in international activities. Vienna, for example, has become something like a gateway towards Eastern Europe. Many multinationals have established their reqional HQ for Eastern Europe in Vienna (leaving a lot of purchasing power and taxes in Vienna...). Why could Elleniko not become a gateway towards the Eastern Mediterranean and Near East (Beirut was once a superb gateway). The government could establish a Special Economic Zone for those purposes and offer some perks to attract such businesses. Something like that would bring NEW value creation instead of only reallocating existing value creation.

      The McKinsey report if full of ideas for new things which could be done in Greece. When I first browsed through it I thought Greece could become the most exciting economy in Europe. But again, many of those projects have long lead times until they get off the ground.

      Something which doesn't require any lead time at all is to start with import substitution productions. And then I would suggest to take smaller steps at the time but steps which yield short term results. I thing of 3 areas where Greece should be able to quickly improve its position: agriculture, tourism and shipping. All traditional areas where Greece has expertise. All it would need there is a new impetus to get these 3 areas into top shape. If only these 3 areas would be gotten into top shape, that would reverberate throughout the economy. And when the economy gets going, one can more easily down-size the public sector because the down-sized people might find new jobs in the private sector.

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    2. Dear Mr. Kastner,

      The plague of Greece is beauracracy, populism among politicians the a prevalent, wild, leftist ideology which is above any law and very slow justice system.

      Hellenikon, might be a big investment (when and if happens), but as you say, it more about consuming. Part of it could attract tourists, but it is not the most value-generating plan of all... This is probably why the Qataris have been holding off too, since consumption isn't at its peaks and well, of course, Grexit could follow.

      What you say about gateway, is what the Chinese have envisioned, by leasing the Piraeus port container docks. They want to use Piraeus as hub for chinese merchantise towards Europe. Thessaloniki is another underexploited area. It is the only Balkan port towards the Aegean and it could be easily a hub between Mediterranean and Balkans and from there to central europe. If you want my opinion, Thessaloniki is more strategically positioned than Athens, as it is closer to the Balkans and is connected to the Adriatic on the west and Turkey to the East. Athens is more adeguate for sea transports.

      But, there are things that as you say, cost NOTHING. The greek state has been hostile to private business. As simple as that. The PASOK model has ruled over Greece since 1980 and still reigns strong, with the State getting involved everywhere and making any private investor's life difficult, so to feed the army of public servants who await like hawks behind their desks to put your a signature on a ton of papers.

      Greece has now TONS of umemployed youngsters who could at least TRY to open a business of their own, but they CAN'T because of how the state is hostile to them. And it is a shame, because innovation could be one of growth exits and who better to invest on innovation than the youth?

      To give you only a small example of the hurdles that the state puts to a youngster that wants to take a gamble on an idea of his.

      The legal cost alone to start a new business as S.A or Ltd, is around 10.000 euros. This is why Greece has the bizzarre peculiarity, of people avoiding these legal schemes and instead having a "personal business", where if you bust, you respond for it, if you die your wife responds for it and you may loose your own property, while in the rest of the world, your responsibility ends where the legal entity's responsibilities lie.

      If you make any kind of change in your business, you need to pubblish it in the Goverment's newspaper (paying 400 euros each time, with multiple times every year being normal).

      You have the obbligation to pubblish once a year your balance sheet in 2 greece-wide newspapers and 1 local newspaper (paying another 1000 euros).

      Never mind the cost of corrupted tax officials, who may be determined to find "something" in order to get their "tip", because of the antiquated codex which regulates the book keeping of a company.

      >

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    3. >

      This is just for starters. Before you know it, you are engaged in a legal/tax labyrinth, worthy of Kafka's books. This is why many greek companies have prefered to move not simply to low labour countries, but even to nearby higher labour countries, which though, make their life, money and time spent, easier. Imagine how much more difficulty, has a young person, who would like to start a business with the easyness he can in USA, but soon enough sees a huge wall of bureaucracy-generated cost and time, coming at him.

      Other big hurdles that cost nothing, is the slow justice system. In every business, you will always find a bunch of leftists/ecologists that will stop your investment for years, because some bird has nest in there. If they don't, then the archeological service will. By the time you get legally out of this, you will be in pension age.

      And of course, then you have the regular comunist strikes, who defy any judge's decision. They may be irrelevant to your business, but more often than not, they will affect yours too. Ask how many Athens hotels have closed by a combination of KKE marches and strikes and the usual leftist hooded youngsters that use the university as operations base in their molotov runs.

      Politics right now in Greece are extremely polarized. Greece will not reboot, untill Mr. Tsipras takes power and FINALLY makes everyone understand, that hiring people in the public sector does NOT generate money and is NOT an investment. And also, that unlike Andreas Papandreou, you CAN'T pretend to have a public investment program, when nobody is lending you money. Mr. Tsipras said that they want joint ventures between the state and privates instead of privatizations. WHO private SANE in his mind, will put his money on a joint venture with Mr' Tsipras' state, where the union workers' presidents do whatever they like and run the business according to how much money they THINK they deserve???

      Τhe man with the striped blouse is Mr. Fotopoulos, head of the workers union (with PASOK) in DEI (the public enterprise company). Here he runs into the general manager's office and shouts at him because the administration board dared to a meeting without the presence of a unionist member. DEI is the most hardcore and powerful PASOK worker union. They have been "untouchables" for 30 years and getting highest wages than any public servant. Even a high school education worker in DEI was getting double the money of a university education public servant elsewhere. Because they were PASOK's "loyalists". They had to power to do much damage to other parties by cutting the power in their strikes.

      http://www.youtube.com/watch?v=En_3rICinMQ

      Would YOU want to put money and run the business together with Mr. Fotopoulos? Because HE runs the business, not that poor man who is the manager.

      Bandolero.

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    4. That's why I am saying that it is impossible to change a whole country from A-Z in a short period of time. And because that is impossible, one has to start with "pockets" where nothing needs to be changed because everything is allowed to be "perfect" from day 1. I call them Spezial Economic Zones. People are most prepared to learn something new when they see something new work somewhere. If SEZ were to work well, their conditions would rub off on the rest of the country over the years.

      Regarding the potential of Thessaloniki, I once commented about it in the post below. It seems to me that Greeks have forgotten that Thessaloniki has had an uninterrrupted urban history, a history of bustling commerce and culture, for over 2.000 years (whereas Athens has not!).

      http://klauskastner.blogspot.co.at/2012/05/greece-to-grow-7-8-annually.html

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    5. I agree. You know why greek shipping is so successful? Because the greek shipping magnates, are powerful enough to draw a deal with the state, were practically, they have almost the same priviledges, as those that they 'd get if their ships were under flags of opportunity (like panamese,maltese, etc). Basically they enjoy special tax status and can be represented in Greece through offshore companies.

      A rich history of continuous comunist worker's endless strikes, has led them to abbandon completely the idea of ship repairs to Greece and to the shrinking of the ship building-repairing business in Greece, which used to be very active in pre-PASOK years.

      The rule is: "Whatever the state or the unionists touch, turns into coal". One simple thing could help Greece actually boost immediately: APPLY the LAW. When a strike is labelled as illegal by a Court, apply the Court ruling! Send the police to do the job! Greece is the only country where 10 people can hold hostage a company for indeterminate period of time, despite court ruling. It is "natural" to even occupy a minister's office and let the minister out on the sidewalk waiting for when the leftists will have the courtesy to let him in, back to his office.

      This is so natural, that my ideas are plainly offensive. The other day a greek communist called me "a neoliberal beast", because i was trying to explain him that no matter how much communist theory he reads, he isn't going to get any better in his living standards through his ideology, just like no other comunist did and that if he doesn't realize that, the 400 euros he is complaining about now, will become 300 and then 200. Just like you may be a Botswanan comunist, but no matter how much you shout about wanting to have swedish living standards, you won't get them just by learning Marx theory by heart.

      Bandolero.

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    6. Αs for Thessaloniki, which i agree, only a blind man wouldn't see its potential, is YET another victim of politicians' populism. There is a proverb in Greece: "Greece isn't just Athens". Unfortunately, it is only Athens, for the politicians. The politicians only thought about political gain. Having almost half of the population of Greece concentrated in Athens, they neglected the rest of Greece and of course Thessaloniki too.
      Mr. Papandreou actually had the splendid idea of removing the last, even if typical, sign of importance of the city, the "ministry of Macedonia and Thrace", which was, in theory, responsible of taking care of northern Greece and was based in Thessaloniki. Mr. Samaras has restored it. But, more than restoring a name, they need to give it a real purpose and plan.

      Bandolero.

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  2. About the McKinsey report. I agree, i hope the greek goverment has read it, but really, to restart the economy you don't even need new ideas. You need to stop penalizing what's already there. The greek state, simply treats with punitive way private investments. In the apotheosis of leftist populism and PASOKist mentality of "the state will make us all rich and take care of our children", the private investment became something like "the devil coming to take our souls". It is characteristical, that in greek, privatizations are NOT called "privatizations". They are called "de-statalizations". Because when the leftist-brain washed audience hears "private", it is becoming a political suicide to do it, because they will call you a traitor who sells off the country (as Mr. Tsipras already does).

    In Greece, leftist populism is so strong, that numbers loose their meaning. Mr. Tsipras fights fiercely against privatazation of the railway for example, who is "profitable". "Profitable", after the greek state paid 10 bln of accumulated debts, in order to make it "palatable" to someone who 'd like to take it over and after cutting the "golden wages" and priviledges that their workers had as in ALL state companies. Ex.: You are a daughter of someone who works on the railways. You have free tickets for life. That's how PASOK was working and winning elections and indebting all state enterprises.

    DEI (the electricity company), is also now drowing in debts, after years of "profitability" (having a monopoly and free lignite as fuel and...golden salaries). Mr. Tsipras again, ready to fight for DEI.

    This is why i say. Greece will reboot after Mr. Tsipras takes power and a shocked leftist voter sees his wallet getting thinner.

    Bandolero.

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  3. A greek economic journalist, a few days ago, dared say on air, something inconceivable. That historically, Greece has boosted economically, under right wing/liberal goverments (in Greece if you are not left winger, then you are right winger), which ruled with autarchic manner and had put workers unions and leftists in costraints. As much as undemocratical that may sound (and is), it is true! If i may add, if Greece had the left that it has now, roaming freely around back in the beginning of 20th century, the borders wouldn't be where they are now, because they would regards as a hideous nationalistic act to support a war. Venizelos had the communists in prison and in fact, i have a piece of the official communist newspaper which was rooting for the Turks.

    Again, after WWII, Greece has high growth rates, with the comunists either having fled behind the Iron Curtain or in exile on the island or socially isolated. Even the junta, where the colonels weren't experts of finance, did a better job in macroeconomics than PASOK did. In 1974 the comunist party gets legalized, in 1981 Papandreou sweeps the elections and it's all over for Greece.

    And the most outrageous of all, is that KKE and SYRIZA say that it's the fault of the "neoliberalism", the "multinationals", the "proof of failure of capitalism"!!! And people believe them! Greece never had the slightest connection to liberalism in the past 30 years! It was a corruptosocialism.

    Bandolero.

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  4. It may seem unbelievable, but after so many years of PASOK, there are people who are convinced that if they take a red flag, hit the streets and start shouting, someone will give them money...

    This someone, before was Andreas. Now, it is Mr. Tsipras, the "liberator" and "troika terminator".

    http://i49.tinypic.com/xeiwbr.jpg

    His fall, will be Greece's new beginning.

    Bandolero.

    P.S: Mr. Tsipras introduced a new term, to accuse the "memorandum parties": "You are not Europeanists, you are... Merkelists!". At least, life is never bothersome in Greece.

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  5. Klaus 3 things, 1) how public in GR works, quality or not 2) how economy in short term can create jobs, with value as you say, 3) how the 1 and 2 correlated, or not?
    You say Mckinsey or Eureca but to implement those, you need to change the mentallity of how should public sector operate.
    It's of paramound importance public sector to reorganise and re-evaluate strengths and weakenesses not as a company but as an organisation who is in search and is changing and learning from mistakes.
    This is not happening fast enough.
    Also you say " many multinationals have established their reqional HQ for Eastern Europe in Vienna" and i m saying this is the confirmation that Austria is trustworthy for multinationals because is a eu state with credible and reliable administration.
    Multinationals know the rules.
    Many people in GR say public sector is almost the same as in Austria so there is not a problem.
    When somebody says but how much more Austria exports compared to Greece this is accepted as irrelevant! Or how much more operative is Austria services is not the issue.
    I agree most important is what we want to produce as y say to make substitution (exports indusry) which is vital
    Troika should have people from the very first days only to observe for months how operate public sector. If public change this will have impact in easyness for doing business, technological rediness, better educational-practical implementation, innovation and research which is scarce.
    Transforming in targeted issues public sector (not firing) then we gain trust because we implement sufficiently rules.

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  6. What Greece needs isn't Tsipras or anyone like him to frighten the Greeks into "changing their ways", what it needs is someone like Margaret Thatcher to lead them out of the wilderness in which they find themselves.

    Greece reminds me of Britain in the 60's and especially the 70's, when it too had to get an IMF bailout. But the solution wasn't Benn or Foot, it was Thatcher. Does Greece have a Thatcher ?

    German surveys may show that the majority of their Parliamentarians don't understand the Euro Krisis. But surveys in Germany also show that 66% of Germans think Merkel is doing a good job.

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    1. Dear Mr. King,

      Greece doesn't have a Mr. Thatcher available at the moment, but even if it did, she would be able to do her job if she was maybe at the place of Mr. Papandreou 2 years ago.

      Now, things have progressed, there is a deepening social division as follows:

      - Memorandum parties vs anti-memorandum parties
      - Extreme right vs extreme left.

      Also, unlike Britain, where your Labour party is as leftist as our New Democracy party, you don't have the wild leftist groups we have and lately fascists too.

      Do you know why in Greece leftist protesters have always thick wooden flag poles? Why not plastic ones?

      http://a.media.newsbomb.gr/items/cache/7a9dbbfb3d89c45295e56edec86d67a8_XL.jpg

      Because they want to be able to do this:

      https://athens.indymedia.org/local/webcast/uploads/1713611.jpg

      Often, they charge the police first. The policement are waiting on a row and the protesters use their wood flagpoles to attack them directly, before accusing them of police brutality.

      If you try to rule with "iron fist" as things are now, there is high risk of bloodshed. If some protester gets killed by the police, the goverment will fall. It won't matter if it was accidental or not.

      Mr. Samaras has a job that is extremely delicate. Unfortunately, with the exception of Mr. Stournaras and Mr. Hatzidakis, most of the other ministers were chosen according to the old school of thinking of "we put as ministers our top members as compensation for the electoral fight".

      Mr. Stournaras and Mr. Hatzidakis, will feel very lonely as soon as they will have to "break eggs".

      This is why i say that Greece will reboot after Mr. Tsipras (unless there is a spectacular turn in the way the EU handles the greek case).

      Bandolero.

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    2. Anonymous

      "Labour party is as leftist as our New Democracy party" - that's absolutely true of Blair & Brown's New British Labour Party.

      But the British Labour Party of the 60'/70's under Wilson & Callaghan stood just to the right of today's KKE in Greece. All those British "this and that" former SOE's were created by postwar Labour Party governments (i.e British Steel/Coal/Leyland/Airlines/Gas/Aerospace etc). Wilson & Callaghan couldn't hold a Cabinet Meeting without the first receiving their orders and policies from the Trade Union Council politburo.

      But Thatcher did have a "trick up her sleeve" to placate the masses that I don't think any Greek leader has. A huge stockpile of poorly maintained state owned housing which she sold to renters at up to 50% discount with very low interest loans. Thus she turned a nation of rent paying shop assistants into a nation of property price obsessed shopaholics :lol:

      Perhaps Greece will reboot after Mr Tsipras - but whose foot will occupy the boot - a General's or Mr Michaloliakos'.

      BTW It's not "my British Labour Party", I left the UK in the 60's to get away from it, haven't lived their permanently since.

      CK

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  7. Mr. Tsipras sent his scouts to learn about proper investment for when he will be PM.

    2 SYRIZA PMs, learning the ropes from the "expert":

    http://www.palo.gr/cluster/multimedia/politikh-nea/628/?clid=5188272

    El pueblo unido, jamás será vencido.

    Bandolero.

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  8. If you have seen Robert Redford's "Lions for lambs", please see it. If you have, this is a very clear description of what the problems are(not just in Greece, but there they are quite clearly visible). Whether the lambs refer to the politicians or the managers, this is a wonderful description.

    How would one jump-start the economy? Two things one must do, cut costs and increase revenues. With respect to cost-cutting
    costs are not just wages. For example what about merging embassies with the other PIIGS(and anyone else interested for that matter, Germany included if they wish, why not) abroad? This would mean one building to house many embassies. Instaed of paying one rent, one pays a fourth of the rent. And, you sack nobody and put no money out of circulation. Instead you have a government that is not serious. You have some 9/10 of the new MPs making use of their 'right' to a new mercedes and some openly saying it would be a disgrace for an MP to use public transportation. You have all major parties voting to giveaway a government property plus 15M for a ...productive project such as buikding a mosque and paying for eternity a mufti. Plus of course they'd have to do the same for any other religion. It's as if I find myself owing 200K and going out to spend 100euros on a tatoo. My own family should not take me seriously. The debt is the sum of many 15M sums and the 200K the sum of many 100euros.

    With respect to revenues, I'd first check what the country is mostly importing, then actually go build factories to make these things. For instance if I have 200M of shampoo imports, then this would be my initial market target. I'd shoot for first making a low-cost product, that would be subsequently improved and thus exportable. And it would take a bite out of unemployment. I would definitely not have the state interfere in existing private contracts to lower the very wages that give me state revenues, both direct and indirect and also support the medical and pension funds. If the troika insisted on these things, I'd rather default with 5bn primary deficit than implement these measures and end up defaulting with 20bn. Also, if I thought myself incapable of running monopoly companies such as power and water, I'd not apply to run an entire country in the first place.
    I would also go after private sector managers(lambs). The problem there is that they do not care if people in their companies not only can, but actually do develop things that are much better than what they can get 'from the market'. In return if you are one of these productive people you lose all notions of forming your own company "why would one buy these stuff from me when they did not even want it for free when I was working for them?" This would be hard to do, but one could give tax incentives for growth and could also pass tougher anti-corruption laws to discourage such managers giving business outside the company that can be done better inside and thus assure their next stop in their carreer.

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    1. Well, I guess you would agree with my proposal to implement Special Economic Zones where new production is set up initially focusing on import substitution. What is shampoo to you is toothpaste to me... (simply as examples). See below.

      http://klauskastner.blogspot.co.at/2012/03/plea-for-special-economic-zones-again.html

      And see point (1) here:

      http://klauskastner.blogspot.co.at/2012/04/here-is-party-to-vote-for.html

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  9. In principle sure, it's better to have low-paying jobs than no jobs; although like I said labor costs are not the main issue-the legal framework and red tape is. But yes, our thinking is along the same lines. If you are SYRIZA you are probably thinking along the same lines too, except that they do not have any competent people and they want to use the remaining deposits to have the state run the SEZ companies. The danger with SEZ is 1) existing companies will want to jump in(because like I said managers running them are not the most competent people to putit mildly) and 2) the EU-but also the greek courts might have a problem with that -and both probably will.

    The other question is why would you need a SEZ to start your toothpaste company? Once you get the red tape out of your back, why and have the necessary assurances, just go near a place with high unemployment and open the factory. Getting the red tape and legal hurdles out of the way is something that needs to be done anyway and on a permament basis. I do draw the line though at state intervention -as in the troika -demanded legislation of February- to change existing contracts by law, because if this stands, I for one would be extremely reluctant to either invest or work there, meaning you lose all your quality people too and are left with an even more polarized country.

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    1. My argument why you need an SEZ is that you can't implement the economic framework which you would implement there in the entire country in a short period of time. You would undoubtedly get a revolution!

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  10. I understand the argument, but let's break down the ingredients of the framework

    -get rid of red tape
    -get rid of minimum wage
    -get some special (possibly conflicting with EU rules) favorization of the new starup vs foreign companies. Again, it depends what the favors would be. Something like 'a 5-year tax exemption for new start-ups' as in Israel would not IMHO violate EU rules. But to be effective it would have to be supplemented by strict controls whereby there is an objective and there should be monitoring to make sure the company is planning to stay, not make a short-term profit and run. Alternatively, the state could assume that role if it could be trusted and if they had or could get competent people(the SYRIZA perhaps way)?

    Am I missing some other key ingredient?

    If not, then my point is that getting rid of minimum wage is not a vital ingedient, since I doubt this is a key factor in toothpaste production. Alternatively, a 'get paid as we grow' policy could also be used. Anyway, I'm all for doing whatever must be done: If labor cost is an issue, it must be addressed. All I am saying is SEZ must also be monitored so the whole idea does not get abused(by e.g. fly by night companies or gross environmental pollution or by other companies demanding SEZ treatment for them too).

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    1. That an SEZ would have to be subject to ENORMOUS monitoring/auditing I have emphasized in my "plea" post.

      The fact that Greece ranks No. 100 on the Doing Business 2012 report (FYROM, in contrast, ranks 22) has got to be due to more than just one or two measures. I am not even talking about any special perks like tax breaks for 5 years or so. I am just talking about a business framework which is so good that a, say, German company will decide to move its foreign investments to Greece instead of some other place outside the EU.

      I link below an article about the experiences of a Greek-American in Greece. An SEZ would be a place where his report would be one big accolade about how great it is to invest in Greece. To get the whole country to that point is impossible in a short period of time!

      Just think of the Chinese. They, too, recognized that they couldn't change the whole country at once. So they started with "pockets" where they permitted capitalism while the rest of the country remained communist. And now, only a couple of decades later, we see how those former "pockets" have begun to rub off on a quite large section of the Chinese economy.

      http://www.nytimes.com/2011/01/30/business/30greek.html?_r=1&pagewanted=all

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  11. Agreed. The issue is 'what would be 'SUCH A GOOD FRAMEWORK',
    i.e. what would a business want. Obviously if you ask that question to a businessman asked that question, then he might say 'no jurisdiction over my business, no taxes ever and government sponshorship'. So what we are talking about is specifying what 'so good ' means

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    1. You could start with the World Bank/IFC report which uses 10 topics to rank a country:

      http://www.doingbusiness.org/rankings

      Or you could ask your government agency whose job it is to attract foreign investments. If they are doing their job, they ought to be able to immediately list those things which are of critical value.

      http://www.investingreece.gov.gr/

      Finally, you can look around at the world market and see what countries are doing that get a lot of investment. They must be doing something right.

      I am NOT talking about give-away's! All I am talking about is a business framework which is acceptable for investors or, rather, which investors find attractive and competitive. If from the Greek standpoint those would be give-away's, well, then you would have one explanation more why the country is in trouble.

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  12. Thanks for the link. I am trying to get a clear picture of the issues that are perceived as critical for a business. Of course we know whose job it is to attract investment and whether thet are doing their job or not.

    From the rankings list
    1)Starting a Business

    2)Dealing with Construction Permits

    3)Getting Electricity

    4)Registering Property

    5)Getting Credit

    6)Protecting Investors

    7)Paying Taxes

    8)Trading Across Borders

    9)Enforcing Contracts

    10)Resolving Insolvency

    1,2 and 4 as well as 10 are legal framework and red tape.
    3(getting electricity) is not that hard imho, but this is a comparative thing. Maybe 3 days or a week would place you in position 100

    5)(getting credit) does not seem to be a country-related issue; in principle if your business looks that great on paper, you should have no problem getting credit. At any rate this would seem to be a banking issue, unless better ranking states either provide the financing themselves(hard to imagine) or somehow force teh local banks to lend money?
    (also hard to imagine)
    6)Protecting investors looks vague. From whom? From mismanagement? From acts of God? From stock market fluctuations?
    7)Paying taxes-I assume this refers to low taxes
    8)Trading across borders: Don;t see how this applies to Greece, especially for trading across EU borders. Unless it refers to transportaion costs
    9)enforcing contracts. I take it you mean it in a strict way, all contracts should be respected and enforced, not as the troika means it "void the contracts we don't like and enforce the ones we like".
    10)Resolving insolvency. Any examples of what would be desirable short of "I start the company; if I make a profit the profit is mine -if not, the loss is yours"

    Note that none of these factors are in the troika measures-which uniquely focuses thus far on labor costs and have the state intervene to change contracts and agreements that do not fit with their philosophy or agenda.

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    1. You are really questioning the methodology of the Doing Business Report and the right place to address those questions to would be the World Bank/IFC who put together this report.

      The fact remains, however, that Greece seems to be viewed as a rather bad place to do business, even by Greeks themselves. Otherwise, they wouldn't have so significantly increased Greek investments in neighboring countries like FYROM (No. 22 on the report) and Bulgaria. The below articles comment about that:

      http://www.forbes.com/sites/nathanlewis/2012/07/15/austerity-in-greece-sure-and-theres-snow-in-mykonos-too/

      http://www.nytimes.com/2011/01/30/business/30greek.html?_r=1&pagewanted=all

      To state that the Troika-measures focus uniquely on labor costs is a statement which does not withstand the test of facts. Below is the latest memorandum. Look through it and check how much of it relates to labor costs and how much on structural reforms.

      http://www.imf.org/external/pubs/ft/scr/2012/cr1257.pdf

      You have to bear in mind that Greece has chosen internal deflation as the adjustment process (the alternative would be devaluation, i. e. Euro-exit). Look what the memorandum says about other countries' experiences with internal devaluation (pp. 48-50).

      You make it sound like the Troika would be responsible for reforming Greece's economy and I know that many Greeks perceive like they live at the whim of the Troika. This is NOT the Troika's problem! This is Greece's problem and it is Greece which must - to use that often quoted phrase - assume ownership of the problem. No problem will ever get fixed if the appointed fixers don't think it's their problem. If you look through the memorandum, most the the reforms which are outlined there can be made by Greeks only; not by foreigners.

      Personally, I would argue that Greek political leadership has so far opted for the easy way out. They have hit those hard, very hard indeed, who are the easiest to catch - all those poor suckers who are taxed at the source and who, therefore, have always had to pay taxes. So those who, from the standpoint of fairness, would have deserved it the least have had to bear the brunt of the pain. Their purchasing power has been reduced like in few other countries before (if any other country).

      But please tell me only one "hot iron" which the political leadership has touched so far with full force. Yes, there have been new laws passed but when it come to implementation, all sorts of hurdles have come up. See this article:

      http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_15/07/2012_452180

      I belong to those who feel that the new government should be given the benefit of the doubt. The words they have spoken so far sound quite good but it is action which speaks. I would say that by the end of the year at the latest, we will have very clear indications whether they stick to words or whether they are also be prepared to take some action. The article below certainly damps my hopes a bit:

      http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_15/07/2012_452176

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  13. I did not mean to question any methodology or perception, nor to defend anyone. I am simply trying to understand in more detail what a good business environment would consist of.
    And I fully agree: The troika was not elected in Greece, nor do they have any allegiance to the country; the government does. So my view is the Troika can demand anything -but the government has to decide if this is beneficial or not and try to sell it to the country.

    So far the only laws passed, as far as I know are labor laws. And, I should add, against huge opposition and outrage. Because(and the list above also seems to agree with my view) labor is not the problem.
    "Overall, the slow adjustment despite deep recession again owes much to wage and
    price rigidities in labor and product markets." p 6

    And, I should add that the labor laws passed are actually contrary to the demand for respect for enforcing contracts-i.e. the very troika demands are contrary to a basic requirement for business-. (p 51, box 5)Because trust is not a switch you can turn on and off. For instance I would imagine inconceivable if in your career either the US or the Austrian government would pass a law by which your long-standing private contract which you accepted over presumably other offers were voided.
    Yet, this is one of the labor laws passed in February. I'm no SYRIZA supporter, but I'm not in favor of crooks either.
    And I completely share your point on hitting those who never were the problem.

    I am also tryingto learn what 'structural reforms' means. Why? Because no one ever spells out what they mean by this catchphrase. I understand one of the big things is 'opening of closed professions'. Which is fine, although I cannot help wondering : Is this the root of all Greece's evils? Taxi drivers? Truckers? And, I should add that if someone purchased a taxi liscence yesterday with the old system and paid 200K euros for it, it would be kind of unfair to have the state say "today you don't need to pay 200K-it's free". Sure the memorandum talks about other things, like broadening the tax base(ie. lowering the minimum nontaxable income),improving judicial efficiency(not quality), and so on, but these do not look like 'structural reforms' to me. Would they qualify as such? The only 'structural reforms' I see implemented are labor laws, which simply means defraud people who took an offer to work in Greece over others thinking they had a contract and give more power to incompetent managers.

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    1. I am not an economist so please take my views as those of a practitioner.

      Years ago, I heard the following phrase in a discussion: "If you want to have full employment overnight, just make the labor market totally free of regulations". I guess what that means is that if there is high unemployment, I might find someone who works for me for 10 Euros a day. And for 10 Euros per day, I might hire a housekeeper which I would normally not even dream of.

      My point is the following: wherever you look at economies in need of structural reforms, you can't avoid looking at labor regulations. That's the nature of the beast. When you have a situation like Germany had about 10 years ago where you got more money for not working than for working; where a company might have to opt for bankruptcy because it couldn't reduce its staff in times of business slow-down; etc. -- well, then you obviously have a need for structural reforms of the labor market. When it's obvious that you won't be able to pay pensions for all that much longer, you obviously have a need for a structural pension reform.

      But that is by far not the only area. In Greece, it seems (from what I read and from what readers of my blog tell me) that the entity which is most in need of reform is public administration. I gather that Greek public administration is archaic. Greek bureaucracy paralyzes economic activity instead of the other way around.

      Perhaps the issue of how good the Greek state of law is needs to be revisited. I understand that over 160.000 tax cases are pending. That wouldn't speak for a functioning state of law.

      I could go on and on. My point is: structural reforms is a lot more than just a few new labor laws but in all likelikehood, if the labor market is very vergulated and protected (like the Geek one is said to be), then you won't get around reforming it.

      The issue of the taxi driver who just spent 200-K I have pondered myself before. I can't really come up with a good answer. You could, of course, work with transition periods. But at some point, the state will have to clearly say TO ALL that the overriding objective is to work in the interest of ALL Greeks and not only of some interest groups. I am sure that the Greek constitution says that, too.

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  14. It's true that the main issue is the nonfunctioning state. But this again is not a labor issue or a protective environment. Consider this: Suppose there is a troika ultimatum that by tomorrow half of the public servants must be sacked. Who do you think will get sacked? The guy who got in via an open competition , who has 3 degrees and actually produces or his director who was appointed by the minister himself on thegrounds of party affiliation? Leaving aside issues of justice, what you will then be left is with a public administration who will be unable to perform even the simplest tasks, such as a computer backup, which will then be outsourced. Of course the company that will get the job -via an open and transparent process, I am sure- will need to pay a competent guy to do the job and will charge you 10 times that much because it has to make a profit too. The issue is not structure or institutions-these are not very different from other western countries. The issue is putting competent and clean people in key positions and empowering them to do the job. I can tell you for example of two cases: One was a case of a guy fixing various processes to advance his own career in a ministry. A number of people spoke out and provided oveerwhelming evidence. The ministry people had all this info, spoke of a 'gang' when referring to this guy and his ring, but did NOTHING. In fact the ministry sided with this guy in court cases. Another example is courts. Second degree court overrules first degree decision on a traffic accident ignoring all expert testimony-not even referring to it- and devising its own math and physics in a traffic accident case. A complaint to the inspector of courts is thrown out on the basis of non-intervention in court decisions.
    I do not see the labor market as overregulated. In fact when employees are taxed for money they should have received accordingto their contract, but did not because they were actually not paid, when they go for 3 years without pay or when they have to work 'black', meaning without a contract and unofficially, that is hardly overregulated. In fact I consider all such cases outright fraud. When top people are given a low paying contract during the good times with tenure though after a trial period and now tenure is removed, this is hardly overregulated. When the state interferes in mutually agreed deals between employees and employers, that to me looks like overregulation. Basically the private sector needs no further regulation or deregulation: People can get fired and now with much reduced compensation which is severely taxed. And, it makes absolutely no sense: If you cut wages in the private sector where are you goingto get direct and indirect taxes from? Who wil lpay for pension funds? How do you plan to keep quality people?
    And, I might add, people do understand when the company is in trouble-but not when sacrifices are asked so that the CEO gives himself and his associates a 10M bonus or throws away such figures in services that are better done inside the company.

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    1. I agree with most everything, certainly the first half and the last paragraph.

      Whether or not the Greek labor market is overregulated, I cannot judge personally. All I can say is that the analyses I have read suggest that it is. One thing which does come to mind is, as I have read, the case of a steel company which recently closed its doors after having been striked against for months and months. I am not familiar with details and perhaps there were good reasons for the strike. But when a strike leads to bankruptcy and kills ALL jobs, then I do have a bit of a problem.

      One example for reforms: I read on twitter today that the Greek government still pays 200 MEUR annually for pensions to daughters of dead judges and officers. Well, if that's the case, then this is a labor/pension law which I would reform in a hurry.

      What Greece has been doing in the last 2-3 years is what Greece MUST do in the absence of a return to a local currency: costs and prices must be brought down through deflation. Sadly, there are not many precedents where this has worked well. Greece has, in my opinion, chosen the easier but the wrong path by hitting most of all those people whose income is taxed at the source (recipients of salaries and pensions). First of all, it violates the principle of fairness because those are the people who have always paid taxes and, secondly, it really cuts into purchasing power. But, as I said, it was the easier way because you hit masses who cannot complain (at least not until the next election). The tougher part would have been to take the money elsewhere. By reducing ridiculous government waste (but there you hurt your party friends); by introducing luxury taxes on assets above a certain level; and by doing the most to chase those who have never paid their taxes. You don’t make friends as a politician when you do that and you may even lose some of the friends you need for your next election…

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    2. With respact to the steel company strike: Actually it was the Athens plant that was on strike. In the Volos plant the workers accepted wage cuts and the plant was open. The Athens plant strikers point of view was exactly that-mistrust and backed up by the management on the one hand complaining about failure of demand thus justifying the cuts and on the other hand denying workers their summer leave because of high demand. Those two don't rhyme. Of course the point is that it's hard to actually find out whether the reasons cited by management are valid or are just exploiting the situation.
      I already mentioned examples of the later.
      As for the pensions, sure this must be changed. Why hasn't it been changed? Good question! Also why would in a prime example of cooperation all parties, and I mean New Democracy, PASOK, SYRIZA, KKE and DIMAR all vote for donnating public land (a former army camp) plus 15Meuros to build a mosque in athens and pay for eternity a mufti? Just because the state pays at present for priests is not a reason enlarge the problem instead of gradually reducing it! This is another example why nobody can take the government seriously. And there is really no government plan for development, such as the SEZ you proposed.

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  15. I hope you agree that if you change labor laws for companies whose woes have nothing to do with labor[I can give you examples], this is a good incentive(and in fact what is happening) for management to use this leverage to give themselves nice bonuses which they will take from the employees either directly or by using their new superpowers; to give nice contracts to their friends, financed again by employee concessions. Ruin the company, why not, they will still get their bonuses and they have given enough contracts to 3rd parties to have their new job ready and waiting for them. Their contracts are sacrosanct. A parasitic mismanaged private sector is also a big part of the problem. It might at this point be interesting to compare say the US vs France: The US had traditionally much better paying jobs, but no social benefits. France never had (as)well-paying jobs, but they always had social benefits(such as medical care and pensions). What Juppe tried in 1996 and failed in the face of very strong reaction was to keep the low wages and slash the benefits. Greece is more along the lines of France: You cannot have it both ways. And, if you are going to go this way, don't be surprised to see quality people leaving and extremists rise.
    Btw, you mention structural reforms in the taxi market will be in the interest of all greeks. I assume you mean "the ones that use a taxi". If so, so would be a direct slashing of every government expense -and even more beneficial since we all pay for the nonfunctioning government, while not everyone uses a taxi. So would be for instance the slashing by 90% of the salaries of CEOs of public companies. Why are these sacrosanct?

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    1. I had to chuckle about you mentioning France. That is probably the most vulnerable country of all. An overboarding public sector with questionable competitiveness; an overboarding belief in the role of the state; a weakened industrial base and imported consumption; etc. etc. The advantage France has over Greece is that it is still considered the Grande Nacion.

      I didn't know that the private sector was also so mismanaged. That would be another argument for an SEZ: if everything is so mismanaged, you have no choice but to start somewhere from scratch in the right way.

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  16. France has a lot of problems too. But it still remains a large country with still an industrial base, an agricultural base and that can defend its image. Granted, successful enterpreneurs in France had Bernard Tapie among its members, but I do not think France can compete with Greece in the number of successful enterpreneurs who made their fortune in ways that Don Corleone would be proud.

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