Follow by Email

Monday, January 13, 2014

Greece - Move Up the Value Chain!

This article by professors Tse and Esposito is well worth reading. Largely thanks to Merkel/Schäuble, the expression 'competitiveness' has been reduced to a very narrow meaning --- become cheaper!

If 'becoming cheaper' were the only aspect of competitiveness, a country like Switzerland should be blown out of the water by now. Switzerland already was very expensive when the CHF/EUR stood at about 1,60 and now the Swiss National Bank has been capping the exchange rate at 1,20 for some time. In short, Switzerland always was very expensive and is now even more expensive. If you don't believe it, go visit Switzerland...

And yet, Swiss exports have gone up despite the revaluation of the CHF and the economy is booming: the country is running literally indecent current account surpluses (about 12% of GDP!). So, price alone can't be the answer. Patriotic Swiss argue that the higher the exchange rate, the better for the country because a high exchange rate means that the country's products are in very high demand. A point worth thinking about!

I will cite just one sentence from the article which points to the answer for many challenges facing the Greek economy: "Spain has been very successful at moving up the value chain by turning more of their agricultural products into organic ones, thereby moving away from competing on price to competing on quality". How high in the value chain are Greek agricultural exports? Or other Greek export products?

In my opinion, Greek economic leadership should talk less about 'returning to the markets' and more about 'moving up the value chain'. The jobs, the wage/income taxes, the social contributions, the revenue for the state --- all of those things are along the value chain. If most of the value chain is outside the country, all these nice things are also outside the country.

I rest my case!

2 comments:

  1. What IS your case? Greeks have turned in droves to creating organic and terroir products before & during the crisis. The problem is total lack of bank credit for expansion & volume export.

    ReplyDelete
    Replies
    1. Hi there (long time no hear...).

      My case – in the event that this wasn’t made clear in my post – is that a major focus of Greek economic activity should be to move up the value chain. That’s a general point. The trouble with specifics is often that they quickly lead to black-or-white arguments. One side says that “Greeks have turned in droves to creating organic and terroir products before & during the crisis” and the other side asks “how does Greek olive oil get onto the shelves of foreign supermarkets” (my understanding is that most of Greek olive oil is sold in bulk to Italy).

      A couple of decades ago, Austrian farmers sold milk to neighboring countries. Meanwhile, they have gotten wise to the fact that they might just as well turn the milk into cheese, yoghurts, etc. and keep more of the margin in Austria. I would bet that there are endless examples where more of the margins could be kept in Greece (not only with agricultural products).

      The issue of bank credit is valid but, like in so many other cases in Greece, it can also be used as a good and credible excuse.

      I have yet to meet a Greek entrepreneur of any significant size who does not have money stashed away in offshore accounts. After the Soviet Union collapsed (and again after the 1998 crisis), no bank made loans to Russians. And yet, Russian entrepreneurs received financing for exports/imports. How? They used their offshore funds as collateral for such bank financing.

      I have great reservations about negativism. There are plenty of examples where Greek entrepreneurs are successful even in terrible times (I have recently posted about IT companies but I have read about several others). Some time ago, I read somewhere that Greek exports of tsatsiki to the US had increased by 70% in a given period. Things like that don’t happen by themselves. Behind such things are always creative and energetic people who don’t look at things how they are and lament that ‘they are so bad’ but instead think of things how they could be and ask ‘why not?’

      Delete