Saturday, October 29, 2011

Send machinery & equipment --- not money!

Remember that Greeks had possibly the best reputation of all guest-workers in Central Europe during the 1960s/70s? So much for the point that Greeks are lazy and can't work hard!

Remember that Greek guest-workers worked the machinery & equipment in Germany and sent their savings back to Greece where they became a major factor in raising the country's standard of living? So much for the need for foreign investment!

Today, non-Greeks are working the machinery & equipment in Germany and they don't like the idea of sending their savings to Greece to raise the standard of living there.

The money which was sent back to Greece by the guest-workers is now supposed to be sent to Greece by the German tax payers. As mentioned before, they don't like this idea.

So how about Germany not sending money to Greece but, instead, machinery & equipment so that Greeks can work that machinery & equipment in their own country and thereby raise their standard of living on their own?

There is one catch to this. The more Greeks work machinery & equipment in Greece to support their standard of living by producing themselves the products which they want (instead of importing them from Germany), the less Germany will export to Greece. This has often been used as an argument that Germany has no interest in making Greece less dependent on imports from Germany. That may be right.

But Germany should learn from "her own Greece" which she had in her own territory. After German unification, there was the historic chance to rebuild the former East Germany economically from scratch. The former East Germany could have become the tiger economic region of Central Europe with the best infrastructure and business environment (because they all had to be built from scratch).

However, there was no particular interest on the part of the West German economy to raise its stiffest competitor in the Eastern part of its unified nation. Above all, it was the West German union movement which made sure that there would not be too much new competition from the East. An overvalued currency in the East helped a lot!

And what was the net result? The former East Germany has to date not been able to develop its own functioning economy and the West still needs to transfer almost 100 billion EUR a year to the East in order to compensate for that.

Bottom line: the surplus countries can't have both, have the cake and eat it. If they don't want the deficit countries to become a bit more their competitors (because that would reduce their exports to them), then they have to send the deficit countries the monies needed to buy imports from the surplus countries. There is no other way.


  1. Well, once upon a time, Germany DID send huge amounts of machinery and equippement, whole factories, to a foreign country. It turned out this wasn't a good idea at all. The valuable investment goods were simply left rusting at the stations by the Russians, and eventually were scrapped. At the same time, Eastern Germany never totally recovered from the loss of industry.

    Imho there's a lesson in this: You can't simply transfer businesses. You also need to transfer the knowhow in any form, and it has to be assured that the production makes economic sense for the new host. And then, if the receiver isn't interested in putting the gift to good use, it's still a waste of efforts.

    So, is this a reasonable plan for Greece? What does work for Germany doesn't necessarily have to work for them. They have to concentrate on making the most of their own strengths, they can't simply copy ours'! Apart from that, the last thing they need now is even more state run companies that are a burden for the rest of the economy.

  2. Thinking more about this, and thinking of what I've learned about the Greek way of life in the last years, I guess I know what would probably happen with your generous delivery:
    The government would sell the machinery to rich Greek businessmen, with a LOT of corruption and cronyism involved. The buyers would then transport the machines across the border to locations in Bulgaria and Romania and start new factories there.
    Long term tax revenue for Greece: Zero.
    Long term jobs created in Greece: Zero.

    Anything wrong with my view, or don't you have to agree that this is the likely outcome, Klaus?

    1. Nothing wrong with your view. We are really saying the same thing, perhaps in a bit different ways. Browse through my blog inventory and you will see.

      Greece needs foreign investment in order to stabilize its Balance of Payments because it won't be able to do that forever with loans. Foreign investment only comes once Greece is a good place to do business (presently No. 100 on the World Bank's report; see my blogposts on that). And Greece needs foreign investment not only for financial reasons but, more than anything else, for know-how transfer. By that I mean much more than only technological know-how. ALL knowhow, including know-how about management and corporate governance and cultures. Read this.

    2. Been there, done (=read) that! Thx. Good points, even though I disagree on some details (Are any savings left that would devalue? High inflation didn't lead to especially high social unrest in the past.) Your idea of "free trade zones" sure is interesting. Not sure if it would turn out the way you envisage it, but something like that has to be done to shake up the ignorants and spark new economic ambition, for sure.

      Btw, maybe you experienced the same: Ain't it telling that virtually all expat Greeks hold much more realistic opinions on politics and the economy than the "natives"? I suspect the constant blood toll of enterprising people seeking their fortune in foreign lands has had a sizeable impact on the Greek economy. A negative (for Greece) example of social evolution. Sadly, while there seems to be considerable good will among those expats to help their fatherland in these times of need, there's also lots of stories about Americans or Australians returning to Greece with the best intentions, only to become severely disillusioned in a short time. What a waste of solidarity, time and efforts! It's tragic.