Wednesday, September 19, 2012

Greece needs import substitution!

In the first 7 months of 2008, Greece's imports totalled 38,3 BEUR. Four years later, from January-July 2012, Greece's imports were 25,1 BEUR. That's a decline of 13,2 BEUR.

There are three ways to reduce imports: (a) reduce spending overall and thereby also reduce spending for imported goods; (b) maintain spending but spend the money on domestically-sourced products instead of imports; or (c) a combination of the two.

My guess is that the reduction of Greece's imports goes entirely on the account of reduced overall spending due to the depression.

However, let me make an academic argument: suppose Greece's spending overall had remained stable but the above 13,2 BEUR had been shifted from foreign-sourced to domestically-sourced. Would that not have been quite a stimulus for domestic economic activity and for new employment?

Even in a depression, new jobs can be created. They can be created by stealing them. They can be stolen from those foreign countries which export products to Greece which products Greece could produce just as well domestically.

Sustained long-term growth requires long-term planning: identification of competitive advantages; development of new industry areas and business lines; etc. That is, of course, necessary for Greece but it takes time. Greece needs to, parallel to the above, achieve some quick economic growth.

Quick economic growth is achieved by stealing market share. Greece has to steal market share from those who presently produce products abroad and sell them to Greece. Greece has to steal their market share by producing the very same products on it own and “at home”. 
Where is the "obsession with import substitution"? Where is the populist cry to no longer subsidize foreign economies by buying products from them which products could just as well be produced in Greece?
Wherever the products are produced, that's where the jobs are. That's where the income taxes of those who hold those jobs are. That's where the corporate taxes of those companies are which make a profit in producing them. And, finally, that's where the dividend taxes are of those entrepreneurs whose companies make enough money so that they can take out dividends.
Is that so difficult to understand?


  1. Below is a link for Greek trade in 2008, whilst the quantum may have declined I imagine the product mix would not have changed that much.

    It has both imports and exports. it appears to me that pharma might be a sector worth some effort, it was the second largest import item (well publicised outside of Greece), but its also the second largest export item (not so well publicised outside of Greece).

    Pharma Imports are about 4 times greater than exports. So it would appear to have a potential for growth, both for import substitution and for export.

    Brazil & India both built pharma plants in Mozambique a couple of years ago to supply the sub-saharan Africa market. Why wouldn't they do something similar in Greece - where there's local expertise.

    No agribusiness products appear in the top 10 imports, the biggest was - pork, the biggest agribusiness export was - fresh fish.


    1. This is a most interesting website!

      I took this opportunity to take a look at the "Ten years ahead" report by McKinsey. I think it came out over a year ago and I hadn't looked at it since then. Having reviewed it again, I still don't understand why the government wouldn't take that as a starting base to develop a new long-term economic model for Greece. It includes real good stuff!

      Interestingly, pharma is the number one among the "rising stars" in that report.

      If you look at the top-ten import categories of 2008, three of them (four, if you include passenger vehicles) are categories which one has "if one can afford them" (electronics, etc.). Without all that cheap money from abroad, Greece could not have afforded them and if the foreign funds flow stopped, Greece could not afford them today. That's what I always refer to as "Greece's imported living standard".

      Again, if one really took something like the McKinsey report as a serious base for future policies, one could really create some excitement about the future potential of Greece. Beats me why nobody does that. In fact, I do not even recall that this report got any attention at all.

    2. Import substitution can only go so far, Greece must grow its exports. Greece and Sweden have similar populations (10M), the products they each import are similar, but the bottom line difference is stark, the numbers in 2008 in US$B were.

      ............GR SW
      Exports: 20 158
      Imports: 80 152

      I don't think Greece will ever match Sweden. But to come even close I believe it has to adopt the attitudes & practices one finds in the developing world.

      But this goes 'against the grain' of much of the European intelligentsia and nomenklatura, who prefer to project an image that all of Europe is the pinnacle of the developed world. A similar group of such people in another Union had a similar fantasy up until not so long ago.

      Professor Sinn has suggested that Greece could leave the Euro for a few years to get breathing space to 'fix' its economy, and then go back to the Euro. But from my understanding of what he said, he didn't say what Greece should do to 'fix' its economy - maybe that's because Sinn is an economist.


  2. Where is the "obsession with import substitution"? Where is the populist cry to no longer subsidize foreign economies by buying products from them which products could just as well be produced in Greece?

    Well have you seen this Amstel ad? It says that "Amstel is made for so many years with greek barley, with our hands ,in our land, that even the name itself has to be greek".

    The Communication Control Board found this ad misleading and it is no longer shown on TV.