Thursday, April 4, 2013

A case for foreign investment (again).

An anonymous reader (I take it he is a British with extensive living experience in, as well as good inside knowledge of Greece) made the following comment to an article published by Nick Malkoutzis in his bog: An April Fools Economy. 

The problem (in a nutshell) is as follows:

(1) The Troika is concerned with the viability of northern European banks and the integrity of advanced capitalism. Greece and others are an irritation.

(2) The Troika “solutions” consist of austerity measures to cut expenditure and (theoretically) raise state revenues, as an immediate cut on the cost of financing the Greek and others’ budgetary deficits. However, the economists know that this is short-term nonsense: so, they impose neoclassical reforms (free market and privatisation crap) as the long-term structural solutions.

(3) These long term measures have never worked anywhere, and there is not a cat’s chance in Hell that they will do Greece any good. The problem for the IMF is that they have no other ideas.

(4) The Greek politicians’ solutions to everything always used to be: spend, spend and spend. This had to end with a eurozone monetary policy, but they were too thick to work it out. Now they know it, they don’t have a solution either.

(5) So, in reality, neither the Troika nor the Greek state have a serious long-term plan for structural reforms. Some of the ideas of the Troika’s economists know in general terms what is needed, but they have no practical ideas for their implementation and no political support anyway.

(6) The current Greek government has a deluded idea that “everything will work out in the end” so they just need to keep on bluffing and talking crap. Look at the opinion polls: Samaras is doing well, despite being a moron who has achieved nothing.

(7) The bottom line is this: either Greece learns how to produce and market sellable quality goods (including tourism) and compete in the global economy, or it will fall into the abyss of Third World Economy. We are a quarter of the way there already. No other country is going to save Greece; the EU cannot provide inspiration and direction for Greece; the Germans cannot subsidise production and sales. This innovation has to come from the Greek people — from the intelligentsia (who don’t deserve the word) and the political idiots. I don’t see much hope, with the partial exception of Tsipras and a few others. Yet, they are disparaged (in the typical foolish Greek way) along the lines of his age, lack of family prestige, educational profile, anti-left political rhetoric…. in other words, Greeks continue to make the same mistakes as they have made since 1832. 

Very well formulated! Nevertheless, I am reminded of what my American bosses would have said in the early years of my career when I got used to American thinking. They would have said: "Great! Now have have defined the problem. What are you offering by way of solutions?"

Of course, the solution is that 'Greece learns how to produce and market sellable quality goods (including tourism) and compete in the global economy'. But where is the button one needs to push in order to get that result?

The technocrats are saying that all that is required is to get government expenses under control, implement reforms to liberalize the economy and - just wait to see how miracles will happen. And my response is: those miracles will not happen all by themselves. Why? Because a system which has developed in the wrong direction for years, perhaps even decades, will not change simply because a button is pushed; simply because the economy is liberalized. That will only happen if there is a sustained change management process.

I repeat my age-old thesis: the best change management process involves foreign investment. People don't change their habits, mentalities and ways of professional life simply because someone says they should. People change their habits, mentalities and ways of professional life when they see better habits, mentalities and ways of professional life. To see better habits, mentalities and ways of professional life is the only effective instrument in the process of change management.

Greece needs foreign investment for two reasons. First, because, from a Balance of Payments perspective, the Greek economy needs foreign funding in order to employ its people and foreign investment is by far a better source of foreign funding than interest bearing and repayable debt. And, secondly - and this may even be the more important reason - because foreign investment brings with it the transfer of know-how in all areas: technological know-how for sure but also know-how in areas like professional management, good corporate governance and good corporate culture.

I repeat my three solutions for the Greek economy: foreign investment, foreign investment and, again, foreign investment.


  1. I perfectly agree with the medicine prescribed Herr Kastner. Bitter for many Greeks but the only one that can cure the patient.

  2. I agree and many of us have been saying this for years but as a foreigner living here, with a business, I wouldn't recommend it to anyone. It's just so very very difficult, as there is simply no help and no advice and the dreaded bureaucracy. However, the main problem here, unless you are dealing in cash with the general public, is settling accounts, the law simply doesn't work.

    1. You seem to be new to my blog. Obviously, Greece today is not an attractive place to do business (it ranks last among EU countries as regards the 'ease of doing business' according to the World Bank's survey). You mention some of the reasons for that. Very large individual investors (like Cosco) may be able to negotiate favorable terms but the 'regular' foreign investor would be frustrated.

      My response to this was and continues to be: you can't change the whole country from A-Z in a short time frame. Impossible! But you can immediately implement 'pockets' (I refer to them as Special Economic Zones) where, from day 1, you offer the foreign investor all the business conditions which he desires. More on this below:

  3. Globally, the biggest source of revenue for overseas tourism last year was China, it was up 40% on 2011. The Chinese middle class is anticipated to grow to 600M by 2020.

    What is Greece doing to attract Chinese tourists - they like shopping for HQ products, casino's, and theme parks. Most are not interested in wandering around ancient ruins of a culture whose links to their own history & culture are minimal.

    I read somewhere that the Chinese tourists have discovered Germany and it could be the #1 destination in Europe for Chinese tourists within 5 years - displacing UK and France.

    If you search in English for Cyprus property agent sites you'll often find the website is in English, Greek, Russian and Chinese. I heard a Cypriot lawyer say in an interview on the BBC that the Chinese have bought a lot of properties in Cyprus - for cash, they only deposit small amounts in Cyprus banks to pay bills etc.

    If I do a similar search for Greek properties all I see is Greek or English.

    OK, so selling a house to someone from China wont create many jobs (except for a bit of gardening, cleaning, repairs and maintenance and property management...) but it frees up capital that could be used to invest in facilities that caters to the Chinese tourist.


    1. You hit the nail on the head! A businessman, had proposed 2 years ago, to transform the neighbourhood below the Acropolis, to an ancient theme park, so that tourists would feel more "close" the ancient culture. Demolish existing buildings (after compensation to the owners) and rebuild them with ancient architecture, hire as municipal servants some "professional philosophers" (why make them pubblic servants, you may ask. Well, because slavery is prohibited today, so somehow they need to make money to live while they do their philosophic work at the agora), who would walk and teach in the open, dressed in robes, have some more with bronze armour and spears simulating combat trainning and last but not least, a representation of the 12 Gods of Olympus in the higher quarter, each with his characteristics. A full immersion experience and once tired of the show and gadgets, you could then walk further to the archeological site.

      Unfortunately, the businessman could not find funding from a bank, the municipality had no money to spend and it was met with fierce opposition from the left parties in the mucipalities' board, as "kitsch and nationalistic".

  4. Glad you zeroed in on the anonymous foreign expert's comments Klaus. The writer seems to have oversimplified both the Greek government approach and the Troika's, a clear indication we are dealing with somebody's simple opinion, not a professional assessment. As a good analyst or commentator, he of course opens the door to Comrade Tsipras,not even recognizing that the openness he finds among many Greeks is traditional - let Tsipras take charge and fail, then he will join the pack of failed Greek demagogues. So let's get on with the process of attracting investment and restoring competitiveness, where small steps forward are encouraging. Much more is needed. Thankfully, the Troika is still around to fund the hard work ahead.

    1. What is this nonsense? Simple character abuse or some sort of underhand support for the appalling mismanagement of Greece by the Troika?

      First of all, I resent that my professional expertise is dismissed as "simple opinion". I was at university with some of the IMF experts, my published work is cited by them, and I do not appreciate being dismissed in this typical Greek manner.

      Secondly, I have studied the Greek economy since 1988 and know it and the Greek people well. I have lived here since 1998. I know Greeks well and I know their virtues and defects.

      Thirdly, I stand by my claim that there is nothing (in the long term) that Greece can reasonably expect from the Troika. My criticism of the Troika policies is that they have no long-term strategy and only punitive self-interest in the short run. This means that Greeks have to get off their fat asses (yes, you Venizelos and you Karamanlis) and learn how to make a living. This living is not from personal connections, and inherited wealth, and corrupt practices: this living has to come from producing useful goods and services.

      So, enough of the arrogant and foolish slander: I am not pro-Tsipras as such, although he is the least disastrous of the entire poltical crowd. I am certainly opposed to the idiots who occupy political power at this time, and in recent memory. Who cannot be? But the answer lies within the capacity of rich Greeks who need to invest in their own country (it is not merely about FDI, Klaus), it is about criminals who should be in gaol, and it is about removing the corrupt and usless from the civil service.

      When a suitable environment for business has been constructed, then maybe the Greek economy can funtion. Until then, it is full of idiots with vacuous ideas such as yours.

    2. klaus: sorry for my delay in responding. I have been preoccupied with preparing some official reports.

      Yes, your question about HOW to make Greece an attractive place for economic investment is absolutely central. May I answer it with an anecdote?

      When I was preparing my thesis on the Greek economy in 1988, I had the luck to meet the professor of economics in a nearby uni (George Zis) who told me the following story. A manufacturer of refrigerators who was Greek had left Greece during the dictatorship and set up several factories in the Middle East. With the 1981 Papandreou government asking for the diaspora to return to their homeland and invest in production, he decided to set up a factory in Attika. So, he invested around one million dollars, put in place the best managers and best accountants he could employ, and left them to it. As he had done in countless Arab countries. A year later, he returned to find that the factory had produced the right number of good quality refrigerators, had sold all of them, yet he had total losses roughly the size of his investment. The reason: all the professionals he had hired were crooks who had embezzled the money. So, he closed the factory and quit Greece.

      I heard a similar story from Vladimir Ashkenazy, who had a residence in Pelopponesus and left Greece after serious legal problems. That is to say, the architects were crooks and (to quote Vladimir) the lawyers were even bigger crooks, as well as calling themselves communist.

      The issue here is that the infrastructure of Greece is similar to that of very underdeveloped Third World countries -- the legal system, the taxation system, the political parties, etc etc. Greece should never have been admitted to the EC, because its values were more Ottoman than European. This was identified in the earliest reports from the Commission, about the massive defects of the Greek legal system. When I asked Greek lawyers about this, in the mid 1980s, they said: "Oh, they are mistaken. Our laws are taken from the German model." With this falsification they excused the mess of Greece.

      Lest anyone think this to be a new problem: try reading Tuckerman (1872) The Greeks of Today. Or Edmond About (1852) La Grece Contemporaine. And many others. The problem is in Greek culture, and this is not going to be changed by the Troika. Only Greeks can do this, and the first step is to cut the malakies.

    3. Guest (xenos)

      I am not sure that the Troika is the place which Greece should expect something from. Compared to a corporate restructuring, the Troika is the Steering Comittee of lenders. Their primary focus is always on getting their money back. Then there is typically a consulting firm which, allegedly, will help to bring the company back into shape.

      The equivalent of the latter is for Greece the EU Task Force. That, to me, is the place which Greece should take advantage of in unlimited ways. I had once made these recommendations:

      Regarding your last two paragraphs, I think they are as substiantally correct as they are politically incorrect (you might want to add Nikos Dimou's little book about the 'Misfortune of being a Greek' to your reading list). A developing country needs development aid in all aspects, not just money. If one does not accept the former definition, one will not get the latter results.

      I am obviously not saying that foreign investment alone is the answer to everything but I am saying that if the 'right' investors come, they can be one of the most effective catalysts for change. I have a bit of a one-track mind as to what the 'right' investor would be because I have had such favorable experiences with family-owned Mittelstand-companies in Germany and Austria. Such companies not only bring money and know-how, they also bring culture.

      I sympathize with your statement that only Greeks can change their culture. In reality, I am not sure that this can happen without at least some outside stimulus. I mean, why would an established and entrenched system/culture ever change from within if that were to hurt the interests of those doing the changing? Why would anyone self-amputate?

      I am a firm believer in the power of role models, of seeing better ways of doing things, etc. People (in countries as well as in companies) will resist change actively or passively if it is mandated and perceived as a threat. People can become enthusiastic about change when they can see the benefits of a changed system in practice.