Friday, January 24, 2014

And the Culprit Is??? --- Lack of Competition, Of Course!

So it's really quite simple, according to the OECD: Greece must only dismantle barriers to competition and everything will be fine. At least according to the OECD, which also says that 2,5% more GDP would be the reasonably quick consequence.

This sounds very convincing to a superficial observer like myself. I have always wondered in the last few years of austerity why certain consumer prices remained so high. Now I know why --- it's the lack of competition!

Unfortunately, I continued reading this article from the Ekathimerini and read about some of the most important reforms which, allegedly, the OECD has in mind:

* extend permissable shelf-life of fresh milk
* liberalize exclusive distribution of medicines
* open new pharmacies
* allow Sunday openings of retail stores

Allegedly, the OECD made 329 recommendations. I sincerely hope that they don't consider the above 4 recommendations as examples of the better ones. Yes, prices should come down much more in line with the decline in incomes but the above 4 recommendations are not going to achieve that, I don't think.

When I ask Greeks why they think prices don't come done, they mention things like cartels, crony networks and so forth. Is that because they are conspiracy fanatics or is it perhaps because they are right?


  1. Yeah, let's drink sour milk only ;)

    Klaus, what is your opinion why prices do not go down in Greece? When most goods are imported, are those more expensive in Greece than in Austria?

    In Switzerland there is the same situation. But there are no cartels, no crony networks and so forth, but still prices are higher.

    When CEOs of big resellers in Switzerland are asked for a reason, they all say that wages and other cost is much higher in Switzerland than in Austria.

    Although this is true it is no valid explanation because those costs would not result in such considerable differences. Imho there are no cartels, but without talking to each other they all are glad about a situation where profits are splendid and no one really makes aggressive pricing.

    Even Aldi in Switzerland is part of this "virtual" cartel game: They make lower prices but considerably higher than in Germany. This can best be compared by looking at their offer for specially low prices of Medion branded products.


    1. In my opinion, as a student of the Greek economy since 1988 (when I prepared my dissertation on the Greek labour market), the problem is not with the economy.

      The mistake that almost all economists make is in thinking that the economy is somehow a disjunct entity, that has little relation with society or polity. In fact, they are all so closely interconnected that anyone who disregards this reality is likely to get it wrong.

      Specifically: Greece has a rather odd economy that is not capitalist, at least in the normal conceptualisation of varieties of capitalism. The Greek economy since 1830 has always been directed by political forces, reliant on massive loans or donations from overseas, and domestically is focused on who has the connections to extract money (we could say "rents", perhaps) within the Greek system.

      Thus, the Greek private sector is closely connected with government (in various ways). Moreover, the idea of competition and competitive pricing is alien to the Greek culture (although is slowly appearing during this crisis). Historically, the localised nature of the Greek economy meant that monopolies, monopsonies, oligopoly were quite normal -- and I would say in the distant past functioned quite well, under social constraints. As Greece became closer to western capitalism, and especially with membership of the eurozone, these old habits along with personalised connections lost their social control and became overtly corrupt. Cartels emerged from natural oligopoly; state monopoly contyracts (complete with kickbacks) became the staple diet of a wide range of businesses, and corrupt practices even extended to include German companies (which treated Greece as a Third World economy, and accepted the corruption).

      Where is competition in all of this? There is none. Where is competitive pricing? Provided that the majority of the population was kept with a flow of money, there was little concern from them. Most Greeks continued to buy expensive products from "their" personal supplier, with a personal guarantee of a low price, in a market where actual pricing was concealed.

      So, the OECD is just barking up the wrong tree. It does not understand the Greek economy and is even more clueless than the IMF. Social, political and legal reform have to precede economic reform -- or at least, go alongside. Otherwise, nothing will change other than collapsed living standards for the majroity of Greek people.

  2. @Guest (xenos)
    Your explanation is interesting and makes plausible why 'universal' economic theories may not be applied to Greece without consideration of strong local influences.

    I have written your last two sentences too many times in comments at Ekaterimini without hearing any reasonable feedback. My conclusion is that unfortunately Grexit is inevitable.

    Klaus, how do you see that?

    1. How I see that? Well, I obviously agree with 'the last two sentences'. The thing is only: you can reform the social, legal and political system of a society but if the 'users' (i. e. the citizens) don't change their thinking and their ways, everything is going to turn out similar to what it was before.

      I have seen many large corporations being restructured; i. e. reformed to fit the modern world. If the employees don't 'buy into' the new structure, the latter won't be a success. However, restructurings were successful when they were accompanied by a change management process.

      You can't have change management consultants working with 11 million Greeks. In a society, change management typically has to come from the top; from political leaders. Just remember how Ronald Reagan changed the mood of an entire nation. Ludwig Erhard, the 'father' of Germany's social market economy in the 1950s, did not only implement new policies. He talked and wrote a lot about what he was doing and why. His writings are cited very much even today.

  3. To come up with a realistic answer about how prices are negotiated, economists need to open up to new researches about price.

    The myth, that supply and demand are the only factors that fix prices does not in any way hold with empirical ecidence.

    The distinguished economist and anthropologist Paul Jorion has demystified economic theorie of prices.

    See his lectures here:

    Markets, as any form of social interaction, are influenced by power structures. Prices tend to reproduce social stratification in societies. (Rich and powerfull pay less than the poor and powerless).

    Social theorists like Pierre Bourdieu or Michel Foucault have also shown these connections between power structures and price formation. (As has Aristotle 2500 Years ago).

    Economics see every sociopolitical problem as fundamentally explainable by economics. there can be many reasons for this I dont want to get into right now.

    The matter of fact is, that all social pehomenas have complex reasons rooted in the interaction and interdependance od all members of society.

    Prices for certain essential goods might be high, because there is a economical elite in greece that is fighting a war against its own people for continuance of the status quo of stratification.

    It might be high because the soial groups affected do not have access to the political means to change it.

    Only after these considerations have been made should any thoughts on "free market forces" be considered.

    Trying to solve social issues with "neoliberal" tools will reproduce the root causes for the issues in society.

    1. You are confirming what many Greeks feel, namely that their prices do not really represent supply & demand. Interestingly, there are movements, particularly in the North of Greece, to introduce more supply & demand. Farmers avoid the 'middlemen' and offer their products directly to customers. And those prices, to be observed at every local market (laikí), are low.

      When you are saying that markets are influenced by power structures, you are essentially saying that neoliberalism doesn't work. Neoliberalism would expect a very stong state to act as the objective and incorruptible protector of principle & precedent; the protector of those very strict rules which assure that markets will act without arbitrary distortions.

  4. Neoliberalism has failed in exactly the same way communism has failed. It did not hold up to reality. Just as there has never been a comunist system, there never has been a neoliberal system.

    Just as (Stalinist, Leninist) power structures have taken control of and destroyed the communist revolution, neoliberal theory was misused by the powers that be. Neoliberalism has become the favorite legitimation for doing the things the rich and powerful do to promote their interests and accumulate more wealth and power.

    Basically, losely based on George Orwell: "All animals are free, but some animals are more free than others", is what neolibealism is today.

    I see this also as the most important factor for misunderstandings in the discourse between the left and the right, or You and me.

    When I talk about communism I am talking about the ideal of communism, while you understand stalinism, DDR, north korea etc.

    When you say neoliberalism, and probably want to talk about a economic theory, I cant help but understand Thatcherism, Reaganomics, mainstream economics, Larry Summers, Hank Poulson, Glenn Hubbard, Timothy Geithner, Alan Greenspan, Goldman Sachs, Deutsche Bank etc.

    1. Would you be kind enough to give me your definition of neoliberalism? None of the people you quote would I associate with the thought of neoliberalism.

  5. Maybe it would be best if I refer to the most prominent thinker of the political left to answer your question.
    In "Profit over People. Neoliberalism and Global Order" Noam chomsky has written the blueprint on how the left perceives neoliberalsm today:

    It is available here:
    This is the summary:
    "Why is the Atlantic slowly filling with crude petroleum, threatening a millions-of-years-old ecological balance? Why did traders at prominent banks take high-risk gambles with the money entrusted to them by hundreds of thousands of clients around the world, expanding and leveraging their investments to the point that failure led to a global financial crisis that left millions of people jobless and hundreds of cities economically devastated? Why would the world's most powerful military spend ten years fighting an enemy that presents no direct threat to secure resources for corporations?
    The culprit in all cases is neoliberal ideology—the belief in the supremacy of "free" markets to drive and govern human affairs. And in the years since the initial publication of Noam Chomsky's Profit Over People: Neoliberalism and Global Order, the bitter vines of neoliberalism have only twisted themselves further into the world economy, obliterating the public’s voice in public affairs and substituting the bottom line in place of people’s basic obligation to care for one another as ends in themselves. In Profit Over People, Chomsky reveals the roots of the present crisis, tracing the history of neoliberalism through an incisive analysis of free trade agreements of the 1990s, the World Trade Organization, and the International Monetary Fund—and describes the movements of resistance to the increasing interference by the private sector in global affairs.
    In the years since the initial publication of Profit Over People, the stakes have only risen. Now more than ever, Profit Over People is one of the key texts explaining how the crisis facing us operates—and how, through Chomsky’s analysis of resistance, we may find an escape from the closing net."

    1. To avoid misunderstandings: I do not consider myself as a neoliberal. Neither anything else. I think society is far too complex to explain it all with only one ideology.

      I asked you for your definition of neoliberalism and you give me Noam Chomsky’s. Thank you. But who is to say that Chomsky really got it right when he described neoliberalism? Would it not be smarter to check it out with those people who are credited with ‘inventing’ neoliberalism?

      I link below a Wikipedia article for you. Some people, maybe you too, think of neoliberalism as some kind of a turbo classic liberalism. Sort of unlimited laissez-faire. Well, the opposite is true. The thinkers who started thinking about this in the 1930s started from the premise that unrestrained free markets led to unacceptable consequences. They did not want to reign in the free market forces but their intent was to give them very strong rules. Neoliberalism requires a VERY STRONG STATE, “a state above the economy, above the special interests; a state where it belongs”.

      What the world has seen since Reagan is a betrayal of the cause of neoliberalism. More the survival of the fittest. Neoliberalism is for a “social market economy”, a free market economy combined with social responsibility. Or, as you might say, an economy which is there for the people and not the other way around.

      To make a point: a neoliberal gets sick when he sees what financial sectors have been allowed to do (by the state!) in the last 3 or so decades.

    2. Well, that exactly was my point. Was I really so unclear?

      I wanted to call your attention to the basic problem of the discourse about neoliberalism.

      I do know, that you and others understand the theories of neoliberalism very differently from those who implement economic policy. But the economic policy is what we are stuck with. It directly influences my life very profoundly, so I will and must talk not about the theory but about the reality.

      And I also did give you my interpretation of neoliberalism in my second comment in the shortest possible form:
      "All animals are free, but some animals are more free than others" remember?

      So here a little more of my definition.
      Neoliberalism as it is, is nothing more than a fig leaf for the powerful and rich. It ostensibly legitimizes the exploitation of people, nature and countries by oligarchs and oligopoles.

      Economists and economic theories are just handy tools. If the legitimization was not called neoliberalism it would be called something else. (It was religion before, when the powerful were still called kings).

      Neoliberalism, as used that way, is a tool for propaganda and to uphold hegemony. It gives the illusion of incorporating the classic values of civic society middle class: freedom, equality, property and individualism. In reality it takes away all those values for the predominant part of the worlds inhabitants.

      Its effects are slavery, suppression, exploitation, alienation, destruction of our environment and destruction of democracy.

      "Free trade" exists only if profitable for those with power, it is imposed on the powerless with impunity, it is accepted only at whim by the powerfull.

      As I said, I actually do believe that if perfect communism was achieved it would be the perfect world. But perfect communism does not exist on a national level anywhere, and we are very far from a world where it might be possible on a larger scale.

      "Ideal" neoliberalism, that deserves the credit you gave it in above comment. does not exist, not locally and not globaly. And as with communism, we are very far from a world where I see this kind of neoliberalism implemented.

      It is therefore as much an utopian dream as is communism.

      We should therfore not talk about neoliberalism at all if it only distorts communication.

      But there is a wrong economic policy and geopolitical strategy that has given itself the name "neoliberalism" and it is in my view, currently leading the way to the worlds destruction.

      So if you are against the policies that are implemented under that label, you are in effect against neoliberalism, because there is no other policy existing that carries that name.

  6. One more thought to make my point. Even if I would call myself a "communist" (which I dont), I would be as much opposed to a system as it has existed in the former soviet union or east germany as I am now opposed to the ideology that calls itself neoliberalism.

    I would also argue that there have been many "communists" (like Bert Brecht) who were seen as dissisidents in the system they were living in.

    In the end, nobody ever cared that communist thinkers loudly insisted that the soviet system was not democratic and not communist.

    Nobody cares if economists today point out that the policies that are called neoliberalsm today do not deserve the name. These economists are not part of the discourse, and thus simply not heard and ignored by those responsible for formulating policies.

  7. An interesting dialogue about the meaning of "neoliberalism"...

    From my point of view, neoliberalism is a very broad ideological-philosophical movement that has almost completely dominated the economics profession since the 1970s (although there is either neoclassical or the US weird neoclassical-Keynesian synthesis that is taught worldwide, e.g. Samuelson and others).

    It has also dominated western politics over the same period, to the extent that few can think outside this rather foolish and incorrect model. Here, we need to go beyond economics and discuss the role of the state, as Klaus mentions above. The neoliberal version of the State is complex, and appeared most strongly with Thatcher, because of the discontinuity with UK structures. Most of the neoliberals of the time spoke about "rolling back the state" but they did not mean that. What they actually meant, even if they did not know it, was to weaken the social state such that individuals' or companies protection from market forces would be removed, that the State would take a much smaller role in both social protection and provision of healthcare and education -- along the lines of the aberrant US model. (I say aberrant, because the USA is unique in developed capitalism.) Following this logic, the state would also deregulate much of the economy -- either removing rules and constraints (as with the financial sector) or by privatising public companies such as telecommunications, utilities, transport. Much of this has been done across Europe, and is largely an unmitigated disaster in terms of quality of services relative to cost.

    The other thing that early neoliberals forgot to mention was that they wanted a stronger state to protect business and market forces. I suppose this is what Klaus was thinking of, above. This policy never appeared as a formal political platform, but you can see it with a clear obsession with protecting intellectual property rights (to the extent of extraditing teenage boys to the USA for unauthorised downloading of films or music), and also the protection afforded to banks and other forms of activity that border on organised crime. Along with this more powerful role of the State, comes policing, interference in civil liberties and monitoring of all communications by phone, email, or whatever. Far from rolling back the state, the neoliberals have succeeded in replanting the seeds of fascism across Europe and North America.

    Of course, I do not consider Klaus to be neoliberal. But there comes a point when it is clear that the tenets of the economic and political management of the western world are obviously discredited and need to be rejected. The two parallel trends that I described above in relation to the role of the state have left us with a structural catastrophe that threatens the continuation of democracy. If there is no reversal, we are clearly set to continue down the road to a neofeudal economic structure, where the great majority of the western world live on survival incomes or lower, while a handful of people own and control not only the "means of production" but physical resources and various complex forms of capital. Much of the transfer of assets to the stinking rich has been done through complicity with politicians of all political persuasions, but much has also been done through sleight of hand (such as banking frauds and scams). In all cases, I consider these to be criminal acts, including complicity of governments, and in some cases even treason. I don't hold out much hope that anyone will be prosecuted for colluding with governments, when across Europe and the developed world all ruling politicians are engaged in these crimes.

    Where this leaves Greece is a big open-ended discussion. But it is clear that Greece has little power to influence anything, and is unlikely to come out of these nightmares in good shape.

    1. Switzerland strikes me as a country which comes quite close to what the thinkers about neoliberalism had in mind (which is, in general terms, a social market economy). The Swiss sovereign has established very clear rules for just about everything (rules as a framework and not as a ‘to-do-list’!). Our son who lives there finds that boring. The really interesting aspect is the question: Who is the sovereign in Switzerland? Well, the sovereign is not at the top. Instead, Swiss democracy works bottom-up (which, in my opion, is the best form of democracy). And what do the Swiss get for it? Just some examples: a near-perfect (and very expensive!) infrastructure; excellent public services; excellent social insurance (from health to unemployment to pensions); excellent job opportunities; excellent incomes; a balanced budget (actually in surplus); and --- all of that with extremely low tax rates! Not to mention the fact that Switzerland manages to have 4 different language speakers and a very high rate of immigrants living in peaceful co-existence! Envy is not a trait which one finds in Swiss society.

      The debate is often reduced to the either/or issue of collectivism versus individualism. Those are not either/or issues; they are as-well-as issues. But no collective is going to do well over the longer term if the indiviuals give up their individuality (or are prevented from living their individuality).

      A social safety net? Every neoliberal in my definition recognizes that there has to be a social safety net. A minimum wage? Yes, but not as wage but as negative income taxes, instead. Competition? Every true neoliberal would agree that excessive and unregulated competition is harmful. Solidarity? Every true liberal understands that a society without solidarity can’t work in the longer term.

      Reagan, Thatcher et. al. were not neoliberals. I guess they only read Hayek’s “Road to Serfdom” and became fanatic about it. They should have read other works of Hayek.

      Until the late 1970s, even capitalistic Americans understood that businesses who want to be successful on a sustained basis must respect 4 major constituencies (and I can judge that because I worked in the US at the time; for a multi-national corporation): the owners, the employees, the customers and --- the society which allows them to do business the way they want to do business. What happened since then is that 3 of these constituents became subordinate to the fourth, to the owners, to the capital. No neoliberal would approve of that.

      I often get the impression that leftists want to change human nature; tell humans what they have to do and what not; etc. One cannot change human nature; however, one can change human behavior. The Buddhists behave differently than the Christians. In the Middle Ages, Europeans behaved differently than they do today.

      So, I will cease defending neoliberalism (particularly since I do not consider myself that way). Whoever is interested in my views on society is invited to read the 10 chapters of an essay which I published on the subject over 15 years ago.

    2. Klaus: if you dispute that Reagan and Thatcher were neoliberals, then you are going against the international consensus on this terminology. I can agree that they did not practice what I call neoclassical economics, but that is because all political movements are pragmatic and need to interpret theoretical ideas in practice. There is no such thing as a "pure ideology" whatever that ideology may be. The same applies to Marxism and Keynesianism.

      So, if Thatcher and Reagan and now the entire EU are not neoliberal, what word would you want to choose for their disastrous policies? I have outlined above my description of their approach: there is no other word in my vocabulary to describe the economic policies of the last 30 years.

    3. You just proved my point that very much of what is being accused these days as being neoliberal does not really correspond to what the socalled founders of neoliberalism had in mind. Both, Reagan and Thatcher, always quoted "The Road to Serfdom". A good book which even Keynes once acclaimed. But neither Reagan and certainly not Thatcher gave much thought to the 'social' part of 'social market economy'. There is a reason why the German president recently called for an intellectually honest debate about neoliberalism.

      What would I call the policies of the last 3 decades or so? I would call them 'policies which the Swiss would never pursue'. Or put differently: a mutual back-scratching between political elites and big money, be it money from corporate lobbyists or from the financial sector (on whose money the politicians depended). A total break-down of the value structure. If Americans defined success as late as the 1970s as 'hard work and clean living', it didn't take long until it was defined as 'greed is good'.

      When I joined my American bank in 1972, any potential borrower who might have been suspected of being a corporate raider was shown the door as a matter of principle. Ten years later, financing LBOs had become the name of the game. To me, the last serious man in big finance was Paul Volcker, legendary Fed chairman. He once quipped that the invention of the ATM probably did more good for mankind than all the financial innovation taken together.

      Personally, I was formed and shaped by the 'hard work and clean living' crowd of the American Midwest in the first 10 years of my career. I often defined responsible executives as those whom I would be happy to bring home and introduce them to my family, because I could be proud of them. Believe it or not, during my first 10 years or so with my first employer, one of the largest US banks, I never met any executive whom I would not have liked to bring home. In the remaining 30 years of my career, I never again brought executives home to the family.

      The link below gives you a better picture about where I stand.