Follow by Email

Sunday, May 10, 2015

Greece Should Repeat History?

It is a true joy to read Stathis Kalyvas' book "Modern Greece: What Everyone Needs to Know" because it is written in conversational style: instead of doing chronological reporting, the author poses simple questions which he then answers. I had to chuckle when I came across this paragraph: 

"It is quite telling that the International Financial Commission set up after the 1893 default remained in operation until 1978… The regime of international financial control imposed on Greece stabilized the drachma and led to the reorganization of the Greek economy. In turn, fiscal discipline brought benefits: Greek banks expanded, the economy grew and the country urbanized." 

It is often said that modern Greece spent about half of its existence in default and/or rescheduling debt. What is relatively seldom mentioned is that modern Greece had periods of phenomenal growth and investment in infrastructure. For example: during the half century from 1929-1980, Greece's average growth rate was 5,2% (compared with 4,9% in Japan for the same period). The above quoted paragraph mentions another one of those growth periods.

The pattern of such growth periods seems to be as follows: (1) fiscal stability implemented by Greek governments and/or imposed by foreign powers; leading to (2) voluntary inflows of foreign capital; (3) which capital was spent on investments in infrastructure and improving the economy's structure; and (4) resulted in enormous leaps in the country's development.

"Those who don't know history are doomed to repeat it", so the saying goes. Perhaps today's Greece should forget its phases of phenomenal success so that it can repeat them... Or perhaps learn from the past after all?

6 comments:

  1. Considering the poverty most of the Greeks lived in until the 80s, one can't help wondering why the decades-long "phenomenal growth" of Greece hadn't been reflected on the living standards of its citizens. Any thoughts?

    ReplyDelete
    Replies
    1. I understand your question. I suppose it's always a matter from what base you start measuring. Greece's base until the 1880s seems to have really been very, very low. If I recall, no railroad until about 1870. Also, I suppose any growth was not much felt by the countryside/villages, off the beaten path of business. Interestingly, there is a most interesting section on how Greece became a country of small farmers.

      There are some really intersting positive/negative facts which I have heard the first time. One, between 1880-1920, 40% (!!!) of the population had left Greece for the diaspora (negative) and by 1940, 40% of Greek land had been redistributed (positive). I wonder if there is any other country which had as much land redistributed in a more or less peaceful way.

      Delete
    2. I presume that Nikos actually means the 1980s! Certainly, by 1980 Greece was regarded as a very weak and peripheral economy -- with living standards well below those of northern Europe. Its accession to the EC was primarily for political reasons -- to cement democracy and retain NATO membership -- and certainly not because of the good level of economic development.

      It is difficult to explain why, after the massive investment in Greece after the end of the civil war, there was so little tangible progress. Far from having good infrastructure, Greece was a laggard. Its economy was heavily biased to state ownership and employment, with a very weak private sector and very poor exports. In the 1980s, it relied on import taxes and controls to impede Greeks from massively importing luxury goods -- indicating that there was actually signficant purchasing power in the population. These were removed by 1989, after 9 years of EC membership and the end of the transitional provisions.

      For most of the 1980s, the employment structure of Greece was heavily biased towards the agricultural sector (about 30%) which was typical of Third World countries and far removed from European levels of about 8% at the time. Secondly, the participation rate was very low (also similar to the Third World) with extremely low participation of women, who usually worked unpaid in family businesses including agriculture. Moreover, many people worked well beyond the age of retirement, especially in agriculture; whereas young people could not find work and there was very high youth unemployment despite military service, high education participation and emigration.

      The big question is why the economy did not develop along a typical pathway, and was so distorted. The answer to this question is state-dependent capitalism -- that governments impeded the private sector, with high taxation, bureaucratic regulations, open blocking of activities, etc. The reason was that they feared any threat to their clientelistic politico-economy power, since no political party had any legitimate social base. Therefore, they tolerated a private sector that was non-profitable with weak or preferably zero exports, and especially one that was dependent on state contracts and corruption. The result was a private sector that was both small and with limited employment opportunities, and typically engaged with the political parties even as a private sector company. Such an economy was similar to the communist bloc, and had similar economic outcomes of outdated modes of production, extreme rationing (by queueing and less often price), a large black economy, and a state sector that was very difficult to finance.

      Of course, the EU tried to reform all of these things from 1981. It failed to do most of them. The structural funds succeeded in modernising most of the infrastructure by the 2000s, but with little economic gain for the most part. The mistake was to bring Greece into the eurozone, with the foolish idea that it would force the country to become more Germanic in its economic management.

      Delete
    3. EU is a group of countries, and there are differences between them, often strong. To write "The mistake was to bring Greece into the eurozone, with the foolish idea that it would force the country (Greece) to become more Germanic in its economic management."

      Again the hatred against Germany. Again.
      Does it, will it ever stop? is it fair? No!
      I would like to use a metaphor to draw the situation: The chariot of EU has a horse on front, to keep things going, with energy. Germany is a strong country with a healthy economy because of reasons Greece could be jealous about, and who knows all is just jealousy about Germany, and nothing else.
      Also here is psychology a very important factor to learn to understand Greeks, as we constantly try to do here, in the posts, and in the comments, by writing, sharing.

      You will not like it what I write. I learned in the meantime that Greeks cannot stand criticism. Syriza not at all, it is allergic for criticism. On the other hand they criticize constantly all and everything, and not doing anything else than that.

      Back to the metaphor: there are even countries that are pushing the carriage, and who are IN it? Greeks. Expecting that others do the job, and they can sit in there, just commenting, criticizing, blaming, and trying to have a good life while just going on their old fashioned way.

      WHY don't Greeks not just stop with the whole EU? Why don't they just step out, and let EU go on, with a healthy economy, because this is a never ending story.

      What does Tsipras do and his comrade FinMIn, who I suspend for being the director of all what is going on in the government, behind the curtains?

      Playing the game till EU decides to go on with the chariot, with Germany as the horse, and all other countries behind to push the chariot, and Greece in it. Having fun, and pretending there is a human crisis going on inside the chariot.
      Well, there is a lot in the meantime going direction humanitarian crisis (hospitals, health care!!) but Zoe prefers to go to Italy and misusing €10.000,00 for the trip.

      Idiocy is going on, and yes, the German spirit could clean up a lot what is completely out of order in Greece. Structure is everywhere in nature, analyze the physical body, plants, leafs, all, all is structure when it is healthy. Greece has not any structure and this government breaks down all what is or was structure, or becoming structure. YOU blame Germany for willing to bring structure, a healthy economical structure.
      How dare you to pretend that it is something despicable.

      So: STOP it to blame others. STOP it to play the eternal victim, or leave.
      Leave, just leave, and be happy with your own self destructive attitude, your own typical Greek behavior.

      Fed up. I am fed up of all the criticism into the direction of the Germans, others.
      Stop your jealousy, and try to BE finally just 1% German, that would save Greece.
      1% of their spirit is enough. That must be possible.
      If not then it is really better that you go on alone. and do not blame anybody than yourself for being alone in your eternal journey to the abyss and out and in and out. You don't WANT to get out. that's it.

      This is also the answer on the question of the post.
      Education is needed in Greece, to learn to learn from history, form their own character, their own role in it.
      But Syriza breaks all down in the education sector.
      A shame what this government already damaged. Blame them. Not Germany.



      Delete
    4. Its a nice post. Big discussion.

      The ups and downs of the greek economy of the past 100 years has many contributing factors. The negative aspects are WW1 WW2, balkan wars, a civil war and Junta. In all these periods as this latest economical war, there is huge outflow of greeks from Greece. Mainly early 1900's. Both world wars had huge implications on the population outflow also stopping respective grek growth periods. The growth came from these greeks leaving creating economical strength elsewhere and bringing it back to greece. My grandfathers and grand uncles who left greece in the early 1900's worked all over the world and many in shipping creating alot of money. The majority of that money came back to greece for investment. The majority of these people bought property (farms, summer, winter homes in major cities and small business creations, someitmes even small factories) Meanwhile maintaining pensions from higher developed economies gave sustained growth.

      Those who were left and could not leave did utilize what was left the best they could but there was no real industrial growth until the 50's. Then the generation of my father, kids of the ww2 did the same thing and the majority came back bring even more money and pensions etc etc. Personally i can name 100's of people that did this and knowing them based on their value, i am quit sure they brought millions. Times a minimum of 1 mil greeks, is a large shot into the greek economy.

      It was never a any stable growth or stable infrastucture that contributed to the greek real economy. I would say more opportunistic. Now we have a new outflow of young greeks all of higher education. 200,000 in the last 2 years and these youth will do the same more or less.

      The problem is that now is the time and opportunity to make Greece into a functional economy. I am unsure if it will be successful with what is being asked to be imposed. Ofcourse i am all for many things our creditors request as to reduce government buearacracy. But i am against what they seek in the last 2 "red lines," the government is holding up against. Free labour market rules (or some of them). And the pension system they seek to evolve.

      For the free market i am all for, for unlocked business sectors which are closed. Such as the pharmacies, trucking inductry. I am against the measure of mass layoffs. Meanwhile i read an article yesterday in real news. Currently there are 1,2 million workers working in the black market. If these workers where translated to formally employed workers, it would contribute to taxes earned and also contribute to the ailing pension system. Troika simple says to to further reduce the minimum wage which will further increase this problem as employee work relation will come down to "what i give you without benefits." Most people will work without medical or pension benefits today as they simply want a job. I have a personal example of someone after working 42's is now working for 600 euro per month (black market) without benefits and normally could have access pension as he is 56. Now he can't. He can't find a regular job due to his age and employeers take advantage of this.

      Regardless i am hopeful as always that something will be done and help this slow economy to get back on its feet. In 10 years from now the growth will come back in large digits but will it be from the diaspora or because the greek economy on its own stablized? hopeully both.

      Sincerely,

      V

      Delete
    5. @Antoinette. Your hysterical paranoia is quite out of place in response to an independent and commonly held view that Greece should not have been brought into the eurozone at the time and in the way it was. It was explicitly stated by European politicians at the time that the "discipline" of the eurozone would push the Greek economy into a certain direction. They did not openly state "to become like the German economy" but that is what all economists knew it to be.

      Your inability to accept reality is a serious problem. Moreover, you then accuse those who deal with reality and facts as expressing "hatred against Germany". Do you think that the Germans have made no mistakes? May I remind you of the most terrible mistakes (commonly called atrocities, crimes against humanity, war crimes) made in the 1930s and 1940s?

      Besides, my comment above was made about structural aspects of the Greek economy. Not once did it mention Germany, I did not talk about the terrible costs of the German occupation (when clearly it is relevant) but confined myself to the period after the Civil War. Perhaps you could confine your comments to what I actually wrote.

      Delete