Small Vs Big
Western Europe entered the industrial age with owners of huge land property, and a multitude of landless individuals. This was Europe’s heritage of feudalism. The Modern Greek state was created within a society of smallholders, a remnant of the Ottoman policy which supported the small farmers and discouraged the big land ownership. Even the big estates of Thessaly were progressively fragmented over the years. The vast majority of families had some real estate, rural or urban where they had a farm, a small shop or a private home.
In that aspect, Greece is totally different from all of the non-Ottoman Europe. Greece’s neighbors in the Balkans which happened to have extensive small-property ownership ended up losing it during the years of socialism.
Small scale enterprises are still the dominant form of organization in the private sector economy although 180 years have passed since the creation of the Modern Greek State. This is quite odd since business size matters a lot in a capitalist country.
Taxation, social security, and labor regulations are usually more burdensome for larger businesses because it is easier for the small ones to transgress. Therefore, in Greece, lawlessness favors small businesses as it is very difficult for the state to go after them. Foreign investors are discouraged from investing in Greece. In other regional countries, foreign capital created many industries which in turn increased local employment as well as state revenues through the taxation of their profits. However, due to bureaucracy, corruption, the resistance of local societies and the populist rhetoric of the Left, few investors have come to Greece and even fewer have remained.
In the early nineties, the small business owners but mainly the small land owners in Greece profited greatly from the flow of immigrants who worked undocumented and were paid much less than the minimum wage.
Self-employment, small businesses and family businesses constitute a stable and fundamental institution of Greece’s economic organization. Perhaps, the most fundamental one. Only a revolution within the institutions would change it.
It is important to note that the institutions define the specialization and not the opposite. That is, because we are a small business country we cannot produce for example high tech electronic devices (not because we cannot produce high tech electronic devices, we are a small business country). This very important argument doesn’t seem to have been taken into account by both local and foreign technocrats who develop economic growth plans for this country.
The human capital plays a completely different role in a small business country. In Western economies people invest in their relationship with a company by basing their education and their careers on it. They follow fields of training that are marketable and in demand by big businesses. However, in case of small business communities or countries people usually get an education either to migrate abroad or to claim a public post with more credentials.
Vice and corruption along with clientelism and favoritism have always been inherent in the Modern Greek state since its creation. The state has always been the regulator of the economy. The opportunistic nature of all the Greek governments can explain why the cooperatives fail and the trade unions (usually corrupted) succeed. Furthermore, in countries such as Greece with powerful interest groups, the socio-political commitment of the state is predominantly oriented towards the distribution of income without taking economic efficiency into account.
The Role of the State
So, here comes the crucial question: Weren’t all these facts known to the Greek politicians who have ruled the country since the birth of the Modern Greek State? The answer is simple: Surely, they knew. Most of them have postgraduate degrees from the most prestigious universities in the world. However, either they were blinded by their ideologies or by their thirst for power and authority. The fact is that they managed to convince themselves and the public that wealth should not be produced from hard work but from the distribution of loans and consumption. The main goal of the Greek politicians (all politicians, I guess) has been to be popular so they offer the public a sense of short term prosperity which is fake and dangerous. Loans after loans, increasing public spending through large pensions, public wages and more public servants in posts that have nothing to offer to the social well being, constitute the ingredients of the deadly recipe that led the country to bankruptcy.
Reforms necessary to attract investment are not successful because they are hampered by organized state guilds that wreak havoc on the completely disorganized economy. In the meantime, the cost of living as well as the cost of production remains high due to trade union extortion practices and the heavy taxation which the last few years falls on the shoulders of the crumbly private sector.
The Big Few
In Greece, the state has favored the concentration of capital within its purchasing power. State expenditures, and Public Utility costs, is for the private businesses the easiest way to achieve turnovers of hundreds of millions of Euros. A private business can achieve all that with some big contracts with the state, stemming from the decisions of few people in politics and in public administration. Having secured such deals, the private businesses are able to find funding and can attract executives and employees with good salaries ─ since due to the nature of their clients there is no serious pressure to reduce costs.
When there are no free competition conditions that encourage private businesses to grow and attract many new customers, the only way for a business to grow is to get a big client. That big client is the state. This is the reason why the few existing large companies in Greece are the official suppliers of the state.
Besides public spending, there is also a complementary form of capital concentration in Greece which depends on the access to political power. It is about providing basic services to the general population in activities that are by their very nature Oligopolistic: banks, telephony, T.V, electric power distribution etc. Due to the fact that they are systemic and locally closed oligopolies, their services are protected from international competition. In a sense, these public service providers are the dream of every capitalist as the economist Aristos Doxiadis points out: sizeable, relative stable revenue, and a profit margin that is not at risk from unpredictable competitors.
These companies have a significant market share, and have no desire to expand any further. That gives them no serious incentives for bigger investments on high tech innovations. Almost all of the big companies in Greece are either state suppliers or basic service providers in sectors that are not internationally marketable. The most powerful employers in Greece either live on public expenditures or they form an oligopoly that makes it unnecessary to engage in an international competition. That is why the owners of those big businesses could care less about the reduction in bureaucracy that increases their operating cost. Having secured their client base, they have no motive to reduce their costs.
Professor Pavlos Eleftheriadis (a barrister, Associate professor and a Fellow of Mansfield College at the University of Oxford), makes some interesting points concerning what has been mentioned above:
“Many people believe that the origins of Greece’s problems lie in its four-century domination by the Ottomans, which meant that it missed defining moments in European history, such as the Renaissance, the Reformation and the Industrial Revolution, and is following a highly personal and informal model of government that suits an absolutist ruler but which is incompatible with the professional state that is dominated by the rule of law – and is a requirement for being a member of the EU.
But even though Greece was very poor, it was a pioneer in democratic government. The first constitution of 1822 recognized the equal dignity and freedom of all people, whereas the constitution of 1844 set up the first Parliament in Athens, four years before there was one in Berlin, and established for the first time in Europe universal suffrage for men. Most European states were hierarchical and more or less authoritarian before the Second World War. Immediately after the war, however, most states introduced social insurance and welfare that protected the weakest and poorest and gave the promise of equal opportunity for economic success and social recognition. In Britain, this was done through the NHS in 1948 and the introduction of unemployment and housing benefits and the expansion of the university system. European societies that did this became far more egalitarian. Their politics became less confrontational and their economies prospered on the basis of the European social model of openness to markets, combined with social welfare for those that needed it.
Greece did not follow this path. Absorbed by a ferocious civil war, which lasted three years, killed thousands and divided the country to Right and Left, the post-war settlement never created a welfare state. Even today, with more than one and half million unemployed, there is no universal unemployment or housing benefit. More than 90 per cent of the unemployed receive no help from the state. There is no universal health service; health insurance depends on one’s employment or profession. The intensity of the civil war meant that there was no trust on which to build such institutions or any long-term plan for the redistribution of resources. Greece remained a deeply hierarchical society, where social class, political affiliation and family dominated one’s prospects. Clientelism was a substitute for social insurance. The wounds of war were only healed in the 1980s, as the Socialist party won power and the country joined the European Union. Its leaders then, remained highly confrontational and embarked on a program of public spending and of hiring their supporters to public sector jobs, to redress “historic injustices”. Funds from the EU to assist Greece in dealing with the shock of entering the Common Market made his work much easier.
Starting in the Eighties populist spending and cronyism became the norm for both main parties, the socialists and the conservatives.. The civil service became part of the spoils of government. There was no room for universal benefits or long-term strategies of assisting the poor. Everyone was out to secure the best short-term outcome for themselves. The big winners were the public sector unions, the utility companies’ unions and the professionals: doctors, lawyers, engineers, pharmacists. The economy remained closed and protectionist, working largely for the benefit of powerful special interests. The conservatives excelled in this mismanagement, appointed an estimated 150,000 civil servants and finally lost control of public finances in 2007-2009.
Why didn’t the Greeks resist this slide into cronyism and corruption? In the late 1980s there was a movement to open up radio and television, until then a state monopoly. Under the pretext of “civil disobedience” wealthy businessmen set up seven television channels. There was no competition, no process. Once the channels were established, the government issued “temporary” licenses. These channels are still operating under “temporary” licenses, virtually without regulation or any safeguards of journalistic independence. They operate at the mercy of the owners who fund them and who use them to support their wider interests (in the oil business, real estate, banking, construction or shipping etc.). The media owners are virtual oligarchs, with immense economic and political power. As a result, the private channels rarely investigate cronyism and corruption and are seen to be biased for the rich, the powerful and their favorite politicians. They have lost the trust of the public.
Many Greeks believe that this is the normal way of running an economy and a political system and that this is how things in Germany, England or France work. The idea that common institutions can work for the benefit of everyone, with impartiality and objectivity, and not just pretend to do so, is remote from Greek public life. The crisis of 2010 meant that Greece could not remain a member of the Eurozone without opening up its economy and fixing its deep social injustices. Such reforms required trust, but there was none to be had. The governments of the socialists and the conservatives largely balanced the books, but refused to destroy the privileges of the special interests that kept them in power.
The new government of Greece also resists reform, ostensibly because of hostility to “capitalism”, but in reality because most special interests have switched their allegiance to the new government as the real anti-reform party and the vehicle of a new cronyism. Hence, the new regime has done nothing to regulate the media oligarchs, open up the economy, or introduce meritocracy in the civil service. It even refused to introduce a universal unemployment benefit by way of a “minimum guaranteed income” as proposed by the EU.
The deeper foundation on which populists and demagogues thrive is lack of trust in common institutions. As long as the Greek political system does not restore this trust, real reform will prove highly elusive.”
The Greek version of capitalism is characterized by the coexistence of the big Public sector suppliers and “Micro-Capitalism” (many small private businesses). Since 2009, this coexistence has been threatened by the capitalism of innovation and the open international markets.
The bankruptcy of the state has squeezed the economy and led the banks into bankruptcy as well. This is because the 30 billion of government spending had to be suddenly taken out of the economy. The result was that the unpaid bank loans totaled over 110 billion Euros, which is more than 50% of all the loans issued by banks. At the same time, unemployment in the private sector rose to almost 30% of the workforce. In the public sector, not even one employee was dismissed. Despite the fact that the whole public sector went bankrupt, the high cost of its bankruptcy was paid by the private sector which has almost vanished since the beginning of the crisis.
As Costas Stoupas of Capital.gr points out, the Greek (unofficial) bankruptcy is primarily social, cultural, educational, and then financial.
The most dynamic part of Greek society, which would have prevented the collapse of the economy and would have driven the country towards a political, economic and demographic rebirth, is among the 400-500,000 educated Greeks who have left the country.
Greece’s public sector is not a real one as it is controlled and ruled by guilds and public unions. Equally, the country’s private sector is not a real one either as it consists of small companies that tax evade and few big ones which profit from public money although that all these small companies have undertaken to pay the heaviest tax load ever from the beginning of the country’s economic downfall.
With hundreds of thousands of public sector pensioners who retired after ten or fifteen years of employment, with myriads of counter-productive public servants who do nothing but get paid, with a state that is extremely hostile to real entrepreneurship and with an economy based on the Soviet model, one cannot expect this country to implement any serious reforms that would bring about economic growth and prosperity.
Muammar Ignatius
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