30 May 2011

I've seen Ed Miliband's vision of the future...and it's Greece

This post is somewhat late in arriving , so it does lose some of its impact. It was provoked by the ongoing issues with the Eurozones self confessed 'Achilles heel' , Greece, facing what is, by common consent, a very difficult adjustment, and this article in the Guardian

Obviously my erstwhile host here, Giroscoper has decided to retire from 'Cif' (not the detergent spray but the Guardian's forum) for the foreseeable future. However, the germane response from this poster, which seemed so apposite for the 'Anti cuts lobby' in the UK is worth quoting from at length.

"• I live in Greece and ...... I think Hara Kouki is an example of a generation that has grown up thinking that the "state" or their parents are going to give them everything so they don't need to do very much. They complain there are no jobs when they also support a system and a political ideology that prevents jobs from being created. Not to mention, one wonders what jobs many of this generation could actually do. Too many of the "young generation" (not that Hara is that young, she is 32 and presumably has been a "student" for most of her life and intends to be one for the several next few years) actually have very few skills to do a job properly, aside from "delivery" or working in shops. In order to create jobs Greece needs to allow its private sector to function properly but the protests in Athens yesterday were actually about preventing that. The unions and the left thus wanted to show the visiting troika that, No! they will accept no sale or lease of public assets (although there is no register of public assets so no one knows what they actually are in order to be able to utilise them) or privatisation of completely useless state "enterprises" that are totally unproductive and lose millions of euros a month. Despite the fact that such sales or leases or privatisation could bring in tens of billions of euros that Greece desperately needs right now. The purpose of yesterday's riots and Hara's "threat" that may one day be a "mass reaction here in Greece, one that may be violent" were to say: No! No reforms! Do not privatise, do not sell off unproductive state-owned industries! Do not reform the public service! Make no changes, we want things to carry on as they are! We want to protect our vested interests, especially the unions and the syndicates that have brought Greece to its knees.
And, Germany isn't doing better because of the crisis. Germany is doing better because it has a thriving private sector, has companies and citizens who actually make things instead of expect to be given things, and is highly innovative and willing to change and reform when that is needed. This is the opposite of Greece.

The EU doesn't give loans, and certainly not to governments to build houses. Unless you mean the bailout, but that's gone to keep the country from collapsing in return for the government implementing reform. Unfortunately, there has been very little reform, either because the government is being prevented from implementing it by the vested interests that organise the protests, or because the state infrastructure is so weak and civil servants so incompetent they are unable to put the reforms into practice. And, no the people have not been starving because the government has stolen all the "EU loans", whatever they may be. What has happened is that the EU has literally given billions and billions of euros to Greece over the past 30 years for all sorts of projects, large and small, and much of these billions have been misused and wasted, not by the politicians but by the projects they have gone to fund. The EU is definitely to blame for creating a sense of "the EU will give us the money to do this completely useless project so we don't actually have to be productive or effective or even have a necessary product". This has also helped to strangle the development of a mentality where people actually innovate and create and realise the need to work properly, to take some responsibility for themselves and not expect that the state (and their parents, in the case of the 20-30 and even 30plus generation) will sort everything out for them. Hopefully, such EU funding will be better thought out in future.
And...if you're worried that
all governments have destroyed everything the state owns then perhaps the state shouldn't own so much or be involved in such micro-details of daily life. But, I bet you'd be one of the first to go and shout in the streets if such state ownership and state control was challenged.

For Natalie Hanman, where did you find Hara? I note she's a student at Birkbeck, so perhaps you found her through your pal Costas Douzinas. You know, the one that supports that fossilised, backwards hard-leftist ideology that has helped to destroy Greece. (It's not just the hard-left, this kind of garbage ideology also permeates right-wing populism in Greece.) You keep thanking them for supposedly giving insight into what's going on in Greece, when what they're actually doing is giving a distorted picture that only represents about 5% of what's actually going on and misrepresents most of the rest."

Several other papers have written some rather saddening articles about what is happening in Greece. According to the headlines and leftist commentators austerity measures imposed by both the EU (which is an irony given its profligacy) and the IMF have caused a contraction in their economy of an estimated 7% over the past two years. Whilst there is a shade of truth in this, in that the Greeks are the first people paying a very high price for the EU to try and keep the train wreck and vanity project that is the euro going, it ignores the underlying issues afflicting Greece's (and indeed almost every Western European) economy.

As the excellent commentator here points out, the phenomenon known as 'crowding out' is endemic in the Greek economy. The retirement age is 'tiered' between 57 and 61 and a substantial state sector (accounting for around 40% of the workforce) has reasonably generous pensions vis a vis the cost of living. Furthermore, the trend for young people is to avoid going down the route of entrepeneurship and either accept employment within the Public sector or else join the extremes of both sides (and he rightly mentions the economic illiteracy of the Greek ultra nationalists as well as their leftist counterparts) and prootest against any change in the status quo.

What struck me about the Greek protests was the significant similarity between those and the TUC supported 'March for the alternative'which attracted such favourable attention in the Guardian ,Independent and BBC (funded by a £145.50 stipend on every TV watching household in the country) In both cases a large coterie of people, most of whom were advocates or direct beneficiaries of state largesse were marching in support of economic ideas that they, in their heart of hearts, know go against the grain of almost every economic commentator in the mainstream press, (barring the curious Paul Krugman of the New York Times, of whom more in a later post) advocating that the way to solve the economic woes affecting the country was to raise a budget which had already been increased by more than 200% over the past 13 years. As this Greek gentleman seems to realise, sooner or later a reckoning has to come. As several have pointed out,Britain is not Greece, but floundering under the weight of our accumulated debt, at the moment (and as Giroscoper points out I need to see the Labour Party policy review before passing full judgement) the Leader of the Oppositions policy seems to be to reject every area of the budget being cut save Defence. One of my common statements when commenting on the disastrous Labour governments from 1997 to 2010 was that the road to Harare or Pyongyang was shorter than one might expect, and as 'Red Two' and Voller' point out that kind of exaggeration does a significant disservice to people enduring hardships that most in the UK would find unimaginable at the hands of this man and his comrade in arms . However, having travelled to Athens , it's less than three hours, and unless the economy recovers, the figurative road there could be a great deal shorter than both the Leader of HM opposition, and to a degree , the current Prime Minister think.


Hal Berstram said...

This is such a wrong-headed post that it's hard to know where to begin, and I don't have enough time for a full rebuttal, but will just pick out a few key points:

It doesn't make much sense to say that on the one hand young Greek people are complaining about a lack of jobs but at the same time they are expecting everything to be provided for them. In fact they want to work - and before the crisis most of them were able to - but it is the austerity measures themselves which are stopping them being able to work, due to a lack of demand and vicious deflationary measures (as in Ireland and the US, economies with much smaller state and unionised sectors than Greece).

In other words the crisis in Greece has nothing to do with a need for structural reforms which your CiF commenter has mentioned. There is one area where structural reform in Greece would be extremely helpful - tax collection, which is much lower than it should be due to corruption and tax evasion. Yet the EU has shown no interest in helping Greece improve its tax collection systems, instead going after the easy target - reducing public services for the poor and working class people - rather than going after the powerful elites who are controlling Greek society.

The other major reform which would help Greece - and Ireland, Portugal and Spain - is the abandonment of the euro. All these countries suffered speculative booms as a result of financial liberalisation and capital inflows which led to roaring inflation which has made their cost bases uncompetitive. But they can't devalue because they're in the euro. And the ECB won't allow a higher eurozone inflation target which would allow them to bring their cost base into line with Germany and other countries without attempting vicious nominal deflation. Hence they are stuck in their own re-run of the 1930s. With dire consequences down the line for both them and indeed the rest of the eurozone. Again this has very little to do with the way the Greek public sector is organised, and everything to do with lax financial regulation (which was encouraged by right wing politicians and commentators for almost 30 years from 1980 to 2008 or so).

Van Patten said...

I take on board your third point, and agree completely, as I make clear in the original post.I didn't elaborate the point but I'll come to that later.

Regarding your first paragraph - the commentator is pointing out that there are no intrinsic barriers to setting up your own business, be it shining people's shoes, cleaning houses or market gardening (ie businesses where small operators proliferate with no barriers to entry beyond minimal startup costs, in business terms either limited monopolistic competition markets or perfect competition markets). I would take your point that the IMF measures imposed in Latvia, for example, were probably a bridge too far, and those in Greece are eye wateringly severe in some cases, but the debts wrought by a somewhat bloated state (amongst other things) cannot be argued with, and do need to be tackled. Debt is at a gobsmacking 150% and I cannot agree that this doesn't need to be tackled before expansionary measures be put in place. Carefully directed infrastructure spending (along the lines of ,say , Roosevelt's 'New Deal' or indeed whatever I think of the government, the Nazis civilian infrastructure build during the 1930's might be appropriate, and I will concede this in another post. However, as with the consideration of the Uk, later in the original post, we would need spending on specific things, and also a consideration of whether frivolities which proliferated during the Blair/Brown era in terms of not just political correctness run amok but a situation whereby senior civil servants and Local authority executives are pulling in £250K per year? Surely these salaries can be pared down?

Your point about tax collection is spot on and was neglected both by me and the Greek commentator in the original CIF post. However, the failure of tax collection is also symptomatic of a wider issue with corruption. Greece came in 71st in the Transparency International League table for '09 and I would think the position has worsened since then. In order to tackle the issue of increasing the tax take I'd argue you need to look at lowering rates, or , alternatively reducing at least, indirect taxes to stimulate demand( critically at the lower end of the income scale- This is where Osborne and Alexander have got it so spectacularly wrong in the UK) and thus reduce the incentive for evasion.

Your point about the euro I hint at in the original post.

'Whilst there is a shade of truth in this, in that the Greeks are the first people paying a very high price for the EU to try and keep the train wreck and vanity project that is the euro going'

I believe the best way out of the problems currently besetting all 4 of these countries (Greece, Ireland, Portugal and Spain) is the reintroduction of national currencies, plus an end to the fatal conceit that a group of such disparate economies and cultures can be at the current time a single economic entity. The one thing I would be interested to hear your thoughs on would be whether that risks a round of 'competitive devaluations' which some economic historians point out was a feature of the 1930s?

Anyway, thanks for taking the time to comment - back to CiF now for any more material or a bit of right wing trolling!

Hal Berstram said...

I think where you're falling down here is the idea that the best way to tackle a debt of 150% of GDP is austerity measures. After World War 2 many industrialised countries had debts of much more than that. A combination of inflation and high growth meant that even though many governments were still borrowing large amounts in the decades after 1945, debt to GDP actually DECREASED in most countries. In other words, increasing spending can often reduce debt, and the reverse is also true; reducing spending can increase debt. It seems initially counterintuitive but there's huge evidence for it.

Of course, there are limits; if debt spirals out of control, then you do end up in default. But I think with appropriate monetary policy (e.g. leaving the Euro), and sorting out tax collection, and financial re-regulation, Greece wouldn't be in trouble.

On public sector salaries - personally I'd have a maximum wage of (say) £150k/year but across all sectors. I think top public sector people are paid too highly but the problem is much worse in the private sector.

On competitive devaluations, this will be much more of an issue if contagion affects (say) the majority of eurozone countries but at the moment it's a minority of eurozone countries that are really in the hole: Ireland, Greece, Spain, Portugal. They are not a big enough share of eurozone output for competitive devaluation to be a problem.

Van Patten said...

I'd agree with your comment save for one thing and that's pension provision. Ever since the destruction of Pension provision in the Private sector by the previous administration, Private sector workers face a 'ticking timebomb' of wholly inadequate pension provision. For that reason I'd have private sector people being paid more. however, I assume the jist of your post is against boardroom compensation and specifically the financial sector, which I agree needs to be tackled head on. However, perhaps if Brown had let the banks go to the wall, as I advocated, the resultant disruption might have provided an impetus for banking reform. Instead we baled them out and they acted like nothing had happened. Work that one out.