This weekend of June 2, 2013, I was invited to meet with a group of businessmen, politicians, and media people to diagnose the problems of the country and to express my opinion of what needs to be done.
Below is the illumination, which I believe can bring some additional light for those interested.
(In order to diagnose and design a potential plan of action, I am using the life cycle theory (1),the attribution analysis causality chain(2) and the PAEI (3) theory.)
Location on life cycle:
Greece is in premature aging, close to recrimination stage where different parties have a destructive fight.
Greece avoided falling into recrimination stage, for now, by establishing a coalition of three major parties to run the country. Good move that should arrest for now a dangerous deterioration of the situation.
That Greece is apparently in premature aging is indicated by the following potential improvement points: the culture does not honor rules, no rule of law, therefore, laws are made and not applied; judicial system is not effective, some major business interests (oligarchs) are above the law, (no lawyer dares to sue them), antitrust laws not applied; many laws badly written and are overlapping and inconsistent, and Greece has political dynasties: the nephew or son of the previous prime minister becomes prime minister, the daughter of another prime minister becomes minister of foreign affairs ( similar to a family trap in business organizations.)
In addition to no rule of law as a cause of the problems (overall no or weak (A), Greece has no culture of conducting constructive dialogues and no teamwork (Low (I)). This causes a bloated, inefficient bureaucracy, overlapping ministries, too many public servants for functions that in other countries one tenth of the people perform.
The lack of rule of law also causes: economic interests (oligarchs) to have an undue influence on the government (by financial support in election time and by controlling the media). The government in return controls the banks that loan to the oligarchs.
The end result is that banks loan more to the big business interests than to the middle class which is slowly disappearing.
Another way the oligarchs benefit from the state of no rule of law
is by monopolizing contracts for government development projects.
As expected by the location on the lifecycle, Greek government has no vision, no clear long term plans. They are caught in a cycle of tactical decision making trying to survive and meet Troika’s demands which in order to give them loans requires that the Greek government cut public spending.
They did so, but not by increasing efficiency of the bureaucracy but by cutting salaries and pensions across the board. This has caused consumption to plummet and causing negative economic growth.
The end result is that there is even less tax to collect. To start with, taxes were not well collected partly because the rich had ways to avoid paying and now on the top of it, there are less people that earn enough to pay taxes.
That causes the gap between what the government spends and what the government collects not to be closed in a sustainable way.
The result of the above causes is that health and education services have seriously deteriorated, there is a high unemployment rate, a brain drain, hate between the public service sector and the private sector, and a population that is becoming rebellious. (While I was in Athens, three bombs exploded in offices of various commissions.)
Greece culture has a soul. Listen to their music. Watch them dance their circular dances. Watch them interact. It is like one large, big family.
But, Greece has also a very individualistic and (E)ntrepreneuring culture as a result of which there is little Mutual Trust and Respect; Everyone is trying to prove that he or she is smarter than the other one, and they are fiercely competitive. (Watch their TV debates. You do not have to understand the language. Just watch the interaction)
Without Mutual Trust and Respect, Greece can deteriorate to a serious disintegration manifested by internal terrorism and street riots. They have proven in the past they are prone to do that. After the Second World War they even had a civil war. (As we know, there are no more fierce fights than in a family.)
The economic crisis is a change which, as should be anticipated, releases centrifugal forces to action: The very extreme right wing party , and the coalition of leftist parties , both, are growing at the expense of the centrist parties. It can lead to a confrontation. A breakdown. Or they can join forces and undermine democracy.
So far the manifestations of the disintegration are mild: street riots, manifestations that block traffic, suicide rate is on the rise but crime is not . Divorce rate is not on the rise either.
What is holding the society still together is hope. Hope that somehow they will pull out. That hope is fed by the government that controls the media through the banks ( the media is in deep debt to the banks ) and the business interests I referred to before (oligarchs) who contribute a significant amount of the revenues to the media through buying advertising for their endeavors. Their interest is also not to experience turbulence. So the business interests and the political interests silence the media and no bad news are reported in local media.
Add to it that the summer is coming and with it a large inflow of tourism, the future as of now does not look so bleak. But come winter if there is no improvement in the economic environment, some indication of economic growth, and improvement in employment rates, it is hard to predict that peace will continue.
There is also a problem with the present solutions imposed by the Troika (European Central Bank, International Monetary Fund and the European Commission).The people that work there are mainly trained as MACRO economists. For them the way to solve the problem is to cut labor costs, to cut salaries and the bureaucracy, which will make Greece competitive and that will bring investments in and the problem will be solved. When you only have a hammer as a tool all problems look like a nail.
For investments to happen the cost of capital has to be low. Today in Greece it is about 15 percent . That is high and thus not very attractive.
Greece needs more than just recapitalization of their banks, it needs badly external investments.
To be attractive to investors it needs a rule of law, a judicial system that works, decentralization of economic power, de-bureaucratized government and government policies that encourage the right investments.
Whatever the Greek government does must be done in a way that reinforces the rule of law, creates a civilized dialogue and cooperation which are the cause of the problems Greece has. Just cutting salaries makes the numbers look good but do not attack the root cause of the problems of Greece.
The first thing to do is to remove the power of those who are interested and benefiting from the lack of rule of law.
Having done so, the government should enforce antitrust laws and bring smaller companies, not of the oligarchs, to bid on government projects so that a middle class will be getting stronger and economic wealth will better be spread out .
It also needs to revamp its tax collection procedures to increase harvesting of taxes equitably.
In the same time the government needs to design the vision of the country as to which segments it wants to develop so that its portfolio of GNP looks less dependent on tourism.
Only then should the government cut the ranks of public servants and free the labor force to the new endeavors the government started according to the designed vision, thus turning fat into muscle.
This move requires investments.
Beyond investments Greece will need to retrain bureaucrats to become productive in industry. Not easy and expensive.
Where is the money coming from? So far, instead of investments we noticed vulture funds circling Greece trying to acquire assets at bottom prices.
Greece is not capable of running its own monetary policy. It is on the euro and thus can not print money to encourage economic activity.
This is a limitation and Greece must get the EU to invest in Greece and not just recapitalize the banks. Greece itself can not generate the funds necessary for its economic growth, ( A type of a “Marshall plan” for Greece is called for ) If this does not happen Greece will have to consider exiting the Eurozone and conduct its own monetary policy.
Projection for the future
If Greece continues to make tactical decisions, knee jerk decisions, to meet the demands of the European Central Bank mechanistically i.e. just meet the numbers but not deal with the source cause of its troubles , the rule of law, de bureaucratization and decentralization of economic power and does not get massive investments, there is a chance of major social disruption, crime and disorder, which will dry up tourism and bring Greece further into trouble.
The road to recovery is not easy. The slippery road of becoming a third world country is more probable.
Dr. Ichak Kalderon Adizes
For the theory of lifecycles see : Ichak Adizes: Managing Corporate Lifecycles ( Santa Barbara : Adizes Institute Publications www.adizes.com.
For understanding the chain of causality ( the columns ) see: Ichak Adizes : Collaborative Problem Solving ( Santa Barbara California: Adizes Institute Publishing ( in print ) www.adizes.com)
For the PAEI theory see :Ichak Adizes : The ideal Executive , why you can not be one and what to do about it ( Santa Barbara ,California : Adizes Institute Publications , www.adizes.com)