The Trouble with Greece

2011: Greece's Year from Hell

2011: Greece's Year from Hell

It might be difficult for viewers in North America to fathom the images from Greece that have been flashing across our TV screens this week: images of riots and disorder in Athens which give the impression that Greece is falling apart at the seams.

And why are the rioters fighting the government, you might ask, when the government is trying to save the country from bankruptcy?

The single predominant factor in Greece’s fall from grace has been, without a doubt, the fact that it is a seriously corrupt country.

Transparency International’s latest Corruption Perceptions Index shows just how bad the corruption problem is in Greece. On a scale of 1-to-10, where a “1” means that a country is absolutely corrupt and a “10” means that it’s absolutely clean, Greece merits nothing better than a miserable 3.5 — meaning that Greece is just as corrupt as Serbia, Colombia and China.

Corruption is a cancer that eats away at a country’s quality of life and, in an emergency, can lead to the kind of total breakdown of trust between politicians and the public that fed into the chaos we saw this week in the Greek capital. Though the violence is inexcusable, the lack of trust is entirely understandable, even sensible, given that Greece’s political executive class is untrustworthy.

“[C]orruption, among other things, hampers economic growth, distorts government spending, affects productivity and in the long run leads to very considerable losses of income and human welfare,” a 2008 paper from Denmark’s Aarhus School of Business cautioned, summarizing what various other academics had found in their research on how corruption affects a country.

“Corrupt societies reflect patron-client relationships and corrupt leaders reward only those who show their loyalty rather than the entire society,” Bo Rothstein and Eric Uslaner wrote in a 2005 article for the World Politics journal. “Corruption transfers resources from the mass public to the elites—and generally from the poor to the rich. It is functionally an extra tax on citizens, leaving less money for public expenditures.”

Hence the Greek public’s anger at a government and elite which has partied with other peoples’ money for years, and now asks for their help to pay the bill.

For those who can afford to do so, the best choice might be to simply leave: to resolve any outstanding business they have in Greece, and then vote with their feet for a better life in western Europe, North America or Australasia. The danger in that is that Greece’s best and brightest will leave, draining the country of knowledge and expertise and further compounding the country’s problems — but, at the same time, that’s hardly the departee’s problem.

How can Greece get its act together and get out of its current miserable state? Here are a few recommendations issued Monday by the Greek chapter of Transparency International, the global anti-corruption watchdog:

  • Better record-keeping of how and where politicians get their money: “On political financing, [T.I. Greece] wants the Elections Committee upgraded, parties to comply with accounting requirements, and the procedure of politician’s asset declarations to be reinforced.”
  • Simpler tax laws, applied equally to all: “On the tax system, a TI conference in Athens identified the need for a codified, unified set of tax regulations which would not include the formalities and excessive red tape in the current tax code and the permanent abrogation of tax settlements (where unpaid taxes are resolved with a once-off payment).”
  • If governments are going to buy something, let the public see the contract, the bill and the deliverables: “On public contracting, it wants the government to implement Integrity Pacts – a tool for keeping public procurement clean.”
Other factors that tend to reduce corruption include shifting away from a traditionally hierarchical, deferential culture (as has traditionally been found in Greece and much of southern Europe) toward a more individualistic, egalitarian culture (as discussed here in an article starting on p. 315); moving more government services online (see here); depoliticizing the economy and ensuring that public sector employees are compensated at a level competitive with the private sector (see here); and improving educational outcomes (as noted here).
Good luck, Greece, in cleaning up your mess. You’ll need it.

About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

5 Responses to The Trouble with Greece

  1. Fat Arse says:

    A sobering read in more ways than one. Curious that Afghanistan is ranked lowest at 1.4 and it causes one to wonder if that’s because of (or in spite of) NATO’s ongoing presence?

  2. theviewfromseven says:

    I’m not sure whether the answer is “because of ” or “in spite of”, but Afghanistan certainly shows the difficulty of trying to remake a country through occupation.

    Since it was just a list of selected countries above, it excluded the country with the highest level of corruption: Somalia, at 1.1 out of 10. Afghanistan was still tied with Myanmar for second-worst, however.

    Other notable comments on Greece worth taking this opportunity to provide links to:

    From The Economist: Greek government’s plans “will screw down too hard on ordinary Greeks” and will probably turn into “a fire sale [which] risks letting the choicest assets fall into the hands of cronies who will manipulate regulation to suit themselves.”

    From the Sydney Morning Herald in 2010: “Take the government agency Korais, which is located in the city of Thebes, north of Athens.”

    “Established in the 1950s to oversee the draining of a lake and the construction of a new road, Korais completed the task in 1957.”

    ”Today Korais still has a full-time staff of 30 people,” Rakintzis said. ”No one knows what they do. Not only that, but every year they advertise for new staff. It has a board, a president and the president of the board has a full-time driver.”

  3. I think there’s plenty of blame to go around in Greece. A big source of its current problems is that nobody pays any taxes (which leads one to ponder the North American political right’s “lower taxes” mantra, but that’s another discussion), to the point where that’s just part of the culture there.

    You can’t have people en masse retiring at 55 and nobody paying for anything.

  4. theviewfromseven says:

    Good points. Since maximizing average household income (and thus tax revenues) depends on having as high a percentage of the population as possible involved in productive employment, any policy that drives down that percentage — early retirement, maternity leave beyond 1 year, bucks-for-babies fertility subsidies, etc. — are all economically damaging.

    In a low-corruption environment — which I would define as being a country with a Corruption Perceptions Index score of 8 out of 10 or better — taxes will tend to find an equilibrium that gives people the services they want and need at a price they’re willing to pay. This equilibrium tends to vary from country to country.

    In a mildly (7.0 to 7.9), moderately (6.0 to 6.9) or seriously corrupt environment (less than 6 out of 10), equilibrium becomes more elusive. Because of the reduced oversight, it’s easier for politicians to get away with fiscal irresponsibility, such as perpetually running deficits and hoping you’ll be out of office by the time the growing house of cards collapses (e.g., the U.S. and southern Europe today, and Canada in the ’70s and ’80s).

    It was probably wise for some of the well-managed European countries such as Norway, Sweden, Denmark and Switzerland to stay aloof to the Euro, given that out of the five financially troubled so-called “PIIGS” (Portugal, Italy, Ireland, Greece and Spain), four have serious enough problems with corruption as to question their ability to reorganize their finances in a fair and equitable way and maintain long-term self-discipline. Though they all deny any possibility of becoming “the next Greece”, I suspect we could see at least one major European economy needing a bailout.

    The one bright spot among them is Ireland, which is sufficiently responsible as to eventually recover from its current problems and stage a comeback.

  5. TRex says:

    I’m of two minds as regards Greece. On the one hand it is hard to feel sorry for a country which was pretty much universally complicit in scamming the EU with false financial reporting as to the countries solvency (all citizens knew that the government was lying through it’s teeth because everyone was avoiding paying taxes, Vanity Fair has several great articles on this as well as the Icelandic experience) but I cheer the fight against an equally corrupt and privileged banking and financial sector that gambles with other peoples money through predatory loans and shorts while expecting Main Street to bail them out when things fall apart. I recently returned to Canada after five years in Russia and two in Latvia and I have to admit that even though there is a lot to be said for “sleeping in the bed that you make” I still find it easier to relate to people and not Bankers and Wall Street or their hedge funds. Latvia was a hurtful experience as I got caught up in the bullish real estate market when it was a tiger economy prodded along by Finnish and Swedish banks that preyed on an ignorant population new to democracy and so green as to not understand the risks of taking credit to purchase toaster ovens. Greeks however are far from ignorant.

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