Its all Greek to me.

There is a political rhythm to the Greek economic crisis. We spent a long weekend on Santorini dodging strikes–Tuesday was the transport workers, Wednesday was the wharfies, Saturday was the May Day demonstrations. Next Wednesday there is a general strike. Our timing has so far been impeccable. We took a ferry last Thursday, so missed the wharfie action that paralyzed Pireus and left a bunch of cruise ship passengers stranded. We returned on Sunday evening so missed the May Day demonstrations that disrupted the Metro rail. We fly to Samos this upcoming Thursday, so will miss the general strike as well. Fingers crossed that nothing happens next Monday, when we fly back. Given recent strike patterns, Monday is due for one so our luck may run out (not that getting stuck on Samos is a bad thing). But we are getting the hang of the flow of things and look forward to seeing how the general strike goes. Although the foreign press has focused on some violence, the reality is that it is only small groups of anarchists who are clashing with the police, and most of them are teenage students. The unions and other civil associations are led by grey haired folk who may have been prone to street action two or three decades ago, but who now are just trying to protect their collective livelihoods (although two banks were attacked by petrol bombs last night, the usual anarchist and Marxist-Leninist suspects are being blamed).

What is interesting about the unfolding of the Greek economic crisis is how ignorant most foreign observers are about its root causes. Most focus on inefficiency and waste in the public sector and the supposedly indolent Greek way of life, which even if true has its causes in something other than the Greek psyche (as some allege). Let me explain.

In the 1950s a strain of developmentalist thought emerged called modernisation theory that claimed that the problem of Latin America and the Mediterranean Rim was a lack of Anglo-Saxon Protestant values resultant from the mix of rigidly hierarchical religious cultures (Catholic, Muslim or Orthodox) and warm climates. The general drift of this “theory” was encapsulated in the so-called Iberian or Mediterranean Ethos: a culture of indulgence, indolence, patronage, clientalism and fatalism structurally rooted in a benign climate that allowed for easy shelter and food production. If only the Greeks, Italians, Spaniards and Portuguese (which actually is not on the Med) had to live in cold climates where survival depended on industry and resourcefulness–then they would have developed the “proper” entrepreneurial values that would have allowed them to develop along the “proper” lines of the Anglo-Saxon world. In other words, backwardness is a function of culture and climate.

Leaving aside the fact that there are plenty of temperate climate locations where entrepreneurial spirits have flourished, and plenty of cold climates where it has not, or the fact that lumping together whole regions in a culturalist explanation is ignorant at best and racist at worst, or that the notion of one universally ‘proper” form of development is both, this discredited canard ignored the structures of economic and political power (many overtly shaped by foreign intervention) that emerged in these regions and which were not reducible to either climate, religion, or civic culture.

By the 1970s modernisation theory was shown to be profoundly flawed. On a scale of over-determinism (when not cultural supremecism), it is up there along with the “warm water port” theory of imperialism. Yet, in recent years, and specifically with relation to the Greek crisis, it has been resurrected in revamped fashion as an explanation for developmental failure. Inspired by neo-liberal thought, the neo-modernisation thesis is that countries with “too much” state involvement in the economy are prone to political nepotism, rent-seeking, corruption and inefficiency. That makes for a lazy, supplicant, and favour-seeking society. The key to development lies in reducing the role of the public sector so that private enterpise can flourish. The private sector is seen as THE panacea for developmental retardation, and elites in places like Germany believe that the Greeks need to accept this.

While there may be some truth to the need for private sector leadership,  the root causes of the current Greek crisis are, again, not as simple as the overbearing role of the state, nor is the solution simply a matter of reducing it.

As I mentioned in the previous post, Greece has an underdeveloped private sector. But–and this is a very big but– the weakness of  the Greek private sector preceded rather than followed the advent of the modern Greek state, and the private sector never attempted to become the motor force for the entire society. If one considers the nature of internecine conflict in Greece dating back two  milenia (for the historically disinclined, please think about Athens and Sparta, or better yet, the Peloponnesian Wars), one realises how parochial local, sectoral and island interests can be.  That worldview continues today. Greek private industry, such as it is, has little concern about contributing to the public good. 

In light of Greek capitalist myopia and parochialism, the recipe for social peace has rested on the public sector being used as a means of absorbing excess labour (along with emigration). The labour market and welfare systems are two-tiered: there are few protections for workers in the private sector outside of employer generosity or union strength, while the public sector adheres to ILO standards. Tax-evasion is a national sport, but the problem is not with individuals but with politically-connected corporations and agricultural interests as well as religious organisations who do not pay anywhere close to their due share of the tax burden but who do put serious money into the main political parties and individual politicians in order to protect their profits (since the money spent on politics is infinitesimal when compared to the valuated tax assessment of their worth). In order to conceal the results of this long-standing practice, successive governments, be they centre-right or centre-left, cook the Treasury books and leave it for their successors to sort out, in what has become an elaborate wink and nod shell game played between themselves and their foreign creditors.

Greeks are by and large a nation of small property owners. Owning a home is, like in NZ, their core objective. The private sector is dominated by small and micro-enterprises run by owner-operators (often familial in nature) who eek out small margins catering to immediate needs (think dairies, dry cleaners. locksmiths and the like). The state does not direct investment capital towards these people, not does it particularly focus investment in large corporations either. What large-scale investment exists comes from foreign-connected sectors such as shipping, and much of the profit generated by the handful of such firms goes off-shore.

To this can be added a large black market fueled by unchecked migration across Greece’s incredibly porous borders. One in ten inhabitants in Greece are foreign born and the majority are undocumented.  This cash economy circulates outside the confines of the state (remember my anecdote about the gypsy street fair in the last post), yet is vital to filling the demand for basic necessities as well as for labour in the agricultural and service (including tourism) industries. Relatively little of the economic activity generated by these non-citizens provides revenue for the state, and with little immigration enforcement available (and largely impossible to regularise in the near term), that situation will only get worse as the official economy shrinks under the austerity regime now being imposed.

Thus the historical source of income stability (at least since the end of the colonel’s dictatorship in 1973) are public service jobs. But without an efficient tax system owing to the political cronyism of the major economic players, public budgets require external financing, which has led to more than two decades of deficit spending happily financed by foreign financial speculators trading in risk derivatives. The idea behind this play, which I accept, is that while firms may go bankrupt nations do not. Compounded interest ensures the investor’s profitability even if the principle is lost in a default (as Argentina showed in 2001-02). So the bottom line is that the system now under siege worked for everyone–the Greek elite enjoyed its privileges, the Greek population remained relatively content and peaceful even if economically underdeveloped by modernisation theory standards, and foreign financiers made money off Greek debt.

The trouble is that with the creation of the Eurozone currency system controlled by one central bank, countries such as Greece were placed in a financial straitjacket that eliminated the autonomy and cushion provided by independent national currencies.  It cannot devalue or overvalue its currency based on market conditions (as for example, Singapore does regularly), and thus is locked into a monetary (supply and demand) framework over which it has not control. Hence, should it default on its debt to its European backers, one major option would be to defect from the Eurozone and re-establish its national currency. There will be pain involved but it would allow Greece to reorganise its finances in more independent, if austere terms. It has enough investment to ensure that even with defection it will not sink (consider that tourism constitutes 20 percent of the Greek economy and its limited niche export markets could actually be favoured by such a move). That in turn might encourage others, particularly the other members of the so-called “Club Med,” to follow suit, which could well spell the end of the Eurozone (especially when considering that a Tory victory in the UK will mean an end  of talk of its ever joining and that Turkish incorporation into the EU could set the stage for an even bigger Greek-type scenario). Thus the Greek bail-out is not so much about Greece as it is about protecting the Eurozone as a currency market.

Which means that the strikes are going to continue, at an increased pace and on a potentially broader scale. In the face of elite indifference to their plight, it is the only means of defense for most Greeks. They have just been told that the public sector will take a 25 percent wage cut on top of a ten percent cut six months ago, then have wages frozen for three years. Imagine if that happened in NZ. Do you think that even the placid Kiwi public worker would take that lying down when s/he had no part in the deficit debacle? The retirement age will also rise while pension benefits will be cut. Although most people appear to accept the former, the latter is a major source of aggravation because as I mentioned before, there is little to no private sector pension plans. Prices of public utilities are set to rise and there is talk of privatising the bulk of the health system (which already is a two-tier system in which private health providers are used by the wealthy). All of which is to say that the burden of sacrifice will be shouldered by those who had nothing to do with creating the crisis in the first place. In fact, although improvements in tax enforcement are mentioned, that remains to be seen, and nowhere has it been mentioned that politicians will take a wage cut or corporations will be required to offer non-wage employment benefits in order to off-set cutbacks in public benefit programs while encouraging labour migration to the private sector. 

Which makes me think that the recently announced IMF/ECB Greek rescue package is more cosmetic than substantive and could well provoke a public backlash that could provoke renewed military interest in internal security. That, indeed, would be a disaster.

Note: As always, my observations on Greece are indebted to the insight of my partner as much as my own. I will take blame for any errors.

PS: I have been thinking of writing a post about our brushes with petty crime and come curious Greek mores, but do not want to turn this into a travelogue.  I shall try to integrate any such thoughts into a larger discussion of more serious subjects.

13 thoughts on “Its all Greek to me.

  1. Lew

    Another fascinating post, Pablo. I recently cited a predecessor of the modernisation theory in order to mock the (admittedly tongue-in-cheek) suggestion that global warming was causing priests to molest children.

    Mocking done, it became more interesting to me that if you simply replace references to a warm climate with references to the state, and references to a cold climate with references to a strong private sector, you get a fairly good approximation of the modern neoliberal (what you call neo-modernisation) line of argument. Sometimes I marvel at how far we haven’t really come since Weber and Hume and Burke.


  2. Phil Sage

    Fascinating Pablo. I had been seeking to understand the background behind the Greek problem with limited time and only the chronically mis and underinformed MSM. That piece has provided more insight in 5 minutes than I have read on the subject in the last three months. There is clearly a dual strata society. Small business desperately avoiding tax and those in the public sector clamouring for more feather bedding. I am curious to know whether there are numerous combined families where one part of the family has strong civil service income but the real family wealth is made by using the public sector cashflow to finance development of the private small business. That insight could only be gained anecdotally. It also makes me wonder if you begin to see the benefits of a strong capitalist society keeping the public sector in check?

  3. Chris Trotter

    Yes, an excellent post, Pablo.

    Your observations call to mind exactly the same rhetorical onslaught directed against New Zealand’s social-democratic economy back in the 1980s. The same concentration on “rorts” and “gross inefficencies” and the same ideological demands for “more market” solutions.

    I hope the Greeks have more fight in them than we did.

  4. Max Ritchie

    An interesting once over lightly. But lightly it is. For example, the implication that protesting public sector workers had nothing to do with the deficit needs further examination. When 35 years work entitles you to retire at age 58 on a 70% pension then someone has to pay the price. At least part of the problem is Greek voters demanding conditions that the country could not afford – and the readiness of politicians to bribe their way to power. But then Greece is not alone in that. A major difference is Greek willingness to resort to violence. The civil war is only just below the surface. I was in Athens in 1961 at a time of unrest – demonstrations, riot police, riots (I think in that order), more riot police etc. I do not recall the issue but I suspect that this time the unrest will be greater.

  5. JD

    Sounds like a morally corrupt society where everyone wants something but no one wishes to pay for it. It’s collapse is there inevitable.

    Maybe the anarchist should burn Athens to the ground and see how much leverage that gets them in Berlin.

  6. Pablo Post author

    Max: This is a blog post not a journal article. Your observatons about 1961 are interesting in so far as it was early in the lead up to the colonel’s coup in 1967. That is why I ended the post with a mention of the military.

    JD: Did you actually read the article (and if so, did it go over your head) or are you just trolling?

    Giordano Bruno: No trips to Bangkok planned. I can watch events unfold from SG.

    Chris: You will have to clarify why you think that NZ had a “social-democratic” economy in the 1980s. I thought that it was a welfare state running an import-substitution-industrialisation project under an increasingly authoritarian-populist leadership (Muldoon). It was statist but not as socially redistributive or democratic as European SDs. And then, of course, came Rogernomics.

    But I agree that the pro-market rhetoric with regard to Greece is similar.

    Phil: Nice question about families having fingers in both pies (and where one may feed the other). You are right–no data other than anecdotal reports is avaliable on that. I shall use this question at dinner tonight with some Greek friends who, coincidentally, are exactly such a mix.

    Lew: Modernization theory was more culturalist than structuralist, as it saw WASP “values” as the motor force of progress. Neo-modernisation theory is more structural in its explanantions for underdevelopment. Between the two (in the 1970s and 1980s) came dependency theory in various guises, which started out as a structural critique of imperialism and ended up arguing about cultural and linguistic imperialism. Somewhere in that mix of explanantions rests the truth of comparative development across regions and countries.

  7. the social scientist

    While it’s easy to agree that NZ’s pre-1984 political economy was more egalitarian than its post-1984 one, and that social democratic ideas shaped at least some of what Labour governments did in the postwar period, there are some major points of difference between the pre-reform NZ political economy and what social scientists normally regard as “social democracies” (principally the Nordic countries), to include:

    — the fact that social democracies (eg Sweden, Austria if we extend the model beyond Scandinavia) had generally much more open economies than NZ (the idea that social democracies were essentially protectionist is a wrong but common perception)

    — this openness, and pursuit of free trade as early as the 1950s, was combined with democratic corporatism, meaning that both organized business and organized labour was highly politically centralized. Neither labour nor business was centralized in NZ, with the union movement splintered along occupational lines and organized business regionally and sectorally fragmented

    — the dominance of the concept of ‘coordination’ in the social democracies, meaning that the state plays a facilitating rather than domineering role, while industrial enterprises were/are run through cooperation between labour and business (even though the latter still had the upper hand since this is still capitalism). This contrasts with pre-1984 NZ’s (a) statist approach to managing the economy, which made NZ more like France or Italy in this regard rather than Sweden or Denmark, as well as (b) NZ’s conflictual rather than cooperative approach to industrial relations

    — a social welfare system predominantly based on targeted (to the ‘deserving poor’) rather than universal benefits. (While NZ might have been one of the “first” welfare states, its development froze comparatively early)

    — not to mention differences in political institutions i.e. social democratic countries multipartism versus NZ’s majoritarian system

  8. Max Ritchie

    Pablo Fair point but it is nevertheless quite comprehensive for a blog post – it just seeemd to me that in the course of some detailed analysis that you had ommitted a not unimportant factor – spending more than you earn, individually and nationally. Indeed the implication that “the workers” had nothing to do with the deficit seemed to me to be an interesting perspective not totally out of character with this blog.

  9. Chris Trotter

    Social Scientist (and to a lesser extent, Pablo) seems to be under the misapprehension that social-democracy is defined exclusively by the political traditions of the centre-left parties of north-west Europe, and that the countries in which “Labour” parties represent the centre-left somehow belong to a different tradition.

    Historically, politically, economically and socially there is simply no justification for this view. Social-democracy embraces the welfare systems of Great Britain, Australia and New Zealand every bit as much as the systems of Sweden, Norway and Denmark. Such differences as do exist between these countries – at least in the period preceeding 1984, which is the period under discussion – tend to be differences of scale and depth rather than differences of kind.

    Social Scientist’s assertions regarding centralised employer and union organisations, wage bargaining, “free trade” (in the EEC of the 1970s?!!!) and the provision of universal benefits are simply wrong.

    NZ’s system of wage bargaining was co-ordinated centrally through state conciliation councils, awards were universal in coverage, membership of unions compulsory.

    State benefits were universally available and largely non-means-tested. Just ask any mother raising children in the 1950s, 60s and 70s about the Family Benefit and the uses to which it was put.

    Pablo seems to be confusing New Zealand with Argentina – a country he grew up in and knows something about. Perhaps that his why his description of New Zealand, a country I grew up in and know a great deal about, is so remarkably inaccurate.

    Muldoon’s economic intervention is remarkable only because, in the English-speaking world, his government was the among the last to indulge in such behaviour. His social conservatism was culturally consistent with that of practically every other English-speaking country of the time.

    The social-libertarianism of Scandinavian social-democracy does stand in marked contrast to the much more socially conservative labourist tradition but, once again, I believe that to be more of a reflection of the politico-cultural traditions of north-west Europe (especially the peripheral role played by the Scandinavian countries during the Age of Imperialism) than with any fundamental ideological differences.

    The one common theme that runs through the social-democratic policies of all the countries under discussion is the politically conscious and legally enforced circumscription of private economic power.

    Capitalism was not directly challenged, but rather guided into an increasingly constrained economic and political space. It was the ultimate mission of social-democrats to reduce the size of that space, incrementally, until it disappeared altogether.

    The fury of the neo-liberal counter-revolution which began in the late-1970s provides eloquent (if ultimately tragic) proof of how close the social-democratic countries came to achieveing their goal.

  10. Pablo Post author

    Phil: It appears that the answer to your question lies in inter-generational capital transfers in which public employee salaries subsidise the lifestyles of younger family members still living at home (which is very common in Greece). These younger folk are known as the “700 generation” owing to the fact that the youth unemployment benefit is 700 Euros/month (under-30 unemployment is quite high). Thus, although there is some after-expenses public sector salary transfers to private business pursuits within families, most of it occurs in the form of a familial subsidy for youth living standards while they remain at home. Given that most Greek home ownership is traditionally hereditary (i.e. no mortgages) this also means a living standard boost for the family as a whole.

    Max: You are correct in that I painted the worker’s plight in broad strokes. As I said in a previous post there appears to be a major lack of connection between some worker’s sense of entitlements and basic productivity requirements. There is significant element within the working classes that view the world through a “scam the Man” lens rather than through a productive contributor lens. For the latter it is not about fair compensation for productive labour but getting the most out of the system while doing the least amount of work–and that is counterproductive to the public good, to say the least. There is also a major lack of realisation by the middle classes here as to what is going on. The elites and working classes have been the first to comprehend the impact of the crisis becomes it affects them directly albeit in different ways. But so far the urban middle classes appear to not fully understand what is coming their way, something that will change when they receive the paycheques next month with a 25% deduction in their wages. At that point the capital transfers I mentioned in response to Phil’s question will stop, with the attendant impact on familial lifestyles.

    Chris: Of course there are some elements of similarity between pre-1984 NZ and European social democracies, but that does not mean that NZ can be accurately classified as one (I never even thought of Argentina when I outlined by question to you). Read my earlier post on conceptual stretching versus conceptual transfer, because you appear to be doing the former when it comes to applying the concept of SD to NZ. It does not mean that your take is entirely wrong, but simply that you might be over-stating your case.

    I think our different perspectives boil down to the fact that I compare things deductively while you do so inductively. That is to say, I have lived for significant lengths of time in ten countries and research traveled and written about a dozen more. Thus my reflection on NZ is informed by the broader array of cases with which I am familiar (not just Argentina), which I then use to situate NZ in comparative perspective.

    You, on the other hand, write inductively, starting with the NZ experience that you know so well and extrapolating general comparisons from that centrepoint, or illustrating NZ variance based upon historical examples drawn from elsewhere. Given that we roughly work within the same general theoretical tradition, this makes for an interesting counter to my view of the world (since theoretically at least we appear to have common starting points).

    Both of our approaches have merit, particularly when they sharpen the lines of debate and deepen the analysis when counterpoised such as in this instance.

    Now, having said that, can we return to discussing Greece?

  11. Tom Semmens

    It seems to me the Greeks should leave the Euro zone, devalue, and that way we can have a reallllly cheap holiday in the Greek Islands when we are up there next year. A devaluation – and the subsequent influx of lots of people like me having cheap holidays – can only be good for the Greek economy.

    More to the point, Greeks seem unlikely to accept the package. Greece leaving the Euro zone will not be fatal for the Euro, but if the Iberians get into serious problems that WILL signal the end of the Euro. So better to spend the money on the Spanish and Portugese.

  12. Phil Sage

    Pablo – 700 Euro per month??? It is no wonder youth employment is so high. There is no incentive at all for them to get jobs. That is an astonishing amount considering. The UK pays £51.85 per week with a much higher GDP. A Hungarian head teacher will earn €600 per month.

    Thanks for that response. It further reduces my sympathy for the Greeks. They should sort their own finances out rather than reliance on the Germans.

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