Here’s a long, informative report from Greece, painting an unsettling portrait of a country at the beginning of harsh austerity. What’s particularly interesting is the story’s look at how Greek cultural and political habits caused the country’s economic troubles — and how fixing those problems is going to require a social revolution of sorts. Interestingly, in Greece, the banks behaved responsibly; it was the government that behaved recklessly in running up unsustainable debt. But Greece is a democracy, and the government didn’t elect itself. According to the story, the government’s behavior reflects cultural weaknesses among the Greek people. Excerpts:
The Greek capital these days exists in a state of shock, suspicion, and bewilderment, not unlike the way New York felt in the fall of 2008 after Lehman Brothers collapsed–a sense that strange forces had created financial scenarios no one could yet understand. Something has gone terribly wrong with the system. For the little nations on the edges of the so-called first world, market-happy modernity can be harder to keep up with and easier to turn against during difficult times. In Greece, the past few months have been a brutal conclusion to what had been a glorious party of admission to Western consumer capitalism.
“The best way to think of it is to think of Greece as a teenager,” says Stathis N. Kalyvas, a Yale University political scientist who was in Athens when I visited. “Many Greeks view the state with a combination of a sense of entitlement, mistrust, and dislike similar to that of teenagers vis-à-vis their parents. They expect to be funded without contributing; they often act irresponsibly without care about consequences and expect to be bailed out by the state–but that only increases their sense of dependency, which only increases their feeling of dislike for the state. And, of course, they refuse to grow up. But like every teenager, they will.”
The story of Greece recalls a familiar old world/new world tale: a poor country 30 years removed from a devastating communist-royalist civil war and five years from a fascist military dictatorship finds itself, in 1981, in the maternal embrace of European Union membership, flush with all the easy funds that follow. Two decades later come the success of the 2004 Olympics, the arrival of Dolce & Gabbana, the proliferation of credit cards, and an airport as polished as a museum. Life, on the surface, looks good– though the old, unhealthy habits continue: public-sector employment for life, politicians with stuffed pockets, an aversion to foreign investment, snail-like growth, communal life that keeps people happy at the taverna table but stifles individual creativity, a sense that beating the “system” is what the smart people do.
Stereotypes of Greek people as lazy and sun-stroked may have roots in the public sector: For decades politicians plied poor citizens with cushy jobs and pensions in exchange for votes. The 2004-09 conservative New Democracy government added over 85,000 public-sector jobs in its tenure; the public sector accounts for 40 percent of Greece’s GDP and 15 percent of the active workforce. The government isn’t even sure how many people it employs. As Jens Bastian, an ELIAMEP economist, explains, “Every Greek has a relative who works as a civil servant in the public sector, excluding the military and police. Reducing employment levels in the public sector immediately becomes a very touchy, family affair.”
And there is this:
Stefanos Manos applauds the recent decisions to cut wages and raise taxes but believes more drastic measures are needed. “The average pay is two and a half times the pay in the private sector,” he says. In his view, more must be done to create a competitive environment. “In Greece, you cannot rent a little truck to move your refrigerator,” Manos says. “Why? To protect the truckers. You have to hire a trucker. You have to get a parking permit. If you sell your house, both parties have to have a lawyer–by law–to participate in the transaction, and they’re guaranteed a percentage of it. If I want to give my house to my son, both he and I have to have lawyers. If Coca-Cola (KO) wants to take out an advertisement during a news program on TV, a percentage of it [20 percent] goes toward a pension fund for journalists. They have so much money in there that journalists don’t even know or care how much money they have!”
Then there are the bribes. “Lawyers know that when a tax collector comes, he will ask for a bribe. Doctors, too. But that tax collector has a job for life. A surgeon at the state hospital expects something on the side,” Manos says. “Otherwise, you can get your operation in six months or more.”
That last bit reminds me of something a Louisiana businessman told me some time ago about something an invester from outside the state relayed to him, after the outsider decided not to establish an outpost of his business in Louisiana. The outsider complained that with so much corruption in the system, he didn’t want to commit himself and his resources to a state in which there was such a difference between the law as it is written, and the de facto law — by which he meant that he didn’t want to have to depend on complicated, semi-opaque webs of social relationships and outright bribery to operate his business effectively. It was nothing personal; it’s just that the hidden cost of doing business in Louisiana, at least at the time (this was the 1990s), because of the culture, made investing in the Bayou State a bad bet.
Back to the Greek story. At one point, someone quoted there said that Greek politicians and Greek people had for so long thought Greece could live as it wanted with no consequences, but eventually, the markets caught up to them. America’s problems are not Greece’s problems. We have a much different culture. But we’re not that different. We’re a democracy too, and we have rewarded politicians that have told us we could live as we liked without paying for it. And now reality has caught up with us.
Several readers in recent days, on blog posts here having to do with austerity, react as if austerity measures ought not to be taken here because they will hurt the poor the most. That strikes me as the wrong way to think about the problem. I agree that whatever measures are taken, those better able to bear the economic burdens — that is, the wealthy — ought to be asked to do so. But it’s a form of magical thinking to believe that because it seems unfair that the poor and the working classes are going to be hardest hit by austerity, that austerity cannot and should not be undertaken. As the current Greek leaders understand, if you’re going to ask everybody to take a big hit to repair the national economy, the wealthy have got to be made a public example of. Absolutely! But to pretend that the problems we face can be resolved by inflicting pain on the rich and leaving everybody else alone is delusional.
As economist Ken Rogoff wrote in 2002, contra Joseph Stiglitz’s view that austerity is the wrong strategy:
The Stiglitzian prescription is to raise the profile of fiscal deficits, that is, to issue more debt and to print more money. You seem to believe that if a distressed government issues more currency, its citizens will suddenly think it more valuable. You seem to believe that when investors are no longer willing to hold a government’s debt, all that needs to be done is to increase the supply and it will sell like hot cakes. We at the IMF–no, make that we on the Planet Earth–have considerable experience suggesting otherwise. We earthlings have found that when a country in fiscal distress tries to escape by printing more money, inflation rises, often uncontrollably. Uncontrolled inflation strangles growth, hurting the entire populace but, especially the indigent. The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better.
To be sure, I think the Stiglitz strategy can be the more sensible strategy in a given situation, but it cannot be seen as orthodoxy. As Rogoff says, some governments get to a point of indebtedness that increasing their debt burden to avoid austerity can make things even worse in the long run — and be especially painful for the poor. The point is, if it’s the welfare of the poor and the vulnerable one is most interested in, then one should soberly consider that austerity might, under particular circumstances, be the less painful route to take.
In any case, though America’s economic quandary differs in kind from Greece’s, just as our culture does, it is useful to consider the ways in which we, like the Greeks, have to change our cultural habits to live more responsibly.