Edmund S. Phelps writes: \u00a0\u00a0Too many politicians and economists blame austerity \u2013 urged by Greece\u2019s creditors \u2013 for the collapse of the Greek economy. But the data show neither marked austerity by historical standards nor government cutbacks severe enough to explain the huge job losses. What the data do show are economic ills rooted in the values and beliefs of Greek society.<\/p>\n
Greece\u2019s public sector is rife with clientelism (to gain votes) and cronyism (to gain favors) \u2013 far more so than in other parts of Europe.<\/p>\n
There are serious ills in the private sector, too \u2013 notably, the pervasive influence of vested interests and the country\u2019s business and political elites. Profits as a share of business income in Greece are a whopping 46%. \u00a0Insiders receive subsidies and contracts, and outsiders find it hard to break in. Astoundingly, young Greek entrepreneurs reportedly fear to incorporate their firms in Greece, lest others use false documents to take away their companies.<\/p>\n
This stunted system springs from Greece\u2019s corporatist values, which emphasize social protection, solidarity instead of competition, and discomfort with uncontrolled change.<\/p>\n
Greece saw\u00a0productivity gains\u00a0after World War II \u2013 but mostly from increases in education and capital per worker, which can go only so far. Two important sources of broad prosperity are blocked by Greece\u2019s system. One is an abundance of entrepreneurs engaged in detecting and exploiting new economic opportunities. \u00a0The other source of broad prosperity is an abundance of business people engaged in conceiving and creating new products and processes.<\/p>\n
Some economists believe that these structural considerations have nothing to do with Greece\u2019s current crisis. In fact, a structuralist perspective illuminates what went wrong \u2013 and why.<\/p>\n
For several years, Greece drew on the EU\u2019s aptly named \u201cstructural funds\u201d and on loans from German and French banks to finance a wide array of highly labor-intensive projects. Employment and incomes soared, and savings piled up. When that capital inflow stopped, asset prices in Greece fell, and so did demand for labor in the capital-goods sector.<\/p>\n
With competition weak, entrepreneurs did not rush to hire the unemployed. When recovery began, political unrest last fall nipped confidence in the bud.<\/p>\n
The truth is that Greece needs more than just debt restructuring or even debt relief. If young Greeks are to have a future in their own country, they and their elders need to develop the attitudes and institutions that constitute an inclusive modern economy \u2013 which means shedding their corporatist values.<\/p>\n
Europe, for its part, must think beyond the necessary reforms of Greece\u2019s pension system, tax regime, and collective-bargaining arrangements. While Greece has reached the heights of corporatism, Italy and France are not far behind \u2013 and not far behind them is Germany. All of Europe, not just Greece, must rethink its economic philosophy.<\/p>\n
\u00a0 Edmund S. Phelps writes: \u00a0\u00a0Too many politicians and economists blame austerity \u2013 urged by Greece\u2019s creditors \u2013 for the collapse of the Greek economy. But the data show neither marked austerity by historical standards nor government cutbacks severe enough to … Continue reading ![\"Greek](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/09\/Greek-Entrepreneurs1.jpg\")
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