greece at a crossroads what is at stake, and what to expect, featuring prof. aristides hatzis

Greece at a crossroadsWhat is at stake, and what to expect

Aristides N. HatzisAssociate Professor

Philosophy of Law & Theory of InstitutionsPh.D. (Law & Econ, U of Chicago)

Atlas Network WebinarAtlas Network WebinarJuly 1, 2015July 1, 2015

1929-1936: Anomalous political situation1936-1940: Dictatorship1940-1944: Word War II1944-1949: Civil War1949-1967: Illiberal Democracy1967-1974: Dictatorship1974- : Constitutional Democracy

1980: The 10th Member of the European Communities

Greece circa 1980

public debt: 28% of GDPdeficit: < 3% of GDPunemployment: 2-3%average growth rate 1975-1980: 4.6%

inflation: 25% (due to the second oil crisis)

1981: PASOK

A modern Greek Tragedy

1981-2011: From Miracle to Nightmare

30 years of getting subsidies from the EU, borrowing and spending

Minimal structural reforms

Anti-market bias

The state controlled about 75% of all business assets

Bloated welfare state

Borrowed Happiness

average per capita income: $31,700 (2008)– 25th in the world (95% to the EU average)

private spending: 12% more than the EU average (2009)

human development and quality of life indices: 22nd in the world (2010)

1980-2010: the road to default

1980 public debt: 28% of GDP1990 public debt: 89% of GDP2009 public debt: 142.8% of GDP– almost 165% in late 2012

1980 public deficit: <3% of GDP2009 public deficit: 15.4% of GDP

1980 government spending: 29% of GDP2009 government spending: 53.1% of GDP

Greek Public Servants

Greek public debt (percentage of GDP)

GREECE 2010

Public Debt: 142,8% of GDP– €350 billion ($ 500 billion)

Public Deficit: 15.4% of GDP

“Growth”: -4.5% of GDP

Like there is no tomorrow!

A bloated Welfare State…

Social benefits to households (percentage of GDP)– from 22.0% (2004) to 26%.4 (2008) to 29.0% (2009)– (from 2004 to 2009 “conservatives” ruled Greece)– half of it went to pensions

“social transfers” (subsidies to the pension funds of powerful professional groups) equals 52% of this half – 6.34% of GDP in 2008.

EC pension projections (2009)– EU-27: 12.3% (2040) – 12.5 (2060)– Ireland: 6.4% (2040) – 8.6% (2060)– Portugal: 12.5% (2040) – 13.4% (2060)– Spain: 13.2% (2040) – 15.1% (2060)– Greece: 21.4% (2040) – 24.1% (2060)

An inefficient welfare state

The indicator of the efficiency of social benefits in alleviating property is the worst in the E.U. (13%, where the EU average is 35% and some Scandinavian countries were as efficient as 70%!).

In 2002 the indicator was a poor 4% with a EU average of 31%.

A helping hand to the rich

Extractive economicinstitutions: Designed by the politically powerful elites toextract resources from the restof society.

Inclusive economic institutions: Secure property rights, law and order, markets and state support (publicservices and regulation) for markets; open to relatively free entry of newbusinesses; uphold contracts; accessto education and opportunity for the great majority of citizens, i.e., createincentives for investment and innovation and a level playing field.

The Greek trap

A bloated inefficient “welfare state”but alsoTax evasion (as a social right)A huge inefficient public sectorCorruption – essentially tolerated if not decriminalizedPublic sector union powerClosed professionsOverregulation to ensure rent-seeking

“A state made for the welfare of politically powerful pressure groups”

Greek Extractive Institutions

Index of Economic Freedom

Long-term score change (since1995)

Low levels of trust

Government: 14,6% (51,7%)Courts: 40,2% (52,6%)Education system: 51,8% (66,1%)Other people 16,5% (24,2%)

Philanthropy: 9% (28,9%)Volunteerism 10% (20,9%)

Global average in parentheses

A political culture of

StatismProtectionismCorruptionCronyismNepotismRent-seekingIrresponsible spending

Greece is not a free-market economy!

Index of Economic Freedom-2015: 130/178– Last in the EUEconomic Freedom of the World-2014: 84/152– Last in the EUGlobal Competitiveness Report-2014/5: 81/144– Last in the EUICC Open Markets Index: 48/75– Last in the EU

Mostly Unfree...

Greece’s neighborhood

The Greek Vikings*

Cost: €17-25 bn

* Pelagidis & Mitsopoulos 2011

1974-2005

171.600 regulations!– 3.430 laws– 20.580 presidential decrees– 114.905 ministerial decisions– 32.585 local government decisions

Institute for Regulatory Policy Research

IMF Default

They say, it’s our country and Greece...

What a shame!

GREXIT

Loony left to the Greek government:

Don’t put the silencer. Let’s deafen those capitalists!

Badly and urgently needed

Regulatory Reform

Taxation Reform

Welfare Reform

Institutional Reform

Conclusion

more market, more growth, more jobs

Thank you!Thank you!

ahatzis@phs.uoa.gr

http://www.phs.uoa.gr/ahatzis