Tuesday, June 19, 2012

Greece: Greece Faces Uphill Battle to Tackle Crisis

Greek economy
By James Petras*
Courtesy IDN-InDepth NewsAnalysis

HALIFAX, NOVA SCOTIA (IDN) - Greece faces the unenviable choice between accepting the terms of “the Troika” and facing the continuation and deepening of a socio-economic crises, which includes five years of negative growth, over 23% unemployment, an astronomical rise in poverty (from less than 15% to over 40%) and mounting suicides, or a rejection of the “memorandum”, and a likely cut-off of Eurozone funding and capital markets with virtually few reserves to cover salaries, pensions or public services.

While the immediate cost of a break with catastrophic conditions imposed by Eurozone bankers may be high, it opens up the possibility of transforming the internal and external relations and structures which led Greece to ground zero.

The prolonged and unending downward spiral of the Greek economy and living standards, the disastrous and destructive policies pursued by the formerly dominant two parties (PASOK and New Democracy) has conclusively demonstrated that Greek “capitalism” and EEC integration has been an unmitigated disaster; tried tested and failed to meet the minimum standards of human existence. Only dogmatic true believers in the innate virtues of ‘capitalism’ and the EEC can continue to prattle about the “need” to continue the same “austerity” policies which have devastated the lives of 80% of the people, closed half the business establishments in the country and fails to provide jobs for half of the young labor force (under 30 years of age).

The profound crises demonstrates the need for basic changes in the organization of the economy, the urgency for new political leadership and the desire for a new political system responsive to the vast majority.

The Negative Legacy and Debt Default

Many radical critics of the ‘austerity’ and debt crises in Greece cite the “Argentine example” of debt default (over $100 billion dollars) and its ability to fashion a successful recovery and growth model based on ‘self-financing.’ The critical advocates ignore the profound differences in the economic and social structures of the two countries as well as their respective locations in the regional economies.

Argentina, at the bottom of its crises, was actually in a worse situation than Greece today. Unemployment hovered between 25%-30% and over 50% in many working class districts, compared to 24% in Greece. Poverty levels in Argentina exceeded 45%; in Greece they exceed 35%. The depression in Argentina led to a negative growth rate of approximately 20% over the 3 year duration, equal to the loss in Greece over the past 5 years.

Despite starting from a more difficult and worse situation, Argentina had several strategic advantages.

In the first place, in Argentina the ouster from power of the crises driven ruling elite was affected by a mass popular uprising (December 2001-January 2002). In Greece, while mass demonstrations have certainly politicized, mobilized and radicalized a part of the electorate, the radical coalition vying for power (SYRIZA), has taken the electoral route. Secondly, the Argentine upheaval was a continuous process as mass unemployed picketers (piqueteros) blocked roads and transport as a negotiating tool to ensure that resources were transferred from debt payments to unemployed workers’ family allowances and in reviving the economy.

In Greece the vast army of unemployed has neither the organized capacity to sustain constant transport blockage nor can they count on neighbourhood and trade union organizations for anything more than repeated one day work stoppages and marches.

Argentina immediately drastically devaluated its currency – eliminating the dollar peg – from one to one, to three to one and vastly increased the competitiveness of Argentine export products. The center-left regime encouraged the substitution of local products for costly imports. Argentina, unlike Greece was not part of a currency union and could set its own currency rate. Greece is bound to the euro and will have to convert to the drachma in order to take control over its finances, currency rate, and monetary and investment policy tools.

Argentina possessed a substantial industrial-manufacturing sector, idled by the crises, but with the worker-engineering-management capacity to respond to a new stimulus program. In addition, Argentina had a dynamic highly competitive agro-business sector, a world leader in beef, grains and soya, as well as energy (oil) and mineral wealth, which the centre-left regime could activate.

Greece, during its 30 year membership in the European Union actually saw its meager and backward manufacturing and agricultural base shrink, in the face of cheap and better imports from developed capitalist countries like Germany, France, Holland and elsewhere. Unlike Argentina, Greece received billions of dollars in “transfers,” compensation funds to upgrade its economy and competitiveness and prepare it for full integration (lowering of tariff barriers).

However, the “transfers” were not channelled into productive activity either by the two ruling parties or by the ‘capitalists’ and ‘farmers.’ The ruling parties used the transfers to build extensive electoral patronage machines; they squandered funds for overpriced state contracts to provide builders engaged in non-productive building projects (including the multi-billion dollar swindle around the Olympic Games). Tens of thousands of unemployed graduates and party loyalists bloated the national, regional and local bureaucracy, increasing consumption, blocking any meaningful productive activity.

Billions skimmed off

Capitalists designed “productive projects and then transferred EU loans and handouts to local and overseas real estate investments and luxury purchases. The Greek elite transferred loans to London, Swiss and Cypriot bank accounts – while the government signed off as ultimate guarantor.

In the agriculture sector, many property holders were doctors, dentists, lawyers and high officials who used the ownership of a few dozen olive or orange trees to receive low interest loans, import tax-free luxury 4 x 4 vehicles and to build second or third vacation houses. Many farmers who received loans and grants, purchased land for homes for their married children or for extra room to rent to tourists or to send their sons and daughters to overseas universities.

Most important, the economic elite – bankers, ship owners, construction-real estate – politicians, speculators skimmed off billions from the EEC transfers in the form of illicit loans to cronies and in the form of fees, management charges for credit dealings and pension funding.

The European bankers, government officials and exporters were acutely aware that the “transfers” were being pillaged – but they went along, for obvious reasons of economic and political gain: lucrative interest payments flowed into their coffers; exporters took over Greek consumer markets; bankers and investment houses found willing pension fund managers ‘open’ to dubious investments. Even tourists enjoyed the sun and imports which reminded them of home: Wiener schnitzel, English ale, Dutch feta. Moreover, Greece spent 15% of its budget on the military, serving NATO goals and bases.

Contrary to superficial appearances, Greece was not ruled by capitalists, small business people and farmers as some political scientists claim. Greece was ruled by an extensive class of kleptocrats, tax evaders and rentiers who pillaged, borrowed, consumed and invested overseas. Technologically Greece was among the most backward agro-manufacturing countries. Its overseas trained and educated professionals, returned and ‘adapted’ to the kleptocratic-rentier culture: most held several positions in public-private activities, guaranteeing a mediocre performance and conflicts of interests.

In summary, Greece is not Argentina. A Greek default is an absolute necessity to begin the process of transition toward a productive and equitable economy. But the horrendous Greek legacy raises a whole series of new problems and challenges with few economic resources and in the absence of leading productive classes.

Greece needs a (1) growth tax – a flat tax on the self-employed – professions, shop keepers, hotels, etc. – to ensure that they pay their share in financing the new economy. While the very rich engaged in mega swindles and evasions, it was also the case that the 50% self-employed sector imitated their behavior at the micro-level (2) a tourist tax – at airports, ferry-docks, tour ships stops – with tight oversight and or replacement of corrupt tax inspectors/collectors and customs officials who take a big cut of proceeds. Incarceration of corrupt officials should be mandatory. (3) A real estate tax which reflects the real value of land and property, especially of unused or uncultivated lands. (4) A tax on financial transactions and an end to tax exemptions for major banks, corporations and so-called property developers.

Human Resources

The new government has many sources of ‘human capital’ – hundreds of thousands of unemployed young educated people who can be mobilized for work in productive activity through selective public investments in priority areas, especially outside of the “greater Athens region.”

There are many regions and islands which have the potential to provide income and employment, properly addressed. One of the most salient is in food processing; one of the many perversities of the Greek economy is the production and exports of apples and citrus products to Germany and the import of juices. Another is the failure to link local food and manufacturing to the 14 million tourist sector.

Most food and furniture is imported; most vacation packages benefit overseas multi-nationals and foreign transport agencies. As a result the Greek economy and labor force derives a small share of total income from its “leading sector.” Greece with 300 days of sun is ideal for solar energy development.

As mentioned above, Greece had few if any real entrepreneurs, who invested their own profits, invested in research and development and modernized their plant.

Public sector enterprises were overloaded with the unemployed ‘party members,’ many virtually ‘no shows’; and many public sector unions engaged in nepotism and multiple-employment at the expense of efficient services, profitability and long-term development strategies. Public sector enterprises require a kind of re-nationalization, to generate revenues and income to finance new jobs in new enterprises. Management of public enterprises should be transferred from the hands of stagnant ‘life time job-holders’ to dynamic workers – entrepreneurial – engineering management teams looking to broaden the scope and quality of activity within the new economy.

Pension funds and other savings must be mobilized alongside the billions retained by the state’s debt default to pay current expenses (pensions, salaries, basic imports etc.), to stimulate the revival of production among enterprises which show a willingness to rebuild the economy and which show a willingness to collaborate in activating production and employment. Public profits should finance worker takeovers of factories and services abandoned by their previous owners, of which there are thousands.

The public sector must take the lead in investing, servicing and producing to create “confidence” among the small and medium size producers. The public sector must take the lead in negotiating with potential lenders and economic partners outside the Eurozone: new markets and financial arrangements will be necessary if the Eurozone cuts off all funding as a consequence of debt default or a moratorium.

*James Petras, a U.S. scholar and political analyst, is Professor (Emeritus) of Sociology at Binghamton University, New York. He is the author of more than 62 books published in 29 languages, over 600 articles in professional journals, and over 2000 articles in nonprofessional journals. This analysis is an abridged version of his article on his website. Full article is available on http://petras.lahaine.org/?p=1901. [IDN-InDepthNews – June 18, 2012]

2012 IDN-InDepthNews | Analysis That Matters

Picture: James Petras | Credit: 'Voltaire Network' - Wikimedia Commons