Monday, July 13, 2015

Why Debt Relief Won't Solve Greece's Problems

by Edmund S. Phelps

Huffington Post

July 13, 2015

Greece will not get very far out of its present morass without coming to grips with how it got there. The country provides a textbook example of a flawed economic system.

The public sector is notorious for its corporatist practice of clientelism to gain votes and cronyism to gain favors -- though some say that Italy and France are as bad. Some evidence suggests the magnitude of this issue: Greece's government pensions relative to productivity are nearly twice Spain's.

The government favors the elites in business with tax-free status.

Some state employees even get a bonus for showing up to work on time.

It is less well-known that Greece's private sector is rife with companies that do not compete with each other and block or impede entry of new firms bearing new ideas. The dearth of competition can be measured: The last available OECD data showed profits as a share of business income at a whopping 46 percent in Greece, far exceeding the shares in the 22 other members. Here Italy was second at 42 percent and France at 41 percent. (The U.K. was at 32, the U.S. at 35 and Germany at 39.) Greece appears to be the most corporatist economy in Europe.


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