Beyond The Debt Crisis, What Will Happen in Greece?

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WASHINGTON – Suppose that recalcitrant Greece and its not so well disposed creditors (the EU, the ECB, and the IMF) finally come up with a last minute compromise that avoids bankruptcy and the exit from the Euro. Then what?

Just a temporary fix?

If such a compromise is just a temporary political fix, (this is what I suspect it will be), the proverbial bandage to stop the bleeding, then you can bet that in a few months this open wound will be once again infected, and therefore in need of some other fix.

As onlookers pray for a “solution” based on some kind of bargain, they fail to acknowledge how Greece got into this horrendous crisis. This unprecedented fiscal and economic debacle did not come all of a sudden, due to bad luck.

The root causes

It came about at the end of 2009 because of the cumulative impact of extraordinarily bad policies in a non competitive economy, carried out year after year by rapacious and incompetent ruling elites. As The Economist put it (My big fat Greek divorce, June 20, 2015) the crisis is the result of structural impediments to growth: “[…] rampant clientelism, hopeless public administration, comically bad regulations, a lethargic and unreliable justice system, nationalised assets and oligopolies, and inflexible markets for goods and services and labor”. And I would add to this long (and frankly frightening) list endemic corruption and lack of innovative enterprises that can create a competitive edge in any economic sector.

Kill the virus

The point of all this is that, until the Greeks abandon the flawed beliefs and values that support their failed economic and administrative “eco-system”, the root causes of this never ending mess will continue to work as an endemic ideological virus.

Greece found itself in a deep hole because of this ideological virus. Indeed, while it had every opportunity to do so, in the 1980s and 1990s Greece failed to become a modern, efficient, and competitive industrial democracy, with free market incentives, clear rules for all, a reliable justice system and accountability for elected officials.

Embrace modernity and sound values

These are the preconditions for success and some degree of prosperity. Economic success does not have much to do with built-in advantages such as abundant natural resources, oil or gas.

It has to do with embracing values that support a transparent democracy, and pro-growth policies. These values shape the attitude of the citizens about what is necessary to promote growth (education, infrastructure, access to credit, and more), and the governments that can competently run the commonwealth.

There is absolutely nothing that prevents the Greek people from adopting new beliefs that will help them to get rid of the pre-capitalistic, dysfunctional economic system dominated by rent-seeking protected oligarchies and corrupt public administrators.

Indeed, there is no objective limit that prevents Greece from becoming a Taiwan in the Mediterranean. It is all about doing away with a culture and value system inimical to growth and prosperity, while sincerely adopting a strong belief in enterprise, responsibility and transparency.

A fantasy?

I recognize that this looks like a fantasy. Such a radical cultural and psychological transformation may never happen, simply because it is too complicated to engineer it. This is true.

However, only a mad man would believe that the culture and value system that led Greece to this hellish predicament of financial ruin and economic decline are working really well.

Precisely because there is a deep crisis, this should be the time to look at other, far more successful models. Will the Greeks finally embrace a value system that can support and sustain modernity? They could, even though the record so far, (and that includes selecting Alexis Tsipras as Prime Minister), unfortunately suggests the opposite.

 

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