The True Cause Of Greece’s Economic Failure——An Omnivorous State, Not Lazy Workers

In the course of the Greek crisis, animosities between creditor countries like Germany and Greece didn’t take long to surface. They were fired up in the tabloid press, which was quick to revive various stereotypes. In Greece, Germans soon found themselves compared to their Nazi predecessors, while German tabloids inter alia complained sotto voce about those allegedly “lazy Southerners”.

The stereotype of “lazy Greeks”

This complaint seemed only natural, after all, everybody knows how hard-working Germany’s citizens are compared to the siesta-prone indolent slackers inhabiting assorted Mediterranean shores, right? Not so fast, said economists. OECD studies show that the average Greek worker toils for 2,017 hours per year, the by far highest figure in Europe.

More stereotyping …

This compares to a seemingly ridiculous 1,408 hours put in by the average German worker per year, who finds himself almost at the very bottom of the OECD’s list. Oops, there goes a well-worn stereotype. These figures have to be put in to perspective though. Superficially, it looks like the average Greek citizen in the labor force is working 40% more than his comparable German counterpart, but to some extent this is comparing apples to oranges.

OECD statistics on hours worked per year. This is a slightly dated statistic, but not much has changed since it has been compiled – click to enlarge.

For one thing, Greece’s labor force has a fairly large number of self-employed people, who habitually work longer hours than salaried employees. For another, every fourth German worker is working part-time. However, even if one adjusts for these effects and only compares full-time employees, Greeks still work approx. 10% more than Germans on average (the latter take longer vacations, as well as more sick and maternity leave).

The standard explanation for why the Germans nevertheless have to bail out the Greeks and not vice versa is that the former are more productive, and this is undoubtedly the case. However, there is more to it than that. The answer was recently provided in an article by Justin Murray at Mises.org.

Dependency on the State

The problem, as Mr. Murray writes, is that there are far too many people in Greece who rely on the government for their income. In short, more wealth is distributed by the State than is actually produced. As Murray suggests:

“What is needed is a new metric that effectively identifies the core of a nation’s potential growth and prosperity. This is where a look at “implied public reliance” comes in. Ultimately, in a modern nation, all citizenry is provided with the necessities of life in some form or another. Mass starvation, homelessness and sickness is not generally present in modern nations, so virtually every citizen receives food, medicine, and housing from somewhere.

So, we must look to find the source of those resources, and it is, by and large, the active employees of any given nation that are tapped to provide the resources for all other individuals not engaged in overt economically productive activities. In every modern country, these resources are primarily delivered through the public bureaucracy and funded with taxation on existing workers.”

(italics in original)

The way of going about this is by segmenting the employed population into government employees and all others, i.e., the productive population. Then the total population is divided by the productive population to find out how many people have to be supported by every member of the productive population.

A further adjustment is then made by removing non-working spouses and children from the result by subtracting the average household size. The end result is what Murray refers to as “implied public reliance”, namely the number of total strangers every productive worker has to support. And this is what the calculation looks like in graphic form:

Comparison of the number of total strangers every productive worker has to support in a number of countries.

As Murray points out:

“Greece, the nation with the debt problem, is currently expecting each employed person to support 6.1 other people above and beyond their own families. This explains much of the pressure to work long hours and also explains the unstable debt loads. Since a single Greek worker can’t possibly hope to support what amounts to a complete baseball team on a single salary, the difference is covered by Greek public debt, debt that the underlying social system cannot hope to repay as the incentives are to maintain the current system of subsidies.”

(emphasis added)

Obviously, this is both an enormous drag on economic performance as well as a system that is simply unsustainable. It doesn’t take a lot of imagination to come to this conclusion. Moreover, it should be blindingly obvious that reintroducing the drachma in order to devalue (and rob Greek savers in the process) isn’t going to alter this fundamental problem one bit.

The conclusion is that the system has to be reformed. So why hasn’t this been done yet? It is well known that successive crisis governments in Greece have thus far studiously avoided any substantive reform. The problem is that pursuing such a reform agenda is extremely difficult in a democracy. After all, the large number of state-dependents will easily outvote the smaller number of productive workers. The statistics show that a solid majority of Greece’s population as a whole has little interest in changing anything. Murray writes:

“To demonstrate how difficult it is to change these systems within a democratic society, we just have to look at the percentage of the population that is reliant on public subsidy.”

This population percentage looks as follows in an international comparison:

In Greece, a full 67% of the population relies entirely on public subsidies. Nations like Spain, France and Italy are also above the 50% mark, which doesn’t bode well. Countries that have breached this level have as a rule exhibited poor economic growth and sharply rising public debt. In Spain the situation is getting better however, as numerous wide-ranging reforms have in the meantime been introduced.

Murray concludes:

“A nation that allows its citizenry to remain idle and expect the support of a productive worker will eventually undermine its ability to maintain the economy that those recipients of public funds rely on. Nations that do not have a structure to dissuade usage of public assistance or hire too many public sector workers will find their economic growth impeded and, if it becomes too large, recessive.

However, public institutions are not capable of creating these safeguards to ensure as few people as possible engage in safety net programs. Government institutions are, in fact, designed to grow public sector employment rolls. So as long as this social structure is in place, the odds that a Greek default and restructuring will lead to a sustained Greek recovery are very low.”

(emphasis added)

There you have it. We have of course previously mentioned this problem in general terms (as has Bill Bonner), in addition to the many other structural problems extant in Greece. However, this is the first time we have actually come across a solid statistical analysis of how many people actually depend on public funding in Greece. This is certainly quite an eye-opener.

Conclusion

It should be clear that reform is unavoidable. However, it will obviously be deeply unpopular. How can it be otherwise? If 67% of the country’s population can vote to be financed by the remaining 33% of the citizenry (plus the involuntary contributions of foreign taxpayers in Greece’s case), this is what it will vote for. These 67% of course aren’t a homogeneous group, but consist of a variety of interest groups, each of which sees itself as especially deserving.

Such well-defined interest groups have on average far greater influence on government policy than the population at large, as each one of them can focus on a specific subsidy. In isolation a specific subsidy usually isn’t a big enough burden for the productive members of society to motivate them to lobby against it (besides, wealth generators are as a rule very busy and haven’t the time and energy to undertake such efforts).

Corporate lobbying is based on precisely the same principle – it works so well because special interests have a strong focus on very specific demands and can afford to spend the time and effort required to obtain whatever privileges or funding they want the government to bestow on them.

A truly workable solution to this problem would be to abolish the State and replace it with voluntary associations between people (a.k.a. anarchy). Without a coercive force monopolist, there can no longer be any privileges. We are of course aware that this ideal cannot be realistically achieved at present, even though it would be an unalloyed boon for civilization and progress.

As we have mentioned before, in Greece’s case the government does however have an opportunity at the moment to actually implement urgently needed unpopular reforms. Given that its creditors are calling the shots, it can easily tell all special interests and lobbyists that they can take a hike – and simply blame their misfortune on the “troika” (or “quadriga” as it is known in its latest incarnation). It remains to be seen if it will actually make use of this opportunity.

Unfortunately, the ideal solution has a bad reputation after centuries of statist propaganda. Perhaps it should simply be renamed “voluntarism”.

Charts by: OECD, Justin Murray / Mises.org