Sunday, 5 July 2015

A warning from Greece: the crisis of government


Today the Greeks are voting in a referendum. Other wiser and more informed folk will tell you what this is all about, how you should vote (if you were Greek) and what it all means for the poor benighted Greek people. As ever with these debates this wisdom will act more to confuse than to inform since the Greeks seem faced with a choice between poverty and bankruptcy or bankruptcy and poverty.

Instead of giving my advice (for what it's worth this is a rare example where not voting is the most logical option since the outcome isn't really affected by the choice - the Greeks are screwed regardless), I'd like instead to take this particular Greek tragedy as a warning. Not a warning about bankers, business or supranational authorities without accountability but a warning about government.

The politicians are presenting what has happened in Greece as a failure of economics. The bankers, the oligarchs, the mysterious market forces are the causes. Vast libraries of articles filled with 'charts' showing this or that about the situation are penned. Every single economist (or so it seems) appears in print with a slant on the crisis. The commentary on news channels is peppered with barely understood economic jargon and assorted talking heads appear on panels soberly discussing this economic catastrophe.

They are, for all their charts and tables, wrong because the problem is a problem of misplaced trust in government. Two generations of Greeks placed their trust in government believing that the state was their friend and had their interests at heart. Even when they knew some things weren't right, they carried on believing that none of this was existential - there'd be a bad patch or two but everything would carry on (more-or-less) working.

It really did seem that the state was the Greeks' friend - especially for the growing army of people who worked for that state and who retired from working for that state at the delightfully young age of 58 on 80% of final salary. Meanwhile ordinary Greeks got schools, hospitals and free university study plus a generous benefits system - all the superstructure of the modern European state. Not only did this make Greeks happy it also provided loads of jobs for the sons and daughters of Greece:

The expansion of Greece’s huge government sector took decades to create, but its growth in recent years has been particularly striking. Public employment grew by fivefold from 1970 through 2009 — at an annual growth rate of 4 percent, according to a recent academic study by Zafiris Tzannatos and Iannis Monogios.. Over the same four decades, employment in the private sector increased by only 27 percent — an annual rate of less than 1 percent.

It might look right now that the problem is a problem of banks, business and economics but peel back the skin of the Greek crisis and you see a problem of government - unsustainable, expansive government. And what didn't go along with this expansion of government was an expansion in taxes - Greeks got their modern welfare state on the cheap. And still set about dodging the taxes they were supposed to be paying:

...the authors also make an estimate of how much tax is being evaded in Greece. The debt-to-income ratio for wage-earners in a particular profession ought to provide a guide (though not a precise one) to the debt-to-income ratio that banks are comfortable with for self-employed borrowers in the same profession. That assumption enables the authors to work out what multiples banks are applying to reported incomes in various industries; how much taxable income is not being reported; and how much tax is being evaded (see table). At an aggregate level, the authors calculate that the self-employed in 2009 dodged taxes on at least €28 billion of unreported income, enough to fill 31% of the Greek budget deficit that year.

The Greeks aren't uniquely bad - self-employed people everywhere tend to underreport income - but there does seem to have been a reluctance to enforce tax collection. Perhaps Greece's huge black market - over 25% of GDP - has something to do with all this. That and the fact that "the three most tax-dodging professions account for about half the votes among Greek MPs". All this is a country where tax rates - certainly compared to Northern Europe - are low.

The problem here is that, while we don't trust the politicians we elect to run government, we continue to trust government. Yet the evidence from Greece (and if you look closely enough, just about everywhere else) is that we shouldn't be trusting government quite as much as we do. Don't take this as an argument for getting rid of government but rather as an encouragement to individuals, families and neighbourhoods to take control of their own business rather than to sub-contract it to a government.

The saddest thing about Greece is that the people do not think they have the option of rejecting their failed government - no-one is offering a new settlement based on family and community rather than the old system of state-directed largess. So they turned to a party promising an end to the bad stuff and a return to those comfortable days of safe state jobs and early retirement. After the essentially tactical (and largely purposeless) referendum, Greeks will again face the reality of their future - poverty and bankruptcy. Fingers will be pointed at all sorts of culprits - Germans, EU bureaucrats, bankers, businessmen, politicians who used to run Greece. But no-one will spot the real culprit - an unsustainable government filled with protected and entitled employees prepared to screw over the rest of the nation so as to sustain that protection and entitlement.

So my warning is to echo those words of Ronald Reagan and to remind you that government is not your friend, does not care about your circumstance and mostly seeks to sustain itself using other peoples' money. Much of what we call 'austerity' is simply the realisation that government is too bloated, to overweaning and too self-interested. And pretty unaffordable.

The Greek crisis is a crisis of government not a crisis of banks, economics or markets. It is government that must change to save Greece. And our governments must change too if we are to avoid the same fate.


1 comment:

Clarissa said...

If Greeks really want to know the cause of their problems they should look in a mirror. They've voted for all these 'freebies' for years and now the chickens are coming home to roost. Rebalancing is going to be painful and will happen regardless of today's outcome.