Welfare Populism and the Greek Crisis
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1) Greece experienced decades of welfare populism from 1981-2011 where it accumulated large debts through government overspending, borrowing, and minimal structural reforms. 2) This led to a bloated welfare state with inefficient social programs and powerful public sector unions, and a culture of corruption, cronyism and rent-seeking that stifled economic freedom. 3) Greece now has high debts, deficits, and unemployment and a weak economy in need of regulatory, tax, welfare and institutional reforms to transition to more inclusive economic institutions and market-based growth.
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Welfare Populism and the Greek Crisis
- 1. Welfare Populism and the Greek Crisis Aristides N. Hatzis Associate Professor Philosophy of Law & Theory of Institutions Ph.D. (Law & Econ, U of Chicago) European Students for Liberty Sofia, Oct. 17, 2015
- 3. 1929-1936: Anomalous political situation 1936-1940: Dictatorship 1940-1944: Word War II 1944-1949: Civil War 1949-1967: Illiberal Democracy 1967-1974: Dictatorship 1974- : Constitutional Liberal Democracy
- 4. 1980: The 10th Member of the European Communities Greece circa 1980 public debt: 28% of GDP deficit: < 3% of GDP unemployment: 2-3% average growth rate 1975-1980: 4.6% inflation: 25% (due to the second oil crisis)
- 5. 1981: PASOK
- 6. A modern Greek Tragedy
- 7. 1981-2011: From Miracle to Nightmare 30 years of getting subsidies from the EU, borrowing and spending Minimal structural reforms Anti-market bias The state controlled about 75% of all business assets Bloated welfare state
- 8. Borrowed Happiness average per capita income: $31,700 (2008) 25th in the world (95% to the EU average) private spending: 12% more than the EU average (2009) human development and quality of life indices: 22nd in the world (2010)
- 9. 1980-2010: the road to default 1980 public debt: 28% of GDP 1990 public debt: 89% of GDP 2009 public debt: 142.8% of GDP almost 180% in late 2015, est. 200% in 2016 1980 public deficit: <3% of GDP 2009 public deficit: 15.4% of GDP 1980 government spending: 29% of GDP 2009 government spending: 53.1% of GDP
- 10. Greek public debt (percentage of GDP)
- 12. Spending and Revenues: A Sad Story
- 13. GREECE 2010 Public Debt: 142,8% of GDP €350 billion ($ 500 billion) Public Deficit: 15.4% of GDP “Growth”: -4.5% of GDP
- 14. Like there is no tomorrow!
- 15. A bloated Welfare State… Social benefits to households (percentage of GDP) from 22.0% (2004) to 26%.4 (2008) to 29.0% (2009) (from 2004 to 2009 “conservatives” ruled Greece) half of it went to pensions “social transfers” (subsidies to the pension funds of powerful professional groups) equals 52% of this half – 6.34% of GDP in 2008. EC pension projections (2009) EU-27: 12.3% (2040) – 12.5 (2060) Ireland: 6.4% (2040) – 8.6% (2060) Portugal: 12.5% (2040) – 13.4% (2060) Spain: 13.2% (2040) – 15.1% (2060) Greece: 21.4% (2040) – 24.1% (2060)
- 20. An inefficient welfare state The indicator of the efficiency of social benefits in alleviating property is the worst in the E.U. (13%, where the EU average is 35% and some Scandinavian countries were as efficient as 70%!). In 2002 the indicator was a poor 4% with a EU average of 31%.
- 21. A helping hand to the rich
- 25. A political culture of Statism Protectionism Corruption Cronyism Nepotism Rent-seeking Irresponsible spending
- 36. Back to the 1980s
- 37. Austerity: two types of adjustment [T]here has been a very big divergence between tax-based and expenditure-based fiscal adjustments. The former have indeed been very costly in terms of output losses. The latter much less so. Alesina et al. (2015), “Austerity in 2009-2013”
- 38. Greece is not a free-market economy!
- 39. Index of Economic Freedom-2015: 130/178 Last in the EU Economic Freedom of the World-2014: 84/152 Last in the EU Global Competitiveness Report-2014/5: 81/144 Last in the EU ICC Open Markets Index: 48/75 Last in the EU Mostly Unfree...
- 41. Extractive economic institutions: Designed by the politically powerful elites to extract resources from the rest of society. Inclusive economic institutions: Secure property rights, law and order, markets and state support (public services and regulation) for markets; open to relatively free entry of new businesses; uphold contracts; access to education and opportunity for the great majority of citizens, i.e., create incentives for investment and innovation and a level playing field.
- 42. The Greek trap A bloated inefficient “welfare state” but also Tax evasion (as a social right) A huge inefficient public sector Corruption – essentially tolerated if not decriminalized Public sector union power Closed professions Overregulation to ensure rent-seeking “A state made for the welfare of politically powerful pressure groups”
- 45. The Greek Vikings* Cost: €17-25 bn * Pelagidis & Mitsopoulos 2011
- 46. 1974-2005 171.600 regulations! 3.430 laws 20.580 presidential decrees 114.905 ministerial decisions 32.585 local government decisions Institute for Regulatory Policy Research
- 47. Greek Extractive Institutions Index of Economic Freedom Long-term score change (since1995)
- 53. Badly and urgently needed Regulatory Reform Taxation Reform Welfare Reform Institutional Reform
- 54. Conclusion more market, more growth, more jobs
- 55. Thank you! ahatzis@phs.uoa.gr English-language Facebook profile https://www.facebook.com/aristides.hatzis2