UNDER-TAXING GREECE

Acknowledgement 5/1/2016: This post owes much to the thinking of A. Doxiadis and his book, Το Αόρατο Ρήγμα, on the structural characteristics of the Greek economy; as well as to conversations on tax with Gregory Farmakis. That's not to say either has endorsed the post of course. All errors etc are my own.

One of the stylised facts of the Greek crisis has been that Greece never truly overspent (barring perhaps 2009); if anything, it under-taxed. It's not hard to understand where this argument comes from - just compare revenue and spending as a % of GDP between Greece and the EU or the Eurozone average - the data are available here.

Clearly, in 1995 government spending in Greece was well below the EU average. It caught up quickly, but even so was still very close to the EU average around the 2005-7 period, especially after allowing for higher interest costs. Revenues, on the other hand, lagged the EU average by a persistent 4 percentage points each year since accession. On the face of it, it's more credible to look at Greece as a story of under-funding of the state than one of overspending.

Advocates of the under-funding hypothesis also point to the (unfortunately, now discontinued) dataset of tax by economic functions. This generally suggests that Greece has been taxing, eg., consumption more than the rest of Europe, while taxes on capital, once above the EU average, have fallen steadily and payroll taxes on employers have been persistently lower than the EU average (data here and here). Greek governments, the narrative goes, gave tax breaks to some industries, turned a blind eye to avoidance and evasion of social security contributions by others, then let taxpayers foot the bill.

This narrative eventually made its way, via the Trade Union movement, to the Greek Parliament's debt audit report - the definitive account of that kangaroo court that called itself the 'Debt Truth Committee.' It was one of the better-documented claims made in the report.
And it is wrong.

1. Greece is not what you think it is

Upset about Greece's low government revenues? Spare a thought for Tunisia's government, whose revenues are only ca. 24% of GDP- just over half the EU average. Is Tunisia's government under-funded? To be sure, it is less good at extracting tax from its population than the average EU country; but no one would dream of using an EU average as the yardstick for Tunisia.

Yet, by virtue of being an EU country, Greece is often benchmarked against the continent.The assumption is that Greece is a similar sort of country as its EU peers and the Greek state should rightfully expect similar revenues. If there is a difference in revenue, it is due to lower tax effort: a combination of lower tax rates or a lower level of tax compliance, which the state tolerates. In reality, this comparison is invalid. Greece may not be like Tunisia, but it is also not a mini-Germany, a mini-Spain or a large Portugal for that matter. It is structurally less well placed to yield large tax revenues.

The reasons are simple. All other things being equal, it's harder to tax the self-employed; of whom we have proportionately many more than other European countries. It's harder to tax the poor; of whom we also have more; and harder to tax retirees, of whom we also have more; finally, it's hard to tax chronically unprofitable micro-enterprises; of whom we also have more.

To illustrate how big the effect of these structural characteristics is, I wanted to focus on one example. Let's look at the components of market output that a government can reasonably expect to tax - the operating surpluses of financial corporations; the operating surpluses of non-financial corporations; the operating surpluses of organisations serving households; and the mixed income of households. You can find all of these figures here; unfortunately the figures are not expressed as % of GDP, which has to be done manually by comparing with these figures.

Once you run the figures, one set of numbers stands out - household mixed income. As pg 200 of Eurostat's ESA2010 manual explains, this is the income of self-employed people working in unincorporated businesses (ie not companies); it includes the income of business owners and their families. Hence the term 'mixed': these are part wages and part profits, and the two can only be separated arbitrarily.

Greece, as you might expect from my introduction, has the second-highest share of mixed income as a share of GDP in Europe, and had the highest bar none pre-crisis. But, whatever lazy journalists tell you, this structural issue is not common to all of the PIIGS countries. Greece stands alone amongst peripheral Euro countries in having its operating surpluses distributed in this way. At 23.7% of GDP in 2008, mixed household income as a share of total output was over three times higher than in Cyprus; more than twice as high as in Spain; nearly twice as high as in Portugal; and over 40% higher than in Italy. Spain was more or less on a par with Germany on this metric. In fact, to find economies similar to Greece's in their dependence on household mixed income, you need to go as far as Poland and Slovakia.





But what does this mean for tax? Well, there is a good correlation in Europe between mixed income as a share of GDP and the amount a government can raise from taxes on income and profits (data on this here). In fact, all of the high-tax/high spend Nordic economies have tiny mixed income contributions to GDP; while those with high mixed income contributions tend to be recent accession countries. The correlation isn't perfect of course, and I am guilty of cherry-picking; the correlation becomes less neat after 2008. I believe the reason for this is the increased tax effort of some economies over others during and after the crisis; as tax effort rose most amongst those countries with the lowest tax revenue, it makes sense for the correlation to weaken. In fact, in later years the curve tends to flatten as all countries apparently aim to raise at least 5% of GDP in income and corporation tax.

Now look very closely at the revenue/mixed income graph. First- it suggests that tax effort in Greece may, if anything, have been relatively high pre-crisis. In a slightly different study looking at structural influences on tax revenues, the World Bank's researchers have found much the same thing, although for completeness I should note their colleagues at the IMF and IGC have found the opposite.

Yet another way of approaching this would be to consider how far along the Greek laffer curve we were in 2010. As veteran readers know, we have an estimate of this from Trabandt & Uhlig (2012), who found that 2010 Greece could only increase its tax take by 2.4% of GDP by raising capital taxes before it started falling again. It could increase it by a maximum of 4.8% of 2010 GDP by also maximising labour taxes. True enough, Greece has never since managed to get to that peak, but even without a major recession it seems the best we could ever do would be to catch-up to the EU average.

Now the tax to mixed income graph we discussed earlier suggests that, if the mixed income contribution in Greece were to fall to where Spain's is (ie by 12 percentage points - which is to say, very substantially), we might expect income and corporation tax revenues to rise by a good 4% of GDP - incidentally the same margin by which our government revenues have chronically lagged those of the rest of Europe.

Does all of this not sound familiar? This over-reliance on self-employment and very small businesses is precisely the same distortion that is responsible for the bulk of Greece's lead over the rest of Europe in terms of hours worked per person. Isn't it time we reviewed this properly? I know you've heard it said a million times that small businesses are the backbone of the economy, and that entrepreneurs will save Greece/Europe/the world; I have worked in small business advocacy for years and I have some sympathy for this view. But not all self-employment is enterprising and not all small family businesses are small and family-run for the right reasons. A Greek self-employed pharmacist may be an entrepreneur; but some of their colleagues are also effectively civil servants with a profit margin. A Greek freelancer may be a flexible go-getter; or they may be an employee whom the employer doesn't want on their books so they can avoid national insurance contributions.

Here's a heretical proposal; why not adopt the change in mixed income as % of GDP as a simple indicator of structural change? Whether it is a good thing, I cannot say. But it is worth noting that, by this token, Spain, Croatia and Bulgaria are the star post-crisis reformers; much more so than Greece.

UPDATE 22/12: I've looked into why the mixed income of Greek households has fallen as a share of GDP here. In summary, and with the exception of construction and law firms, there is no evidence that this is a sign of 'reform' - Greece's mixed income-generating sectors are withering on the vine rather than formalising.

An ideological aside

I don't wish for readers to interpret the above as a suggestion that the Greek economy must be reformed into a shape that maximises tax revenue. Paying taxes is nobody's idea of the meaning of life or the purpose of economic activity. But we need to accept that the current setup leads to low revenues, almost inescapably. We can choose to accept a low-revenue, low-spend equilibrium; tax ourselves to the gills to achieve a high-spend, high-ttax equilibrium with very low output, or aim for a low-revenue, high-spend and high output equilibrium and accept the hardship that will surely come whenever the credit line next dries up. There is no other choice.

2. Tax revenue is not what you think it is

In addition to misunderstanding what kind of country Greece is, the discussion of Greek tax effort also ignores what tax revenues are, and why ours are different than many other EU countries'.

Tax revenue isn't just money the state takes. Some tax revenue is also money the state makes. It is a return on past public investment. By this I don't mean tax revenues resulting from fiscal multiplier effects, which should be small on a cyclical basis if the public finances are consistently well managed. I am referring to tax revenues resulting from the deepening of physical, social or human capital as a result of public spending.

Essentially, when a government invests productively, it builds public capital which in turn boosts the productivity of the private sector. Better roads and ports enable trade. A nation-wide electricity grid makes appliances more reliable and homes more valuable. A fibre-optic network brings more people within reach of their peers and of online retailers. More educated, informed, empowered or healthier people are both more productive and more demanding. Simply- and well-regulated industries are more trustworthy and productive. At the extreme, the state can sometimes build entirely new kinds of intellectual capital; it can become a venture capitalist of sorts, creating whole new fledgling industries for the private sector to explore - the premise, after all, of Mariana Mazzucato's Entrepreneurial State.

The better an investor the state is, and the more it allocates funds to investment rather than consumption, the more its tax revenue will tend to grow as a share of GDP, holding tax effort and state capacity constant. The share of its tax revenue that reflects returns on investment will grow, while the share of revenue that reflects coercion and rents will shrink. If, on the other hand, government spending fails to build valuable capital and improve productivity across the economy, then over time returns on public spending will fall as a share of GDP - forcing the state to increase its tax effort or its capacity just to stay still.

The right amounts, the wrong places

Is there reason to believe that this has happened to Greece in the run-up to the crisis? Yes. We invested broadly the right amounts, but got very little by way of returns. Government gross fixed capital formation was not low in the pre-crisis era, and with the exception of the year 2005 it was almost unwavering at ca. 3.5% of GDP (Eurostat claims that none of this was defence spending, by the way). That put us ahead of places like Norway or Sweden, but just short of Spain or Ireland and way behind Portugal.

The problem then was not the allocation of public spending between consumption and investment, but rather the quality of public investment and its complementarity with private investment.

• Both pre- and post-crisis, our welfare state has consistently given us the lowest social returns on investment among the OECD countries .
• Public investment in Greece was for years allocated based on regional voting patterns - and because of this decisions have remained stubbornly centralised. 
• A great deal of public spending is misdirected. Our own citizens suspected corruption was rife even pre-crisis, more so than in any other PIIGS country.
• Our spending on education, on the other hand, seems to have yielded consistently good returns. The Conference Board's Growth Accounting Database suggests we've got more growth out of skills since the 90s than any other developed country, bar Singapore. 

There are some very good long-term calculations for Greece, in two studies in particular. Kamps (2004) finds very strong returns on public investment between 1961-2001, more so than in other EU countries; but these are what are known as partial returns - ie they look at the returns on public spending without considering the losses from crowding out of, or by, private investment. Using data from 1960 to 2005, Alfonso and St Aubin (2008) confirm the finding of strong partial returns on public investment, but find negative total returns due the negative response of public investment to private investment. The actual, total effect of public investment in Greece was negative .

 A second ideological aside 

In discussing the money that government makes I do not pretend that all government spending builds capital; that all of it is efficient, or has high or even positive returns; or that the private sector would not, left to its own devices, have used the same funds better. All I am saying is that, undeniably, some tax revenue is a return on public investment.

On Greek working hours and structural reforms

Did you know who the hardest-working Europeans are? Go on, guess. It's the Greeks. Crazy right? Don't you feel bad for thinking they were lazy until now?

Three times already I've looked into this subject (here and here and here), and three times the story has turned out to be fatally flawed; yet with each year's 'Weekly Hours Worked' release from Eurostat a new batch of clickbait articles pop up tantalising the few people left who haven't yet been exposed to this supposed mythbuster with some variation of 'you'll never guess who the hardest-working Europeans are!'

If you feel vindicated by such articles against unfair stereotypes of supposedly lazy Greeks, I can't blame you. A proper look at (appropriate) data confirms that we are not lazy. But if you actually take these articles at face value, you have been woefully misled. You've also missed out on an opportunity to understand the Greek labour market in more detail. The only lazy people here are content mills like Statista.

The latest iteration - 2013 working hours and the Independent

This time, the story made it into the Independent, after trickling down from other outlets (see here and the original, here), until the Greek edition of Vice ended up covering the story under the headline 'should we be proud that Greeks work the longest hours in Europe?' The Vice_Gr story featured an interview with one Mr. Poupkos, Youth Secretary of the Greek tertiary Union, who is actually not an entirely unreasonable guy - however, on this occasion his commentary focused on curbing illegal overtime and unpaid work; reading the stats and the interview together, one might be excused for thinking that the reason Greeks work so much more than other Europeans is because of unscrupulous bosses (of which, I do not dispute, we have no shortage).

In fact, the truth is very, very different. Comparing like for like, Greeks don't work insane hours at all. But the Greek labour market itself is deeply, structurally unhealthy - and the whopping working hours total is merely a statistical artifact of its structural defects. To understand why this is, you have to understand what figures these publications are quoting, how they compare across countries, and what drives them.

About the hours worked data

The comparative figures on hours worked in Europe come from three sets of publications - actual hours worked in main job; usual hours worked in main job, and actual hours worked in second job. In theory, usual hours for second jobs should be reported somewhere but I've struggled to locate them.

All three of these datasets are compiled by Eurostat on the basis of the Labour Force Survey, which is carried out across the EU, and you can see in minute detail how these were defined up to 2013 here. LFS is the same survey we rely on for employment and unemployment figures, and is carried out pretty uniformly across the EU member states. If you see anyone referring to OECD hours worked figures, like Statista does, note that these too are sourced from the LFS when it comes to EU countries. For non-EU countries, the data sources can vary, and the implications of such variation can be very significant, so country figures are not comparable (as the OECD duly points out). For some reason, Statista's figures seem to be aligned to 'usual' as opposed to 'actual' hours worked,  even though they cite 'actual' hours worked data as the source. The effect is to slightly overestimate the actual time worked by Greek employees - citing 42 hours per week in people's first jobs, as opposed to the 'actual' figure of 40.3. Adding people with second jobs yields an 'actual' figure of 41.2 hours a week (see here).

These hours are self-reported by individual respondents -not employers, as the LFS is a household survey. They include overtime but not lunch breaks or travel to and from work. They are not unduly seasonal, as they incorporate four quarterly measurements, with multiple survey waves per quarter.

Comparing like with like

Whole-labour-force figures like the ones published by Statista are very crude: they lump every working person together, add up their hours and divide by the number of people. So unless the economies being compared are very similar, these sorts of comparisons end up not comparing like for like. Full-time workers work longer hours than part-time workers. Men work longer hours than women. The self-employed work longer hours than employees, particularly if they own businesses of their own.

When you do compare like for like the differences don't look so huge anymore. The Greeks who genuinely work longer hours than their Eurozone counterparts are everyone with a second job (by a long stretch), and people who work part-time for a family business. Additionally, male part-time employees and part-time own account workers work longer hours than their German counterparts, though not their Eurozone counterparts.

So the contribution of unscrupulous bosses to hours worked in Greece is very limited, and the bosses in question are most likely to be business owners employing their own families, employers of second-jobbers (who are, presumably neutral with regards to whether their employees have another job but prefer more qualified candidates), and employers unable to offer their staff full hours, who end up employing people part-time when everyone would prefer a full-time arrangement.

Using usual v. actual hours worked where possible doesn't change the big picture, although it does tend to amplify the differences between Greece and other countries.

Note that the discrepancy that is so obvious when one looks at hours worked carries over to other areas of work that are far less documented - holidays, sick leave, retirement age, the lot. The self-employed and family workers, for instance, take fewer days off and retire later, if at all. 

A structural issue

So what accounts for the huge discrepancy in total hours worked, if not unscrupulous employers or workaholic Greeks? The structure of the labour market, that's what.

Simply put, Greece has fewer part-time employees* (less than half the EU average despite an upward trend); fewer economically active women (a participation rate ca. 12% lower than the EU average); more self-employed people (including the 25.4% of our workforce who are own-account workers, v. 10.8% EU-wide and the 6.6% who are employers, v. 4.3% EU wide); more contributing family workers (three times the EU average); but not more people with second jobs - in fact, the share of employed people with second jobs (deduced from here and here) peaked at 3.4% in 2009, 10% lower than the EU average, then fell to 1.8%, or less than half the EU average, by 2013; as might be expected when jobs are in short supply.

So the question of 'why do Greeks work so many hours', put in its proper context, becomes one of why we have so many unproductive family businesses, why there are so many own-account workers in our workforce, why our workplaces find it so hard to accommodate part-time workers, and why we can't get more women into the labour market. Not all of these are necessarily problems, but they are structural characteristics of the Greek economy. Changing them requires that magical catch-all phrase, 'structural reforms.'

* Note that LFS definitions of part-time employment differ among member states. 

What about productivity?

The usual counterarguments offered to the kinds of crude working hours  statistics provided by the Indepedent are a) yes, but productivity is lower b) yes but it is possible to spend hours at work without doing much c) yes but it's possible to work very hard producing products/services that no-one wants. All three are roughly, though not exactly, equivalent, and all three generally lead back to the structural questions raised above.

Since these objections are prompted by a discussion of hours worked, the obvious point of departure in comparisons of productivity is output per hour worked. As you can see here, the Greek economy produced about a quarter less per hour worked than the EU as a whole, even after accounting for our lower purchasing power.

However, this tells us very little about Greek workers themselves: individuals are not 'productive' as such, because labour is only one factor of production. The productivity of labour is a function of many things, including private and public capital. So while it is meaningful to ask how many hours the average Greek works, it is pointless to ask how productive he/she is and attribute this to him/her as a personal characteristic. To do that, we need to ask a different set of questions altogether, and there are two alternatives.

We can measure the quality of labour used by the Greek economy and its stock of human capital; or how much of its output cannot be explained by inputs such as hours worked and capital employed alone. Each question is methodologically fraught but attempts have been made to answer them.

With regards to human capital, sources such as the WEF's Human Capital Report, the WEF's World Competitiveness Report or the UN's Human Development Index are not terribly helpful because they include too many labour market outcomes in their calculations - what we're looking to capture are inputs, such as skills, motivation, resilience and self-discipline, and they only include education inputs up to a point. The best use one can put them to is in measuring the quantity and quality of education - where you'll find that Greeks do well for quantity but less so for quality - and even then a lot of the lag in quality comes in after one enters the job market - which is an employer's fault at least as much as it is the employee's.

One can also draw on social psychology research, and particularly comparative studies focusing on the Big Five personality traits, to measure some intrinsic qualities that make up the profile of a hard-working personality - conscientiousness in particular is a trait known to correlate strongly with work performance, and which fits the kind of attitudes involved in the 'hard working Greeks' theme. One comparison finds that Greeks score reasonably well and there is little difference in this regard between Greeks and Germans; in another, we score slightly higher. Similarly, the OECD PISA comparisons of perseverance and motivation among pupils show that Greek pupils do really quite well (check the data here, there is too much to summarise). 

TFP calculations are problematic because they require detailed data on the various factors of production (including different kinds of capital), which the Greek authorities do not produce regularly. Both the OECD and EU-KLEMS projects include no TFP calculations for Greece, although EU KLEMS provided enough data for others to fill in the blanks. We now know, for instance, that Greek TFP did not rise from 1999 to 2007, nor indeed did TFP in any PIIGS country, or in Belgium for that matter (but see here too for the opposite finding). Greek TFP was also losing ground against other developed countries from the early 80s onwards, possibly even the 60s, and continued to lose ground throughout the early part of the crisis. 

But TFP figures us nothing about the attributes of Greek employees - only that they appear to be saddled with crap technologies (in the broad sense) of production. Indeed, TFP is a residual - the measure of our ignorance.

[TO BE CONTINUED]

ZENTREPRENEURSHIP, TENDERPRENEURSHIP, NEPOTREPRENEURSHIP

A couple of days ago, a research paper landed in my inbox, authored by small business research celeb Roy Thurik and Phillip Koelinger of Erasmus Univ. in Rotterdam. It's due to appear at the Review of Economics and Statistics sometime next year. Although they are kind enough to acknowledge me as a reviewer my only contribution to this paper was to point out this other fascinating paper to them, which in the end they didn't have much use for : )

What the Thurik and Koellinger paper does is explore the relationship between a) entrepreneurship (measured in multiple ways, including business ownership but also self-reported entrepreneurial activity) and b) the business cycle and provide some explanations for the way in which they are correlated. Data refer to 22 OECD countries from 1972 to 2007. It's a very complex chicken-and-egg story but they find that entrepreneurship is a strong leading indicator of the business cycle at the global level, and a weaker on at the national level. The authors believe this is because at the global level the political cycle gets smoothed out, but that's another day's lecture.

For now I think it's important to point out one country in which the relationship between GDP growth and enterprise is nearly statistically zero. Can you guess which one it is?

You guessed right. The numbers here denote statistical significance, they are almost like the probability (ranging from 0 to 1) that the two variables are unrelated. Thus Greece's 0.99 score means the two variables are almost certainly uncorrelated. I.e. a rise in business ownership in Greece appears to be neither the cause nor the effect of cyclical GDP growth.

Now I must confess that this is the result of only one test, which looks at the relationship between enterprise and real GDP from year to year. Other tests that look at longer-term cycles also returned insignificant relationships for Greece. A test that controls for all but the strongest annual shocks to GDP finds the following:

Any ideas on why enterprise in Greece (and many other OECD countries) doesn't seem to respond to the business cycle, let alone lead it?  Probably because a lot of it is not actually enterprise. Not in the sense of taking on uninsurable risks and turning a profit. Remember, enterprise is not a Good Thing in Greece as it is nearly everywhere else in the world (see here and here).

What we have plenty of is Tenderpreneurs - people who will set up 'businesses' for the express purpose of winning government tenders; Zentrepreneurs - people who have no product as such or who have set up 'businesses' when in fact they are empoyees; and Nepotrepreneurs, people who are slowly burning their family's money while pretending to run a business.

More thoughts on this to follow. Possibly soon, possibly not.

ENTERPRISE SUPPORT FAIL

I'm currently attending a very interesting event on Microfinance held by the European Commission. You can access the programme and other material here.

What is even more interesting is that it's absolutely crawling with my fellow Greeks. Although some will be Eurocrats based in Brussels, most travel in groups of two or three and keep referring to 'our guys' in a very familiar manner. Many have that usual mixture of timidity and intensity in their faces - the mark of a person used to delivering fawning praise and then wallowing in impotent rage.

No doubt my compatriots are on a fishing expedition for even more yummy subsidies that we can continue to feed our clientelist regional investment structures despite being insolvent. I suspect they are particularly keen to hear more abour JESSICA.

For the last time Europe. Stop bailing us in!!!

UPDATE: It's actually JEREMIE they're into - this person, employed by our Department for Economics and Competitiveness and Maritime Affairs, (now Regional Development and Competitiveness) piped up in a Q&A section, and even managed to make an unintended 'racial' remark, thanking an Indian panellist for the 'spicy' note she added to the proceedings. Actually the panellist had been recounting how she managed to escape a life of domestic violence and overcome implicit and explicit racism in order to become a successful entrepreneur.

It's like watching Borat.

However, the manner of the question was not as bad as the content; my compatriot appeared exasperated at the discussion on microfinance and its supposed potential benefits to employment and growth in Europe. 'I want to talk about the elephant in the room. What are we talking about?' she demanded, 'We're talking about access to finance! About getting finance to people that NEED it, not about employment or growth.'

And that, my friends, is Greece in a nutshell. No point discussing how such a scheme might self-finance by reducing benefits payments or increasing tax revenues for member states [ed. personally I am sceptical of that anyway]. The point it that some people NEED money and must HAVE it! Give us our subsidies and shut up already.

I CAN HAZ POLICY DEBATE?

Still from my folks' TV the other day... a delegation of road transport unionists. 

Greece is one of the few countries where not only workers but also entrepreneurs are allowed to band together into Unions that collectively bargain on things like, say, their own prices. It's called a CARTEL and it should be smashed to pieces.

Here they are, in one of our seedier but powerful fora, the TV show Zougla (Jungle) hosted by Makis Triantafyllopoulos (to whom we also referred here). The caption reads: MPs with haulage licences.

Their quarrel with the government is that it is forced to liberalise road transport in Greece and has therefore decreed that their licences will now be worth a fraction of what they used to be worth. Which is only fair because while they used to confer monopoly power and they will no longer be able to. These people argue however, that they paid good money for their licences which they will now lose. That's EUR50,000 for trucks and EUR200,000 for fuel carriers (source here).

In an industry in which 31.6% of gross output goes into capital compensation (according to EUKLEMS) despite only moderate concentration in Herfindahl terms (according to the EUKLEMS linked dataset), it is pretty clear that anti-competitive strategies are already at play. Even so, surely the cost of the licence could have got amortised over the years? EUKLEMS tells me the average inland transport company is 21.1 yrs old;  a licence worth EUR200,000 amortised over say 20 yrs works out to EUR20,000 per annum, which the average company should have been able to make out of a gross output of EUR65,000 or so. 

Now something tells me this stuff hasn't been amortised and people have been paying themselves inflated directors' salaries all along. THAT'S THEIR PROBLEM. Meanwhile we're stuck with a loss estimated at ca. 0.5% of GDP per annum.

Of course, it's not just the cartel that's to blame. Ponder if you will the record of government intervention in road freight over the last decade, almost calculated to support this market structure. Comparatively, as of 2007, ours was the most price-regulated road freight sector in the OECD.

Now, there are those who fear that the signal might go out that the Greek state doesn't keep its promises to licenceholders. I'm not worried about that. Market participants are not stupid. The signal they will receive is that the State will not keep its promises to prop up cartels, and that a licence to monopolise must never be taken for granted. 

That can only be a good thing.

THE APPRENTICE FAIL, PART 2

I recently wrote that the abysmal failure of the Apprentice franchise in Greece tells one all one needs to know about what is wrong with our country. I was going on my general feeling on that one, but as it turns out there is evidence. Yay.

Enter the research wonks and the European Commission's latest Entrepreneurship Survey (full report here).

The story, in brief, is that Greeks don't like working for other people but we also don't like having unsteady income streams. Presumably the ideal profession of the typical Greek is living off their parents' savings, or off pension/benefits income. We agree that entrepreneurs create jobs, but we also overwhelmingly believe they are exploiters out to make a quick buck. How aspirational.

See how we rank at the EU/Global level below. Compare and contrast with the openly socialist, but actually successful, China (CN).

THE APPRENTICE FAIL

I'm currently watching Junior Apprentice, where Alan Sugar (better known among people my age and older for founding Amstrad) terrorises a small group of school-age entrepreneurs. It got me thinking.

Does anyone remember the Greek version of the Apprentice? Few do, and they despised it. It was hosted by the utterly un-groundbreaking Petros Kostopoulos, and exemplifies everything that is wrong with Greece.

The host was no Lord Sugar; his achievements did not start a new market, merely translated several tried and tested magazine formats (most of them directly by licencing) into the Greek market, giving us Greek men slightly glossier-looking women to wank to and endless lists of things we needed to do before we turned 30, all of which seemed to involve spending money but none of which ever seemed to include work.

Kostopoulos kick-started his media career in the press rooms of the Socialist Youth in the Greek 70s (he is apparently famous for an article denouncing the plight of our undersubsidised farmers - LOL). He worked under the notorious Kostas Laliotis (UK readers, think Lord Mandelson in the 80s), with whom he retained strong bonds while the latter worked as a minister for successive Socialist governments and Central Committe Secretary for our Socialist party. Kostopoulos' rise and rise in the 90s is said to be not unrelated to this  little bit of political connection - even if one considers only the less libellous rumours.

Nowadays Kostopoulos is all too eager to denounce the system that hand-reared him like a pet vulture chick. He rails about the superiority of people in "real business" to, presumably, those in subsidised business, in a tear-jerking deathbed conversion. And to think of all the times the centre-left's chief rag, to Vima, has kissed his meticulously waxed backside. Converted, and presumably with a copy of Atlas Shrugged in hand, he is now pursuing yet another brand-new, completely groundbreaking and utterly entrepreneurial dream: that of the reality talent show judge.

Back to our story: uniquely in the history of the Apprentice franchise, the Greek Apprentice only managed a solitary season in 2004 (available to view here) after bombing with less than 10% ratings. Simply put, people couldn't give a sh*t. The winner of this entrepreneurial challenge, this titanic clash for would-be masters of the universe, became a -wait for it- marketing consultant at IMAKO, Kostopoulos' publishing house. He does not appear to work there now and googling him, whether in Greek or Latin characters, returns absolutely zilch.

In a nutshell, the Greek Apprentice epitomised the decline of Greek enterprise: poisoned by politics and dodgy money, incapable of producing anything new or of real use to anyone, unbearably arrogant, as sticky as dogshit, and of course completely irrelevant to the majority of the Greek population, who don't see the point of bumming people in exchange for a permanent subsidy when one can take a shortcut and just become a civil servant.

Which brings me to the Turkish version of the Apprentice franchise: Çırak, a perfectly innocent word for "apprentice", which, as it happens, we Greeks have borrowed and now use to denote a lackey. Now that's a show that would have worked in Greece: "the lackey" (Το Τσιράκι), where hardened student politicians fight tooth and nail for the job of temporary assistant/researcher to an MP - or better yet, an MEP, who will not be labouring under austerity constraints.


UPDATE:

IMAKO has now formally sought protection from its creditors, under what is now known as Chapter 99 in Greece. Kostopoulos himself claims to have put all of his personal wealth into the company - and lost it. Either way, some have pointed out that he, unlike a number of editors of supposedly socially sensitive defunct publications, at least propped up his ailing mags with his own money for some time before going under. That may be the case. At any rate, entrepreneurship is as much about failure as it is about success, I do not intend to cite this latest episode as a slight against the man's character. The stuff he used to publish has done that for me.

I CAN HAZ JOB? NO THNX

Our latest Labour Force Survey Data are in and my, is it rich pickings or what.

Only about 54% of our population of working age is actually working. Of the 4.5m. that are working, half a million are directly employed in the public sector. Let's say for now that this is everyone on the public payroll. This means that 4m suckers have to pick up the tab for another 7m who are either children, retired, unemployed or working in the public sector. Except of course they don't because we're running a massive deficit that finances much of this. So it's the 4m and their kids. But it's a useful ratio nonetheless.

Unemployment is at 10.3%, a total of  514,000 souls. Most of these are victims of our perverse labour market and our structurally depressed economy. However, the LFS also suggests that 9.9% of our unemployed received an offer of employment in the last three months and turned it down - quite rich really, as vacancies are like golddust right now.

Of these 51,400:

• 11,300 didn't like the money
• 9,700 thought the job was too far to travel
• 9,500 didn't like the hours.

Now, presumably, you tend to check these things out before an offer comes in, so the mind truly boggles at what my workshy compatriots are thinking.

The government should also note that these happy-go-lucky folk cost us a whopping EUR18.7m per month based on current rates of unemployment benefit - or 224m, projected on an annual basis. That is, of course if they are single, because this rises by 10% for each dependent. Let's suppose 0.3 dependents per person - the bill rises to EUR298m per annum.

Now, I know this is not entirely accurate as many of our unemployed do not claim benefits - but even assuming only half of the workshy claim (based on the fact that our social expenditure is only about half what the unemployment rate suggests, the total expense implied rises to a full 5% of our projected benefits expenditure for 2010.

Even if that is the case, then presumably the other EUR149m is coming out of somewhere else - almost certainly some poor old bastard's savings. Even with our pretty chronic loan-to-deposit ratio of 81.3%, this means that those of the workshy being subsidised by the Bank of Mom and Dad (the unofficial Greek Central Bank)  are keeing EUR121m out of the market. With the median small-to-medium-sized business loan in Greece at ca. EUR100,000 (according to this survey), this could give a good 1,200 SMEs a much-needed loan, keeping possibly twice that number of people in employment, or it could pay for about half that number of hefty mortgages, fueling a 12% rise in construction permits.

Well done assholes!

WE IZ IN UR FARMS, LOVIN UR MONEYZ

I couldn’t not write about the farmer uprising currently in progress in Greece.  In a country with the 121^st cheapest agricultural policy in the world, not to mention a fiscal basket-case, perhaps this is a bit rich. But anger runs deep in the North of Greece and seeing one’s personal situation in the context of a decade old problem is a bit too much perspective to be expected from some of our farmers, who are admittedly not too well off. Their leadership, however, should know better.

 (Photo courtesy of Petros Papalianos)

Studies show that subsidies, especially decoupled ones, actually reduce efficiency. We know this is true in the case of olive growers and cotton growers in Greece. We know that subsidies make cattle farmers in Crete less efficient and more vulnerable to market and weather shocks. Same goes for the farming powerhouse of Europe, France.

Despite this, research shows that support has increased since 2002, and made up 45% of farm income in Greece as of 2006, 9 percentage points higher than the EU equivalent.

So what are our farmers asking for? You guessed it: more decoupled subsidies. Here are their demands, in Greek. The non-Greek speakers will have to take my word for it. But it’s not just the fact that farmers want subsidies. It is the nature of the subsidies they want: they want to completely remove downside risk from their operations but still hold on to any profits. When bankers ask for this, we rightly scream bloody murder (although we wrongly give in).

First, there is market risk: simply the risk that people will want to buy less at your preferred price than you think. So farmers are demanding that the state guarantee higher prices for their produce.

Then there is natural risk: maybe it won’t rain one year, or rain too much, or snow, burning the crops. So the farmers are asking for total cover in case of any of the above on all farming capital.

Of course even with that in place there is a chance the Greek consumer will stick two fingers up to them and buy cheaper foreign produce. So they are also demanding protection from foreign imports (which is illegal under EU law)

Even if that works, the consumer could tell them to f off and just not buy farm produce, or buy a lot less. So they demand a guaranteed minimum income.

Then there is the risk that this government-fuelled bonanza will not be sustainable. The farmers have thought of that too. So they demand they be allowed to retire at 60 (55 for women), courtesy of a taxpayer-subsidised fund whose deficits will be topped up by the government.

And they also want farmland to be tax-free so that any future tax hikes will not touch them. Moreover, they want a freezing of their debt for three years, and for all of their overdraft fees to be waived by the banks they owe money to.

This, they add, is only a baseline, on top of which local producers should be able to negotiate further perks.

Let’s be clear. An entrepreneur takes risks with their capital. An employee doesn’t. The farmers – who in my mind signed up to be entrepreneurs – now want to be employees instead, simply without their employer being able to tell them what to do, and with an added bonus on top in case they manage to turn a profit – the privilege of civil servants. And they want this status regardless of whether they have another job or not. Note that civil servants in Greece cannot have additional jobs. So they really want to be super-civil-servants, accountable to no one and on the dole for eternity.

This is madness in the best of times. In these times, it’s self-destruction.

I have to agree, on the basis of evidence, that retiree farmers are very prone to poverty and that getting additional work on the side is invaluable to mitigating poverty among farming households in Greece. In fact, where the household head has a non-agricultural job, the research shows that farm households are reasonably well-off. But any policy that gives farmers an incentive to rely exclusively on heavily subsidised farming income must, by the same token, be very bad news. And although the research finds that poverty is reduced by subsidy income, if this comes at the price of reduced productivity then presumably the level of subsidy needed to achieve this reduction will rise with time, as indeed it has.

Finally, EU subsidies have a lot to answer for. As the chart below shows, since 2004 subsidy money has increasingly been turned into farm wages rather than profits. It's a recipe for long-term disaster.

There is, in all of this, a silver lining. Some of our agricultural products are hugely profitable and competitive. The poster-child for this is asparagus farming, more than three quarters of which is concentrated in the Pella prefecture. Research on this, however, shows that this is heavily dependent on the flexible application of seasonal labour, most of it from immigrants. This is probably what Greece is worst at in the world. Fingers crossed for the asparagus farmers of Pella.