By Alexander Kritikos*
When comparing Greece with similarly sized Eurozone states, such as Finland, the Netherlands, or Belgium, an important difference becomes clear: these economies are driven by innovation and continual refinement, with new products and technologies regularly introduced. Greece is not. And Greece will not become innovative by just cutting costs, or by increasing public expenditures again, as some continue to argue.
The tangle of regulations in Greece paralyzes business activities with time- and cost-intensive procedures and uncertainty. It undermines competition with rigid pricing, entry restrictions, and closed professions, thus deterring investment and slowing economic growth. Product market regulation prevents international companies from doing business in Greece.
Making matters worse, the latest actions of the present government – substantial increases of tax and social security payments – and the ongoing capital controls are inhibiting higher investment and innovation, and are causing Greek companies to closing down or move out of Greece.
After seven years of Greek economic downturn, the consequential debate about it has produced one clear insight: Greece will only succeed in turning around if it starts making better use of its comparative advantages and if it lays the foundation for the production of higher value-added goods.
Currently, innovative, future-oriented industries with high value added are almost absent from Greece and the question is whether Greece satisfies the condition for having innovative industries. A deeper look reveals that there is a huge number of excellent Greek researchers and entrepreneurs, professionals and managerial staff, but they lack the needed economic, institutional and political support allowing them to realize their ideas in Greece. Therefore, we see a massive exodus of those who could create future industries, toward the northern EU-countries and the United States. Thus, the real misery underlying the Greek crisis is that the country has hidden assets that are substantially underappreciated in the analysis of its economic prospects.
As the future of the Greek economy will be determined by its competitiveness and productivity, which concerns its innovativeness, this brain drain makes clear that a turnaround in Greece will be realized only if the country starts to turn its brain drain into brain circulation and if it is able to receive positive impulses from this brain circulation in the Greek economy.
The country will need to make many more reforms and significant investments to enter innovative sectors and compete in international markets. For a turnaround in that direction, the Greek government needs to do several major steps: 1) it needs to cut red tape and to substantially improve its regulatory and institutional environment; 2) it needs to reorganize its public finances and to create a business friendly tax system, 3) it needs to restructure its public expenditures and direct financial resources to research institutions and universities, and the current minister of research Fotakis has recently taken an important initial step in this direction; and 4) it needs to publicly support partnerships between the spheres of research, business and entrepreneurship, where ideas can be freely exchanged. Creating an environment that brings both Greek researchers and entrepreneurs back to Greece, and that also supports the local innovation chain, is critical for the country’s future.
Thus, the exodos from the Greek crisis will only start, if a reform agenda under Greek ownership is developed. This will be the precondition to gaining back the confidence of the markets and the European partners in the Greek government. If Greece better capitalizes on its Eurozone membership and makes structural reforms, it will start attracting talents and investments that add innovative sectors to its economic structure. No magic bullet is needed: Eastern European countries have blazed this trail. All it needs is a government, regardless of party, committed to a better future for all Greeks, instead of continuing the clientele approach which prevails until today.
To that end, it needs supportive creditors who will shift from asking for further austerity measures to asking for a comprehensive strategy that combines structural reforms with an investment strategy. As of today, the Greek government has taken no concrete steps towards structural reforms and its creditors continue to insist upon austerity measures only, like in the past six years. Under these conditions the Greek crisis will likely go on. So, we still await for what a Greek tragedy aims for: catharsis.
*This article is part of a feature regarding the Greek crisis, within the context of a cooperation between “Naftemporiki” and “DIW Berlin”. It is based on the research “The Greek crisis: A Greek tragedy?” and expresses the personal opinion of the author.
