Welfare Populism and the Greek Crisis

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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

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  • Welfare Populism

    and the Greek Crisis

    Aristides N. HatzisAssociate Professor

    Philosophy of Law & Theory of Institutions

    Ph.D. (Law & Econ, U of Chicago)

    European Students for Liberty

    Sofia, Oct. 17, 2015

  • 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

  • 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)

  • 1981: PASOK

  • A modern Greek Tragedy

  • 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

  • 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)

  • 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:

  • Greek public debt (percentage

    of GDP)

  • Spending and Revenues: A Sad Story

  • GREECE 2010

    Public Debt: 142,8% of GDP

    350 billion ($ 500 billion)

    Public Deficit: 15.4% of GDP

    Growth: -4.5% of GDP

  • Like there is no tomorrow!

  • 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)

  • 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%.

  • A helping hand to the rich

  • Greek Public Servants

  • A political culture of







    Irresponsible spending

  • Back to the 1980s

  • Austerity: two types of


    [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


  • Greece is not a free-market


  • 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...

  • Greeces neighborhood

  • Extractive economic institutions: Designed by the politicallypowerful 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 majorityof citizens, i.e., create incentives for investment and innovation and a level playing field.

  • 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

  • The Greek


    Cost: 17-25 bn

    * Pelagidis &

    Mitsopoulos 2011

  • 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

  • Greek Extractive


    Index of Economic Freedom

    Long-term score change (since1995)

  • Badly and urgently needed

    Regulatory Reform

    Taxation Reform

    Welfare Reform

    Institutional Reform

  • Conclusion

    more market, more

    growth, more jobs

  • Thank you!

    [email protected]

    English-language Facebook profilehttps://www.facebook.com/aristides.hatzis2