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: <3% of GDP

2009 public deficit: 15.4% of GDP

1980 government spending: 29% of GDP

2009 government spending: 53.1% of GDP

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

Statism

Protectionism

Corruption

Cronyism

Nepotism

Rent-seeking

Irresponsible spending

Back to the 1980s

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”

Greece is not a free-market

economy!

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...

Greece’s 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

Vikings*

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

Institutions

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!

ahatzis@phs.uoa.gr

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