Friday, 30 January 2009

The fish rots head-first

The Greeks have a saying for poor management: The fish rots head-first (Το ψάρι βρωμάει απ' το κεφάλι). In other words, good or bad leadership fully permeates every level of a hierarchy. It is, perhaps, a trite truism, but it is also, these days, an under-appreciated one.

Anyone living in Greece - and particularly expatriates and Greek repatriates who have made a conscious decision to be here - sooner or later has to make a fundamental decision. Is Greek society being held back by its culture or its leadership? Does the fish rot head-first, or tail-first?

How each of us answers that question is of fundamental importance in how optimistic we are about the possibility of improvement, and where we place ourselves in this society.

The tail-first school will argue that Greek culture suffers from features that make Greeks less easy to govern than, say, a Scandinavian country. Many taxpayers clearly don't believe that honesty is the best policy; many voters expect a job by hook and by crook if their candidate wins; the demand side of corruption (ie the amount of money on offer to officials at various state levels) is higher than one would expect in, say, Helsinki (Greece earns a 4.6 out of a squeaky-clean ten in Transparency International's 2007 Corruption Perceptions Index, whereas Finland tops the list with a 9.4); and Greek individualism and tribal instinct run high, meaning that it is counter-intuitive to your average citizen (or group bound by common interest) to sacrifice some self-interest for the good of the whole.

The current crisis surrounding farmers is a case in point. An estimated 12 percent of Greek society is demanding a handout that will further burden the already large national debt. But we've already seen retirees, teachers, transport and utility workers, civil servants and others march to demand better pay and benefits many times before. The tail-first brigade would say that this is evidence enough that Greece is an unmanageable collection of self-interested groups which, usually during election campaigns, must be thrown a wine-drenched sop because they will never see the bigger picture. Greece will therefore never, as a rule, override special interests to formulate the best possible national strategies that will carry the nation forward (although accidents may always happen).

The tail-first view is not necessarily wrong; it is rich in realism; but it is overly deterministic. It sees the state of the nation as an insuperable historical product and the conventional political limitations of what can be achieved as an ultimate ceiling.

But social, economic or political reasons can always be found for why reform could not happen at any period in history. In this view, individual qualities are not equal to movements or trends, and maximum selfishness is a behavioural default.

Yet both selfishness and altruism have evolutionary purposes (see our perspective on the minefield that is social Darwinism on page 18). Politics are base when not the art of convincing people to take calculated risks for the betterment of all, while creating the perception that a critical mass of voters will, too. Given enough talent, leverage and exposure, an individual can make the greatest difference in appealing to the individual judgement of others, and Greek history is peppered with such talented individuals.

The optimistic view must therefore be the Socratic view - that people err only because they haven't been saved from a misconception of where their ultimate interest lies.

Many will dismiss this as fanciful talk in dire economic times. Now is the time for the evolutionary triggers to clawing and scraping, they will say. But a very powerful case can be made that it is precisely the time when such practice is no longer viable; that much of the counter-reformist labour activism and political mobilisation we have seen over the past decade have been minority-run illusions and not majority opinion at all.

Failures to refinance social security, liberalise education and make Greece a beacon of renewable energy, to pick three examples, can all be seen as failures of leadership, not culture. Better education, more reliable pensions that won't bring our children to their knees and electrical power that won't destroy their world can hardly be considered ideas a majority of Greeks is not ready for.

Nor can the Holy Grail of a meritocratic society be considered undesirable here because of the feudal Ottoman past or some other anachronism. Even the people who are capable of carving out for themselves a microclimate of favour through private connections and short-circuit transparent processes will opt for a system of broad-based meritocracy, as long as they believe that this is really achievable and won't disfavour them, simply because any kind of special environment is tenuous. It won't ultimately last long enough to guarantee fair treatment of their children as well as a system of meritocracy does. And what will they do when they find themselves on an even playing field for the first time?

Why, then, have urgent reforms failed for a decade? Quite simply because neither Kostas Karamanlis nor Kostas Simitis prioritised them highly enough to unite the silent majority. Simitis came to power with 162 seats in 1996 and Karamanlis with 165 seats in 2004. Both have important achievements to their credit; but both squandered their mandate by allowing lesser politicians to raise cheap street theatre against them using little more than children, unionists and the elderly. Neither man stood tall enough in the shadow of Andreas Papandreou to abolish the political correctness of populism. We are now left with a political culture afraid to create anything new, because what has obviously been needed for so long has been made to appear unappealing.

Friday, 23 January 2009

We are tired of the governments we deserve

The year has not opened auspiciously. Greece is facing zero growth after years of outperforming the eurozone. Its fiscal indiscipline during times of plenty can only worsen now that pump-priming social spending is called for. That spending began with half a billion euros' worth of distress funding to farmers which, as this edition went to press, they were rejecting as insufficient.

The unexpected defenestration of former finance minister Yiorgos Alogoskoufis from the cabinet (he sent holiday greetings cards to financial correspondents, some of which arrived after his removal) led many observers to declare the beginning of a handout season. (Alogoskoufis' trademark had been his determination to tame Greece's runaway public spending). That, in turn, led to the theory that the handouts would double up as pre-election goodies.

Newspaper editorials even discussed the prospect of Prime Minister Kostas Karamanlis going for a triple election this year. Under this scenario, he would hold an election post-Easter which, given the government's disadvantage in recent polls, he might well lose. The opposition, however, would, in theory, not win power outright, leading to a hung parliament. That would open the way for further elections in June under the new election law, to coincide with Euro-parliamentary elections. These would, according to the same theory, give New Democracy a crucial extra ten seats' bonus and tip it into power.

One need hardly point out the tenuousness of this mirage, let alone the pointlessness. Should new Democracy attempt to fast-forward through two elections simply in order to reach the 50-seat bonus rather than the 40-seat bonus that remains in force for the next election, it would most likely arrive more or less where it is today politically, but with a great deal of public money and time spent.

Given the roughly five-point disadvantage he finds himself in, Kostas Karamanlis is likely to continue to do his job, which is what majorities in all the polls want him to do (after all, he still trumps opposition leader Yiorgos Papandreou on a personal approval basis). No government is going to be terribly popular for the next couple of years as the world weathers its most serious financial crisis in at least a generation, so Karamanlis will hardly be the odd man out.

Navigating those two years will not be easy, though. Merely maintaining state social services like healthcare and education will be an achievement. The government already owes pharmacists about 80 million euros, and health funds owe private doctors about 1.5 billion euros. These debts caused rebellions last autumn, and nearly made it necessary for people in need of healthcare to pre-pay for it.

Cashflow is an issue for the public sector because Greece suffers from a great deal of accrued debt and a lack of competitiveness relative to other countries, leading to an imbalance of trade - we import a great deal of things we cannot make. Although two bond sales this year have been oversubscribed, our lack of dynamism could, at some point, impact on the country's ability to raise cash.

Times of crisis are also times of change. Greece could use the lean years to become more competitive.

At his inauguration, US President Barack Obama raised a battle cry. "Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted, for those that prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things..."

Greece now needs a similar battle cry. It is time to rebuild the country not only materially but morally, so that the interests of those without privilege are served as well as those with prospects. This means greater transparency, accountability and meritocracy - values that are designed to make society more competitive by drawing out their strongest elements. But they have to come from the top.

Among Obama's first initiatives were to order federal agencies to be more responsive to requests for disclosure under the Freedom of Information Act, and to order Guantanamo Bay prison closed within a year in the interests of justice. Obama is putting into practice his professed belief that allowing government to be bound by the rule of law and more open to its electorate are not weaknesses but strengths.

Most of the time people labour patiently under the government they deserve. That is what Greece has been doing at least since the restoration of democracy in 1974. Occasionally, however, people get a leader better than they deserve. It happened to Greece with the election of Eleftherios Venizelos, who had to form a schismatic administration in the middle of the First World War to represent a country too divided to appreciate what it had in him. It has just happened to the United States.

Can some of Obama's exceptional character rub off on Europe, and Greece? Karamanlis may be no Obama, but a time of crisis, and the right advice, could conceivably force his hand to do something unexpected, such as abolish the law curtailing ministers' legal responsibility for their acts while in office; or make public the proceedings and reports of parliament's Audit Committee, which exercises oversight over party accounts and MPs' tax declarations; or even institute e-procurement, whereby anyone can see tenders for public procurement as ministries receive them, and judge the winning bid on its merits. The list could go on.

We can only hope that Karamanlis one day considers doing something which gives the many hope and the few discomfort.

Friday, 9 January 2009

The new cabinet

Prime Minister Costas Karamanlis’ expected January 7 reshuffle is an attempt to start his second term all over again, and perhaps go for a third. After the scandals, mis-timed new taxes and false starts at reform in 2008, the 15 month-old government had all but lost its authority along with two senior ministers.

The reshuffle purged the cabinet of the last people associated with the Vatopaidi Monastery land exchange scandal – Deputy Foreign Minister Petros Doukas and Agriculture Minister Alexandros Kontos. Doukas’ signature had appeared on documents authorising the exchange in 2005 of valuable public land with less valuable land owned on shaky grounds by the monastery. Kontos had initiated a search for public properties suitable for the exchange.

That completed a purge begun in September last year with the loss of then merchant marine minister George Voulgarakis, whose wife, father-in-law and brother-in-law had earned hundreds of thousands of euros acting as legal counsel and notary public in the exchanges. The following month then government spokesman Thodoris Roussopoulos was shed on suspicion of brokering the deal.

Also shed in the January 7 reshuffle were Mihalis Liapis, the prime minister’s cousin, who left no record of achievement in two ministries and can best be described as a safe pair of hands; and Christos Folias, development minister, who was on his second tour of duty.

There was a slight demotion out of the inner cabinet for the precipitous outgoing education minister. Evripidis Stylianidis made two faux pas in 15 months; he passed a law to regulate private universities, which the European Court struck down three months later; and he left 43,000 pre-schoolers without daycare when he changed licensing rules for daycare centres without warning.

The biggest shock, though, was the dropping of Finance Minister George Alogoskoufis, who has enjoyed the prime minister’s unwavering support for four years, often acting as whip for other ministers. He famously prevailed over then transport and telecommunications minister Mihalis Liapis in 2005 to back down from his vocal opposition to a voluntary redundancy scheme for OTE, which was designed to pave the way for full privatisation. The following year he prevailed over the ministers of labour, defence, development and transport to cap salary raises at state companies they oversaw at three percent in 2006 and four percent in 2007.

Alogoskoufis’ star began to set with a bond scandal at his ministry in 2007. Though he was not implicated directly, a structured bond his ministry issued became the government’s biggest liability at that time because it enriched party-connected middlemen more than the final recipients, which were several pension funds. Alogoskoufis’ star then dimmed rapidly with his rushed tax bill in August last year.

Throughout his tenure Alogoskoufis worked in two directions - to restore fiscal discipline at the expense of populist spending, and to boost competitiveness through structural reform. His 2005 phased tax cut of 10% for businesses and individuals was a key measure.

Yet Alogoskoufis’ inability to collect taxes owed without over-borrowing ultimately undermined him. In 2005 he got away with raising VAT by a point to 19 percent in order to make good a three billion euro budget revenue shortfall. By last year, however, the economic climate made his 1.1 billion euro tax hike, announced in late August, seem insensitive. It set a gloomy and ungenerous mood ahead of the prime minister’s keynote address at the Thessaloniki International Fair, and gave opposition leader George Papandreou an opening to criticise the government’s poor record in transparency and accountability at a time when Greeks were beginning to feel the pinch of the international credit crisis. Alogoskoufis’ lack of judgment in raising taxes as recession loomed was a key factor in his unpopularity and subsequent sacking.

His successor, Yannis Papathanasiou, appeared to continue the Alogoskoufis legacy with a new face, announcing that he would avoid new handouts, pursue cost cuts in the public sector and structural reforms in the economy.

The key development ministry went to Kostis Hadzidakis, who proved a quietly effective transport minister. He did not oppose government policy on OTE as Liapis had done, established an EU-approved rescue package for Olympic Airways and began a new tender process. His biggest political challenges will now be the competitiveness committee, which has proven an imperfect regulatory tool, and the Public Power Corporation, which is in open rebellion against management.

Most of the Greek press interpreted the new cabinet as a pre-election one, which is not an outrageous hypothesis. Greeks go to the polls in June to choose new Euro-parliamentarians – a largely inconsequential election that serves as a lightning rod for the protest vote. A Pasok victory over New Democracy would be its first under George Papandreou and help cement a psychology of defeat in the already demoralised ruling party. Were a general election to follow, the chances of a Pasok victory would increase with the number of people believing in one.

Karamanlis may choose to roll the dice in a simultaneous general election, hoping that voters will give him a third mandate while awarding Pasok the Euro-parliament.

Also favouring the election scenario is the fact that this cabinet seems to aim at not giving further offense. Apart from Foreign Minister Dora Bakoyannis, it does not seem to contain strong personalities. With the departure of Alogoskoufis there are no outed reformists (Kostis Hadzidakis spoke powerfully for education reform as a Euro-MP in 2005-6, but has since learned to work for reform discreetly). And the inclusion of Antonis Samaras aims at winning stauncher conservatives.

Karamanlis may have done enough to re-launch his second term, but the legislative agenda will show whether this cabinet is aimed at doing anything more than getting through another election.