Getting Greece back to economic growth - advise by Jeffrey Sachs - Ποιειν Και Πραττειν

Getting Greece back to economic growth - advise by Jeffrey Sachs

On 1st of October 2013, renowed economist Jeffrey Sachs gave at the invitation of the Harvard Business Club a lecture in the Karatzas Auditorium of the National Bank of Greece. Present in the audience were several Ministers or Sub-Ministers of the current government, business leaders, academics and many more who are either linked by their work for banks or various branches of governmental institutions to primarily economic and commercial affairs. Most of them have absolved some studies abroad, primarily in the United States.

Before Jeffrey Sachs gave his power point presentation to show under which assumptions the numbers he uses would work to make it up the steep path of recovery, the current German ambassador Wolfgang Dold spoke. His role was most difficult as he was speaking to a Greek audience very much under the belief that it was the strict austerity policy of Germany which was the cause of the crisis. To this not only he countered, but Jeffrey Sachs pointed out repeatedly in his subsequent lecture that both Greece and Germany, but as well Europe were not a closed market.

As a matter of fact, Jeffrey Sachs expounded the viewpoint that Greece can recover, provided and if a lot more is done than currently the case to improve the exports of Greek products and services. This entails setting up trade missions, trade promotion and financial assistance to further the export of Greek products and services. (1) Some of the products he would refer to are in agriculture, but also especially with regards to the Middle East in construction, while health services and tourism could also be considered even though this seems to be more inwardly directed than outwardly.

The lecture of Jeffrey Sachs was at times blunt, to the point and above all an indication what other kind of debate would be possible, if truly policy orientated and not mere political blaming the others or in particular Germany for the malaise which is also largely self-made. He illuminated effectively how public debt by itself cannot be understood since there is underneath it a mountain of debt. For both banks and companies suffer from bad loans. Greece, he said, suffers from a bad debt hang over. The crisis came after the Lehmann Brothers collapsed and suddenly there was a stop in giving credits, while books were checked if the figures still added up. This was when the discovery was made that the Greek deficit was no longer sustainable and therefore the Greek state could not longer raise money it needed to finance its activities on the financial market.

Likewise the solution has to be to lower the interest rate to at least 3,5% and to extend the time horizon for paying off the loans incurred to cover the debt. This depends upon the creditors but equally, if not more upon the Greek government and especially its business community since both can do a lot. Naturally Greece finds itself in a depression with 24% of the work force unemployed and even in a worse catastrophe due to the youth employment being around 60%. (2) Still, it would be a mistake to compare this situation with 1929. At that time the entire world was in depression, but today Greece is in crisis, but not the world.

The high unemployment says something about what was not done when applying taxes and other measures with regards to companies which had liquidity problems but still could manage to make profits, if they had been allowed to exchange these debts into equities. The latter is, however, only possible if it allows a change of ownership, something which might pose a huge stumbling bloc in the case of Greece.

Here he cited the example of the big three motor companies in Detroit. They did go into default one day, but were out of the debt crisis the next day. He had advised Obama during his campaign to take appropriate measures to make that possible. This transition requires full political involvement and can get dirty at times, but in the end as shown by where the motor companies stand today, they are working at a profit.

Jeffrey Sachs cited some of his countless experiences when advising different governments. For instance, he recalled advising Solidarnosc in Poland in 1989, that is at when at that crucial turning point. Communism fell and yet many leading persons in Poland thought at that time that the country would be engulfed with six or more months in such a severe crisis with civil war the most likely outcome. It did not happen but instead Poland became one of the most dynamic economies. He mentioned that this was also thanks to some valuable support given by Germany. Insofar as he met chancellor Helmut Kohl, he believes the latter showed an amazing aptitude towards reconciliation and therefore made possible this German support.

In this regard the German ambassador Wolfgang Dold mentioned that the impact of the recent German elections held on 22nd of September 2013 upon economic and financial policy shall be negliable, so that the expectation in Greece something would change as a result is not realistic. As this touches upon the point to what extent Germany does have a major role to play in EU and Eurozone related decisions, it matters whether the Greek side sees the European Commission, the Troika and the German government always as something else, or they include in this European dimension the own role which any Greek government has to play.

Still, Jeffrey Sachs emphasized that Germany has found some solutions not easily to be found elsewhere. He meant not only 100 year old institutions which ensured that students found a fast transition into work e.g. the use of apprenticeship, but as well a particular brand of 'Wirtschaftspolitik'. He described the latter as being not solely market orientated but does uphold a strong belief in such institutions as the Development Bank. The ambassador picked up that reference and emphasized in turn the experience Germany made when rebuilding the country after the war ended in 1945, and furthermore when financing restructuring of former East Germany after reunification in 1989. He reminded as well the Greek audience of the fact that Finanzminister Schäuble, when visiting recently Greece, initiated this idea of creating a similar foundation to support the restructuring of Greece.

At this point Jeffrey Sachs advised everyone in the audience to avoid the word 'reform' since a highly empty one. At the same time, he would contradict those arguing on the Greek side constantly about debt relief, so as if debt financing can be separated from restructuring. If upheld, it would mean to support constantly the myth that the Greek problems would be over, if only the austerity policy Germany was supposingly imposing could be lifted.

In other words, financial consolidation and restructuring go hand in hand, but again it would require political awareness that not mere improvising, day by day or short term measures will do, rather the handling of policy tools will have to work at the mountain of debt. As this requires long term thinking, something politicians do not like as they think only in terms of wishing to be re-elected, the assumptions he is making need to be followed up by some contingency planning in case they do not hold. Again that would entail long term thinking.

Jeffrey Sachs put a lot of emphasis upon the need of the government to do much more about especially youth unemployment and about exports. Also Greece could within the EU market contribute to the energy supply, for a country like Germany would need energy. However, Greece could only supply energy gained from renewable sources if Europe would invest heavily in a power-grid which would allow the transfer of energy from Greece to Germany. That is not right now in place.

Many more things could be said for Jeffrey Sachs took a swipe at Paul Krugman's proposal favouring much more a Keynesian type of economic stimulus, something which only a government could implement. He does not believe in such measures. As for a debt restructuring, this option should only be taken if no longer avoidable. At that point, Greece will have to ask itself, if it wishes to stay in the Euro-zone. Right now his numbers add up under certain assumptions as he tried to outline. They include no global recession and a continuation of economic growth.

In other words, the world in 2013 is not anywhere comparable with 1929 for the world of today does not find itself in a Great Depression, but Greece is in crisis. This means in the world are consumers waiting for Greek products and services. Moreover he urged his Greek audience to think of all the advantages this country has since it might be the most beautiful place in the world, has a rich culture and succeeded in having a highly educated population. Also by having brought to the world civilization and democracy, it has a brand hard to beat: the Athens School. When he was just now at the Vatican, he rushed to the see the painting by Raphael since it depicts the Athens School with Aristotle, Socrates, Plato. As for markets, Greece does not need to look far. Here he mentioned in particular the Middle East where there is a lot of money due to the booming oil trade and a barrel of oil costing more than 100 dollars. Yet he was surprised to see how few Greek construction companies were present despite the building boom in the Middle East.

Here one contribution from the audience was that Greek persons were not treated in the Middle East as members of the EU, but as Greek national citizens due to some special agreement and this affected payments, insurance coverages etc. and therefore would explain why Greek companies, when operating in the Middle East, incurr higher costs and therefore are not as competitive as others.

Jeffrey Sachs came back to the overall attitude towards the public debt. He was in favour of repaying it rather than defaulting, but not at all costs. For he reminded of the case of Bruning in Weimar Germany who tried everything to repay the war debts but drove as a consequence the country into a much deeper catastrophe. In other words, he would not advise resolving the debt crisis at all and especially social costs.

One interesting point he made with regards to the social and political stability. While restructuring of the debt would require institutional changes with Greece being right now very low in the scale of competitiveness in this respect, the entire task will only succeed, if the entire Greek population would take ownership of the plans to succeed by taking certain measures. He never came back to this point. Therefore the question was not discussed whether or not through a public debate the Greek population would feel itself in a position to know what is going on and could embrance what has been decided to resolve the debt issue. For then it would depend as to what is perceived as everything being done within reasonable terms.

During the debate or rather question period with selected people addressing Jeffrey Sachs questions within the form of further going comments, the German ambassador Wolfgang Dold remarked that he feels different languages are being spoken, so that one is no longer sure what is meant.

There is another concept in need to be clarified. Constantly the term 'economic growth' is used, as if this is the key to all solutions i.e. if the country can get back on the track of economic growth by simply becoming more competitive. Jeffrey Sachs seems not to connect the reasons for climate change with a type of economic growth entailed only more consumption of goods and services. As if he does not see such a consumption means using up rare resources such as unbuilt landscapes, even though his advise would mean going down a path which is in violation of every possible concept of 'sustainable development'.

As a matter of fact, here all the flaws of a strictly economic model become apparent. By leaving out completely the cultural component, or what one person alluded to when posing a question, namely a kind of mentality which has led in Greece to the mess the country finds itself in, a solution to the debt related crisis is difficult to imagine. For instance, there cannot be a long term adjustment, if the analysis excludes the main component of a society. To follow through with wise policy applications, the entire society needs to go through a long phase of cultural adaptation, so that the new measures can work. Naturally Jeffrey Sachs concedes that Ministers would apologize for the imperfect nature of these measures since everything had to be done in a hurry and within a relative short period of time, but if there is no such discussion about which policy tools work, one does not know the cultural space in which any policy can work in a rational way.

Unfortunately the lack of knowledge commonly shared by people is the result of many but equally different factors: no proper research being done at university level with regards to how policy measures work; no public debate due to everything being if not under the control of party machines, then a media which grossly distorts the reality. Likewise if people find not the public space where they can discuss all these policy tools, and one needs only to think about the break-up of the assemblies on Syntagma Square as early as June 2011, then many people will be unable to link their attempts to come to terms with policye measures to what they experience daily. Right now they face an abstract economic model tempered with at macro level by politicians and other decision makers within the banking and business sector according to such economic advises, but without showing a managerial and cultural capacity to relate to what is amiss at micro level.

Also the simple growth model does not work in the long run. For clearly it is not enough to have just a paying job. People need to experience a self fulfillment in what they do. That is a human requirement and says cheap jobs do not work either in the long run. So if the Minister for Shipping says good news is that labour is getting cheaper and therefore Greek shipping can think of new prospects of growth, even if this relies mainly on privatization schemes of the ports of Pireaeus and Thessaloniki, then it is in reality a model of exploitation while it does not problematize what Louis Baeck would repeatedly emphasize as being the real issue, namely how artificial are the measures by which to upgrade the purchasing power of those who hold the major shares of capital?

Finally, the economic advise offered by Jeffrey Sachs assumes the role a nation state can play in the 21st century is the same as in all the preceeding centuries. Yet he does not address the need to consider every nation state as being made up of such cultural diversity, that the national identity and common denominator will at best produce a sizable minority and therefore leave in silence a majority of people who do not identity themselves in single terms with a single state. This is precisely the model US governments have been following for a long time, and therefore they opposed the different kind of governance being strived for with the European Union a workable model and alternative once the political schizophrenia is overcome. The latter is the case as Simon Mundy would put it with politicians talking internationally when in Brussels but only in local-patriotic terms once back 'home'. Precisely this element became audible when some of the current ministers or sub ministers in the Greek government complained about the hard stance the European Commission is taking. By perceiving the latter as if a foreign power, there is no attribute given to Greece being a member of both the European Union and the Euro zone. One contribution from the audience was made then precisely to this point. It is the myth and justification of current Greek feelings as if everything has been given to let this European project succeed but without mentioning on how EU funds are being handled, the Structural Fund a prime example, this new type of intervention in life in Greece does not come to the fore. It seems still a sign of a huge alienation to assume the Greek identity as a single term still holds in an age of multi culturalism. (3)

Hatto Fischer

2.10.2013 (updated 3.10.2013)

Jeffrey David Sachs (/ˈ s æ k s /; born November 5, 1954) is an American economist and Director of The Earth Institute at Columbia University. One of the youngest economics professors in the history of Harvard University, Sachs became known for his role as an adviser to Eastern European and developing country governments during the transition from communism to a market system or during periods of economic crisis. Subsequently he has been known for his work on the challenges of economic development, environmental sustainability, poverty alleviation, debt cancellation, and globalization.

Sachs is the Quetelet Professor of Sustainable Development at Columbia's School of International and Public Affairs and a Professor of Health Policy and Management at Columbia's School of Public Health. He is Special Adviser to United Nations Secretary-General Ban Ki-Moon on the Millennium Development Goals, having held the same position under former UN Secretary-General Kofi Annan. He is co-founder and Chief Strategist of Millennium Promise Alliance, a nonprofit organization dedicated to ending extreme poverty and hunger. From 2002 to 2006, he was Director of the United Nations Millennium Project's work on the Millennium Development Goals, eight internationally sanctioned objectives to reduce extreme poverty, hunger, and disease by the year 2015. He is Director of the UN Sustainable Development Solutions Network. Since 2010 he has also served as a Commissioner for the Broadband Commission for Digital Development, which leverages broadband technologies as a key enabler for social and economic development.^[4]

Sachs has authored three New York Times bestsellers: The End of Poverty (2005), Common Wealth (2008), and The Price of Civilization (2011). His most recent book is To Move the World: JFK's Quest for Peace (2013). He has been named one of Time Magazine's "100 Most Influential People in the World" twice, in 2004 and 2005.

Source: http://en.wikipedia.org/wiki/Jeffrey_Sachs

Footnotes

1. According to one employee the Greek company she works for could export a lot more but due to a lack of staff cannot fulfill all the orders.

2. Latest report by ANSAmed of the Anna Lindh Foundation about unemployment projections:

http://www.ansamed.info/ansamed/en/news/sections/economics/2013/10/03/Crisis-Greek-unemployment-rate-reach-34-2016-study_9400743.html

3. See as well: "Export-led growth key for Greece's economic recovery, says American economist Jeffrey Sachs" Interview by Eleni Varvitsiotis. Kathimerini Tuesday November 12, 2013 (19:34) http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_12/11/2013_527349

Historical footnote or an understatement

Crisis: Greek unemployment rate to reach 34% by 2016, study

(ANSAmed) - ATHENS, OCTOBER 3 - Greece's unemployment rate will rise to 34% by 2016 according to a study by GSEE's Labor Institute published Thursday. According to the same survey, as Kathimerini online reports, about 1 million jobs have been lost in Greece since October 2008. Meanwhile, the 27.4% jobless rate posted in March by the Hellenic Statistical Authority (ELSTAT) was the highest percentage to be recorded by a western country in the past 30 years, the study found. The institute on Thursday warned that a decision by the Greek government and the troika of foreign lenders to continue with the current policy mix will have "devastating consequences" for the country's GDP and employment in the coming years. (ANSAmed).

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