ECONOMY

The popularity of bonds does not make for progress

The percentage of the disposable income of Greek households that is invested in State securities has risen markedly in the last two years; an odd thing is that investors are returning while yields are falling, having withdrawn when these were considerably higher. In 1996, for instance, the interest rates on benchmark 10-year bonds was more than 10 percent and the bonds held by households accounted for 38.4 percent of their disposable income. In 2002, with the respective rate having dropped to just 4.4 percent, the rate of disposable income placed in bonds rose to 14.8 percent from 9.8 percent the year before. Before that, there had been a complete abstinence for almost two years, given the frenzied interest in the stock market in 1999-2000. Avoiding risk is an expected follow-up after ignoring it for a relatively short period; besides, after a spike, things are bound to return to normal levels, to the long-term trend. But the impressive thing is that the return to bonds coincides with a fall in savings. In 1995, net savings were estimated by the Bank of Greece at 10.6 percent of disposable income. In 2002, it was at 4 percent; the income saved today is a smaller part of the total, probably because consumer spending is rising faster than incomes. In actual fact, the State was the big winner from the stock market boom, and it continues to be favored even in the subsequent downturn. Funds channeled into public bonds cover the budget deficit, indeed, at a lower interest rate than a few years ago. The government sold shares through the partial privatization of public enterprises when ignorance of risk was abundant, and now, when there is greater awareness of it, it sells bonds. The essential problem is that avoiding risk does not spur progress. Prosperity is the outcome of activities containing risk; only those undertaking risks open the way to the rest, and for this reason success does not refer to average performance. The process necessarily involves failures and victims, but the final result is progress in the economy and society at large. The more developed an economy, the greater the risks undertaken by enterprises and investors, while other nations, despite possessing abundant natural resources, are mired in underdevelopment because of a lack of institutions, processes and people willing to assume entrepreneurial risks. Under such conditions, the only factor that can justifiably be a source of optimism for dampening the growth rate of public bonds is the European Union-imposed requirement for keeping public debt below certain levels; an increase in resources managed by the public sector does not necessarily boost the prospects for long-term growth. Even the latest allegations of graft involving information technology firm Altec and government insiders would not have arisen if the firm did not view public sector contracts as a major source of income; if the allegations prove true, the tax irregularities and misleading of investors will have happened because of the ease with which huge amounts of public funds became available.