Lack of competition exacts revenge on construction sector
The Athens Stock Exchange (ASE) has been seeing a paradox in recent sessions, with the shares of construction companies in free fall. This is happening in an Olympic year, when the country’s high growth rates are mainly based on public projects, when public investment is running high and most construction companies proudly post high earnings and long lists of projects in their order books. At the same time, however, speculation abounds that many other firms face problems and investors are making haste to price these problems in. Of the 10 shares that recorded the largest losses last week – ranging from between 15.2 and 41.56 percent – seven were construction companies or groups. While the ASE general price index gained 0.5 percent, the construction sectoral index slid 3.25 percent. The crash in construction stocks brings down a myth along with it. According to this myth, the urgent need for completing large projects in time and the unprofessed intention of assigning them to domestic firms alone would lead to an unfair – but inevitable – regime of nepotistic allocations, meaning that everyone would be happy and the country would enjoy high growth rates. Indeed, a supporting argument was that the rough times the Greek information technology firms are facing are due to the fact that they failed to reach any such covert pact. But the paradox shows that not even the distribution of the pie without competition suffices to create a strong sector. Or is it precisely the prevention of real competition through collusion that is the source of the problems? To be sure, large construction companies take the lion’s share of public works in many countries but this does not lead to any lack of competition, perhaps because governments have not instituted the regulatory frameworks that would render the concept useless. In Greece reality is taking revenge, as manifested in the serious problems many firms are facing, while others in a better position are facing a problematic future. And others still, small and lowly which have not experienced the size and grandeur of the giants, are fully disappointed: They cannot even win small projects, either within the cartel or outside it. A few years ago, all theoretical conditions were in place for things to take a different course. There was strong demand for projects and an abundance of funds from European Union subsidies and the state budget, as well as political will for wide distribution of the projects. All the necessary conditions were there for the emergence of a strong sector, except the sine qua non – an administration determined to impose effective competition.
