ECONOMY

Education, taxes and labor

When we read reports by international organizations on the Greek economy, we tend to focus on things such as budget deficit and public debt, inflation and forecasts on the rate of gross domestic product growth. This is logical and expected, given the fact that no one forgets – and we shouldn’t – the great difficulties Greece faced until recently in its efforts to balance the main economic indicators. But these same reports also include numerous interesting observations on other topics, which are extremely useful in interpreting the long-term weaknesses of our economy and society. The latest report by the European Commission on the implementation, by member states, of the broad economic policy guidelines for 2001, is a good example. Read the exact wording of one of the three «key economic policy challenges for Greece.» Greece must «increas(e) the low level of productivity, which is associated with the functioning of the labor and product markets, low investment in human capital, the still difficult business environment, including corporate taxation, and the late development of the knowledge-based society.» Also, take into account that «labor productivity is the second lowest in the EU.» Add to the above a «low supply of specialized work force, and «the population’s low level of education.» Finally, look at the comment that, beyond the well-known labor market problems (inadequate wage differentiation, inflexible worker protection legislation), there is an important «lack of adaptation on the part of the educational system.» It is obvious that education is a central factor of our economic retardation and a systemic problem that hinders faster modernization and economic growth. See how the same report describes the problem: «The levels of educational attainment of the population are relatively low, partly due to the below-EU-average public expenditure on education as a share of GDP. Greece is also one of the weakest innovators in the EU, as shown by the low levels of R&D investment (total and particularly by the business sector) and several performance indicators.» Many of us rightly wonder when we read that Greece spends a rather small amount of its disposable income on education. It is true that these statistics do not include private spending, i.e. family expenditure on private schools, private lessons and cramming schools. But it is also true that this extra spending, which is a heavy burden on many households, does not impact on the effectiveness of the education system. This is because the system is completely dominated by a state incapable of imposing high standards and clear goals on the system. The problem of the educational system is also directly related to the non-existent connection of the system with production, that is, with company needs. The lack of educational standards, combined with employment rigidities, in a country where barely over one in two inhabitants is employed, poses a big obstacle to improving economic competitiveness. It is interesting to note that half the unemployed have no previous job experience, while the percentage of employed women remains extremely low. The above weaknesses are coupled with a flawed system of remuneration. As the report notes, «No changes have been made to the system of wage formation, which is relatively centralized, and which does not allow wages to reflect differences in productivity across regions, firms, or workers.» The flawed taxation system does not improve matters. Although the Greek wage-earners are not more heavily taxed than their European counterparts (35 percent against 37.8 percent in the EU, but 17.3 percent in Ireland and 29.6 percent in Portugal), they bear a much heavier burden relative to professionals, for example, and they do not get the same level of services. Despite that, Greeks remain attached to an unproductive, ossified welfare state. Where will growth come from? EPS, one third of whose power grid was destroyed in the 1999 NATO air campaign against Yugoslavia, needs 1.6 billion dinars to repair the remaining damage from the bombing. EPS, once a key regional exporter, became a power importer.