Economy’s paradox

The Greek economy is characterized by a paradox: It enjoys high growth rates without being able to translate them to more employment. Experts attribute this phenomenon to specific structural problems in the economy, social conditions and the inflexibility of the labor market. All this creates a set of obstacles that hamper entrepreneurship and therefore the competitiveness of the Greek economy, and result in fewer investments that employ fewer workers. Analysts from the Foundation for Economic and Industrial Research (IOBE) suggest that if the economy were to become more flexible and each small or medium-sized enterprise (SME) increased its staff by just one person, then 85 percent of those unemployed today would get a job. Each percentage point of GDP growth would shave 0.25 percent off the unemployment rate. Further, if SMEs, the very spine of the economy, expanded at the same rate as they have done in other regional economies such as Portugal, then no one would be jobless in Greece. Inflexibilities Alpha Bank researchers note that the higher the index of business activity, the smaller unemployment figure becomes. Yet with Greece in 80th position in the ease-of-doing-business index, its employment percentage barely reaches 60 percent. In New Zealand, which tops the list, employment covers 73 percent of the people. The director of IOBE’s scientific research, Theodosis Palaskas, tells Kathimerini that in Greece’s case other factors should also be taken into account. They are related to the social structures and changes in consumer models, as well as the difficulty Greeks have in changing locations and jobs. For instance, he says, the sudden increase in consumer demand has boosted imported goods, leaving no time for the Greek production structure to get organized and supported. He specifically attributes the Greek economic paradox to a variety of factors: * The labor surplus in the agricultural sector, compounded by features such as the inability or unwillingness to move. * The decline of employment in the manufacturing sector. Most domestic companies are technology intensive and human capital intensive rather than labor intensive. * Employment in the services sector stands higher than in other developed economies. Worse, the features of those employed in the agricultural sector do not correspond to those of jobs in the service sector. * The rise in imports is greater than in exports and faster than increases in the gross domestic product. * The development of the employment change rates in SMEs in Greece and in other EU member-states. SME prospects True, if we compare Greek SMEs with those in other regional economies such as Italy, Spain, Portugal and Ireland, we must conclude that there is a strong link between technological modernization, and business competitiveness and employment. Greek SMEs lag considerably and have negative prospects in competitiveness and employment terms against their direct EU rivals. The slow technological modernization of production and restricted job creation in Greece is the outcome of structural and institutional weaknesses of the country’s production system. The low employment levels in Greek enterprises, traditional-based organizations, and low added value per worker render technological modernization more difficult, as there is minimal spending on new skills and production technologies. Alpha Bank adds another factor to the list of factors that determine the ease of business activity: that of the flexibility of hiring and firing staff. Greece stands a very low 148th position among 155 countries surveyed. The bank notes that since the labor market’s operational framework is particularly inflexible, employers follow other methods in order to remain competitive, such as unofficial forms of employment. To overcome technological development and competitiveness difficulties they are facing, local companies need the appropriate reforms. Under the right conditions, smaller economies without any technological tradition could develop new competitive advantages. A stable framework of measures to support and develop the competitiveness of Greek companies is needed to allow for a rise in employment. The public sector and EU support play a key role in technological development and the competitiveness of European economies. Yet the dramatic lagging of Greece behind its EU partners stems from the low level of trust and cooperation between enterprises and institutional bodies. At any rate the limitations and potential of technological improvement are closely connected with local, national, socioeconomic and institutional structures. Poor technological understanding, the lack of skills and the country’s weak financial structure all hamper companies’ technological adjustment and competitiveness. Both enterprises and funding bodies need modernizing, while new criteria are needed for evaluating investment and funding proposals. Finally, the labor law needs to be reformed in order for enterprises to adapt faster to technological change, to macroeconomic shifts and to the influx of immigrants.