NEWS

Greece’s dilemma: Which way to the future?

Just a few days ago, the truck drivers ended their second strike, but the unions promised a «hot autumn.» The reason: The government wants to continue its reform agenda. With massive pressure being applied by the European Union and the International Monetary Fund, Prime Minister George Papandreou has no other option. Currently, the main goal of the reforms is to open up «closed shop» professions so that competition in certain sectors is increased, which again should raise Greece’s competitiveness. Clearly there are no alternatives to this deregulation. Instead we must focus on the plans for the transition period. The consequences of a poor transition can be revealed by looking at the history of trucking and its deregulation. Some decades ago, a limited and fixed number of licenses were granted to truck drivers, preventing new competitors from entering the market. Given the increase in shipping, it is not surprising that transport prices also increased and that a booming trade in trucking licenses began. There are two major consequences to the recent opening up of road haulage by the government. First, high transport prices will attract new competitors, which will result in falling prices, something that clients will welcome and that will benefit the Greek economy. For truck drivers, it means that they will earn smaller profits from their licenses in the future. Secondly, license holders lose wealth as license resale values fall. For truck drivers whose retirement plans depended upon the high resale value of their trucking license, this is a game changer. The Greek government must provide some compensation to truck drivers who recently purchased a license. How else can it be explained to a person who paid 200,000 euros for a license that their investment will become worthless overnight? At the same time, it is clear that there must be a sense of proportion to the cost of the transition. Otherwise the reform benefits will be offset by excessive transition costs. This is particularly important as other closed professions face deregulation in the near future. With the trucking industry as our prime example, it is clear that the Greek government’s unwillingness to offer any compensation initially only served to heighten the truck drivers’ motivation to strike. Since then, the government has responded to their demands by proposing a three-year delay in deregulation and the awarding of tax credits to license holders who can provide proof of payment for license transfers. There are two problems with this proposal: First, all license holders profit from this scheme, not just those who recently purchased a license. Secondly, the solution does not differentiate between losing excessive profits in the future and the loss of wealth that is later gained upon selling the license to fund retirement. One alternative to the currently discussed solution, which would focus on the effect of the reform on wealth, would be to offer pension claims to those truck drivers who recently bought their licenses. For such a proposal, it would also be possible to take into account the duration of the license, meaning that pension claims should become lower the longer licenses are held by truck drivers – a less costly solution than the present one, with the advantage of it being just and reasonable. However, the calm before the next storm should be made use of in a different way. Will Greece, by virtue of deregulating certain markets, be able to secure its future? Without a doubt, the answer is no. Deregulation fosters competition in the existing markets and will lead, to a limited extent, to growth in the economy. This type of reform cannot solve the underlying productivity and growth issues facing Greece. We should not forget that Greece is part of the European Union, a group of countries driven by innovation, including Finland, Denmark, the Netherlands, Germany and the United Kingdom. So far, Greece lacks a coherent innovation policy or a well-oiled innovation system, something most other EU members are proud to show off. At the same time, in countless scientific institutions in the US and all over Europe, Greek scientists are the driving force behind cutting-edge research and new developments. The sole exception is Greece. Greece would benefit from a reverse in this brain drain. In bringing down the barriers that discourage Greek scientists from staying on or returning to the shores of the motherland, Greece would reap the benefit of knowledge spilling over from research institutions and universities into the economy. By supporting scientists in a seminal industry for a specific Greek region, Greece could address the underlying structural weaknesses in the economy. There would need to be total support for this effort, complete with the foundation of research institutions and universities focused on appropriate research as well. These institutions must offer attractive working conditions to Greek (and foreign) researchers, thus encouraging and facilitating relocation to the country. This approach is used by many nations and is supported by European Union programs, but the decision must be made by the Greek government and should find support among Greek citizens. Although it is a tremendously expensive decision that therefore must be coordinated with the European Union, it should help the Greek economy in the long run. Like the decision to deregulate the trucking industry, there are no other alternatives, unless the Greek people wish their economy to split from that of their European Union partners. (1) Professor Alexander Kritikos is vice president and head of the Innovation, Manufacturing, Service Department at the German Institute for Economic Research (DIW Berlin). E-mail: [email protected]