Greece needs a Marshall Plan

Greece is currently crushed: Over the last three years, its economy seems to have been spiraling endlessly downward with gross domestic product declining nearly 15 percent, shops closing, and unemployment increasing. Often those lucky enough to still have a job must wait months for their wages to be paid. People are leaving while others rely upon a subsistence economy. In many markets, ?there is not the slightest breath of wind.? The end of the downward spiral cannot be seen.

Beyond Greek Prime Minister Lucas Papademos, the troika of the European Union, the International Monetary Fund and the European Central Bank insist upon further cuts in government spending. Although these demands are reasonable and necessary, the current policy measures will not help the Greek economy to recover.

Greece?s eurozone membership may give the false impression that the country?s economy is driven by innovation, like in Finland, France or the Netherlands. However, the Greek economy is anything but driven by innovation. A more apt description might be that the country resembles a transformation economy.

But while 20 years ago the old Eastern bloc countries were reforming rusty and inefficient industrial structures, in Greece there is almost no industry, and instead of transforming a centrally planned into a capitalist economy, the government in Athens must overcome moribund regulation that keeps many trades as closed shops and prevents new businesses from starting.

The fact that the country lacks an established industry structure is not as obvious as one might think, and both the internal and external forces pushing Greece right now are missing the corresponding key problem that is preventing the Greek economy from righting itself: a coherent innovation policy that is necessary if the country still wants to play in the euro symphony.

A coherent Greek innovation policy would move the country forward, setting it on a path toward economic stability and self???sufficiency. However, Greece is not in the position to undertake this by itself and, therefore, the European Union stakeholders must put forth and fully fund a Marshall-type plan to help Athens; one adapted to the specific, unique needs of the Greek economy and its future. A coherent Greek innovation policy should not just guide investment into research facilities and universities; it should also invest in new and promising companies that are taking new knowledge and turning it into marketable innovations.

Such a growth strategy could lead to a positive payoff for all stakeholders, not just Greece itself, as long as several conditions are imposed and accepted, not just by politicians and the executive authority, but also by labor unions, investors and company owners. And these steps need the full support by the Greek citizen: First, the most important resources for generating an innovation economy are the human beings working for it. Well???educated scientists are the driving force behind cutting-edge research and new developments.

Fortunately, these well-educated Greek scientists already exist. Unfortunately these scientists work at countless institutions in the US and all over Europe. Thus, the stakeholders in Greece must not just eliminate the barriers that discourage Greek scientists from returning home, but they must also develop appropriate and attractive working conditions that will actually reverse this brain drain.

Secondly, Greece must learn from past failures. Both General Motors and Nissan failed with their Greek assembly plants back in the 1980s. Most of the cars manufactured in Greece were lemons. One reason: Workers were paid flat without any incentives to work hard. Thus, companies aiming to grow will need to incentivize the wages of each individual worker.

Thirdly, with respect to growing companies, company taxation must be reformed in a way that it provides real incentives to enterprises to grow and to invest their profits in research and development expenditures.

Fourth, and most importantly: Every euro invested must be used for productive investments, and it must be clearly and explicitly set in the rules. Every member of the executive authority from the prime minister down to each local mayor and council member must be obliged to ensure the proper use of funds. Rules should make explicit that investment programs funded by the EU are not to go toward building village squares, but rather invested with an eye on fundamental growth.

Enforcing these strict rules will not just ensure that the funds are not wasted, but it will go a long way to helping foreign investors regain trust in the Greek economy.

Last, but not least, both Greek citizens and Greek politicians must adapt to European standards for the payment of taxes and their use: Paying taxes should be enforced by specially trained tax authorities and paying a fair share of taxes should be taken for granted by every citizen. Furthermore, politicians that abuse their office should be held accountable by the citizens and voted out. Social media are a modern means to exchange information on such abuse.

It is crystal-clear that a coherent innovation policy, in combination with a change in the underlying cultural values, will not result in an instant improvement in the Greek economy — indeed it will take decades — but the time to start is now, today. If Greece is unable to agree on a coherent innovation policy, with investment from the troika, then the ongoing attempts to resolve the current debt crisis are only cosmetic. There are no other alternatives, unless the Greek people want their economy to disconnect from their European Union partners.

* Dr Alexander Kritikos is research director at the German Institute for Economic Research (DIW Berlin).