Article Type : Research Article
Authors : Papadakis H, Atsalakis GS and Zopounidis C
Keywords : Special interest groups; Olson’s theory; Greek economy; Implications
The
Rise and Decline of Nations is an innovative book in which, develops nine
implications of the action of interest groups [1]. Also is including empirical
studies of countries whose confirm Olson's theory of the sclerotic effects.
Greece from 1974 onwards, when its state stabilized, the course of its economy
reaches the highest point in 2008 and then follows the fall that brings it to
the brink of bankruptcy in 2012 and further decline in 2015. The purpose of
this study is to point out that, back from this route is hidden the action of
interest groups, just as Mancur Olson describes it in his theory. Therefore, in
this paper, the implications of the action of interest groups on the Greek
economy are studied, as mentioned in Olson’s theory.
The Rise and Decline of Nations is an innovative book
in which mention that stable societies develop a strong network of
distributional coalitions or interests groups over time that operate according
to a logic of collective action that results in economic stagnation. In his
pionner study, Olson develops nine (9) Specific implications on the country’s
economy by the action of special interest groups [2].
The majority of studies test three out of the nine
implications of Olson’s theory. Specifically in chapter 3 of Rise and Decline,
Olson lays out nine distinct implications deriving from his analysis. Although
all the hypotheses are discussed, to some extent, in the remaining four
chapters Olson pays particular attention to three of these implications [3].
Implication
2: Stable societies with permanent
boundaries tend to accumulate more collusions and organizations for collective
action over time.
Implication
4: On balance, special interest
organizations and collusions reduce efficiency and aggregate income of the
societies in which they operate and make political life more divisive.
Implication
7: Distributional coalitions slow down a
society’s capacity to adopt new technologies and reallocate resources as a
response to changing conditions, thereby reducing the rate of economic growth.
In the literature there are plenty of studies that
support Mancur Olson’s conclusions for these nine implications. In his study
contains all the papers that lead to the conclusion of support and confirmation
of these implications. Many research studies, with empirical and descriptive
tests of institutional sclerosis, end up in the result of the theory support
[4-29].
The harmful effect of interest groups on economic
growth is referred to as institutional sclerosis. Mancur Olson (1982), Argued
that special interest groups develop over time and that these groups compete
for shares of the economic pie to the detriment of growth in the size of that
pie. Also provides evidence in favour of this theory using length of time of
governmental stability as a proxy for the formation of interest groups [26].
In the empirical study, Olson (1982) focuses on the
development of countries after the end of World War II, which confirms the
second implication of his theory. After the end of the war, the countries have
stabilized their borders and, far from expanding aspirations, are dealing with
society and their domestic economy, trying to recover from the devastating
effects of the war. Such countries are, Austria, Belgium, France, Danish,
Norway, Netherlands, Sweden, Finland, while it also makes special reference to
the countries such, Italy, Germany, Japan where, although they were the losers
of World War II, they show the greatest economic growth of the rest of the
countries until the year 1970.
Mancur Olson didn’t cite Greece in his empirical study
at the Rise and Decline of Nations 1982, but includes Greece in its 1984
publication with title «Australia in the Perspective of the Rise and Decline of
Nations» (1984), where studies some patterns most evident in manufacturing
industry and especially in international trade in manufactured goods.
Researchers have examined the course of the economy of
a country, according to Olson’s theory [25]. The proposed time period for
studying the economic development of Greece and how the Olson’s implications
are implemented in the country, is the period after the fall of the
dictatorship (1974), until today. At that time, Greece was gradually entering the
trajectory of social, political and economic development, with the birth of
more and more powerful interest groups and the effects of their actions had not
yet been seen. The 46-year duration, is capable of developing the action and
results of the interest groups.
In this paper, reference will be made to the empirical
study of the effects of the action of interest groups, as important indications
reaffirm Olson's theory in the case of Greece. More specifically, the
verification of the implementation of the second implication in the case of
Greece will be explained. The lack of adaptation to new technologies will be
analysed, as it is a significant factor in slowing down the development of the
economy. The factors that led to the rise of the Greek economy will also be
mentioned, as well as the causes that led it to decline and to the brink of
bankruptcy in 2012 and further decline in 2015.
The second implication in the Rise and Decline of
nations, has the meaning that countries which are not involved in any war or
conflict that would result in border change [1], or countries which have stable
political system and strong governments democratic elected by the citizens,
have the tend to accumulate more and more collusions and interest groups for
collective action over time. Sclerotic effects also tend to be stronger in
democratic nations, but are dependent upon how strict a definition of democracy
is used [31].
Greece after the end of the Second World War, had the
misfortune to start a civil war (1946-1949), where it gave the gratuitous shot
to its economy. When the rest of the European countries closed their wounds and
proceeded with the industrialization and development of entrepreneurship and
trade, even the great losers of the war, in Greece there was a civil war and
this resulted the delay in the beginning of economic development. It had to
deal with the destruction of the productive fabric, foreign borrowing, high
public debt and the political crisis due to weak governments. Despite these
problems, after 1955 there was a high rate of growth in the country's GDP, but
in 1967 the country experienced another political instability, the imposition
of the colonel’s coup, which lasted eight (8) years, until 1974.
The second implication of Olson’s theory, confirmed
for Greece for the time period after the colonel’s coup (1967-1974). After the
fall of the dictatorship in 1974, Greece had a stable democratic political
system until today. Important changes regarding the role of interests in the
social dialogue have been taking place since 1974 on both the socio-political
and the legal institutional front. The Constitution of 1975 marks an important
shift in a number of ways: for example, by guaranteeing the right to form
unions and the right to strike. The Constitution protects the right to form
associations as well as the right not to be involved in collective (public)
activity [32].
Thus, after 1974 in modern Greek society includes
trade unions, business associations, chambers, freelancers associations,
ecclesiastical organizations, associations and unions based on their place of
origin, informal groupings of people in provincial towns, and many others,
where each group works in its own way to promote its interests [33].
Especially for the trade and labour unions, mainly in
the public sector, they grew in the 1980s with powerful presidents who spoke
directly to government ministers or even the prime minister [32]. All political
parties follow the model, to transform the occupational interest groups into
“transmission belts” of their policies and therefore for their indirect control
[34,35]. The relationship between the parties and even the ruling party with
the country's interest groups creates an environment of strengthening these
groups and weakening the institutions.
A thorough analysis for the complex interactions
between the various government branches, interest groups, voters and the media
in the context of the weak Greek institutions, is provided by Pelagidis [36,37].
For the way in which the various interest groups in
Greece acted and functioned, their relations with the respective government,
the government corruption and the general corruption of the public sector, the
bureaucracy of the public sector, the pluralism, and even the premature or
successive elections, is the result of pressure from interest groups and for
all this, Greek political scientists, sociologists and economists have reported
extensively on publications, books and newspaper articles [38-40].
The interest groups in Greece are very active and the
results of their action are reflected in the country's economy, as mentioned in
the seventh impact of Olson's theory. It states that, distributional coalitions
due to interest groups, slow down a society’s capacity to adopt new
technologies and to reallocate resources in response to changing conditions,
and thereby reduce the rate of economic growth.
Special interest groups slow down growth by reducing
the rate at which resources are distributed from one activity or sector to
another in response to new technologies or conditions. An obvious way to do
this is by demanding government guarantees on debt redemption for businesses in
recession, delaying or preventing the transfer of resources to areas where they
would have higher productivity rates [41]. Increasing productivity means that
resources should be reallocated if they are to maintain economic efficiency,
and society should fully exploit the rise in productivity.
Required resource reallocations will be prevented or
they will be delayed by entry barriers. Even if there is no accumulation of
special interest groups over time, barriers for reallocation of resources that
are created by such groups would reduce the growth rate and the absolute level
of income [42].
The slower adoption of new technologies and entry
barriers can often remove a lot more from the total production capacity of a
society than that which the special interest group removes, particularly in the
long term.
It is remarkable the similitude between Greek interest
groups and Vikings that use Mitsopoulos in the first chapter of the book,
Understanding the crisis in Greece. These groups act within the society with a
“hit and run” strategy, exactly like the first Vikings, whenever they spot a
pool of rent, such as an uncompetitive market for example. They also form
immediately loose alliances with other groups whenever any pool of rent is
threatened by a reform, as they realize that the groups whose rent they defend
today will also rush to support them as soon as their pool of rent is
threatened by another reform-minded politician or a European Union
legislation/directive. In this process, these groups fully take advantage of both
the lack of checks in the system that would allow the interested general public
to object to such a raid and the meticulously established lack of transparency
[37].
Greece has a large number of special interest groups
which have developed various entry barriers; they slow down the adoption of new
technologies, particularly in the public sector, and have diverted the
long-term incentives in society. The prices of many goods and services are very
high compared with other European countries due to a lack of healthy
competition. Interest groups have altered the development of Greek society,
making the dream of every young person to get a highly paid position in
privileged state companies with the main privilege being early retirement. In
his thorough study for Greece, conclude that special interest groups in Greece
are detrimental to economic growth, full employment, prudent governance, equal
opportunities and social mobility [43].
The lack of technological innovation in Greece is a cause of the retard growth of Greek economy as a result of the influence of special interest groups in the economy. In many productive sectors of the country could use new technologies in order to help significantly to improve the derived product or service, or to help them in advertising and sale of that product. As an example, we notice the tourism sector which is the “heavy industry” of the country and participates with the highest rate in the creation of the country’s GDP. However hoteliers not seem willing to use new technologies in their businesses, either to acquire the customers the best hotel experience during their vacations, or for the organization and management of their tourist unit. The government even today, subsidize unemployed to create their own jobs, by directing them in classic professions, such as doctors, engineers, trade, retail stores, instead directs them in innovative and specialized professions or to subsidize a new idea in start-up’s companies. There are many examples in Greece the last 46 years that confirm the action of interest groups to slow down the technical progress and innovation in the country. It is interesting to develop the more obvious sources of purely rational resistance to innovation, as Mokyr (2000) studies in his article.
Fear of job cuts
A major fear of workers, mostly unskilled, is that technological change can break down their jobs. Therefore, trade unions oppose any innovative change as they consider that not only will new jobs be created to register new members, but that redundancies will follow, so that their members, and thus their power, will be reduced. Employees know that it is very difficult to stop a technological breakthrough planned for their sector, but they can delay it. Thus, in the Greek public sector, the phenomenon of workers has been observed to invent bureaucratic obstacles to prevent their installation and use, or deliberately not to use computers or other applications to delay the implementation of any technological reform [44,45]. A prominent example is the reform of e-government in Greece [37,44,45], where digital certificates, digital signatures, e-documents between public services and others is proceeding very slowly.
Financial cost
When new products and technologies replace existing ones, large companies may lose a significant market share or even go out of the market. Owners of these companies react by trying to delay or block the introduction of new technologies, especially if their adaptation is difficult or very costly.
Negative effects
New technologies are being criticized by groups with different economic interests because of the negative effects they may have. Nuclear, genetically modified food, wind farms and large department stores, as well as many other innovative practices, cause fear in society because of the negative effects they can cause. There is the state's duty to choose what to stop and which to allow it to be implemented. For years, Greece had to turn to the production of energy from renewable energy sources. Many groups in the name of environmental degradation block the installation of wind turbines and photovoltaic systems, but they do not react at all to the operation of the Public Power Company plants, which emit thousands of tons of polluting gases from the burning of coal and oil [46,47].
Uncertainty
Every innovation creates uncertainty and market shifts
for who is going to get more profitable than its implementation. There is
uncertainty when the state does not legislate in time for operating rules and
does not explain the benefits of users. Especially when uncertainty grows for a
large professional team [44], then it exerts the strongest political pressures
to put barriers to the development of this innovation. Nowadays, an example of
this is the application of the "sharing economy", with the most
famous application of the short-term lease of real estate by individuals and
professionals of Airbnb, Home away etc. and in the transport sector of Uber,
Beat, etc. Airbnb already booms in our country as it is still a customer
approach channel for accommodation facilitating access to the vast global
market. It works as an online broker between two clients to reach a mutual
agreement, receiving a fee from both parties. It threatens online travel
agencies such as Booking.com, Expedia, etc. In Greece, many accommodation is
still illegally hired through various platforms (one of which is Airbnb),
despite the state has set up the site provided by the law, where it be
registered and each accommodation is certified, and each booking data is
entered online after the departure of the customer. The result is the creation
of unfair competition due to concealment of incomes and a more favourable tax
treatment than legally registered businesses renting their accommodation, which
pay excessive taxes and insurance contributions. This unfair competition
creates reactions from the affected professionals. The state is obstructing and
does not implement the relevant legislation, resulting in the uncontrolled
rental of dwellings that there are no houses for long-term lease, which causes
further reactions.
On January 1, 2002, Greece and eleven other European
countries acquired the common currency, the euro, upon joining the Economic and
Monetary Union (E.M.U.) of the European Union.
Greece's accession to the E.M.U. of the European
Union, follows the successful course of the convergence of fiscal figures and
the achievement during 2000 of the criteria for converging the Maastricht
Treaty on inflation, the general government deficit, public debt, the exchange
rate mechanism and the long-term lending rate.
Greece from 2001 to 2005 was found to be violating the
criterion for a deficit below 3% of the Stability Pact, which was intended to
ensure that states after joining the Euro-zone and meeting the Maastricht
criteria, continue to meet the convergence criteria. However, under the
tolerance of the European Union, the economy of the country was found from 2002
and until 2009 to be evaluated by all three international rating agencies with
A or even A +, by Moody's and now belongs to countries with high
creditworthiness (Michalopoulos 2010).
The country was faced with a great historical
opportunity as all the doors of the international markets were wide open. As an
economically equal member of the Euro-zone, it could be borrowed from
international markets very easily, whichever amount it wanted, whenever it
wanted, and even with a relatively small interest rate.
Figure 1 shows that from 2002-2008 the lending rate of 5-year bonds ranged from 3.6% to 5% and was at historically low levels, as before 1995 it had exceeded 20%.
Figure 1: Average annual interest rate on the five-year Greek bond, for the period 1992-2019. (Source: Bank of Greece).
The country had a golden opportunity in front of it,
it could borrow uninterruptedly money with extremely low interest and with an
organized plan together with the banks they could lay the foundations for
significant enhancement of productivity, technology, re-industrialization of
Greek products and exports in order to create new jobs, make the Greek economy
more competitive, but also shield it in the face of future crises.
Instead, much of the 10-year bonds in early 2000 were
spent on the 2004 Olympics and the construction of new high-cost sports
facilities that are ultimately abandoned to this day. It is also important
that, state loans were consumed by early retirements below the national
retirement age, as was the case for 75.12% of civil servants retiring, 75.88%
of the insured citizens in the Institute of Social Insurance and 91.6% of
insured persons in the “noble” insurance funds. Annual public expenditure on
insurance ranged between 120% and 237% of non-state resources of the insurance
system, in the 2000s. Therefore, the State did not just finance pensions, but
instead for many years, it allocated resources that significantly exceeded the
annual income of the insurance system.
Cumulatively [39], insurance deficits covered by
government funds [38], because of the interest groups pressures for early
retirement accounted for 83.6% of the increase in government debt over the
period 2000-2009. According to recent data from the Uniform Carrier of Social
Security [38,43], the ratio between workers and pensioners is 1.3 employees per
1 pensioner, in contrast to the analogy that applies in all developed
economies, where the ratio is 4 employees per pensioner. This disastrous
analogy was created by the “Labour” interest groups that have been pushing for
early retirement for many years, with 75% of pensioners under the age of 65.
Also, in the period 2002-2010, the gigantism of the
public sector is an indisputable fact as within 8 years, the number of civil
servants doubled, and (Figure 2). The borrowing covered the expenses for new
recruitments in the wider public sector, but also salary increase by providing
new high benefits to specific union groups for purely pre-election purposes,
while in state-owned plutocratic classes it easily channeled a large percentage
of borrowed funds abroad.
Figure 2: Number of public servants in Greece, for the period 1974-2013.
The record of the Greek economy in 2009, with high GDP
and high private consumption, was not real. This prosperity was not due to
investment, entrepreneurship, the high export index, the use of new
technologies, or the exploitation of natural wealth, but to abroad borrowing.
In 2010, lending was so high that the country could not manage it and it joined
the International Monetary Fund (IMF).
Since 2009, the lending rate for 5-year and 10-year
bonds has been on the rise, remaining at high levels for many years, making
international lending prohibitive.
As can be seen from the (Figure 1), Greece for the years 2012 and 2013 could not borrow from the international markets. Interest rates were so high that she made no effort to borrow, as the needs of her debts were covered by the first Memorandum of Understanding (MoU), under the supervision of the European Commission, the European Bank and the International Monetary Fund (IMF).
Figure 3: GDP of Greece (Source: Hellenic Statistic Authority).
In 1974 the GDP of Greece was at 2, 23 billion euro
and few years later in 1981 was at 7, 1 billion euro. In ten years 1981-1991
the Greek GDP multiplied eight times and reached at 56, 1 billion euro, (Figure
3). Who was the factor of the significant increasing of GDP, when the same
period of time the public sector of Greece was growing up with a high rate and
the government spending? The answer is the borrowing from the international
markets with a significant high interest rate, where sometimes exceeded the
20%.
The external borrowing level of Greece in 1974 was
low. That gave the chance in Greek government between 1981-1990, to borrow
again and again without a strategic plan that could create new jobs and
developed but just to satisfy the interest groups, refer in their study that,
over the last 40 years interest groups. Atsalakis, Galariotis and Zopounidis
2019 have absorbed more than 800 billion euro of subsidies and loans and all
they have done is to bankrupt the country.
The modern researchers for the action of interest
groups in Greece, refers to their role from the 1974 onwards, after the falling
of dictatorship. This report by researchers is not accidental. Essentially, it
is the application of the second impact of Olson's theory in Greece, where in
countries with political stability and immovable borders, the development of
interest groups is favoured. Thus, with evidence, the researchers' references
to the work of the interest groups in Greece are fully confirmed by the second implication
of Olson in Greece. Except the confirmation of the second implication of
Olson’s theory in the case of Greece [42] another one implication is confirmed
either, the seventh. Distributional coalitions due to interest groups, slow
down the ability of Greece society to adopt new technologies, reallocate
resources in response to changing conditions, and thereby reduce the rate of economic
growth. A relevant study has been done, for many European countries, including
Greece, where Greece for the period 2000-2014 is classified in the positions
with a high impact of interest groups on its economy and its growth rate. The
above conclusion is also confirmed by the administrator of the Bank of Greece
where in his speech. The Hellenic American Union, states that, according to the
World Economic Forum's World Competitiveness Report, in the indicators related
to the effective functioning of the institutions, Greece in 2016 shows
stagnation and deterioration, taking the last place in the ranking (87th).
Serious obstacles to entrepreneurship are, according to the report, inefficient
bureaucracy, high taxes on the country's per capita income, tax rates, delays
in the administration of justice and uncertain economic environment. Even
Greece's participation in the Euro-zone did not limit the action of these
groups [47], but they also found fertile ground and enough money from the banks
to satisfy their financial interests (Rise). The result was that Greece
remained economically weak, without a stable and serious fiscal policy, and
found itself completely unprepared for the vortex of the economic crisis in
2008, on the brink of collapse and bankruptcy (Decline).