Central Institutional Organization Commission

Transcription

Thank you for the invitation and I'm happy to be here with you When Niki invited me to come for this speech, she told me to talk from an economic viewpoint about Greece today, about how we see Greece and what led us here. and what I could suggest as an economist as solutions for this country. I wouldn't like to offer some solution, but I'd like to focus my speech on something that the economists seem to be discovering very recently that the solution appears to be diffused within society and I'd like to focus my attention on what we economists name civic capital or urban capital or social capital if you prefer, and I'll be more specific shortly but, let me give you a quick review on where Greece seems to stand today. Let me tell you the opinion of my colleagues. To my colleagues, Greece is a country where, even during the euphoria years, I'm referring to the past decade, to the past fifteen years unfortunately did not implement policies that would have been the optimum All those years, despite the great development of the country, we had negative budgets, more expenses than revenues the salaries increased maybe a little more than it should have and gradually our country, due to structural problems lost its competitiveness the previous speaker showed a competitiveness indicator of how poor our country is right now but even if we see other elements of productions such as exports, unfortunately the picture is not good at all In a way, my colleagues in the States they tell me, you had your party it's hangover time. Which is in someway good, I had a party like Niki said a couple of days earlier but it's different to wake up after a real party and having a hangover and unfortunately right now in Greece, I'm afraid it's not a hangover because the country goes through a very difficult situation We all have friends that were laid off, we all have relatives who may get a small pension that shrunk even more and unfortunately this crisis has hit all of us and mostly those in greater need. Niki, and I imagine all of you and most people in Greece are interested in why? I think, and I wouldn't like to focus much on why because most of you have already an explanation, but I think there is a consensus that there are two pillars on why we got where we are today. \ unfortunately we have a state that is very large and at the same time very inefficient caused mainly by populist policies but here, I'd like to bring to an issue that in bad politics there is always an offer but there is also a demand and we the economists, we always like to think that there is an equilibrium between the two and I'll concentrate on this part on my speech The second pillar, that is interdependent with the first one, is, that unfortunately in our country there is very little innovation, very little entrepreneurship because the state or some organized minorities, obstruct competition there is a terrifying distortion of competition, there are many obstacles for a young person to start a new business and all this creates a point of balance that deterministically led to today's situation We Greeks, we like very much to play the 'blame game', it must be somebody's fault I think it goes way back in our history so I imagine all of us that live and watch the news we have heard all possible explanations as to whom is to be blamed, some say it's the markets' fault, the bad politicians, some say it's the syndicates' fault it's globalization's fault I hear some saying, I think one of the speakers we'll say that it is European Union's fault, the banks' fault But I would like not to get into this blame game and to move on further I'll tell you why, from the perspective of a man who teaches econometrics to kids, all these explanations have an endogenous problem Maybe we have bad politicians because we want to have bad politicians Maybe we have not-good bankers because we want to be able to get a loan because we have someone's phone number and we call a friend All these explanations that I hear, are, what we economists call proximate causes Even if we measure, we measure at first level these are not the deep roots of the problem and I'd like in my speech, since I'm working on economics of development to concentrate on the deep roots of the problem that, to my opinion are two the first one is, the complete discredit and decay of institutions institutions such as justice, such as the supervising authorities and the second one, where I'd like to focus my speech on is the lack of what we call civic capital or if you prefer social capital or if you prefer urban capital to satisfy all political spectrum Let me tell you how we economists think about development in a boring way I'd say, we like to write down several production functions, where you put some inputs of production and you have a final outcome. The economists, mainly in the '60s, after WWII they believed that what separate the developed countries from the developing and the underdeveloped countries is that unfortunately countries from Africa for example, did not have the physical capital, didn't have human capital that the developed countries had therefore to the opinion of many economists, the whole problem lies in the scarcity of production resources It seems though, with a recent study, that we cannot explain the differences in income between the developed and the developing countries through this channel, there must be something else or we're missing something from the production factors there is something else aside human capital, labor and physical capital or possibly as many believe, the whole meat is in productivity. On how we use these production factors so as to get the final product. For example, a recent research shows that for some reason, the American the English entrepreneurs, are very good at utilizing the human capital compared to other entrepreneurs However, what seems to define the whole productivity, how the entrepreneurs can utilize what gets in the productive process seems that the most important parameter that defines the productivity of a country are institutions There is a very interesting recent study that shows the causal relevance between the quality of justice and the quality of the protective legal framework for investments and the meta-financial development and how easy the investors can have access to money at low rate There is a very interesting study showing that, corruption is highly obstructive specially to young people and young entrepreneurs and as I told you, it seems that it is in productivity and therefore in institutions, how we can explain the large differences between the developed and developing countries. Besides that, and I'd like to make a small detour to show that there is a very strong relation between how good is the legal system that is on the horizontal axis and how rich is a country so you see, our country is disproportionally rich to the very bad quality that offers to investors by protecting them But I'd like to go back, to the factors that go into the production process, the inputs of production And it is possible that we're missing something. Something beyond physical capital, labor and human capital that may influence the production process It seems from a very interesting recent study that this new capital is something that the political scientists have been discussing for many years ago, I think this study goes back as far as to Plato And what we call civic capital has to do with our deep beliefs that we have about society, our fellowmen, our friends if you want and how these, define the economic activity here I give you an other definition of social capital which are two concepts closely related Why urban or civic or social capital if you prefer is so important? Think of every transaction. Every transaction has an element of trust. I made a contract with Niki, that I had to come here from the States, maybe I wouldn't come Maybe I'd have gone on my honeymoon yesterday for example. There was, we didn't have the optimum contract, but there was some sort of trust between the two of us. Imagine a company that starts exporting products to another country. It needs, even with the best contract, some sort of trust. as it'll show soon, so, how we measure civic capital. One way to measure it, is via trust For example how much Greeks trust their fellow Greeks, how much they trust people from other countries My favorite indicator to value civic capital is blood donation It seems that there is a very high variance into people's willingness to donate blood That usually stays in the local community, even within Italy. Even within the United States. Not to mention between countries like the Nordic and Greece Another way to measure civic capital is, one of Greece's favorite sports, tax evasion Or how much we pollute the environment, meaning the trend of people throwing out their coffee while driving As much as it may seems weird to you, economists have started measuring such things, because, I think what economists bring to social studies is measurement and some techniques and it seems that our country is at the lowest position even in these sections What does this say to us and why is it interesting for economists? I'll tell you why, I'll simply show you what happens to the data this is a simple plot. On the horizontal axis you see a measure, the indicator of lack of trust that we don't trust our fellowmen when doing business And on the vertical axis, a standard development indicator, GDP per capita As you can see, there is a very strong relation Even if we focus on developed countries, OECD countries, Greece doesn't even show on the graph right here, it's somewhere here We have the smallest, lowest trust to people coming from our country or other countries and this seems to relate, as you see, very much with development The question is, WHY? The study shows that civic capital or trust counts towards many aspects of economic activity it counts very much on exports, because as you may understand it affects even more the sense of trust It highly affects when a young entrepreneur requests a loan, because in finance there is always a sense and an element of trust But I'd like to focus on the last research that shows the relation between trust and entrepreneurship Here you see the strong correlation between lack of trust and several bureaucratic and number of processes that obstruct entrepreneurship In countries like Greece, at least until recently, you had to go though infinite processes way many processes to start a new business In other countries like the Nordic you don't need to do many things Why? Because society has this trust that the entrepreneur is not there to steal or pollute the environment or to do something against society, but he's there to contribute to society, to contribute to himself to create wealth, which is desirable, and through that to contribute to the economic development of his fellow citizens This is the same relation with a difference. The fact that there are way too many bureaucratic procedures not only reveals the lack of trust but creates corruption by itself Here you see the graph for the developed countries, again Greece doesn't even show in the graph, at least not at this zooming Very high corruption, very high lack of trust What I want to say, is to focus a little more on the correlation between institutions and civic capital. As you saw, the constitutions, and by constitutions I refer to the judicial system and mainly the supervisory authorities, there is a very strong correlation with productivity that seems to explain the gap, how different are the developed from the developing countries and I'd like to tell you here my favorite research finding My favorite finding is from Italy where it seems that in villages or small towns or small communities, where there is high blood donation as a measurement of civic capital The bad politicians, either those involved in corruption cases or those that are a bit lazy to go to the parliament and vote for legislation or those who according to the newspapers seem to be very corrupted are replaced through the electoral procedure more quickly So it seems that the civic capital is there, like a check on political power, on policies created for all of us And for the last two minutes of my speech I'd like to focus on what creates this civic virtue it's a very nice concept that traces back to Plato and little later to Machiavelli As you may imagine, education counts, some relative values of society count that may relate to religion, But I'd like to focus on what we teach to children In this graph, you see on the vertical, an indicator on how much we trust our fellow citizen On the horizontal there is an indicator, which I'll explain shortly, that shows how different is the educational system in teaching our kids on a horizontal or vertical way Let me explain, in Greece where I went to school and in Athens Law School, I always kept notes The teacher gave a lecture, we kept notes and we were looking for a good student to take his/her notes and at the end we'd go to the exams In the States were I teach, next week when I'll return, I'll listen to my students giving a presentation on some finance issues The educational system in countries like the Nordics or the States or the UK fosters the communication between children, which have to learn to trust one another and this will stay with them in their lives when they start a business activity Let me show you the most sad graph I've probably shown in my life, I discovered it a couple of weeks ago On the vertical you see the indicator for lack of trust and on the horizontal, you see, on the horizontal axis you see an indicator that measures how important are to parents the words tolerance and respect in the upbringing of their children. It is based on questionnaires performed by an International Organization to parents with kids age 6-12 years old Unfortunately Greece, of all 64 countries, and you see there are countries like Pakistan, like China, like Vietnam has the lowest score It seems that Greek parents, that for me was a big surprise because my parents raised me with such terms We don't teach our children the basic values of tolerance and respect, that are necessary in economic activity when we have to do business with a Chinese or an Indian that have been raised with totally different values In the same questionnaire, it seems that the Greek parents do not invest at all on their children they do not teach them the word innovation and entrepreneurship But it seems that they teach their kids that they must become rich and perform well in their life So, there is this amazing paradox that we don't create to our kids these inputs. these factors that we know that are necessary in business activity that lead in development both of the individual, that is the desirable, and of society but at the same time we want them to achieve these, that is the paradox The good new are that, the research showed that the civic capital or the social capital is created during crises Think about the Greeks and how they reacted at the Italian invasion. Or remember the Greeks how they reacted at the Catastrophe of Asia Minor At a very large catastrophe. And all these researches that we have, even from other countries, unfortunately there is no study for Greece, show that when there is some war or some very bad event, like an earthquake, seems to create a trend in society to create social or if you prefer civic capital We must help, because it is clear that both of us must do better as individuals as well as together So, maybe this crisis is a bit of an opportunity to society to build this civic capital that unfortunately got lost the last 10-15 years maybe even more and I think, to conclude, there is an optimistic side and a little pessimistic If you see it from a totally financial view of some economist from the '60s, he'll say that Greece probably is not in a very bad position There is physical capital, although it has left, but it's quite easy to come back, Greece is a member of the European Union so it is very easy to bring capital from abroad There is available labor, unfortunately unemployment is very high, therefore there is labor supply Human capital, there is a lot in Greece and even more abroad What it seems that Greece needs, is institutions, which unfortunately have been completely degraded, there is a complete lack of people's respect towards basic institutions, that are required for entrepreneurship and mainly what is needed is this civic capital, this lack of trust that we have to get into a society where, although everyone will proceed on his own and this is the desirable in a capitalistic society, everyone to succeed through his/her investment on physical or human capital but at the same time to have this sense that all of us that we are here, for example, in this room, can make something good come from us so that the society will move forward Thank you very much and I apologize for the extra time