By Apostolos Pittas and Panos Mourdoukoutas?
To emerge from depression, Greece must finally give up on socialism. Simply put, socialism does not work. It fails to promote economic development because it is not consistent with the fundamental principles of human behavior. By nature, human beings respond to incentives. However, socialism is a system that ignores incentives, restricts growth, and limits human potential. Its main objective of achieving equality is only met in the sense that everyone becomes equally poor and equally miserable. In Greece, specifically, socialism has managed to replace the admirable, ancient culture of meritocracy, competition, and fairness with a modern culture of nepotism and patronage, steering the country directly into crisis.
Immediately after World War II, Greece endured a brutal civil war between rightwing and leftwing forces. While the pro-western rightwing forces ultimately won, the legacy of the left did not fade. It returned with a vengeance in the 1980s, as PASOK, the dominant leftwing party, took power and implemented a series of socialist policies, restricting free markets, competition, and business enterprise. These restrictions, to a large extent, laid the foundation for the Greek debt crisis that erupted in 2010 and that continues today.
Greece should realize, therefore, that big government does not bring economic development. That’s the lesson from multiple historical examples of failed socialist projects, including that of the Soviet Union, Cuba, Venezuela, and North Korea. And as for the few socialist “success” stories that may be referenced in rebuttal, such as that of the Scandinavian countries, it should be noted that their success relies, to a significant degree, on the transfer of technology and innovation from other capitalist countries, predominantly the United States.
Additionally, Greece must realize that, in reality, decentralized free markets and competition foster economic development. The proof lies in the success of multiple western free market democracies, especially the United States and the United Kingdom. These countries created the conditions for economic dynamism, which include a culture of entrepreneurship, endogenous innovation, and institutions that support businesses. Unfortunately, this has not been the case for Greece, wherein over the last thirty years, successive governments have implemented socialist policies, creating rather than removing the barriers to economic progress.
This article, therefore, explores three particular socialist policies that impede economic development in Greece, relating to education, taxation, and the public sector.
Firstly, there’s the gorilla in the room: private universities. Adhering to the socialist view that education should be provided and centrally managed by the state, the Greek constitution prohibits private universities altogether. Article 16, Section 5 stipulates that “Education at university level shall be provided exclusively by institutions which are fully self-governed public law legal persons. These institutions shall operate under the supervision of the State.”
While it is noble of the state to provide affordable public higher education, it is by no means necessary or proper to restrict the option of private higher education. By prohibiting access to private education, socialism reduces the competition between academic institutions, and in the process, reduces the quality of the education provided. In this context, it is no wonder why Greece is exporting its professors and students to the United States and the rest of Europe! If Greece wants to increase the quality of its higher education and prevent a brain drain, it must, undoubtedly, legalize private universities.
Secondly, there’s the onerous tax system. Following the socialist prescription for high taxation, Greece maintains among highest tax rates in Europe, negatively impacting investments and business growth. The problem here is twofold. On the one hand, Greece needs to make tax rates competitive, to grow domestic businesses and attract foreign investments, and on the other hand, it needs to reduce tax evasion, to retain its wealth.
Currently, in Greece, if you make more than €40 thousand per year, your income tax rate is 45%. In the United States, by contrast, if you make between $37-$91 thousand, your income tax rate is 25%. That’s a huge difference. Effectively, it reduces an entrepreneur’s incentive and ability to do business in Greece. If Greece reduces its tax rates, it will be able to attract investments, grow the economy, and fulfill its debt obligations in the process.
Greece also has to close many loopholes to reduce tax evasion. Although it is difficult to measure, a recent study by Ernst & Young estimates that the “Revenue lost due to personal income tax evasion ranges from 1.9% to 4.7% of annual GDP.” This suggests that a considerable amount of revenue can be gained if the tax collection system is made to operate efficiently, which can be accomplished using better technology and oversight.
Thirdly, there’s the bloated public sector, which must be restructured to promote efficiency and to expand private sector opportunities. Replicating the socialist model of a large public sector, Greece has developed an unproductive bureaucracy. Currently, the public sector employs 1 out of every 5 Greek workers. For years, political parties have distributed public sector jobs in exchange for votes, a practice known as clientalism. This malpractice has to stop once and for all, and hiring must be done meritocratically. According to the World Economic Forum’s 2016-2017 Global Competitiveness Report, Greece ranks towards the bottom, 86th out of 138 countries in terms of economic competitiveness. This is a clear indicator that the oversized public sector is reducing Greek productivity, and hence, obstructing innovation and economic development.
The truth is that Greece needs more than just debt restructuring. It must completely shed its socialist values, and choose to adopt economic policies that enhance competition, free markets, entrepreneurship, and endogenous innovation. If Greece does so, then it will rise out of depression and have a bright future. The good news is that success is a choice- the choice to give up on socialism and adopt smart economic policies. Thus, Greece’s future is in its own hands.