1) Greece experienced decades of welfare populism from 1981-2011 where it accumulated large debts through government overspending, borrowing, and minimal structural reforms. 2) This led to a bloated welfare state with inefficient social programs and powerful public sector unions, and a culture of corruption, cronyism and rent-seeking that stifled economic freedom. 3) Greece now has high debts, deficits, and unemployment and a weak economy in need of regulatory, tax, welfare and institutional reforms to transition to more inclusive economic institutions and market-based growth.

1. Welfare Populism
and the Greek Crisis
Aristides N. Hatzis
Associate Professor
Philosophy of Law & Theory of Institutions
Ph.D. (Law & Econ, U of Chicago)
European Students for Liberty
Sofia, Oct. 17, 2015

3.  1929-1936: Anomalous political situation
 1936-1940: Dictatorship
 1940-1944: Word War II
 1944-1949: Civil War
 1949-1967: Illiberal Democracy
 1967-1974: Dictatorship
 1974- : Constitutional Liberal Democracy

4. 1980: The 10th Member of the
European Communities
Greece circa 1980
public debt: 28% of GDP
deficit: < 3% of GDP
unemployment: 2-3%
average growth rate 1975-1980: 4.6%
inflation: 25% (due to the second oil crisis)

5. 1981: PASOK

6. A modern Greek Tragedy

7. 1981-2011: From Miracle to Nightmare
 30 years of getting subsidies from the EU,
borrowing and spending
 Minimal structural reforms
 Anti-market bias
 The state controlled about 75% of all business
assets
 Bloated welfare state

8. Borrowed Happiness
 average per capita income: $31,700 (2008)
 25th in the world (95% to the EU average)
 private spending: 12% more than the EU average
(2009)
 human development and quality of life indices: 22nd
in the world (2010)

9. 1980-2010: the road to default
 1980 public debt: 28% of GDP
 1990 public debt: 89% of GDP
 2009 public debt: 142.8% of GDP
 almost 180% in late 2015, est. 200% in 2016
 1980 public deficit: <3% of GDP
 2009 public deficit: 15.4% of GDP
 1980 government spending: 29% of GDP
 2009 government spending: 53.1% of GDP

10. Greek public debt (percentage
of GDP)

12. Spending and Revenues: A Sad Story

13. GREECE 2010
 Public Debt: 142,8% of GDP
 €350 billion ($ 500 billion)
 Public Deficit: 15.4% of GDP
 “Growth”: -4.5% of GDP

14. Like there is no tomorrow!

15. A bloated Welfare State…
 Social benefits to households (percentage of GDP)
 from 22.0% (2004) to 26%.4 (2008) to 29.0% (2009)
 (from 2004 to 2009 “conservatives” ruled Greece)
 half of it went to pensions
 “social transfers” (subsidies to the pension funds of powerful
professional groups) equals 52% of this half – 6.34% of GDP in 2008.
 EC pension projections (2009)
 EU-27: 12.3% (2040) – 12.5 (2060)
 Ireland: 6.4% (2040) – 8.6% (2060)
 Portugal: 12.5% (2040) – 13.4% (2060)
 Spain: 13.2% (2040) – 15.1% (2060)
 Greece: 21.4% (2040) – 24.1% (2060)

20. An inefficient welfare state
The indicator of the efficiency of social
benefits in alleviating property is the worst in
the E.U. (13%, where the EU average is 35%
and some Scandinavian countries were as
efficient as 70%!).
In 2002 the indicator was a poor 4% with a
EU average of 31%.

21. A helping hand to the rich

23. Greek Public Servants

25. A political culture of
Statism
Protectionism
Corruption
Cronyism
Nepotism
Rent-seeking
Irresponsible spending

36. Back to the 1980s

37. Austerity: two types of
adjustment
[T]here has been a very big
divergence between tax-based and
expenditure-based fiscal
adjustments. The former have indeed
been very costly in terms of output
losses. The latter much less so.
Alesina et al. (2015), “Austerity in
2009-2013”

38. Greece is not a free-market
economy!

39.  Index of Economic Freedom-2015: 130/178
 Last in the EU
 Economic Freedom of the World-2014: 84/152
 Last in the EU
 Global Competitiveness Report-2014/5: 81/144
 Last in the EU
 ICC Open Markets Index: 48/75
 Last in the EU
Mostly Unfree...

40. Greece’s neighborhood

41.  Extractive economic institutions:
Designed by the politically
powerful elites to extract
resources from the rest of
society.
 Inclusive economic institutions: Secure
property rights, law and order, markets
and state support (public services and
regulation) for markets; open to
relatively free entry of new businesses;
uphold contracts; access to education
and opportunity for the great majority
of citizens, i.e., create incentives for
investment and innovation and a level
playing field.

42. The Greek trap
 A bloated inefficient “welfare state”
but also
 Tax evasion (as a social right)
 A huge inefficient public sector
 Corruption – essentially tolerated if not decriminalized
 Public sector union power
 Closed professions
 Overregulation to ensure rent-seeking
“A state made for the welfare of politically powerful pressure groups”

45. The Greek
Vikings*
Cost: €17-25 bn
* Pelagidis &
Mitsopoulos 2011

46. 1974-2005
171.600 regulations!
 3.430 laws
 20.580 presidential decrees
 114.905 ministerial decisions
 32.585 local government decisions
Institute for Regulatory Policy Research

47. Greek Extractive
Institutions
Index of Economic Freedom
Long-term score change (since1995)

53. Badly and urgently needed
Regulatory Reform
Taxation Reform
Welfare Reform
Institutional Reform

54. Conclusion
more market, more
growth, more jobs

55. Thank you!
ahatzis@phs.uoa.gr
English-language Facebook profile
https://www.facebook.com/aristides.hatzis2