Greece’s Problem is Kleptocracy.

Most discussion about Greece misses the underlying cause of the economic crisis there. The fact is that Greece is a kleptocracy. “Kleptocracy” means, more or less, rule by thieves. I am not suggesting that most of this thievery is illegal. Most of it is legal. This nation which is supposed to be the birthplace of democracy is, at present, anything but a democracy.

Kleptocracy groups in Greece are disparate. These include doctors, tax collectors, government ministers and their families, notaries public, lawyers, and truckers to less well-known cases such as loaders and unloaders in ports and public markets as well as trade unionists in publicly owned enterprises.

Austerity as imposed by EU banks will, unless large changes occur, mean austerity for those being screwed by the kleptocracy groups.

What ECB and the citizens of Greece should be demanding is an end of the power of these groups and the return of democracy.

Greece is unable to grow its economy because of the entrenched powers of these groups. It is difficult, if not impossible, to start new businesses when existing ones have so much control over the political and financial processes that they can prevent new businesses from coming into being.

To quote a paper written in 2009 by Michael Mitsopoulos and Theodore Pelagidis:

In Greece today there are numerous groups that act like the Vikings, in the sense that they grab anything they can while roaming freely through various aspects of social and economic activity. At the same time, the existence of pools of rent is widespread throughout the economy as a result of government regulations that aim specifically to create such rents by obstructing competition, but also by reducing transparency and accountability in the management of public funds in a way that allows the proliferation of rent seeking.

These groups draw a significant advantage from their small size. They do not contain free riders that could undermine the group’s agenda or fail to contribute actively toward it. These groups exhaust most of their available time and power to defend their privileges of a comfortable income that does not require them to work. They promote legislation that will favor them and constantly seek new opportunities that could increase their rents. In this effort, they rationally invest time and money to influence policymakers and the administration.

These authors use the following words to describe the modus of Greek kleptocracy.

We argue that these numerous rent-seeking groups curtail competition in the product and services markets, increase red tape and administrative burdens, and actively seek to establish opacity in all administrative and legal processes in order to form an environment in which they will be able to increase the rents they extract. At the same time, they actively strive to ensure that the rule of law fails to such an extent that the society will not be able to hold them accountable for their actions.

At present the situation in Greece is weird. This week civil servants protested with a 24-hour strike that disrupted public transport and shut down state-run services across the country. Pharmacies joined in with their own 24-hour strike to object to the austerity deal, which will allow some non-prescription drugs to be sold by supermarkets. Kleptocracy seeking to preserve itself.

The people of Greece need to realize that while EU banks may have been complicit by making loans without demanding a dismantling of the kleptocracy it is the case that only the citizens of Greece can end this. This is a country which has elected a Marxist government thinking that somehow this was a solution. Greece was screwed up long before Marxists gained control of the government. This is not about Marxism or socialism vs. capitalism but about getting rid of these disparate, entrenched powers. Worse yet, the average Greek worker has some of the longest hours and lowest wages of any EU nation.

In addition, there is reporting that some of the higher income kleptocrats offshore their assets and evade taxation.
Kleptocracy in Greece remains well disguised because it does not fit the usual simple-minded choices of: business is the problem, labor is the problem, or government is the problem. Kleptocracy in Greece has a well-diversified portfolio.
The reactions that markets have had to the news about Greece completely miss the point that absolutely zero is being done to cure the root problem with the Greek economy. The kleptocrats have been quite successful in keeping the problem out of the media or public discussion.
Fixing this will be extremely difficult, take years, and try the patience of the EU and Eurozone members.

Before you ask if anything such as this exists in the USA the answer is most certainly “yes” but that is a discussion for another week.