Greece: Inefficiency Illustrated

Here's a puzzle.  If you read about the Greek financial crisis in the press -- general or "high-end" financial press, it makes no difference -- you will undoubtedly encounter the pronouncements of European officials (and others) that the Greek economy is so terribly inefficient, so bureaucratically hidebound, that massive reform is a precondition for any improvement in Greek economic conditions, not to mention a precondition for any forbearance on Greek public debt.

But if, instead of the press, you read the official statistics published by the Eurogroup, you learn that, prior to the 2010 crisis itself, Greece was simply a slightly-below-average European economy.  Not great, but hardly the borderline-Third World country we are invited to imagine by the public narrative.

Where does this dissonance come from?  And, more to the point, what drives the passion with which the "Greek way" is condemned?

To try to answer these questions, I need to employ a couple of cultural stereotypes as shorthand (Aside 1).  Specifically, I'm going to resort to the notions of Anglo-Saxon and Mediterranean political cultures. Yes, that again.  But bear with me.

Now, try as we might, nobody gets passionate about statistics.  Data may play a role in forming our opinions, but to really rile us up takes an anecdote.  So here is one:

This [the difficulty of doing business in Greece] is best encapsulated in an anecdote from my visit to Athens. A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales.  However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. 

Source:  Megan Greene, H/T: Tim Taylor, H/T: Mark Thoma  

If, like me (Aside 2), you are a product of Anglo-Saxon political culture, this sort of thing probably makes you crazy.  The waitress has to across the street to get the coffee?  It's bizarre, somewhere between jaw-droppingly stupid and flatly outrageous.  What sort of government makes rules so dumb that that is the only way to comply?

But stop for a moment, count to ten, take a deep breath, and ask yourself: how much actual economic waste is taking place in this story?  The café employs a waitress to fetch coffee from across the street. Well, yes, but many cafés do employ waitresses, even when the coffee is made inside the establishment. The trip is certainly longer than the trip to an in-house coffee maker, which probably means that she'll have less time to perform the sort of tasks that servers do between taking and delivering orders. So, there is clearly some economic cost.  But, on reflection, it doesn't seem likely to be very large.

More to the point, the emotional impact on the Anglo-Saxon mind  of this anecdote is probably disproportionate to the actual economic cost by quite a wide margin.  Eye-popping as anecdotes like this are (and there are lots of anecdotes), they may be perfectly consistent with a no-worse-than-mediocre aggregate economic performance.  And remember:  "average" EU output per capita is actually pretty rich by global standards.

One more cultural point: The first thing that strikes the Anglo-Saxon mind about the law in the cafe anecdote is: what a silly law that was to make.   I suspect that the first thing to strike the Mediterranean mind would be: what a silly law that was to obey.  The Anglo-Saxon asks: what were the lawmakers thinking?  The Mediterranean asks: why didn't the cafe owner just buy the coffee machine and not tell anyone?

To the Anglo-Saxon, rules are rules.  (All the more important not to make silly ones in the first place!)  To the Mediterranean, rules -- at least silly ones -- are meant to be broken, often in exchange for a "small fee."  (Joke: bribes are what Greeks pay instead of taxes.)

Here's the thing: doing business in a Mediterranean culture is tricky enough if  the "Mediterranean Way" is your native tongue.  It's darned near impossible (and sometimes literally impossible) if, Anglo-Saxon-style, you actually try to follow the rules as written.  

Which means, by the way, that the Mediterranean Way can function as a non-tariff trade barrier, protecting domestic businesses from Anglo-Saxon competition.  I'll have more to say about that, and its relevance to the particular reforms being pressed on Greece by its creditors, in a later post.






Aside 1:  Employing stereotypes like this is always a bit dubious, and if there's anything worse than economists going out in a "blaze of amateur sociology," it's going out in a blaze of amateur cultural anthropology.  The reader should take appropriate cognitive precautions.

Aside 2:  I'm actually a bit of a hybrid.  My father's family is from southern Italy and Sicily; my mother is descended from English Methodists.  But in terms of political culture, I seem to be firmly anchored in the Anglo-Saxon way of thinking.  Make of that what you will.