By V. Kostoulas
High taxes and the unproductive manner in which revenues are spent keep Greece’s competitiveness ratings at near Third World levels, World Economic Forum economist Silja Baller stressed this week, in an interview with “N”.
Greece clearly remains below the global average in terms of public administration’s effectiveness, a sector where it appears unable to attract and retain top-notch personnel.
Baller, whose scope covers Europe for the WEF, warned that Greece is falling behind other European states. Τhe country is unable to exploit its human resources and capital towards generating added value to its economy. Therefore, instead of creating more products and services, it’s producing more debt.
An Interview with Baller follows:
1. What has caused Greece’s drop, by 5 positions, in the World Economic Forum’s competitiveness index in 2016? What were the changes that led to this development?
While Greece drops by five spots in the GCI this year, its overall score remains practically unchanged. The implication here is that the real cause for concern for Greece is that it is falling behind the rate at which other nations are improving.
2. We are seeing the third adjustment program for the Greek economy. However, a drastic improvement in competitiveness has not been achieved yet. What is the problem in Greece?
The GCI suggests that weaknesses in Greek competitiveness are particularly concentrated in three core areas; its macroeconomic environment (rank 131), labour market efficiency (rank 114), financial market development (rank 136); in particular the weakness in the latter two means that it is difficult for workers and capital to be employed in the most productive way.
Encouragingly, we do see upticks in certain dimensions of competitiveness; for example business executives’ perception of technological readiness (although the country will have to move faster in order to gain in the rankings) and innovation performance has improved; in particular, executives perceive company R&D spending (up 23 ranks to 90) and government procurement of advanced tech (up 12 ranks to 121) to have picked up. Better functioning labour markets and greater availability of capital for innovative and productive firms will be crucial in capitalizing on this positive momentum.
3. Which areas of competitiveness is the Greek economy deficient in and which are the areas that present the highest performance? The GCI suggests that weaknesses in Greek competitiveness are particularly concentrated in the macro/financial dimension as well as labour market efficiency (macroeconomic environment: rank 131; labour market efficiency: rank 114; financial market development, rank 136). On the other hand, the economy performs most strongly on infrastructure (rank 37), higher education and training (45), health and primary education (46).
4. How do you assess the development of Greek exports in the recent years? Exports as a percentage of GDP have been fluctuating around 30% in recent years, no strong trends are discernible since 2013; however, over the same period Greece has moved up from 109th rank to 84th rank in terms of this particular indicator, suggesting that the country is coping relatively better than other countries with global economic developments.
5. Labor costs have dropped drastically in Greece during the crisis years. Do you consider that further interventions are required in the labor environment? Οr must the reform effort turn to different sectors? The GCI registers significant improvements in alignment between pay and productivity (86 this year up from 129 in 2013/14). However, labour market efficiency is still one of the weaker areas in the Greek competitiveness profile (overall rank of 114), so sustained effort in this area will continue to be important. This is especially true in terms of its ability to attract and retain talent, which will be crucial in attracting high-value, sophisticated businesses.
6. How important is the role of public administration vis-a-vis the competitiveness of an economy, and how do you assess this parameter in the Greek case? An efficient public administration is a key component of competitiveness, as it both underpins the functioning of markets and is needed to address market failures where they arise; the GCI captures this dimension mainly under the heading of institutions. While Greece still places in the bottom half of the ranking for this particular indicator (81st), it has seen improvements in recent years, moving up 21 places since 2013.
7. To what extent does the level of public debt affect the competitiveness of Greece? Would you say that the participation in the Eurozone reduces the country’s risk? The level of public debt places a constraint on governments’ room to manoeuvre and drives up interest rates, which in turn dampens investment. Greek debt levels are still extremely high at almost 180% of GDP placing the country 137 out of 138 economies ranked. Committing to the budget rules of the Eurozone helps to reduce the risk of default.
8. How do you assess tax policy in Greece? Do you consider that the tax burden is high? Is this part of the solution or part of the problem? Greece has a comparatively high business tax rate, ranking 109th overall. While the level of business taxation affects investment decisions, another important consideration from the point of view of competitiveness is how the collected tax revenue is spent: some of the most competitive economies in the world also have high tax burdens.
9. Switzerland, Singapore, the USA and the Netherlands are the most competitive economies in 2016. How would you summarize the common characteristics of these economies? Each of these economies has a different recipe for success. Switzerland and the Netherlands are the countries which have the most consistent performance across all components of competitiveness whereas the other countries show exceptional performance on some of the components. For Singapore it is infrastructure, higher education and training, and goods market efficiency that propels the Asian nation to its high ranking. The US is 3rd, with innovation, market size and financial market development among the areas of strength.
10. In Greece, the view that the concept of competitiveness works to the detriment of the welfare state is often cited. What is your opinion? Competitiveness and social inclusion can reinforce each other in many ways and there is certainly a large win-win policy space which can be exploited. While redistribution has its role to play in terms of achieving inclusion, pre-distribution in order to ensure equality of opportunity is equally important. Switzerland, the Netherlands, Finland and Norway are all examples of countries which have achieved high levels of competitiveness and inclusion at the same time. The key to both competitiveness and inclusion, beyond basics such as high quality health care and education, is to avoid the concentration of market power, giving everyone in the economy a chance to participate on equal terms.
