Wednesday, July 25, 2012

A good Greek story

Matt Jacobs sent along a link to a great story from Greece on Reuters,  "Lessons in a shrimp farm's travails." The whole article is worth reading, but here are a few tidbits:
Just over a decade ago, Napoleon Tsanis set out from Sydney with 11 million euros and a dream to build a shrimp farm in his ancestral homeland... What he got was years of wrestling Greek bureaucracy and a court battle with a civil servant...

it's the civil servants that are throwing you into this labyrinth on purpose," Tsanis, 44, said. "The law gives them the latitude to delay you or punish you."

...A process that would take just two or three months to complete in Australia got stuck in a maze of official opinions and permits across several ministries. Greek politicians assured him that the paperwork would be done in 18 months, but that date came and went with no progress.

... then, though, another law change that sought to keep aquaculture projects small meant Tsanis had to break up his farm into sections to go ahead.

...One of the main obstacles to more investment is the legal jumble that dictates how Greek businesses work. Even government officials admit the lack of clear laws and the endless requests for opinions, studies and permits are there to give work to unionized specialists.

"There are whole businesses and technical offices employing engineers and experts specifically for the purpose of licensing," said Tsakanikas at the IOBE think tank.

Red tape often leads to corruption.

Tsanis said he steadfastly refused to bribe anyone. In one incident, in 2005, he appealed to a minister in Athens to get a permit unstuck. "The minister called in the public servant who was refusing to give us the permit and ordered him to issue it the next morning," he said, declining to specify the minister or ministry involved. "When we went back to get it, the civil servant told me: 'Australian, that guy is a politician and he'll be gone tomorrow, but I'll be here waiting for you.

The only European Union country not to have a fully functioning land registry - despite collecting EU funds to set it up and then paying penalties when it failed to do so - Greece still lacks a comprehensive zoning law and building rules.

"Several interests prefer a fuzzy system they can manipulate," Papaconstantinou said. "We must simplify building permits, which are a hub of corruption."

After his shrimp farm opened, Tsanis had hoped to build a 120 million euro golf resort. But when the local authorities decided they didn't want it, he opted not to fight.

This story rings with several of the themes on this blog, and I can't resist hitting you over the head a bit.

The nature of "regulation." In the popular discussion "regulation" means a wise system of rules that keep order in markets. Here is regulation in action.

There are different kinds of regulation. This is "regulation" by a deliberately vague forest of laws and rules, which give great discretionary power to the functionaries who administer those regulations. And clearly, they and their cronies like to keep it that way.

This is not "regulation" by clear rules, which you can quickly appeal in court if they are misapplied. The lack of title, zoning, and property rights falls in the same bucket.

Let us not feel superior, fellow Americans. This is the system of regulation to which we are crashing. Dodd Frank and Obamacare look a lot like Greek zoning laws, as far as the power of appointed officials vs. the rule of law are concerned.

Currency. Many of my macroeconomics colleagues think the main problem with the Greek economy is an "overvalued" exchange rate and thus too high wages. Rather than see high unemployment drive down wages that are "sticky" by some magic mechanism (even Paul Krugman admits he doesn't really know why wages are "sticky"), they would like to see Greece have a Drachma to devalue, or what the heck, devalue the whole euorozone, as even Anil Kashyap and Martin Feldstein have recently argued, along with Austan Goolsbee and more reliable liberals.

How much of Mr. Tsanis' troubles does this analysis describe? Not zero, in fact. The article says
He survived, he said, thanks to the 30 percent appreciation of the Australian dollar versus the euro in recent years
He doesn't even mention wages. I guess you have to open a factory before you have to start paying people.

You assign a percentage. Add up whether, faced with this story, the first thing you want to do is devalue the currency, or maybe if as economists we should be writing opeds about "shock liberalization" instead. Decide if this economy will liberalize on its own, given time, and "breathing space" by more German subsidies.

Micro vs. macro. In Greece's slump, as in ours, how much is this, "microeconomic" problems solveable only by micro liberalization, and how much is "macroeconomic," solveable by central banks, "stimulus" programs and the like?