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Tomorrow's Economy

Greece: in search of growth, work and welfare after the crisis

21 June 2018

For a country still recovering from the trauma of the financial crisis, the digital revolution presents new threats - but also new opportunities

Authors
Sotiria Theodoropoulou
Author
Kotsolis at English Wikipedia

The fourth industrial revolution is driven by the fusion of technological developments such as the increases in processing capacity and the shrinking size of computers, the lower cost of data storage, the expanded access to affordable internet facilities, artificial intelligence and robotics (Schwab 2016). This fusion produces a cumulative transformative impact on economies, which goes far beyond the technology-related economic sectors, and affects even industries such as retailing, transport and construction (Mulas 2016).

Following the widespread diffusion of technology, entrepreneurship and innovation, both cornerstones of sustained economic growth, have become more affordable and delocalised. Innovation increasingly becomes ‘open’; it is being co-created by large firms, entrepreneurs and other actors, and comes from start ups located in more and less advanced economies, which creates new growth opportunities, especially for the latter (Mulas 2016).

The potential consequences posed by the fourth industrial revolution have already sparked a significant debate on employment and work around the world. The two most hotly debated factors are the prospect of automation and robots displacing humans from jobs, and the rise in employment in the so-called ‘gig’ or ‘platform economy’. The jobs most at risk of being automated are routine ones, whether cognitive or manual. This is likely to exacerbate the polarisation in the labour market, with jobs being created largely at the highly paid and lower paid ends of the spectrum (see Arnold et al. this volume). It is also likely to increase the pace of change in the skills that increase the employability of humans, which are likely to develop in directions that are difficult to predict (see Atkinson this volume). In view of these developments, softer skills such as creativity, communication, critical thinking and the ability to work collaboratively become ever more important for employability in the future (see Benhamou this volume).

On the other hand, while the spreading of platform or gig employment can improve the matching of labour demand with labour supply (see Aubrey this volume), it also arguably shifts risks from employers and clients to workers. This shift can undermine the relevance of the standard employment relationship for the provision of workers’ protection, and may have a negative impact on work and employment conditions (Drahokoupil and Piasna 2017; Doellgast this volume).

This contribution will look into the potential policy priorities that may be used to harness the opportunities, and may minimise the threats for work and welfare posed by the fourth industrial revolution for Greece, which is a particularly interesting case in this respect. Traditionally, a country with weak industry, and with an economy oriented towards low and low-to-medium levels of technological penetration in manufacturing and services, and a ‘digital laggard’, Greece has been the EU member most badly affected by the recent Eurozone crisis, as has been well documented. Attempts to find a more sustainable growth model and to undertake reforms to the organisation of work and welfare are thus a pressing concern for Greek policymakers. While the fourth industrial revolution could present growth opportunities for Greece, unless key policy initiatives are taken it could also exacerbate the existing problems of precarity and inequality in the labour market, and may pose challenges to the financing and strengthening of the Greek social safety net.

The chapter is structured as follows: the next section provides a broad-brush picture of the effects of the recent crisis in Greece. The following section discusses the strengths and weakness of Greece vis-à-vis the requirements for taking advantage of the fourth industrial revolution and the opportunities and threats that the fourth industrial revolution presents for Greece. Using this analysis, the final section proposes a range of policy priorities for Greek policymakers.

Greece: a traumatised economy and society emerging from the crisis

Greece has been experiencing a deep economic, social and political crisis since 2009. Between 2008 and 2013, real GDP per head in Greece fell by 26% and the average annual real GDP per head growth rate has been 0.5% ever since. Real gross investment declined at an average annual rate of 11% since 2008, compared with an average annual rate of decline of 0.8% in the euro area and of 0.5% in the EU28 (own calculations based on data from AMECO, the annual macro-economic database of the European Commission’s Directorate General for Economic and Financial Affairs). Between 2010, when the first economic adjustment programme was put in place, and 2015 labour productivity per hour worked in the total economy declined at an annual average of 1% (own calculations using EU KLEMS data)

By 2016, Greece had eliminated its government budget deficit, which stood at 15.1% of GDP in 2009. To that end, real public spending (excluding interest payments) in Greece had fallen to 81% in 2016 from what it had been in 2010 while the country’s gross public debt had reached 181% of its GDP. By 2016, the country’s current account balance, at 15.8% of GDP in 2008, was also virtually eliminated, with reduced imports (and therefore consumption) accounting much more for this adjustment than increased exports. Up until the crisis, Greece’s growth model relied on domestic demand. The Greek tradables sector has been rather anaemic and has specialised in low- to low-to-medium technology goods and services.

The economic crisis painted above was matched by a social meltdown. Starting at 7.8% of the labour force in 2008, and 21% for young people (18–24 year olds), the average Greek unemployment rate peaked at 28.7% in 2013, falling to 23.6% in 2016, 78% of which represented the long-term unemployed who had been without work for over a year. Youth unemployment peaked at 60% in early 2013 before declining to 43.7% in the second quarter of 2017. Almost a million jobs (net) were lost between 2008 and 2016. Despite the developments in youth unemployment capturing the news headlines, two-thirds of these job losses concerned people of prime working age (25–49 year olds), mostly men. This was a grave development for a labour market and welfare state model that has been geared towards the protection of the male breadwinner. By 2016, only about half (52%) of Greek residents aged 15–64 were employed, the lowest rate in the EU28. Meanwhile, the involuntary part-timers as a share of total part-timers had increased from 44% in 2008 to 72% in 2016, which suggests that there has been a large increase in underemployment. The crisis has also stripped Greece of a large part of its workforce; Greek workers either became long-term unemployed or left the country in search of (better) job opportunities elsewhere.

The risk-of-poverty rate (anchored to 2008 incomes) rose from 20% to 48% between 2008 and 2016. Moreover, during the crisis, unemployment and the risk of poverty became much more tightly linked than before, which aggravated the risks of social exclusion for the jobless. In-work poverty stood at 19% in 2016.

The concurrent internal (labour cost) devaluation and fiscal adjustment policies which Greece had to pursue in exchange for receiving financial support resulted in fundamental changes in labour relations, and in the social security, pensions and healthcare systems. Total social protection spending as a share of GDP contracted from 27.4% of GDP in 2012 to 26.1% of GDP in 2015 (the year for which the latest provisional data are available from Eurostat). Social protection functions such as unemployment and healthcare were not spared from cuts. By 2015, 11% of Greeks stated that they had unmet healthcare needs because they could not afford healthcare. Spending on unemployment benefits declined from 1.7% of GDP in 2011 to 1.1% of GDP by 2015 while spending on healthcare benefits declined from 6.8% of GDP in 2010 to 5.1% of GDP in 2015. The Greek labour market, which was already highly segmented before the crisis, underwent changes that increased employers’ flexibility, while also reducing workers’ security, as employment protection legislation was eased for both regular and fixed-term contracts (Matsaganis 2018, forthcoming).

Last but not least, the crisis has led to major changes at the political and electoral levels. The electoral power of the two parties that alternated in government during the 1974–2009 period more than halved from a joint share of 77% of votes in October 2009 to 32% in January 2015. Most starkly, support for the Socialists (the Panhellenic Socialist Alliance; PASOK) dropped from 44% to 4.7% of the vote during this period. There have been four general elections in Greece, and five different governments since 2009, the last four of them being, unusually for Greece’s most recent history, coalition governments with weak or fragile parliamentary majorities. The number of parties represented at the parliament has risen from four to five to eight, with at least two of them being classified as ‘anti-systemic’ parties, which has led to a fragmented and polarised multiparty system. At the same time, abstention from the general elections has increased from 29% in 2009 to 44% in 2015, which reflects – among other things – a disillusionment of voters with politics following the economic collapse and the harsh economic adjustment programmes that were imposed in exchange for financial support from the country’s international creditors.

Despite the large number of reforms that have taken place in Greece since 2010, there has yet to emerge a concrete and realistic national vision that is widely shared across parties of what economic, but also work and welfare model, the country should be steered towards – let alone a strategy for realising any such goal. The economic adjustment measures requested by the Troika of the EU, European Central Bank and International Monetary Fund (or Quadriga from 2015, following the inclusion of the newly created European Stability Mechanism) in exchange for financial support have for the most part prioritised an accounting approach aimed at meeting fiscal targets. There has been less concern about the effects of measures on the emergence of a sustainable growth model, and concerns about their social impact have only been reported since 2015. The failure of the Greek parties – alternating in government from the 1970s until as late as 2015 – to reach even a minimal consensus on how the high costs of economic adjustment should have been strategically distributed, the continued divisive rhetoric in the public policy debate, and the chronically deficient engagement of Greek policymakers with expert knowledge and subsequent continuous failures in policy learning (Monastiriotis and Antoniades 2009) do not inspire optimism for the future, in this respect at least.

For example, a strategy for developing the digital economy is a precondition for taking advantage of the fourth industrial revolution. In November 2016, the current government published its national digital strategy for the period 2016–2021 and established a ministry of digital policy, telecommunications and information, with a specific secretariat for digital policy. The strategy document contained several priorities, including one on integrating important Greek sectors into the fourth industrial revolution. This strategy has not been the first of its kind. In fact, every government since the 1990s had published a similar document of its own. As Katsikas and Gritzalis (2017) argue, the problem with these strategies is that their time horizon always exceeds the term of each government and the next government taking office always disregards the strategy of their predecessors, which results in no strategy ever being fully implemented.

The fourth industrial revolution and Greece: strengths, weaknesses, opportunities and threats

According to the European Commission’s European digital progress report on Greece for 2017 (European Commission 2017), Greece is classified as a ‘digital laggard’ in Europe. While it scores fairly low in all of the dimensions (such as connectivity, human capital, use of the internet, integration of digital technology and digital public services) of the Digital Economy and Society’s Index (DESI), it also presents some strengths in certain areas, such as the fixed broadband coverage of households, the number of science, technology, engineering and maths (STEM) graduates, the proportion of people engaging in online activities, the proportion of firms using social media and electronically sharing information, the share of internet users that engage with egovernment services, and the provision of open data. On the other hand, Greece has the lowest share of information and communications technology (ICT) specialists in total employed persons in the EU, a rather low share of the population with at least basic digital skills, very low take-up rates of mobile broadband and subscriptions to fast broadband, and very low online provision of public services.

In principle, the fourth industrial revolution presents growth opportunities for Greece. First, the changing open, affordable and delocalised nature of innovation in the context of fourth industrial revolution opens up opportunities for the creation of firms that provide high-tech innovative services and products that help the economy to move away from its specialisation in low- and low-to-medium technologies. Such innovative services and products could be provided from Greece to anywhere in Europe or the world. These firms could start small (for example, with start ups) and, if successful, grow to attract foreign direct investment, a flow that the Greek economy will have to rely on to start growing again, given the constraints on public spending as part of the country’s bailout arrangements, which are likely to last for decades, and given the high rate of non-performing loans that Greek banks have been saddled with.

Second, following investment, new technologies that are emblematic of the fourth industrial revolution could be introduced in more traditional sectors to lower the costs of production while improving productivity and the quality of products or services, which could ultimately improve competitiveness in the economy. Third, automation and digitalisation could allow the provision of public services at a lower cost, thus helping to relieve some of the pressures on the Greek government budget, which are expected to remain for decades until the public debt to GDP ratio recedes to levels that pose fewer risks to the economy. The development of egovernment is also paramount for promoting digitalisation in an economy.

While such developments would generate income, they are unlikely to generate large numbers of jobs (again, with many potential new jobs coming in the form of relatively small start ups) and they are also likely to lead to job losses or to a shift of jobs towards less dynamic services sectors that depend more on domestic demand. Moreover, whether any productivity gains from innovation and new technologies will result in productivity growth at the aggregate level will depend on whether demand for the products and services of these sectors will increase commensurably. In turn this will depend on whether there is sufficient income across the economy to support demand for the products of these sectors and, insofar as these new products are digital, whether digital skills and fast internet access are widespread enough to support demand.

Digital platforms can provide a valuable tool for remaining employed in a labour market where jobs under more classic employment relationships are scarce, while also providing a source of income for Greek households, which on average lost a quarter of their income since the onset of the crisis. However, platform employment can involve pitfalls, as it is often precarious, insecure, undeclared and subject to sub-standard working conditions (for example as regards health and safety). Undeclared work can in turn result in a lack of social security coverage for workers and to lower contributions to the system overall (Drahokoupil and Piasna 2017). These risks are particularly important in Greece, which has been traditionally characterised by a large informal sector where employment regulations are systematically violated, while the financing of the social security system has also suffered from the high unemployment and job loss rate, especially among men.

Policy priorities for harnessing the potential benefits of the fourth industrial revolution in Greece

Given the above mentioned strengths and weaknesses of Greece and the opportunities and threats that the fourth industrial revolution can present for the country, what should be the policy priorities for the Greek governments in order to enable the country to make the most of the fourth industrial revolution?

First, and in order to move up from the ‘digital laggards’ group in Europe, policymakers need to understand the importance of adopting a consistent digital strategy that will last beyond changes of political parties in office. The likelihood that the current national strategy might have a different fate appears slim. The aforementioned de-alignment of voters from the two parties that alternated in government between 1974 and 2009, the change in the Greek electoral law towards a system that is closer to simple representation, and the maintenance of divisive rhetoric in national politics, at least from the part of the current government parties, taken together do not bode well for any elevation of the question of the digital strategy to a national priority. That does not give much hope for the creation of a strategy that can survive the term of any government, while the ‘reform technology’ of the country is also weak (Monastiriotis and Antoniades 2009).

A second priority should be to maximise as far as possible the capacity of as many citizens and firms as possible to use and participate in the digital society. For this, the education system needs to integrate the acquisition of digital skills from an earlier stage, and affordable training opportunities should be available for older people. The education system should also equip students with the ‘softer’ skills that will shield them from being replaced by robots in the future. Digitalising public administration would also be an indispensable step in that direction, thus providing incentives for citizens to acquire and use these skills, while also contributing to improved transparency and efficiency in public administration.

A third priority would be to establish a business environment that is friendly for innovative start ups. Elements of such an environment would be a more efficient judicial system, and a more predictable and transparent taxation system, coupled with the provision of high-quality public and social services, especially if taxes are high. Stronger links between start ups and university research, in which Greece is actually highly competitive, would also help.

A fourth priority should be the rethinking of employment and social protection (see Palier this volume). Employment in the platform economy should be brought under the regulation that governs more traditional forms of employment, in order to secure the participation of platform workers as contributors to, and ultimately as beneficiaries of, the social protection system, and to create the basis for better working conditions, provided that the enforcement of regulation will also improve (see Berg and De Stefano this volume). Recent reforms in the unemployment insurance system have been a step in the right direction for extending coverage to self-employed people. However, they have also been subject to biting budget constraints, whereas the eligibility rules failed to adjust to the realities on the ground and resulted in only a limited extension of the coverage (Matsaganis 2018, forthcoming).

More generally, the inevitable disruptions in the way that work and welfare are organised as a result of the necessary adoption of a new growth model for Greece, and given the advent of the fourth industrial revolution, suggest that social protection should become less tightly linked to the employment relationship, and more closely associated with fiscal residence. The recent deployment of a (means-tested) guaranteed minimum income is a first step in the right direction.

References

Drahokoupil, J. and A. Piasna (2017), ‘Work in the Platform Economy: Beyond Lower Transaction Costs’, Intereconomics: Review of European Economic Policy, 52(6): 335–40.

European Commission (2017), Europe’s Digital Progress Report (EDPR) 2017 Country Profile: Greece, https://ec.europa.eu/digital-single-market/en/news/europes-digital-progress-report-2017.

Katsikas, S. K. and S. Gritazlis (2017), ‘Digitalization in Greece: State of Play, Barriers, Challenges, Solutions’, in A. A. Paulin, L. G. Anthopoulos and C. G. Reddick (eds), Beyond Bureaucracy, 355–75, Cham: Springer.

Matsaganis, M. (2018, forthcoming), ‘Austerity and the Welfare State in Greece: the Case of Labour Market Policies’, in S. Theodoropoulou (ed.), Welfare States and EU Austerity: the Case of Labour Market Policies, Brussels: European Trade Union Institute.

Monastiriotis, V. and A. Antoniades (2009), Reform That! Greece’s Failing Reform Technology: Beyond ‘Vested Interests’ and ‘Political Exchange, London: The Hellenic Observatory, London School of Economics and Political Science.

Mulas, V. (2016), ‘How Can Countries Take Advantage of the Fourth Industrial Revolution?’, World Bank blog: Private Sector Development, 13 October, http://blogs.worldbank.org/psd/how-can-countries-take-advantage-fourth-industrial-revolution.

Schwab, K. (2016), ‘The Fourth Industrial Revolution: What it Means, How to Respond’, The World Economic Forum Agenda, 14 January, https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond.

Authors

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