Wednesday, 15 August 2012

Do we need a Crisis?

When people face difficulties, it is always easier to blame someone else for their mishaps. When a nation views its own problems, and as nations are governed by people, it is more than easy to criticize and assign fault to others. The same has happened now, as many Northern Europeans believe that the responsibility for the crisis lies only on the shoulders of Southern Europeans who, "do not work enough".

This, however, couldn't be farther from truth. Although South Europe is portrayed in the media as a place where everyone is constantly partying and nobody is working this seldomly depicts real life in the South. Germany on the other hand has the reputation of being a hard-working country. Still, German working hours are amongst the lowest in the world. So is France's. Look at the following chart comparing work hours in the OECD countries:
So what happens here? Are the poor Greeks and Italians working hard the whole time but the bad Germans take the GDP from their hands? In all fairness, no. It seems that although South Europeans are working many hours, what they lack is productivity. A quick glance in Wikipedia may help: Italy, Greece and Cyprus have below average productivity. Specifically, in the case of Cyprus and Portugal, their productivity is much lower than the EU average.

The only difference, is mentality. While Germans and French work less, their time put to better use and thus their productivity is greater. On the other hand, whilst Greeks, Italians, Cypriots and Portuguese work many hours, they do not do much in that time. The big question here is why? Is it just that they sit around and do nothing all day? I hardly think so (although many civil servants in the South are accused of doing so). The problem here lies in the heavily bureaucratic systems, with many anachronistic rules, laws and perceptions. The legal systems in Cyprus, Greece, and Italy were graded by Moody's as some of the worst in the EU, whilst Portugal's was merely average. Spain's on the other hand was very good.

This is why the South is in need of a crisis. A change in mentality and institutions is essential. Greece has only begun to realize these changes and the effect is disastrous. People are never ready to rapidly move from one mentality to another as this would mean a change of the world they live in. In the words of Olli Rehn: "And even in Greece, more has been achieved than is often realized."

This is one reason I state that change should be slower than it is now. Humans do not enjoy change. The labor force has been shown to be more resistant to change than anything else, surprisingly more than capital! (By capital one means things like machinery, plant and equipment). This reminds me the frog anecdote: If a frog is put in hot water then the frog jumps right out. If the frog is put in cold water and the water is heated slowly until it reaches the same temperature as the hot water from before, then the frog stays in and gets boiled.

The case is the same with measures: Move too rapidly and people will revolt. Take change slowly, allow people to adjust to it and you will have much better results. If you don't trust me just take a look at Greece nowadays!

1 comment:

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