Greece Is Getting Its Business Model Right

Feb 23 2014, 11:19am CST | by

Greece Is Getting Its Business Model Right
Photo Credit: Forbes Business

Disclosure: I own GREK shares

Anyone who has visited Greece recently will probably have noticed that behind the gloom and doom of the GDP and unemployment statistics, there is a ray of hope.

The country is changing. Planes, trains, and ships are on time. The streets of major cities are peaceful with very few protesters. Empty stores in commercial districts begin to re-open with new owners and new business concepts.

Greece is beginning to get its business model right.

For years, Greece had the wrong business model—A Semi-Soviet, semi-Latin model that was backwards – it applied markets and governments in areas of the economy where each institution fails rather than excels. This resulted in a large and corrupt government that lacked the resources to finance its multiple roles in the economy.


With the former Soviet Union as a model, the Greek economy was subject to the excessively intrusive presence of government in the business and professional lives of citizens, directly controlling more than 50% of the economy.

As discussed in a piece I published in Barron’s in 2010, government was present in utilities, telecom, transportation, energy and banking — as owner, financier, entrepreneur, and manager — keeping inefficient enterprises afloat.

Government was active in the pension fund industry, as manager of employer-employee contributions, deciding who would retire, when their retirement would happen, and what pension they would receive.

Government was present  in commodity markets, as regulator and gatekeeper, deciding who could be in what kind of business and for how long; and in labor markets, setting labor compensation and employment standards.

In common with the Latin American model, the Greek economy lacked a fair and transparent method for setting the rules of the economic regime – resulting in vague interpretations of the law, and frequent disruptions of business and public life in the form of political protests.

Greece’s semi-Soviet, semi-Latin model can be traced back to the early 1980s, when Andreas Papandreou sought to establish a mixed-market system that combined the best features of markets and government. But he applied the two institutions backwards, in areas of the economy where they fail rather than excel. He extended the role of government in the ownership and management of business enterprise, and he limited its role in the management of commons — patrolling of the streets and the highways, maintaining public order, enforcing city planning rules and protecting the environment.

This backward mix of institutions had far-reaching consequences in the everyday life of Greek citizens, and in the financial future of the country.

The results speak for themselves.

But now, in the aftermath of the most recent crisis, the Greek economic model has begun to change. The country seems to have gotten its economic model right: the size of government has been reduced, state-owned enterprises have been privatized, transparency is improving, and calm is returning to the streets of major cities.

Result? Government deficits are turning into surpluses, exports and tourism are soaring, shipping leads the world, and real GDP is turning the corner. Slowly, Greece is rebuilding its brand image.

Simply put: Greece is headed in the right direction, applying the right institutions in the right sectors, releasing the ingenuity and creativity of its people. And markets have taken notice. In the last six months, the Global X FTSE Greece 20 ETF (NYSE:GREK) has outpaced nicely the S&P500 (see Exhibit). The Athens Exchange topped the list of the best performing markets in the first ten days of 2014, as we wrote in a previous piece.

Source: Forbes Business


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