Sunday, December 19, 2010

The Greek Economy on a Crucifix: IMF lies and misrepresents yet again

This much I have learned from watching the output of various IMF mouthpieces on Greece these past months: Even high level spokespersons lie, are ignorant of and misrepresent the facts, even easily available facts, ideoleptically making the case for the disaster they are imposing not on actual shortcomings or economic problems but, rather, on what the IMF would expect these measures to be in order to implement its (highly ideological and scantily backed by any sort of empirical evidence anyway) shock therapy on the country. This is a "therapy" that was imposed at the behest of the ECB and the Central Wankers in the process (and I'm not sure yet if it was a conscious decision or just massive ineptitude) of creating a Peripheral "Latin" Europe: the EU as a relatively wealthy (but more unequal) core, surrounded by pauperized banana cheap-service republics destroyed by policies that can only be described as "a Versailles treaty without the war".
The other thing that I've learned from our IMF experience, is that the docility of Greek Media Magnates / Public Contractors and their petty little shops towards our new Overlords and our post-quisling government that is assisting them in the most slavish manner, knows no bounds. Only the dissident media actually take the trouble of pointing out these sorts of inconsistencies. But this is a different issue, for a different post... Let us return to the IMF's latest communique...

I will eschew commenting on all of the BS that Thomsen spouts in his latest interview on IMF Survey magazine. I will specifically focus on one of his statements that is so obviously and transparently bogus (and repeated in every IMF communication), that in an ideal world it would automatically disqualify him and the organization he represents from managing having anything to do with the Greek economy:

IMF Survey online: Why is legislation to allow firm-level wage agreements so important? Will this lead to massive wage cuts?
Thomsen: The way the Greek labor market was operating contributed to a disproportionate increase in wages over the last decade and a loss of competitiveness. So wages need to be brought more in line with productivity. Over the medium term, wage developments in Greece will be governed by productivity improvements. A more open and dynamic labor market will offer more and better employment opportunities as the business environment improves, investment increases, and the economy expands.

False premises

The IMF, an organization that has been promoting such sociopathic policies around the world for a third of a century now at least, have indeed forced pretty much a complete dismantling of the collective bargaining system in Greece, in order to make it much more like those of the third world countries that were, until recently, their main victims. This is a deregulation so drastic that, in the real world, it is expected to diminish wages in the private sector by 20% - nominal wages that is, in a country which has been running up a 6% inflation rate this year on top of chronic high prices, and thus combines Swiss prices with Portugese (going on Bulgarian) wages. On top of this, in a previous obscenity the IMF/ECB demanded that lay-off compensation be drastically reduced. On top of all of this, Greek unemployment is at 12,4% this month – the highest in decades, but in reality what people actually call un- or under- employed are close to 20 to 25%.
Already we have seen unilateral action by employers who have no or few profitability problems, reducing their workers salaries by arbitrary amounts. And these “firm-level” wage agreements that the IMF and the WB has had two decades worth of experience imposing on Latin American countries, have been a failure everywhere, as has been this idea that labor flexibility will bring more and better employment. In 2001 the Multinational Monitor noted that:

The theory behind labor flexibility is that, if labor is treated as a commodity like any other, with companies able to hire and fire workers just as they might a piece of machinery, then markets will function efficiently. Efficient functioning markets will then facilitate economic growth.
Critics say the theory does not hold up. Former World Bank chief economist Joseph Stiglitz described the problem to Multinational Monitor: “As part of the doctrine of liberalization, the Washington Consensus said, ‘make labor markets more flexible.’ That greater flexibility was supposed to lead to lower unemployment. A side effect that people didn’t want to talk about was that it would lead to lower wages. But the lower wages would generate more investment, more demand for labor. So there would be two beneficial effects: the unemployment rate would go down and job creation would go up because wages were lower.”
“The evidence in Latin America is not supportive of those conclusions,” Stiglitz told Multinational Monitor. “Wage flexibility has not been associated with lower unemployment. Nor has there been more job creation in general.” Where “labor market flexibility was designed to move people from low productivity jobs to high productivity jobs,” according to Stiglitz, “too often it moved people from low productivity jobs to unemployment, which is even lower productivity.”

Meanwhile in 2004 Eckhard Hein & Thorsten Schulten noted in “Unemployment, wages and collective bargaining in the European Union”:

Analysing the developments in the EU during the last four decades, no strictly inverse relationship between real wage growth and unemployment can be found. On the contrary, persistently high unemployment has had strong adverse effects on nominal wage growth and on the labour income share. Weakened labour union bargaining power and changing collective bargaining strategies have contributed to this result. It is therefore concluded that the current EU economic and employment policies aiming at further wage restraint, wage differentiation and decentralisation of collective bargaining are deeply misguided and have to be replaced by an alternative wage policy in Europe as part of a growth and employment oriented coordination of macro-economic policies

I should add that Greece already had a very flexible job market: between unreported and semi-reported labor, pseudo-apprenticeships and "illegal" immigrant labor, as well as the high proportion of the self-employed in Greece, well over 80% of the workforce had no employee payroll taxes, no job security, no benefits - nothing. Greece's was probably the most flexible job market in the EU, unofficially "liberalized" up till now. And this did not have much of a beneficial effect on anything...

A disproportionate increase in wages?

The first lie is included in the first line of text: the "disproportionate increase in wages over the last decade" is patent nonsense, Greek wages were very much in line with productivity and in purchasing power terms were pretty much stagnant for most of the past decade. I have discussed this in previous posts so I'll just copy & paste here the relevant parts:

@Eurotrib:...Debunking IMF propaganda
It is far from obvious how the IMF measures competitiveness, the FAQ section is not referenced at all, and it's not clear how this quantification arises or what does it mean. Erik Jones, writing in Euro Intelligence, was already debunking part of the competitiveness mythology, as pertains to labor costs, in March:

...What matters in terms of a head-to-head competition is how Greece and Germany compare in the cost of labor per unit of output and not the real compensation of employees.  Moreover, we should look at their performance across the European marketplace as a whole.  By that measure, if we set the year 2000 equal to 100, then by 2009 Greece was at 98 while Germany was at 95.  Germany is still doing better than Greece, but only by a little and both have improved against the rest of Europe.

...Using national accounts data for relative real unit labor costs in manufacturing, Greece goes from 100 in the year 2000 to 87 in 2008.  Over the same period, Germany goes from 100 to 90.  It is hard to see how Germany comes off better in the comparison.

...Even if Greece is not suffering in terms of manufacturing, the high real incomes that Greek employers are doling out must surely be hitting the bottom line in the service sector, shouldn't they?  Again, that's hard to see in the data. Total compensation per employee was 53.8 percent in Greece and 57 per cent in Germany...
Furthermore the "since Euro adoption" part is misleading. Greek productivity was surging until 2007, after that year, influenced of course by the global crisis, and affected by real fiscal imbalances (about which more later) productivity (and competitiveness, however defined) fell faster than the Dow Jones average after a computer glitch, but that was surely not a uniquely Greek phenomenon.
In fact Greece was receiving praise by the IMF itself for its improved competitiveness, singled out as the most successful economy in Southern Europe.

Source: IMF

While in a recent post here a few days ago I mentioned:

Let's kill the meme that somehow in Greece workers were benefiting from unreasonable pay-hikes this past decade:
Here we are: real wages have been growing faster than productivity perhaps between 2007-2009 in Greece. Before they were not:
Based on real wage increases during 2007 (3.9%), pay increases in Greece were the highest of the countries of the EU15. Prior to the 2007 increase, there had been four years during which the average annual increase in Greece was around 3%. These big increases, by international standards, in the average real wage in Greece were fully offset by increases in labour productivity, leaving unit labour costs stable in real terms at 2000 levels.

In the private sector during the 2000-2007 period, there was a cumulative decrease of 1.2% in real unit labour costs. Average real wages increased more slowly than average labour productivity, which left companies with leeway to benefit from higher labour productivity. The effect of this development was that at the end of 2007 real wages in the private sector had increased by 27% over the 2000-2007 period, while productivity increased by 36.5%. Thus, there was a benefit to companies of around 7% in unit labour costs in real terms.

For the year 2007, Greece was in second to last place as regards the level of gross wages in € (net wages plus employee contributions). In Greece, average monthly earnings in 2006 amounted to €1,668 for full-time employees, compared to an average of €2,366 in the other countries of the EU15...

... Whereas monthly labour costs in Greece were 83% of the comparable mean costs in the EU15 (in purchasing power parities), labour productivity in Greece stood at 91% of the European average.

In recent years unit labour cost in Greece has become the lowest in the EU15. This development relates to the fact that in Greece labour productivity increased substantially in 1996-2004 and increased in the range of 1.7%-2.7% a year during the four years from 2005 to 2008.

To make things even clearer, here's a chart that shows the profit per employee in the EU market economy in 2005
[source EU KLEMS, shown here]:

The 2006 numbers for Greece are even higher (~44k, >51k in the banking sector) and these sorts of numbers were typical for the past decade up to the crisis.

Greek wages in the private sector were underperforming compared to profits during the same period. The loss of competitiveness has an insignificant labor cost component, a huge inflation component and a large profit component. Yet wage earners are asked to accept massive cuts de facto, and a general return to the 1950s in terms of worker rights and protections...

Over the medium term

...Over the medium term wages will not follow productivity. Or perhaps they will, if more and more young and skilled younger workers leave the country for abroad, leaving manual and semi-skilled labor to man the sweatshops of a new euromaquilladora economy that seems to be the only visible goal of this exercise in thirdworldization. Over the medium term, farmers' markets garbage heaps will be turned increasingly more into senior-citizen mosh pits, as pauperized pensioners fight over pieces of half-rotten tomatoes. Others, less spritely grampas and granmas, will be heading for their neighbourhood garbage cans - and it ain't just the elderly. One in five children under 17 were in poverty last year, there is no telling what the numbers will be this year...


Finally, about those reforms that the IMF will be imposing and are supposed to take us out of the slump and into the promised land of growth, sometime, somehow... Where exactly have they been succesful in doing so Mr. Thomsen? What about the Greek government selling off pretty much everything under public control today - including public parks and water companies it seems? Where was that a success? And in doing what?

I wonder if there is somewhere *one* instance of an IMF bureaucrat daring to give an interview against a team of journalists / economists playing hardball and not acting as de facto cheerleaders for the neoliberal voodoo remedies they are peddling?

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