Economic Development Processes in Greece - Essay Example

Introduction Economic development may be defined as the process of wealth creation through improvement of citizen's well being within a country or region. It is normally achieved through revenue increment, job provision and tax base expansion. It should be noted that there are significant differences between the terms economic growth and economic development. The former term refers to a specific parameter used to denote a region's or country's economy. However, economic development refers to a much broader aspect. It normally covers other realms that are usually ignored on economic growth, for instance, aspects such as social justice, environmental concerns and freedom. Economic development attempts to find the reasons behind the labour differences between countries or it may analyse why certain countries have higher levels of foreign investments compare to others. (Gills, 1996) An economic development process normally involves three main areas; 1) Government polices 2) Infrastructural policies 3) Employment creation Government policies normally involve efforts made by the government of the day to improve overall economic indicators. Governments can do this with the aim of reducing high unemployment rates, increasing their tax rates, instituting stable prices within the economy or expanding the tax rates. Governments can achieve this through tax policy adjustments, regulating their financial institutions and changing their fiscal policies for the better. Infrastructural policies on the other hand normally involve the use of programs aimed at making public services and infrastructure better. This is done through building affordable houses, introducing better educational facilities, reducing crime rates, building roads and many others measures./ Lastly, economic development can also be achieved through employment creation. Governments normally need to direct their efforts towards specific industries in any of the following areas; marketing, business expansion, business retention, real estate development, finance, technology transferred among other things. (Todaro, 1997) The economic development process adopted by from the seventies and beyond During the decade 70s, The Greek government embarked on a range of policies to improve their overall economic development. They started with the introduction of uranium exploitation efforts in the northern part of their country. Their mission was to develop this sector so that they could reduce their inflation rates. Additionally, the Greek government wanted to improve their financial status through this project. By developing their natural resources, the country would curb the need to import some of these minerals and they would also get an outlet for generating more revenue. Greece was endowed with a number of resources. First of all, the country had oil reserves; secondly, it was rich in lignite. But before the seventies, Greece was not taking full advantages of these two mineral resources. The government passed laws that would facilitate greater exploitation of those minerals. These aggressive measures caused decreased balance of payments and inflation rates. This is because the country minimised its dependence on imports and substitute these with its own products. In relation to this, Greece decided that their currency would not be measured against the United States dollar. Proponents of this change claimed that they were trying to make their local currency stronger. On top of this, it was also supposed to include other development partners in the Greek currency. The decision to de-link the US dollar from their currency was made in the year 1975. (Embassy of the United States, 2007) In the next decades (1980s and 90s), the Greek government decided to move towards privatisation. In the early nineties, these efforts paid off, the country recorded a Gross Domestic Product of thirteen and fifteen percent. That period of time saw the transformation of twenty eight companies from public to private institutions. At that time, the government tried to redistribute wealth evenly throughout the country. Modernisation had become synonymous o certain parts of the country and there was a need to spread this around. Such an approach was a major component of their economic development process. There were certain problems facing the Greek government at that time. First of all, the government had to deal with dissatisfied civil servants. Most of them were not happy with their allowances and salaries. Consequently, the government decided to increase the income by almost three percent. Such a decision meant that resources use to meet this expenditure would have to be reallocated from other parts of the economy. The government also decided to increase pension allowances by five point five percent. The civil service was also faced with admission of older members within their work force. The governmement decided to inject younger personnel through replacements of older members. Some of the ministries that were exempted from these adjustments included Health services education security forces In line with these measures, the government was also faced with the issue of generating more revenue. The corporate sector was the first to be affected by these economic changes. The government decided to do corporate withholdings. It also introduced greater taxation rates for the sector. They increased this amount by five percent. The latter percentage applied to unlisted companies. In the late nineties, Greece had intentions of joining the European Union. Consequently, they had to restructure their programs and policies in such a manner that they would become compatible with the European Union. This was achieved through greater improvements in the public sector; it was quite bloated at that time, increased job opportunities and reduction of inflation rates. By the year 2001, the country was accepted into the European Monetary Union. It had to tackle problems related to adoption of anew currency; the Euro and other complexities that come with joining the Union. (Gills, 1996) It was recorded that the Greece economy as growing at a rate that as higher than the baseline created by the EU. However, the country was still dealing with problems revolving around its huge debt. Matters were made even worse by the fact that it had to get aid from the EU/. However in the year 2004, the country was supposed to host the Olympics and this encouraged investment. Obstacles faced and how they affected the approach to a complex European and global Market Greece, like many other Southern European countries that entered the European Union, were agriculturally based. Some of these Southern European countries included Italy, Portugal and Spain. Together with Greece, they all benefited from the Common Agricultural Policy offered by the Union. They received funds for their agricultural schemes and many of them were well on their way to improving their economies until the EU decided to introduce Eastern European countries such as Slovakia in the year 2002. The problem with that expansion is that the new entrants were relatively poor. They needed a lot of support form the EU especially with regard to the agricultural sectors. Consequently, Greece was no longer benefiting from its arrangement with the Europeans. Most of the resources meant for the latter country and its Southern European partners were no longer forthcoming. Greece therefore had to look for means within its own borders to sustain agriculture. (Todaro, 1997) The introduction of Eastern European countries into the European Union also meant that Greece and its Southern counterparts would have minimal power during decision making processes. The Eastern block countries held a large number within the EU and consequently affected voting powers within the Union. They changed the influence that Greece could exert upon its EU members hence reducing their powers in the Union. After 2002, Greece also had to deal with issues surrounding the level of immigrants within their country. Greece had exerted a lot of effort in the process of trying to forge relationships with other non- European countries especially the Latin American countries. Greece would conduct a lot of trade between these countries prior to 2002. However, this was not to last; the European Union decided that all its members ought to be more strict with illegal immigrants. These laws have severely hampered Greek trade relationships with some of its long term partners hence reducing their overall revenue generation. Greece was faced with adjustments following Olympics. There was a rise in economic growth after the Olympics since numerous companies set up businesses to deal with the extra clientele and international exposure. There were certain opportunities that came with the implementation of these programs. The countries growth rose by about three and a half percent and its inflation was also reduced drastically. Some of the groups that highlighted Greece's success were the European Union which had set up a baseline for economic growth. The country had exceeded this average by far. However, there were some problems that came after the post Olympic excitement was over. (Embassy of the United States, 2007) Main sources of competitive advantage Because the government of Greece was trying through a number of avenues to penetrate the global market, it had to consider some of the competitors in place. Greece had set out to expand its locomotive industry. However, this was to be done against the background of some successful players within this industry. Asian countries such as Japan and China were doing very well for themselves here. Additionally, the United States was also highly competitive in this arena. Greece had to examine some of the key strengths within these locomotive giants in order to establish a source of competitive advantage. Greece was also at an advantage because there were still some inefficiencies within the US, Japan's and China' economic policies. These inefficiencies served to erode some of the superior influences that the latter countries had over Greece. For example, the United States had to deal with imbalances in its economic policies amounting to six and a half percent of its Gross Domestic Product. Japan on the other hand had to deal with percent imbalances surmounting to seven percent of its GDP. Consequently, Greece took and advantage of such imbalances to tap American and Asian markets while providing them with extra advantages over and above those offered by the former countries. (OECD, 1998) The Greek government had to come up with stringent measures to assure its citizens of steady fuel supplies. This was quite necessary given the fact that all the counties in the OECD were faced with rising disruptions in supply. These were brought about by the fact that there were mounting tensions between western countries and Middle Eastern countries. The latter were endowed with oil reserves but were not in god terms with oil consuming countries especially after the US led invasion of Iraq. These political problems brought about greater price fluctuations especially because there was a lot of demand form Europe, American and other countries of the world. As if this was not enough, more and more countries had to adopt greater levels of inflation because of the energy crisis. The Greek government responded to these needs through greater emphasis on the need for local production and less dependence on foreign energy supplies. The country's oil manufacturers took greater advantage of their oil reserves to serve their local market. The Greek government also improved its economy through the introduction of fiscal consideration. The country will be faced with a net youth decrease within its population. In the next few decades, the country will have an ageing population and the government needs to prepare for that. In response to this challenge, the Greek government has embarked on a fiscal policy transformation within its borders. These policy adjustments were tailored in such a way that there would be greater ability to deal with fiscal pressures in the future. These changes started showing results by the year 2005, the government caused a decrease in inflation by 2.5 percent. in line with the fiscal policy adjustments, the government has made commitments to decrease inflation further by 0.5 percent for very year. The government has also pledged to come up with measures that will diminish tax evasion as part of its efforts to improve its fiscal policies. Additionally, there are many groups within the Greek taxation system that receive exemptions form tax. Therefore, the government is loosing a lot of revenue through this loophole. As part of the economic development process, the government has pledged to minimize these groups and to make most of its citizens accountable to the government with regard to tax. (Gills, 1996) In line with improving the economy, the Greek government has embarked on a program to improve its labour market. This has been achieved through a number of channels. First of all, it has created a pension system that favour long term employment and one that encourages more people to participate in employment. It also requires that its citizens should make more use of job improvement techniques offered by employers. The latter group is expected to play its role in establishing training and development mechanisms. The government realised that it needs to ensure most of its citizens are encouraged to provide labour for their manufacturing companies. Greece is yet to reach its full manufacturing and productivity levels. This can only be achieved by maximising available labour. Additionally, the Greek government has had to deal with numerous inefficiencies in education. There are plenty of institutions within Greece to deal; with education demand. However, these institutions fail to meet the needs of the populations. Greece has been blessed with brilliant students but most of them are not fully utilised in the country. The country has failed to offer them sound economic backing. Consequently, most Greek minds are leaving their country to look for greener pastures in other parts of Europe and the world. Greek educational institutions have too much bureaucracy and this comes in the way of development. Even those students who seem to stand out from the rest or those who are creative rarely get rewards fro their effort. As if this is not enough, the Greek government has not done much in funding some of these institutions of higher learning. If the government were to increase their level of participation within this system and also their funding, there would be greater output and improvements for the education sector. (OECD, 1998) The Greek government has had to adjust some its policies to fall in line with the European Union. There were some policies that impeded foreign direct investments and these were not considered acceptable by the EU. In order to minimise on such cases, the EU has ensured that most of its member countries institute mechanism that will encourage further investments. Greece followed these regulations by ensuring that it created policies that encouraged competition within its markets. In the past, the Greek government used to focus most of its attention on some specific companies. These were the government's favourites and most of them would take up all the incentives available to entrepreneurs. The government would display forms of favouritism and these came in the way of competition and economic development. These firms would be given grants unfairly. However because of EU membership, the Greek government and many other members have had to minimise favouritism because EU courts have the right to prosecute some of these companies. The Greek government has encouraged greater labour market participation through abolition of fixed working hours. Employees now have the right to access flexible working hours. The government realised that this would go a long way in ensuring that most companies register greater employee numbers and also reduce employee turnover. The Government also made sure that workers would be paid for extra time. They were given better choices to work with when th4 government instituted policies in relation to this. The government has also realised that there are greater levels of immigrant entries. This means that employers may have the upper hand when it comes to employment negotiations. They had to develop a system that would allow immigrant workers the rights they deserve as stipulated by the European Union. The government also put in place measures that would prevent back door employments. Such cases are likely to deny foreign workers due rights since their employment contracts may not be recognised or may not exist at all. (Todaro, 1997) The Greek government has done a lot to ensure that their citizens can reap the benefits of having a strong economy. This means that government has encouraged better business environments. First of all, they have reduced corporate tax rates in order to ensure that most companies can get returns on their investment hence prompting them to diversify and grow. Additionally, the government has also ensured that entrepreneurs have the right to build up on their skills. This has been achieved through institution of greater levels of support form the government. They have reduced the regulations required in order to start up a business or to enhance greater levels of economic participation. In line with this, the government has also put in place some tax incentives designed to make sure that business men have the necessary resources for development projects. These tax incentives only apply to development oriented projects and entrepreneurs must meet certain criteria in order to access the incentives. The government has realised that the private sector is crucial in the stabilisation of the economy. However, this does not undermine the role played by the public sector too. Consequently, there is a need to merge the contributions made by these two groups in order to form a greater force that will drive the economy. The government of Greece has instituted mechanism to help this partnership. It has tried to merge contributions made by private and public stakeholders so that there is greater harmony and more economic improvement. Additionally, the government has sought to improve the power and position held by the private sector in order to reduce domination by the public sector. They have passed laws that allow the energy sector to become more privatized. This was done by privatisation of electricity in the year 2007. The government has also encouraged partnership between the public and private sector through liberalization of its natural gas. Obstacles facing Greek companies Companies wishing to establish themselves in the global market especially through outsourcing or through off-shoring need to incorporate a number of issues: First of all, there is a need to ensure that they can link the lifetime earnings to pension schemes. What this means is that Greek companies need to eradicate their current pension scheme practices that do not operate on such levels yet this is expected of them in the global market. (Embassy of the United States, 2007) Also, Greek companies need to make sure that they do not offer pension schemes that exceed salaries. This is currently what is occurring in the current and some of these companies are taking their local systems into the European or global markets. By doing this, Greek companies are loosing substantial revenues that would have otherwise been used to improve their operations and hence their profits. It has also been found that most European Countries encourage late retirement yet this is not what happens in Greece. Consequently, employers planning on establishing themselves in the region need to change their retirement policies; they should cut down on the number of early retirees in order to sustain competitive advantage. Greece is also faced with the challenge of ensuring that their students transcend education and work life easily and as fast as possible. According the rest of the world and especially the European market, Greece will need to improve on this sector in order to stay ahead. Most employers are not involved in the education process and this mean that graduates who come from these institutions may not have necessarily skills required by the job market. Greece also needs to make sure that their labour laws align themselves with those in the EU. Greece has very tight labour laws thus encouraging unemployment within vulnerable groups such as women. These need to be changed by Greek companies. (OECD, 1998) Conclusion By joining the European Union, Greece had to align most of its policies to suite this new position. Some of these policies were not at all friendly especially with regard to voting power and agriculture. However, there are certain benefits that came with joining the EU since the Greek government has to complete an economic development process. First of all, they created better labour laws, they improved taxation and aligned fiscal policies o other EU member states. However, Greece still has to deal with its labour laws and inefficiencies within its education system. Reference: Embassy of the United States (2007): Trade and Investment in Greece-opportunities and Challenges; A report to the American University Graduates Association, 12th March 2007 OECD (1998): Greece-economic development, OECD economic outlook, June 1998 Gills, E. (1996): Economics of development; New York Publishers Todaro, M. (1997): Economic Development; Harlow Publishers Read More