For reforms, don’t catch a cab

Greece is a world leader in structural reforms. Who would have thought it? Yet, this is exactly what newly published figures by the Organization for Economic Cooperation and Development (OECD) show. Greece comes top of the list in terms of applying the structural reforms the OECD has recommended during the last three years, ahead of other crisis-threatened countries such as Spain, Ireland and Portugal. Germany, Switzerland and Luxembourg take up the last three positions.

Before you wonder whether you’ve woken up in a parallel universe, there is a good explanation for Greece being in the vanguard of reforms: it had a lot of catching up to do. In terms of the labor market, for instance, Greece is currently adopting many of the policies that Germany turned to under the chancellorship of Gerhard Schroeder more than a decade ago, if not earlier. In terms of making structural changes to create a business-friendly environment, Greece is also years behind Ireland and other OECD countries. The list could go on.

Nevertheless, the OECD graph has an objective value, which is to show how effectively countries are following the recommendations for structural reform made by the Paris-based organization. In this respect, Greece’s first place perhaps douses the impression that no progress at all has been made during the last few years. Greece still has a mountain to climb but the OECD graph suggests that at least it’s making its way up the foothills.

Few people believed that implementing in structural reforms in Greece would have been anything other than slow, arduous work. A ramshackle public administration, vested interests, special-interest groups and political phobias were always going to obstacles.

The fact that the reform program has become inextricably linked with the damaging austerity program has also undermined efforts to secure change. At a national and European level, politicians and commentators have not done enough to separate the two in ideological and economic terms, as a post by R. A. on The Economist’s Free Exchange blog underlined:

“Recommendations for reform, like advocacy for deficit reduction, often function as a mark of seriousness within some intellectual and policymaking circles. It’s tempting to chalk economic failure up to profligacy, or insufficient adherence to a set of commonly accepted economic principles. Some leaders seem anxious to misdiagnose crises, intentionally or unintentionally, in order to seize the opportunity to foist preferred policies on vulnerable economies.”

The comment raises a vital point in relation to Greece, one that is easily overlooked in the mad rush to pass reform legislation, which is that nobody is really questioning whether all the changes Greece is being asked to push through actually make economic sense. Certainly, the idea of private sector wage cuts has been strongly challenged by those who believe the tactic will not make a considerable difference to Greece’s competitiveness but will deepen the recession. Also, there are quite a few reforms, such as evaluation for civil servants or simplification of zoning laws, that make absolute sense. But beyond that, questionable received wisdom seems to have been governing some of the changes being asked of Greece.

One of these is the liberalization of dozens of closed professions. The removal of fixed minimum fees and barriers to entry for lawyers and civil engineers, for example, makes sense as it would theoretically generate greater competition and lower costs for customers but in other areas the motives for liberalization are less clear. A good example of this is taxi drivers. Greece has been agonizing for more than a year over how to open up this sector. Plans for total liberalization have been drawn up, agreed and then scrapped in favor of a watered down version. There is something disconcerting about the fact that the limited number of cab licenses issued by the government meant these pieces of paper became a tradable commodity, which turned some cabbies into investors rather than drivers.

It sounds a bit like the black market in an eastern bloc country during the Communist era, a backward practice that only Greece would tolerate. However, a fascinating article about New York cabbies by Gillian Tett published in the Financial Times last week suggests reality is somewhat different. New York – “that symbol of free market, capitalist culture,” as Tett puts it – surely must do things the proper way. In fact, what she found was the Big Apple does things pretty much the way they’re done in Greece.

New York began issuing cab licenses, or “medallions”, in 1937 and capped the number in circulation at about 12,000 in the late 1940s, according to Tett. Currently, there are some 8,361 “corporate” medallions and 4,876 “individual” ones. The public controls on the cab licenses mean that the medallions are gold dust. A corporate permit sold for $1 million last year. In Athens, the cabbies number about 14,000 and there has been no issuing of a significant number of new licenses for several decades. Before the crisis struck, permits could trade for up to 200,000 euros. It’s no surprise, therefore, that Tett found a Greek who is set to profit from the system in New York.

“Back in 1982, as [Georgios] Kirkos told me… he made the extraordinarily lucky – or savvy – decision to buy a taxi “medallion”… At the time, it cost less than $100,000 but in January, two similar medallions were posted on the taxi medallion auction list for $770,000 and $710,000. This, if Kirkos were to sell his medallion, he would enjoy a stunning return or, if he rents it out, he could collect about $50,000 to $70,000 a year,” Tett writes.

Given Athens and New York, which is not known for its aversion to the market, operate similar systems for taxi licenses, isn’t it odd that there has been so much pressure for Greece to free up this profession?

 Make no mistake, structural reforms matter. And, in Greece – where inequalities and inefficiencies have gone unchallenged for so long they have fused to the system – they matter a great deal. But that does not mean all the reforms Greece is being asked to implement have the same value, or indeed any value. A more targeted, rather than scattergun approach, might have paid dividends. If the hours and political capital that government officials have spent trying to liberalize the taxi trade, which operates by the same rules as those in New York and many other major cities, had been invested in achieving more productive reforms, perhaps Greece would be performing even better in the OECD rankings, perhaps there would be tangible change for the better.

Nick Malkoutzis

One response to “For reforms, don’t catch a cab

  1. Perhaps we need to abandon this reform obsession with tangible, credible steps fo running an economy. Let’s begin by telling Merkozy to eff-off.

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