Greece, Acemoglu and Robinson

Recapping on tweets today.

The dominant narrative in discussions of Greece is that if Greece wants further relief from sovereign debt, those who pay for it want something in return, in particular something that makes it less likely that Greece will have to be subsidised again.  The way creditors see it, that something is the catch-all ‘structural reform’.  Which means changes that bring the institutions and markets of Greece closer to the norms of European capitalism.

Given that, many watching Syriza’s opening salvos at the head of Government have been dismayed by them announcing that they will raise the minimum wage, halt privatisations, and hand out free food and energy to those in poverty.  These things seemingly lower the natural rate of output in Greece.

However, if you look at this through the lens of Acemoglu and Robinson’s account of institutions and markets, this may not necessarily be as bad as it looks (from the point of view of the institutions-free neoclassical account of economics).

In particular, it may not be right, as A&R pointed out, to think of a quasi-market system like Greece, where public and private sectors are the outcome of complex power-plays between social groups, as something that could be brought towards a capitalist system by undoing what we would think of as ‘distortions’.

A classic example, understood before A&R brought out their book, is that it may be unwise to privatise state functions into a private sector that is not a functioning market, but a power-play between private elites who even have their own violent enforcers.  Responding to my tweets, Tomas Hirst pointed to Russia, and the naivety of Western advisors leaping in after the fall of the Soviet Union;  Alan Beattie cited the privatisation of Mexican telecoms company Telmex (which, Alan points out, enriched Carlos Slim).

For the sake of argument, let’s suppose that the key thing to achieve first, to begin a movement of Greece towards a functioning mixed economy welfare state, is undoing the power of ‘the oligarchs’ [it’s starting to sound ridiculous recycling that label, but, in the absence of a smarter one…].  And suppose that achieving that requires a sustained and powerful political coalition of forces.  Well then it may well be efficient in the long run for the Government to do all kinds of things that, superimposed on an otherwise efficient Western economy would do harm, if it buys loyalty for that long fight.  Once those elites are defeated [whatever that means], and the coalition has served its purpose, the apparently harmful loyalty gifts [the ‘distortions’] can be taken back, and in the expectation that the losers will be compensated by the benefits that flow from unlocking true, glorious capitalism!

Of course, Syriza may not see things this way.  They may have other motives for halting privatisation.  They are a union of Marxists of different persuasions, after all, each of whose philosophies responded in different ways to the dying convulsions of Soviet communism.  But so what?  If their actions have the unintended effect of attacking the key non-market-distortion first, the Marxist program can be embraced, rather than derided, if it buys a better chance of long-term mixed-economy-welfare-statism taking root. In fact, one could adopt a conspiracist position on this, imputing an ironic form of false-consciousness on the part of Syriza and view Marxism as part of the necessary glue to keep a powerful coalition together to tackle the elites who control the commanding heights of the ‘state’ and ‘private’ sectors.

[State and private in quotes because in a quasi-market economy apparent ownership does not tell all.  False consciousness dubbed ironic because Marxists view capitalism as infecting its worker-bees with the false consciousness of liberalism, in order to preserve the status quo of class relations.  Here benign capitalists infect people with Marxism, not liberalism, to defeat oligarchic despotism, and deliver the fruits of  capitalism].

I’m not suggesting that Syriza’s plan corresponds to an institutionally literate reform program that will ultimately give birth to enlightened capitalism.  But neither should one dismiss it out of hand using the neoclassical logic that adding a distortion to an undistorted, institution-free economy makes things worse.