By JOHN SFAKIANAKIS
October 10, 2012
For generations, political power in Greece has been based in large part on providing public sector jobs in exchange for votes. To protect workers from being thrown out when a rival party came to power, virtually iron-clad job protections for government workers were enshrined in the Constitution.
Though it was very rare for a government worker to be dismissed, this did not stop politicians from continuing to hire supporters — feeding a bloated, inefficient and expensive public sector that was accountable to no one.
Every political party, whether in the coalition government or in opposition, fears the consequences of losing the support of a voting bloc of more than 700,000 government employees and their families.
So today, for every seven private employees who have been laid off, only one has left the public sector. This leaves fewer and fewer workers in a country where the unemployment rate now hovers around 25 percent to pay the taxes that provide the salaries for the people who work for the government.
The current government, formed by the New Democracy, Pasok and Democratic Left political parties, while devoted to keeping Greece in the euro zone, makes no secret of its allegiance to its supporters in the public sector. When the coalition was formed in June it immediately issued a statement saying that “the general aim is no more cuts to salaries and pensions, no more taxes,” and added that it would not carry out any public sector layoffs.
Greece’s creditors — the troika comprised of the European Commission, the European Central Bank and the International Monetary Fund — have made public-sector layoffs a condition for providing the next tranche of the biggest bailout in history. But political pressure remains fierce. Many analysts say that the newfound strength of Syriza, the formerly fringe leftist group that is now the main opposition party in Parliament, came as support eroded for the governing coalition that is trying to reform Greece.
The expansion of Greece’s huge government sector took decades to create, but its growth in recent years has been particularly striking. Public employment grew by fivefold from 1970 through 2009 — at an annual growth rate of 4 percent, according to according to a recent academic study by Zafiris Tzannatos and Iannis Monogios.. Over the same four decades, employment in the private sector increased by only 27 percent — an annual rate of less than 1 percent.
“Instead of shrinking the bloated government apparatus and making it more efficient, New Democracy and Pasok hardly even touched it,” Stefanos Manos, a former Greek finance minister, said in an interview with Frankfurter Allgemeine in June.
The two parties, which alternated in power in the decades since the end of military rule in 1974, “increased the taxes to unhealthy levels and risked a recession to protect their clientele in the state apparatus,” Manos said.
According to the Organization for Economic Co-operation and Development, in some government agencies overstaffing was considered to be around 50 percent. Yet so bloated were the managerial ranks that one in five departments did not have any employees apart from the department head, and less than one in 10 had over 20 employees. Tenure ruled over performance as the factor determining pay.
Wages in the public sector were on average almost one and half times higher than in the private sector. Government spending on public employees’ salaries and social benefits rose by around 6.5 percentage points of G.D.P. from 2000 to 2009, while revenue declined by 5 percentage points during the same period. The solution was to borrow more.
Continuous over-consumption in the public sector has contributed to productivity losses and trade imbalances. In a report last year, the World Economic Forum ranked Greece’s public institutions No. 84 in the world. Germany was 13.
Public sector wages account for some 27 percent of the government’s total expenditures. As the crisis has worsened, Greece has shed some government workers, mostly through retirement, but it has failed to implement a so-called labor reserve law last year, which called for the eventual slashing of 30,000 public sector jobs. According to the country’s national statistical service, since December 2009 the number of people working for the government is down 12 percent. But the number of workers in the private sector has dropped by 55 percent.
Painful salary, pension cuts and higher taxation could have been avoided had the public sector been downsized from the outset of the crisis. Had the rate of public sector layoffs been doubled, the country may have been close to a surplus in 2011 and would have likely achieved one in 2012. The pension system could have been in better shape, and taxpayers could have avoided paying more while earning less.
In the past, a more productive and expanding private sector could have withstood — to a degree — the financial drain of a costly and profligate public sector. Today, shielding the public sector is no longer an option, especially when it comes at the expense of the rest of the population.
John Sfakianakis is a Greek economist.
