Reforming for the future: Building a stronger, fairer Greek economy

 

Remarks by Angel Gurría, OECD Secretary-General, delivered at the Konstantinos Karamanlis Institute for Democracy

 
27 November 2013, Athens, Greece

(As prepared for delivery)

Ladies and Gentlemen,


It is a pleasure to be here to discuss “Reforming for the future: Building a stronger, fairer Greek economy”, a hugely important topic.


As countries work to recover from the greatest economic crisis of our lifetimes, the global community is calling for a new vision for growth and a promise of a more equitable future. We need to respond with strategies to make growth more inclusive, which implies reducing the gap between the rich and the poor, and ensuring the growth dividend is shared more evenly across social groups.


Today, I’d like to emphasize three key pillars that Greece can focus on to make inclusive growth the new reality – rebuilding trust, increasing productivity and competitiveness, and improving the administrative environment.


Trust is a Must

The crisis has had a terrible impact on public trust in governments across the OECD. This is a key finding in our OECD “How’s Life?” report, which measures well-being in OECD countries and other major economies. Moreover, according to the Gallup World Poll in 2012, only 40% of the OECD population trust their government. (down from 45% in 2007). This weakens the legitimacy of the State, undermines the health of our democracies, and hinders the government’s capacity to implement policy and carry out reform. The findings are particularly concerning for Greece; as the effect of the crisis on trust is strongest in countries hardest hit.

One way to restore trust is to improve the efficiency and effectiveness of the public sector. This is the main focus of our Government at a Glance report, which provides decision-makers and citizens with a dashboard to analyse and benchmark government performance. This dashboard can help rebuild people’s faith in government’s effectiveness, which is decreasing amidst concerns about fairness in fiscal consolidation and the sacrifices required for structural adjustment.

This erosion in people’s trust in government is precisely why our policymakers need to ensure that the costs, as well as the benefits, of adjustment are fairly distributed. This is a key pillar of our latest Economic Survey of Greece, which I launched today with Minister Stournaras.

The Economic Survey addresses Greece’s acute social costs following the crisis. Joblessness is still at a historical high of almost 28%, and youth unemployment is almost 60%. Poverty is also on the rise: in 2012 more than 15% of the Greek population earned less than half of the median income, a marked increase of 1.5 percentage points in relative poverty over the previous year.


Our Economic Survey provides key recommendations to reverse widening income distribution and rising poverty. For example, we welcome the imminent launch of the means-tested minimum income pilot programme, and hope that it will be fully implemented across the country in 2014. We also recommend the introduction of subsidised, means-tested school meals and activation policies aimed at reducing the high rate of unemployment amongst young people.

I’d also like to share the good news from our Economic Survey. Looking ahead, we expect the Greek economy to be growing again by this time next year, and for the recovery to gather pace through 2015. But for these growth rates to materialise, and for Greece to put its public finances on a sustainable path, it is crucial to unleash the power of a dynamic, competitive private sector.
 

A Second Pillar: Increasing Competitiveness in the Greek Economy

Despite an impressive range of reforms to date, more can be done to make it easier for Greek firms to compete. In many markets there remain significant barriers to competition, discouraging entrepreneurs from investing, and costing end-users in terms of reduced choice and higher prices. In turn, competition will enhance productivity and reduce costs, making the economy more competitive.


Over the last three years, Greece has reduced the large gap between its Unit Labour Costs and those of Germany and other Northern European countries. But most of this reduction has taken place on the back of falling income, rather than gains in productivity. As demand picks up again, it will be critical to build on these achievements and ensure that competitiveness is restored through improvements in productivity, which will entail additional reforms to strengthen competition.


Today, we also launched a Competition Policy Assessment with Minister Hatzidakis. This assessment aims at spurring growth by increasing competition in four sectors: retail, tourism, building materials and food processing. It is based on the work of the OECD, the Hellenic Competition Commission and the EU Task Force here in Athens. It applies the OECD’s Competition Toolkit to identify competition barriers in these four sectors, which together account for 21% of GDP and 27% of employment in Greece. This has been an extraordinarily effective team effort; the report provides 329 specific recommendations for legislative reform!


For example, we recommend updating or abolishing obsolete legal provisions that regulate the weight of bread and restrict the type of peppers that can be imported. In the tourism sector, cruise ships departing from a Greek port are currently required to return to that same port, but competitors in other countries are not similarly restricted. We recommend removing this round-trip restriction to level the playing field.


If all the recommendations of the Competition Assessment were implemented in full, we estimate that the overall impact on the four sectors analysed would be an increase in purchasing power by 5.2 billion euros, or 2.5% of GDP, as a result of lower prices for consumers and higher sales for producers. And that’s before we even look at the longer-term, economy-wide impact on productivity growth and welfare.


But competition isn’t just good for growth and competitiveness. It can also drive inclusion, and spread the benefits of reform across society through greater choice and lower prices for consumers, more jobs for workers, and more opportunities for small businesses.


In my own country, Mexico, for example, we estimate that the poorest families spend 42% of their income in markets where prices are high due to weak competition. Reforms underway in the telecommunications sector, and to the competition regime more generally in Mexico, are expected to have a very positive impact on the finances of the most vulnerable.


A Third Pillar: Cutting Administrative Red Tape

Reducing the administrative burden on the private sector is also essential for growth. Ill-advised regulations limit competition, and they can impose a burden that undermines the competitiveness of existing market players. This burden weighs particularly heavily on the younger, smaller firms that drive jobs-rich growth. Cutting unnecessary rules on business –– the “red tape”- is a relatively inexpensive way to free up resources for more productive uses.


And this is precisely the goal of the OECD’s Administrative Burden Reduction project. The initiative aims to reduce administrative burdens in Greece by 25% across 13 selected sectors. We estimate that this would generate annual savings to businesses in the region of 1.8 billion euros. And again, the long-term boost to productivity could have an even greater impact.


In tourism, for example, there is scope to remove a requirement for developers of tourist infrastructure to seek approval on the feasibility of their plans. And in public procurement, we discussed the scope to abolish the requirement for businesses to add a certified signature to a declaration on the same day they submit a bid.


I look forward to the completion of this project and to the final recommendations next January, but even at this stage we have some concrete results. I presented alongside Minister Mitsotakis this afternoon a number of reforms that could have an immediate impact.


Making Growth More Inclusive

These reforms to restore competitiveness and make growth more inclusive need to be further strengthened through a more broad-based, comprehensive package of reforms. Well-targeted and closely-monitored active labour market policies (ALMPs), including training programmes for the low-skilled, are critical to enhancing competitiveness, while also raising welfare and incomes. There also needs to be a clear drive to improve the quality of the education system and to fight tax evasion.


Together, these polices will help ensure that growth and equity go hand in hand. This is the focus of our Inclusive Growth (IG) initiative, which we launched in 2012. The IG initiative provides a tool to identify policies that tackle the dual objectives of growth and inclusiveness; and to better understand the trade-offs and complementarities between policies. This is essential! In order for us to create a more inclusive, fair and prosperous society, we need policies that are good for long-term growth and that nurture social equity.


Ladies and gentlemen,
We understand how much Greek society has endured these past six years. Reform isn’t easy at the best of times, but it can be even more challenging in the face of a weak economy while at the same time trying to correct a budget deficit.


But all crises come to an end. Growth does return. Now is the time to maintain the momentum of Greece’s reform drive. I hope that the OECD’s deepening collaboration with Greece – and initiatives like the Competition Assessment and the Administrative Burden Reduction project – can make a valuable contribution to these efforts.


You will be sowing the seeds for the robust, inclusive recovery that is not only possible, but essential to promote widespread well-being and restore trust in the future of this wonderful country.


Thank you.