Greece, economism and systemic theory

Not a day goes by without Greece making the headlines in the world media. A country that was previously best known for giving the world democracy, zorba and island vacations, is now synonymous with credit bubbles, financial collapse, debt mountains, bail-outs, political turmoil, social unrest, crashing GDP, austerity and unemployment, resulting in poverty and human misery.

Within our European family of nation-states, and in our search for easily digested explanations, we are told that the Greek mess is a result of Greek people and institutions being excessively lazy, unwilling to pay taxes, incapable of collecting taxes, prone to corruption and nepotism. To what extent this description of life in Greece is true or not is of course debatable, and is highly context and culture sensitive.

Rather than allowing for a more self-critical analysis of the current situation in Greece and the causes of the current euro-zone crisis, we allow old national stereotypes to re-emerge, shape our thoughts and influence policy. While stereotyping Greeks as lazy and irresponsible over-spenders and Germans as stingy and cold-hearted control freaks make juicy materials for soap operas, it distracts our intellectual discourse and limits the opportunity to learn.

We live in an age of economism. As per definition, the economy and financial institutions dominate the public discourse. As social creatures, humans are reduced into economic dimensions, and evaluated using numerical terms. Ethics and moral no longer play a role in societal progress. Decisions are made based purely on economic criteria, assumptions and theories. And among economic theories, ‘trickle-down’ economics rule supreme.

The basic idea of trickle-down economics, or supply-side economics as it is commonly called today, is that lowering taxes on the rich and corporations will automatically improve the economy and inevitably benefit the poorer segments of society. Unfortunately, during the last 30 years, as this wonderful theory of economic development was put into practice, it showed itself to be based on some seriously flawed assumptions. Most explicitly, the notion that private corporations would automatically convert profits into ever higher salaries and invest in new productive assets, rather than cashing out the profits for themselves and outsourcing production to places where labour costs are lower.

For the proponents of supply-side economics, governments around the world made the correct political decision to save the banks and other financial institutions in response to the global financial crisis in 2008. Using tax payers’ money (and later printed new money) to bail-out the banks was necessary to keep the flow of credit to the productive enterprises, it was universally argued. In a society dominated by economism, this decision, to effectively put money before humans, was surprisingly easy to make.

However, our current economic system appears fundamentally flawed. The trickle that exist in the world economy today is not moving downwards to the benefit of the mass population, rather the money is flowing upwards, making the riches 1% even richer.

While the mountains of debt are growing for nation-states, central banks and individuals, the stock markets are booming to the benefit of bankers, large corporations and speculators. While humans are struggling with the realities of low economic growth and unemployment, the plutonomy of the world is enjoying the benefits of increasing global inequalities and political power.

John Kenneth Galbraith, the economist, explained trickle-down economics by noting its similarities with the ‘horse and sparrow theory’ of 19th Century America. ‘If you feed the horse enough oats, some will pass through to the road for the sparrows.’ (Galbraith, “Recession Economics”, New York Review of Books, 1982) In 2015, comedian Bill Maher (trust a comedian to put the finger on our lifetime’s fundamental issues) described the failed idea of supply side economics by telling the tale of an owner of three dogs giving a sausage to one dog thinking it will share the sausage with the other two dogs. It just won’t happen, the same way banks, Wall Street and big corporations have shown themselves increasingly unwilling to share their profits with workers (salaries), the state (taxes) and society as a whole (investments).

How different the world would have looked today if politicians had put people before money in 2008.

How different the economy would have looked if the politicians had not fallen for the ‘too-large-to-fail’ trick.

The bail-outs of the banks and large corporations were political decisions, not economical or business decisions. If we really believed in the power of Adam Smith’s invisible hand and laissez faire economics, we would have let the poorly managed banks and corporations fail. Of course, there were alternatives to these endless bail-outs of market losers.

The Swedish government nationalized some failing banks during its banking crisis of 1990 and regulated the banking sector. As a result, the Swedish banking sector managed the crisis of 2008 relatively well. On the other hand, Sweden did not bail-out SAAB, the then GM owned automobile manufacturer, as it was heading for bankruptcy post-2008. Today, SAAB is Chinese owned and growing again, without any Swedish tax-payers money being wasted on a poorly managed privately-owned company. Sweden still ranks top 10 most competitive economy in the world (World Economic Forum), not bad for a supposedly ‘socialist’, cradle-to-grave welfare state.

The basic function of every state and society is to guarantee the well-being of its citizens. The economic system is just one among many systems (political, social, cultural, psychological, etc.) that influence our lives and together create our sense of well-being. The simple but flawed idea of supply-side economics is that if only the economy grows there will be universal wellbeing!

Rather than over-simplifying our lives into numerical terms and allowing our destiny to be dictated by likeminded central bankers, politicians, big business and media representatives who see economics more as a natural science than a social science, we must admit that the pursuit of individual and collective well-being is a complex task, full of uncertainty. This is the essence of systemic thinking.

According to systemic theory, any complex situation, as for example a state, society, corporation and organization is characterized by numerous problems and challenges that interact with each other. System thinker R.L. Ackoff described such situations as ‘messes’. “Messes are systems of problems, the sum of the optimal solutions to each component problem taken separately is not an optimal solution to the mess. The behavior of a mess depends more on how the solutions to its parts interact than on how they act independently of each other”. (Ackoff, The Future of operational research is past, Journal of Operational Research Society, 1979)

To a systems thinker it comes as no surprise that bail-outs of banks and austerity programs, which are deemed optimal solutions to the Greek economic and financial problem has not resulted in an optimal solution to the Greek mess.

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About Jakob Modéer

22 years of corporate and international investor experience as well as private sector development project management, consultancy in private sector policy and business advisory services, and direct consultancy to companies in South East Europe (and now a blogger on socio-economic issues)
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