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A Foreign Economic Policy for Greece

The Father of Political Realism Plays a Key Role in Current Balance of Power Theories

The dilemma of whether to follow an open or a closed foreign economic policy has pre-occupied the governments of developing countries for many years. Few countries chose the former option in its purest form, and even fewer preferred the latter, while most followed a middle solution. Historical experience, however, seems to justify the countries that adopted the first solution. Countries such as Taiwan, Korea, Singapore, and the British colony of Hong Kong, which left their economies open to foreign investments and practiced international trade, managed to achieve higher rates of growth and well-being than countries that chose the second, or even the middle solution.

Nowadays, in a global economy without borders and in a national economy without subsidies or other kinds of protectionism, the only way Greece can demand high prices for its products and create and maintain well-paid jobs for its young, unemployed population is a multi-dimensional foreign economic policy (FEP) which includes the opening of new markets, the attraction of investment capital, and the introduction of new technology and better management.

The initiative of forming a multi-dimensional economic policy should belong to private bodies and firms that not only have more accessibility and flexibility in the world market but are also ready to bear the risks and enjoy the profits from taking such initiatives. On the other hand, the state should pursue a number of activities that will complete, coordinate, and guide the activities of the private sector. These activities include: promoting a better image of Greek products, creating data banks, reducing business risks, fostering private sector autonomy, and forming permanent advisory committees. But before we begin the discussion of the role of the state in FEP, let us take a brief look at the history of Greece's FEP and evaluate its future prospects.

In a country like Greece, which lacks an experienced and competent bureaucracy and whose ministries and agencies have often been organized only to be dismantled and re-organized shortly thereafter, implementation of a FEP is a quite complex matter. FEP in Greece has been characterized by ambiguity, inconsistency, and lack of continuity and has been based more on ephemeral political goals than on an integrated and multi-dimensional strategy forged for each world region, country, and for each export product. The situation has become even more complicated after Greece's admission to the European Economic Community and the subsequent attempts that have been made towards implementing a common FEP. Many times there have been overlaps and even conflicts of interests between Greece's FEP and that of the European Union. But first we will look at Greece's FEP in the past few decades in more detail.

Before Greece's admission to the European Economic Union, Greek governments had more autonomy over their selection of a FEP, as well as over its implementation. For example, tariffs, quotas, exchange rate restrictions, and administrative measures kept foreign products that competed with Greek ones out of the Greek market. In other words, whenever an industry faced intensive foreign competition, the government created a fortress to protect it. For instance, in order to protect the textile industry, Greek governments imposed a number of tariffs and quotas on clothes, especially clothes coming from the countries of Southeast Asia and China. In addition, measures to help Greek exports were also imposed; this was seen particularly clearly with the subsidies that were granted to make Greece's agricultural products more competitive in the international market. In the case of wheat, the Greek government even instituted a number of subsidies that allowed exporters to sell their products in the international market below cost. Besides becoming burdens on the state and creating distortions in the Greek economy, such policies cultivated a negative mentality in the business world, which becameaccustomed to the easy route of subsidies instead of the difficult route of competition.

Apart from the cost, the distortions, and the mentality they cultivated, the interventions of the state in foreign economic relations were arbitrary and often ephemeral. A heavy weight, for example, was given to emigrants and commercial sailors remitances as a way to improve the balance of payments. But the shipping industry crisis and the halt and inversion of the migratory current in the middle of the 1970s proved that Greece could not rely on these inflows forever. The same happened with Greek exports which primarily followed Greek emigrants to Northern Europe, America, and Australia. Furthermore, Eastern Europe did not have the necessary incomes, or even the political will to buy Greek products, and Asia was a remote and uncharted area for Greek firms and products.

One of the successes of FEP from 1960 to 1980 was in attracting foreign investment, as macroeconomic stability, low real wages, and a number of incentives put in place by the Greek government combined to help attract foreign capital. This combination of macroeconomic stability and low real wages, however, was achieved under conditions of authoritarianism and oppression which had a great cost for the Greek people.

After Greece's admission to the European Economic Community, Greek governments had less flexibility in devising a FEP. On the one hand, a protectionist FEP levied against the other member states became unthinkable. On the other hand, a protectionist FEP levied against nations outside the Community became a necessary evil in order to align FEP with that of the European Union.

The Greek governments of the 1980s sought a new way to balance trade. For such a solution, the governments looked to Middle Eastern countries. Increasing Greek exports to this region while attracting investment from Arabic countries became the new objective of the period; this strategy, however, led Greece to become very susceptible to the rise and fall of the price of oil.

With the collapse of communism in the late 1980s, the new target region of choice became the Eastern and Central Europe and the former Soviet Union, replacing the Middle East. The region emerged as an additional market of exports where Greek firms have an economic, a cultural, and a historical advantage. Greeks looked to this region, which suits and promotes the targets of the Greek economy, as an opening which could create the conditions that would facilitate Greece's transition to the global economy. As a result, recognizing these advantages and utilizing the experience they had in Western markets for many years, Greek firms became the trade partners, the investors, and the bearers of the business spirit in an increasingly open economy in the area.

As trade partners, Greek firms established relations with the countries of the area, expanding their trade transactions in both directions, especially with Balkan countries. Between 1988 and 1993, Greek exports to Bulgaria were multiplied by a factor of nine. Reflecting this progress, Greece's trade balance with Bulgaria improved to a surplus of $105 million in 1993, as opposed to the deficit of $13 million in 1988. In the same period, Greece's exports to Rumania tripled, while Greece's imports to the nation increased by only 14%. Greek trade with Albania was even increased, though at lower rates.

Greek firms did not hesitate to capitalize on the new opportunities while bearing the risks that investments in foreign countries which are in a transitional phase pose. In Bulgaria, for example, with 1000 individual investments worth a total of $75 million, Greece represents the largest investor of all foreign parties. The same trends are observed in Rumania, where Greek firms have made more than 1000 investments worth a total of $20 million, and in Albania, where Greek firms have made 85 investments worth a total of $31 million.

As bearers of the business spirit, Greek firms have already conveyed their experience in matters of technology, distribution, and marketing to the economies of the region. In Bulgaria, for instance, Greek producers of food and beverages are leaders in issues of marketing and distribution.

In the short run, however, the prospects for further expansion of Greek firms in the region are not very encouraging. This is so because most countries are still in a transitional phase, which is characterized by economic and political instability and stagnation. In an era of rapid globalization of markets, Greece cannot and must not be content with these openings. Instead, it should go on with a multidimensional FEP which works toward gaining entry to dynamic markets, such as the markets of the Pacific Rim and Latin America, and increasing trade with the North American market.

In comparison with the area of Eastern and Central Europe and the former Soviet Union, the region of the Pacific Rim, and especially Japan, the Newly Industrialized Countries (NICs) of Asia, and China constitute the most dynamic economies in the world.¹ In the 1980s the economy of Japan was growing at 4.4% annually, the economies of the NICs at 8.3%, and China at 8.5%, while the average rate of growth of the world economy was only 2.7%. This dynamism has continued into the current decade and is expected to continue into the next decade, as well.

The rapid pace of regional economic growth is expected to be followed by a rapid increase in household buying power. Specifically, the number of households with an annual buying power of $18,000 is expected to increase from 14.1 million in 1991 to 30 million in 1995 and 73.3 million in 2000. In 2000 the rapidly growing middle class is expected to buy 116 million sets of bedroom furniture, 58 million sets of living room furniture, and 58 million sets of kitchen furniture.

Aside from their rapid pace of economic growth, the countries of the Pacific Rim, and especially Japan, constitute significant sources of investing capital, applied technology, and management systems. In the 1980s direct Japanese investments on a global scale exceeded $200 billion. Indeed, in 1993 Japan and Taiwan had the highest foreign cash reserves in the world.

In spite of its size and dynamism, the Pacific Rim was for many years inaccessible to foreign products and business. The great distance, the strict demands of consumers there, and a number of economic and administrative restrictions rendered these markets unapproachable for many Western firms, especially for small and mid-sized firms, such as those found in Greece. However, the gradual abolition of most of these restrictions, the strengthened yen, and the attempts of the governments of these countries to improve the standard of living of their citizens have opened up new opportunities for foreign firms that make quality products available at reasonable prices.

Benefiting from these developments and recognizing the dynamism of the region, both American and European firms are expanding their activities aggressively into this region. In fact, for many American firms, the Pacific markets have replaced in size and strategic significance the European markets. But what about the ventures undertaken by firms in small economies, such as the one of in Greece?

The economic relationships of Greece with the economies of the Pacific Rim were developed unilaterally. Greece was flooded with imports of products from the region, without a simultaneous increase in Greek exports. As a result, Greece unfavorable balance of payments has resulted in a trade deficit with almost all the countries of the Pacific Rim. Apart from that, the inflow of capital for direct investments and transfer of technology and management was meager. The arrival of tourists from the region to Greece is also limited. Is there potential for Greek firms to penetrate the region? What should Greece's strategy be?

To begin with, the distance, the size, the heterogeneity, and the peculiarities of the region leave Greece with a small potential for an aggressive FEP on many fronts. Inevitably, Greece's strategy should be concentrated selectively on a subset of countries and a subset of sectors (market niches) that offer the greatest potential for penetration by Greek firms. A very important factor is the improvement of the quality of Greek products and their advertisement, which is something that will be discussed in more detail in the next section.

The improvement of the quality of Greek products and their advertisement is also an important factor for another market, namely the American one. With a population of 255 million which enjoys a high per capita income, this market offers good prospects for Greek exports and for Greek tourism. However, Greece's strategy in this region should be changed. Our attempts should be geared towards the Greek-American and American consumers, not towards the first generation Greek immigrants, as has been the focus of efforts to date. With the rapid fall in Greek emigration to the United States and the increase in the number of emigrants who return to Greece, this market is constantly shrinking, which is a trend that is expected to continue in the future.

Greece's FEP should also be changed in other sectors, such as in investment and the transfer of new technology, where there has been a stagnation during the last years. In the 1980's, for example, as opposed to the foreign investment of other members of the OECD, Greek foreign investments remained at around 2% of net investment in fixed capital. It is worth remarking that in a period in which Japan invested over $200 billion in the global economy, Japanese investment in Greece totaled only $102 million. In the same period, Japanese investments in Portugal reached $192 million, and in Turkey $250 million.

In conclusion, during the last forty years, Greece's FEP has been characterized by ambiguity, inconsistency and lack of continuity, and has been based more on ephemeral political goals than on a well-developed strategy that would maximize Greece's exporting capabilities by sector and region. Things became even more complicated after the admission of Greece to the European Union and the subsequent attempts to exercise a common FEP. However, in an era of globalization, what can and should the Greek government do in order to help the private sector grow stronger and expand its presence in foreign markets?

In a global capitalist economy, in which the institutional investors, the financial agencies, such as the International Monetary Fund and the World Trade Organization, set the rules of the game, the role of the state becomes limited. With the reduction or even abolition of tariffs, quotas, and export subsidies, the role of the state should focus on promoting the image of Greek products, creating data banks for the Greek market and Greece's exporting firms, reducing business risks, fostering private sector autonomy, and forming permanent advisory committees.

Some of the measures we propose have at different times been employed by the Ministry of National Economy and the Organization of Promotion of Exports (OPE) and these efforts have begun to bear fruit. But these measures have not been taken far enough for political reasons or clash with the endogenous weaknesses of the Greek economy. But let us look at these measures in greater detail.

1. Image of Greek products. In a global capitalist economy, in which thousands and sometimes even millions of firms compete to attract consumers, brand name recognition, superior quality and reasonable prices are necessary prerequisites to promoting a positive image of Greek products. This is especially true in the United States and Japan, where Greek products are unknown. According to a recent study by the European Commission, the Japanese know a lot about the history and the culture of Greece, but little about Greek products. But how can the image of Greek products be improved?

Improving the image of Greek products is primarily the duty of the manufacturers of each product. The protection and promotion of this image is also the duty of the government. When a firm sells goods of low quality at uncompetitive prices in the international market and has no consistency in delivery and service, not only this firm but also the whole product sector is hurt. When a sector is defamed, the whole Greek economy is defamed. In other words, the image of Greek products is a common good, and as such it should be protected by the government. This can be achieved by establishing regulations on the quality of exports and by rewarding firms and sectors that are leaders in this regard.

In addition, the state can help firms promote a positive image of Greek products in export markets by subsidizing advertising programs, international business missions, and participation in international fairs. Such actions are especially significant for large markets, such as those of Japan and the United States, where Greek products are unknown to the consumers and the cost of entrance is usually prohibitive for the majority of Greek firms. For instance, in order to improve the image of Greek olive oil in the United States, the OPE and the Ministry of National Economy organize exhibitions of American cooking with olive oil through a marketing company they have hired. Similar attempts are being considered both for olive oil and for a number of other consumer goods for the Japanese market in the HERMES project, leading to a study which has recently been completed by the Ministry of National Economy.

2. Data Banks. In a huge and constantly developing market, the rapid dissemination of accurate information to Greek firms about the characteristics and peculiarities of every region and every economy, as well as the dissemination of information about the Greek economy, products, and firms to importers, is a very significant factor for the success of Greece's exporting policy.

For the more developed economies, this information comes free or at a low cost from international organizations and private data banks. For the less developed economies, especially those that are in a transitional phase, this dissemination of information is limited and of a low quality. Thus, governmental data banks can play a major role in collecting, validating, editing, and publishing the existing numbers in a periodical compendium available on CD-ROM and which should be made available through computer networks. Also, the government can play an important role in the collection of market studies that different public and private companies conduct in countries and sectors in which Greek firms have good prospects for expansion.

The collection and disposal of figures on CD-ROM from data banks must also include figures that refer to information on the state of the Greek economy, Greek firms, and market activities related to Greek exports. In an era in which international transactions rely on computer networks more and more, this activity is not simply an attractive option, but a necessity.

3. Reduction of Business Risks. Despite the abolition of tariffs and quotas and the loosening of customs restrictions, the expansion of a firm into the global market remains an uncertain and risky activity, especially for small and mid-size firms such as those found in Greece which do not have either the financial resources or the distribution networks that multinational corporations have. These risks are even greater when dealing with markets that are in a transitional phase, such as markets in Central and Eastern Europe and in the former Soviet Union. But how can the state reduce the business risks in the international market? The answer lies in securing credit for exporting firms and fostering cooperation among these exporting firms.

For products whose destination are the developed countries, firms secure credit through the mechanism of the market, where the exporters can buy the relevant securities. For products whose destination are the under-developed countries, and especially countries that are ã in a transitional phase, the risks are much greater for private firms. In these cases, the government can reduce the risks involved by helping firms obtain credit. To this effect, Greece has already created the Organization of Securing of Export Creditings, but, as a new body, this organization lacks the resources and the direction to fulfill its aims.

Cooperative acts between exporting firms are another means of reducing the risks of exporting; an example of such an act is when small and mid-size firms combine their attempts to obtain funding and ship and distribute their products. These cooperative acts have been used successfully by many countries, especially Japan and Taiwan, which rely on small and mid-size firms for their exports. The food and beverage industry and the clothing industry are two sectors in which Greek firms can combine their exporting attempts by sharing offices, pooling funding, and making common advertising pitches.

4. Private Sector Autonomy. For many years the Greek government, as well as most European governments, insisted on choosing the sectors and the industries in which the private sector could focus its efforts, and the international markets were not an exception to this rule. But during the last few years there has been a shift in sentiment so that now the view that the state has neither the knowledge nor the means to choose firms and industries with the best economic prospects has prevailed. This shift has had a large impact in international trade, where the prospects of a firm or industry often change.

In such an environment, the role of the state is limited to conducting research and disseminating knowledge about the global economic trends in each sector and region. In some cases, the role of the state can be extended to the study of the potential for Greek firms to penetrate markets in specific countries and sectors. Even in these cases, however, the role of the state should be limited to making recommendations which will help Greek firms to adapt their products to the demands of each market and thus allowing the private sector to make its own choices and to bear the risks and enjoy the profits of its ventures.

5. Permanent Advisory Committees. As we mentioned above, ambiguity, inconsistency, and lack of continuity in a FEP can pose significant obstacles to an economy as a result of incompetent and inexperienced bureaucrats. This problem does not apply to FEP only but to the whole spectrum of economic policy. For a FEP, the problem can be tackled with the creation of permanent advisory committees, in which the Ministry of National Economy, the OPE and the private sector executives participate. For example, in order to ensure the continuity and consistency of Greece's FEP with Japan, the project HERMES, which was recently completed by the Ministry of National Economy, provides for the creation of an independent and autonomous coordinating body consisting of 7 members which will study and promote the development of Greek-Japanese economic relationships.

In conclusion, in the past Greece's FEP was characterized by ambiguity, inconsistency, and lack of continuity, and was based more on ephemeral political goals and less on a well-developed strategy that would maximize Greece's exporting potential by sector and region. In the future, improving the image of Greek products, creating data banks, reducing business risks, and fostering private sector autonomy are some of the components that will comprise a multi-dimensional FEP. A successful FEP cannot be realized, however, without simultaneous domestic economic reform that includes a broad reorganization of the private and public sector, deregulation, and the creation of the information super-highways.