Friday, January 8, 2016

109. For Mancosa MBA Students

The learners were given a scenario (case study) on Greece and then asked to identify the “root cause of the current crisis” I believe that the question should have been broadened so as to be able to tap other knowledge the learner may have regarding the economic problems that many countries have – especially those in the developing world.

· Greece gained their freedom in 1830. Many developing countries have only gained their freedom from colonial powers in the last century – and that has certain economic implications.

· Greece has borrowed extensively. Many developing countries have huge foreign debt – often because of military expenditure, often for capital projects; but huge sums have been withered away through the corrupt actions of political leaders. The point is that they have debt which have been reduced through debt standstill agreements, but many have not been able to escape the burden.

· Greece has managed to be in positive territory with regards to GDP growth for many years, which shows that it is possible. The financial crisis has had a detrimental effect however. For many developing countries the world economic crisis has had a negative impact since most of them are very reliant on commodities and the prices of these have fallen dramatically after the crisis.

· Greece’s economy is service oriented. Developing countries could benefit more from providing a haven for financial services and tourism if they were able to stabilize politically and ease their tax regimes and develop appropriate infrastructure.

· Greece’s economy is linked to the Eurozone and Euro currency regime. Many developing countries are in the fortunate position that they have their own currencies and can use the fact to establish trade and political relationships with other developing economies like China. India, Russia and Brazil more easily.

· It is bad policy for any country to let inflation get out of hand (more than 2%); the effects are multiple – Greece experienced it; so do many developing countries – the best example being Zimbabwe. Inflation is one of the most devastating results of an economy that does not contain its money supply and allows social upheavals (such as the land grab policies in Zimbabwe – which caused food shortages and other social ills) to beset the country.

· In many other countries that have gone the Central Planning and Socialist route such as Greece at some stage, one will get a burgeoning public sector and a decline in wealth creation in the private sector. Such policies have had negative effects in many countries in Africa (South Africa for example) and in some South American countries. Examples of turnarounds from such policies towards open free market economies have been China, India, Vietnam and others. Myanmar is also set to go the growth route as a results of the changes taking place but a country such as North Korea is doomed to perpetual poverty as a result of the economic policy route being followed there.

· Corruption, obtaining a personal gain from a position of power, makes the free interaction necessary for honest non-coercive market transactions difficult and is a huge impediment to economic growth. This has been the bane of the Greece economy and of many other developing countries. The rule of law as opposed to the rule of men is one of the cornerstones of a thriving market economy.

· Arms deals that have the result of benefitting the politicians was a cause of some of the financial woes of Greece. It has also been a problem in many other developing African countries, including South Africa.

· Investing in the Olympic Games in 2004, money that Greece could ill afford, contributed to the debt problems. Was the investment in stadiums in 2010 the best use of our scarce financial resources? Or did the benefit in “Nation Building” and “putting SA on the map” compensate. I doubt.

The problems faced by Greece is a good example of the effect that the flipside of economics, namely politics, has on the long term wellbeing of a nation. Politics is the nothing else than the use of force to attain some unearned benefit, whereas economics – the free market version that is – is focused on the creation of wealth through production and trade.

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