Facing the Greek Holodomor (with Dimitrios A. Ioannou)

Άρθρα Κωνσταντίνος Γάτσιος

In the history of “applied socialism” in the 20th century in the Soviet Union and China, there are two remarkably black pages: it is the famine and the death of millions of people from starvation. In the case of the Soviet Union it happened during 1928-1933 with the so-called “collectivization”, and in the case of China during 1958-1962 with the “Great Leap Forward”. The main feature of both cases in economic terms, which explains the loss of tens of millions of lives, was the attempt to reduce, in an authoritarian and abrupt manner, private consumption (which consisted –due to poverty– mainly of food) in order to channel the savings into investment for the creation of heavy industry. In terms of National Accounts, what happened was a sudden decrease of consumption as a percentage of GDP, and a corresponding increase in savings, which was then turned to investment.

One might wonder: how do all these relate with the Greek economy today? Unfortunately, they do in the following way. The Greek economy is facing a similar problem to that of the Soviet Union in the 1920s and of China in the 1950s: the consumption is too high and the savings are very low and, as a result, they cannot finance the required investment to come out of the crisis. The only difference is that in our case (fortunately) there is no dictator who would impose the reduction of consumption and the increase of savings and would channel them into the investment that he would consider desirable. This, however, does not remove the problem. On the contrary, in combination with the fact that the Greek society shows no intention of perceiving the problem, it makes it rather more difficult to solve.

The imbalance between consumption and savings was, after all, the cause in terms of national accounting for the collapse of the Greek economy at the end of the previous decade: in 2010 the total final consumption of the Greek households and the public sector accounted for 92% of GDP, allowing only 8% for savings. At the same time, the respective average of the eurozone was 77.5% and 22.5%. This eurozone ratio was within the limits that theoretically allow the smooth functioning of an economy, and the ability to maintain a medium-term growth, provided of course that the total amount of savings will be converted into investment -something that is not always guaranteed and obvious. 20% to 25% of GDP that is saved should be invested, and of this 10% to 12% replaces the deterioration and obsolescence of the capital that was already invested in the previous year. The remaining increases the productive capacity of the economy, creates new jobs and thus brings about an increase in its total income.

The crisis which our country entered seven years ago was the only way the impersonal economic operations know to correct a persistent asymmetry in the accounting identities of any national economy. Unfortunately, the Greek society (including its “leading” classes) could not perceive that. Instead of realizing that it had to change its lifestyle and to adjust its consumption to its actual capabilities, the Greek society chose to engage in shadow boxing with imaginary enemies and to seek easy and painless solutions through “negotiation” and the “anti-memorandum struggle”. The result? Today, after seven years of a really “wasted crisis”, the Greek society is at a situation that forebodes even more difficult tests for the future. Its two major problems, namely the widespread unemployment and the brain-drain of youth -problems that lead into deeper social decomposition – are due to a complete lack of investment. Which, unfortunately, can come from nowhere. Because today, yet again, the Greek society consumes 90% of its GDP and saves only 10%. While the averages of the eurozone are 75% and 25% respectively. This means that in order for the Greek economy to start creating jobs to employ the unemployed and retain young people from migration, it needs an annual investment of around € 20 billion. Which, of course, we all know that no one is going to lend us, nor foreigners will come to invest in Greece, no matter how many nice words we say about “foreign investment.”

The famine in the Soviet Union, which caused millions of deaths from starvation, was called Holodomor. Unfortunately, our country today is facing in the years to come a kind of its own Holodomor. There are, of course, two big differences compared to the case of the Soviet Union, but also to that of China: in those cases the conversion of consumption to investment came violently and extremely fast, due to the existence of an authoritarian dictator. The Greek Holodomor, by contrast, can be long and protracted, with a slow and painful process of dissolution of our social structures, not due to a reduction of GDP consumption but, instead, due to its continued primacy. Which was not imposed by any dictator but, which was given prominence, over time, by the citizens themselves and of course by their political representations, with their decisions and their ostrich-like, but also self-destructive, behavior.

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