In this year’s DEF, economia has had the pleasure to present to the diverse audience of the Forum – conducting in a digital environment, due to the Covid pandemic – LSE Professor and 2010 Nobel laureate Christoforos Pissaridis, who accepted to broach a wide range of issues.
Economia Publishing managing editor Antonis Papagiannidis was to discuss with Chr. Pissaridis but technical glitches made this impossible. DEF’s Yannis Koutsomitis saved the day.
The first question put to Professor Pissaridis was of general nature. Where does the Covid-19 pandemic leave the global and European economy. His take:
I'm not optimistic. I’m less optimistic now than I was two months ago. Covid is having a bigger impact in our economy than I anticipated. What is worrying me especially is about the world economy: we knew that the last few years, maybe 2 or 3 years, great transformations took place in our economy, new challenges on how to incorporate new technologies, automation especially, digital technology, artificial intelligence - and at the same time how to succeed in helping workers, helping the economy adjust to the new reality, get new jobs.
That process was moving quite well, especially with Northern European countries; Southern European countries were failing a few times. China was doing exceptionally well this process, in fact it was challenging the USA, which explains the reactions of President Trump to China. Then, suddenly Covid comes along! If you look at Covid now, you would think that the biggest problem it is causing is the recession in which the world economy has sunk - and we have to deal with that. But in my view Covid is introducing problems that will last into the medium and the long run.
Automation is accelerating because companies are now realizing that, if they are going to automate everything or if they have plans in the next 5-10 years to replace their workers with machines, they might as well do it now because machines are not so susceptible to Covid. And those workers who are losing their job because of the automation are not coming into the market because most of them involved human interaction: the hospitality sector, tourism, health and care, retail, trade, domestic services for less- skilled workers. But those jobs will not be forthcoming now because people don't want close physical contact.
So we are stuck in a sense. There is speeding up the destruction of jobs through automation and slowing down the creation of jobs for the workers who lose those jobs. There is a lot of work that needs to be done.
Then, the question was raised which sectors should be targeted for investment in the Greek economy, so that the recovery of the economy would be speeded up. Prof. Pissaridis:
I’ m not a fan of a situation where we name champion sectors and we help them. In fact I've been asked this question a few times. Not about the Greek economy but about the Chinese economy when I went to China, about Cyprus of course when I’ m there. My answer is always the same: no one knows which sectors are most competitive. It's not something economists do, to look at the economy and just say “this sector is good or maybe the other sector is not good”. What the economists' job is -and what the economic theory is nowadays about - is to identify barriers to private economic activity. Once you remove these barriers, then the economy will by itself converge to those sectors where there is a comparative advantage, in terms of human capital, of physical capital, of geography, institutional structure, and history: all these things contribute. But the real job is to make sure that the institutional environment of the country is favorable to the exercise of entrepreneurial spirit.
Certainly Greeks are very entrepreneurial. We can see what they achieve when they get released into a competitive environment. After all Greek civilization is being alive for a long-long time, so there must be something right with this people! They don't do it all wrong. All you need to do is to unleash that initiative, that spirit and they will identify those sectors much better than you and I.
But what can be done, so that investment be turned towards more long-turn perspectives, so that a short-termism mentality does not get the upper hand?
It's not the mentality that drives people to invest short-term. It's the structure of the economy and the incentives that are given to invest short-term. If you're not given the right incentives, then you wouldn't invest long-term. There is only one section of the economy in which I believe the speculation is inherent: the banking sector, the financial markets. Those are the only short-termist: this kind of finance, not corporate finance.
When it comes at entrepreneurial activity, people go for the short-term only when they don't trust that things will not be better in the long-term. You need to have trust in your government economic policy and in your environment. If you have that trust, then you are going to invest long-term.
You see, to bring another example, when I was at China I saw how they DO plan for the long-term: they are planning now what will happen in 2047. They build infrastructure like that when they create businesses - Huawei for example – they are planning for digital transformation that will last for the next 100 years. Now, why they do that? Because they trust that their government will behave the same way in 50 years from now as it behaves now.
So, in answer to your question how can we lead to long-term investments: increase confidence in them that there will be political stability; that they will be able to get rewards from their investments; that the infrastructure will be there - and they will do it.
The next issue raised with Professor Pissaridis concerned the suggestions that he thinks the Committee that has been formed under his stewardship will make to the Greek Government, in view of the EU Recovery Fund opportunities but also the geopolitical changes brewing. His reaction:
“As for the Committee I have to talk to the Prime Minister. Before that I won’t talk to anyone else”
Further to that:
I see there is a risk that needs to be handled very-very carefully because Greece is a small player; even the whole EU is a small player when it comes to USA and China and not in too a distant future I suspect India will be there as well as a huge country. I’m very worried about the behavior emanating especially from the USA in the last 3-4 years that surely doesn't makes sense. It's almost random. President Trump makes threats and the Chinese are very sensitive to threats and their reactions might be too much in comparison to what the initial threat was. In fact I was very disappointed when I saw the Pacific Cooperation Agreement being torn up by the U.S. Administration, very disappointed too about Europe. So, when it comes to Greece and these big - time politics, the best Greece can do is to try to make the best of the European reactions. The EU has to act as one entity in this world and that's partly why I'm so disappointed that Britain has taken the route out through Brexit. I don't think that those who have supported the (British) Prime Minister have given any deep thought to this issue.
#One side issue: energy
Well the games of energy prices are factored in in unpredictable ways. This is the case for Greece but also the whole EU and Eastern Mediterranean with Israel, Cyprus - and with Turkey following of course a very aggressive attitude. We need to develop a good energy infrastructure. But, there are a lot of price uncertainties now to encourage renewable resources. Greece has enormous potential renewable resources because she's got sunshine and wind in the Aegean, the two main resources. Although natural gas in Eastern Mediterranean looks profitable and that's why you get big companies willing to buy the rights and the exploration should be pursued. I don’t know if the geopolitics of Turkey (especially since the Cyprus invasion since 1974) will allow it.
As to developing the renewable resources, quite honestly I find absurd the current situation: Germany for example is one of the biggest users of solar energy in the EU and those solar panels of German companies are located in Germany. What kind of single market are we? There is no sunshine in Germany compared to the Greek islands. There is something there that is not working quite right and it's not to believe we don’t tell the Germans “look we've got 2000 rocky islands, put there wind farms, solar panels and we provide the cables to take it back to Germany if you want to have your factories in Germany. Do not wait for the few days in the year when there's a blue sky to get some energy”.
In the way forward, will Europeans work in a coherent way to achieve its post-Covid restart?
I hope essentially that the Europe will work together because we are too small within Europe for each country to deal with it on its own. The various programs that have been announced by the EU are a very good start. I hope that they get approved -because they haven't been approved yet - especially now when the German Presidency is coming up. The Germans always have a special influence to finances, and I do think there should be an effective collaboration. Of course with Covid we depend very much on the medical profession; in the near future things will be much better and if we should bear in mind that medical research since Covid - and going back to SARS - shows that this is no one-off. There are hundreds of viruses in animals that could easily be transferred to humans and then create another pandemic. We learn our lessons; I know China has learnt from its lesson, because the lack of information in November-December has cost a lot in the West, in Europe.
Europe has strong economies when it works together, it's got highly trained people, brain-drain in the USA is slowing down, and it has stopped because we have our own. I’m very disappointed by what's happening in the US with G. Floyd and the tragic situation that resulted, with the President having acted insane since then; fingers crossed for the next presidential elections! I don’t want to show my preferences but I guess you can predict what they are - and I hope that there will be an enlightened collaboration between Europe and the USA and China - but occasionally I wake up panicky in the night and I say “Oh my God”.