Firing underperforming public servants essential to help save Greece
Whether or not the new European Council agreement affords Greece a sustainable debt burden is only a necessary condition for progress and by no means sufficient to avert a compete meltdown. The underlying causes of Greece’s malaise are much deeper. Financial disaster might not be imminent, but if financial restructuring is not accompanied by an operational turnaround, Greece may nevertheless soon collapse, taking Europe with it. And structural reforms seem to stall. What can and should be done now? The London Business School (LBS) recently gathered a unique group of senior stakeholders to discuss practical actions which must be taken to avoid economic catastrophe and social meltdown in the country.
The group included MPs, former ministers, economic advisors to the Greek Prime Minister, policymakers, former senior IMF executives, bankers, lawyers and leading academics. Michael Jacobides, Sir Donald Gordon Chair of Entrepreneurship and Innovation, and Associate Professor of Strategy and Entrepreneurship at LBS, who helped organise the event said, “A remarkable consensus on potential future directions did emerge. Some of the policy choices we propose may be controversial, but are necessary given the circumstances.”
The report, co-authored with Richard Portes, Professor of Economics at LBS and Dimitri Vayanos, Professor of Finance, London School of Economics and Political Science, gives several key recommendations:
Revolutionary changes to Greek public administration. The report proposes the creation of independent authorities with a clear responsibility and a mandate, working to focused key performance indicators including: scrapping the current tax collection system, instituting a new Tax Assessment and Collection Authority and establishing a Health Redesign Authority, a Corruption Reduction Agency and an Investment & FDI Authority. These would report to the Greek Parliament and provide continuous updates to creditors and the Government.
Public sector cuts based on performance and accountability. Performance-based management at the individual level, and resource allocation on the basis of key performance indicators, must be stipulated and enforced. The option to fire public servants who underperform or undermine change efforts must be made law.
The streamlining and rationalisation of administrative entities must be accelerated, followed up and monitored. The report also recommends the re-institution of permanent Undersecretaries of State, with five-year appointments, to ensure continuity and accountability in all ministries.
Tackling tax. Tax evasion in Greece is massive. Tax collection needs to be addressed head on. This will require the creation of a totally new administrative apparatus. A number of practices need to be implemented with immediate effect to increase accountability, transparency and incentives. Similar measures are required for customs and excise.
Create an Independent Reform Authority. This would not have executive power, nor a large bureaucracy, but it would follow up the reforms, ensuring they do not stall, and be tasked with reporting to the Greek Parliament—as opposed to the Government—and inform Greece’s creditors. It would follow through and support all structural changes in existing ministries and organisations; help implement change; oversee the rationalization of the overall portfolio of organisations; redesign particular areas of the government and provide a new blueprint for their operation and feature a bureaucracy reduction unit.
Loans should be conditional on specific structural changes. Drastic structural changes cannot be accomplished without external impetus.
Rethink the structure of privatisations. The anticipated privatisation revenue is unrealistic. Privatisations should not be primarily thought of as a source of revenue, but as a way to restructure and to increase the competitiveness of the economy. Issues with unions need to be addressed head-on, as they are still casting a long shadow on existing arrangements and depressing potential valuations. Debt financing should also be the main means of implementing the privatisation process.
Financial sector reform. Assuming a substantial sovereign debt restructuring, bank recapitalisation will be needed. The group’s main concern for the banking sector was how banks will be governed and protected from political influence. Financial supervision must be revamped and extended as soon as possible. The European Banking Authority should work with the Hellenic Financial Stability Fund to take a more active role to help ensure the independence and governance of the banks until they are privatised again.
Jacobides concluded, “Greece is facing a perfect storm—structural problems with the economy and public administration, neglected for decades, must now be tackled. There is an urgent need to focus on operational measures and restructuring the Greek public administration. The unwillingness—and possibly the inability—to change is endemic and understandable, and we cannot wish it away. We need a new approach to avert a full-blown breakdown of law and civil disorder.”
Paul Arkwright
Publisher
