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Wednesday, May 13, 2015

Ghost Factories And Industrial Cemeteries In Greece

This article about Ghost Factories of Greece, by Yannis Behrakis and published by Reuters, really got my emotions going because it confirms an argument which I have been making for a very, very long time. My argument follows this logic:

* When Greece joined the EU in 1981, it became exposed to the EU's Four Freedoms: free movement of products, services, people and capital. I have always argued that those were two freedoms too many and/or too quick (products and capital).
* When a formerly rather closed and protected economy (and inefficient at that) becomes rapidly exposed to the free movement of products and capital, all hell can break loose in the domestic economy. It just so happens that imports are much cheaper (and perhaps even better) than domestic products and when capital moves in, there is money to pay for those imports.
* The Euro was not the cause of all of Greece's problems. It was, however, the turbo which really got the destructive mechanisms started by the EU's freedoms to full speed.

The 'infant industry concept' argues that an 'infant economy' needs to be gradually developed so that it can effectively compete with the rest of the world once it is ready for that. But sooner or later it will have to become ready.

Almost all ghost factories mentioned in the article became ghost factories well before the present crisis. In fact, many of them even before the Euro. When I was developing banking business in Southern Germany during the 1970s, I had several customers who operated production facilities in Greece and wanted our multinational bank to service their subsidiaries there. One I remember particularly well (a textile manufacturer) because his operation was in the Kilkis Industrial Park, North of Thessaloniki.

So, a couple of years ago, I went to see that Industrial Park and what I found was an Industrial Cemetery. I have had several Greeks explain to me all the high-quality production which Greece once had but no longer has. Allegedly, there was even a very reputable supplier of aircraft equipment in Thessaloniki at one time.

Well, those times are obviously gone. When attempting to bring them back, one has to bear in mind what the forces were which drove them away. Against those forces counter measures are in order.

12 comments:

  1. This is factually wrong. Greece had a very long transitional period of phasing in the four freedoms which lasted until 1990 (if I recall correctly). There was no transitional period of eurozone entry, because the concept does not exist.

    The decline of industry in Greece has nothing to do with membership of the EU, other than the use of subsidies and other funding to promote Pasok clientelistic practices -- at the expense of rational development of the economy. Eurozone entry, on the other hand, did not channel benefits through the political parties but did have a very damaging effect on terms of trade and access to credit - the latter mainly taken up by the State in order to finance new and older debts.

    If you want to find a commonality across the period 1981-2010 it is the failure of (a) Greek politicians to promote economic development, (b) of the EU to limit the political damage to Greece from access to funding and credit, and (c) of European politicians in acting responsibly in the construction of the European Community and its impact on polities and economies.

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  2. Those were the 60s-70s and 80s. What kind of salaries the factory workers were making? Nowadays, these type of jobs are, just like agriculture, for Albanians or illegal immigrants. The country moved on. These industries moved on as well. How many years would Izola need to able to compete with GE and with Samsung. Look at how many companies produce a commodity like refrigerators. The real problem is that the society and the economy did adjust, not that industrial parks died.

    So now we have first world salary expectations with 3rd world skills.

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  3. "first world salary expectations with 3rd world skills" ... What a brilliant 8-word-summary of the Greek situation! But Greeks don't see it that way, don't they?

    In particular the Greek public sector will grab every last cent from a sinking ship and destroy the very state they gorge from.

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    1. Bulgaria is #42. Given the state of our Universities we know we will spiral downwards.

      Greece is no 40 in the 2015 Human Capital Report http://wef.ch/1QEB0b2

      Delete
  4. Some days ago I found an article in Ekathimerini:
    "EU-funded projects grind to a halt due to delays in payments"
    http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_11/05/2015_549929
    Reading it created sadness.

    In this post I experience similar emotions.
    The last sentence makes me commenting.

    "When attempting to bring them back, one has to bear in mind what the forces were which drove them away."
    I repeat: "what the forces were which drove them away."

    Maybe a lack of transparency, of administrative knowhow, what could be analyzed via computer programs.
    When I started reading, three years ago, about "The Task Force for Greece" I was shocked: in Greece is a huge need for "updated" informatica employees. All is going too slow because of that, and very important programs, used in business, are unknown.
    Only then, with an updated, up to date computer system and who have to work with it, it is possible to get any insight in business, the company, the finances, otherwise one can work oneself to death, and losing money via openings in a budget (is there a budget, a plan: often: NO!) that one is not aware of, because of that lack of insight.
    An excellent administration is also a must. Bank accounts. Cash cards.

    Not an "about" system, and working with banknotes and coins in the pockets, as happens everywhere in Greece, without offering, or asking, an official receipt, bill, etc.

    What you write Herr Kastner, about the sudden "money shower", is true, and must also be a reason, that one could not bear the wealth.
    I know a case of a very hard working man, with a wonderful company, but who lost millions of euros (bankrupt in fact, but not willing to see the truth), because of a missing professional transparent administration and the discipline, to have a constant overview of ins and outs.
    He did not learn of it.

    Changing a system needs more than some months. Years. Ages.
    The Greek money system is rotten. Worse: it is a cancer.
    Greeks do not want help. They do not trust anybody, not even financial doctors, they believe in fairy tales, in ideologies.


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    1. Dear Antoinette,

      Indeed! It is all true. We are a caniving, undermining people, who have no values for other than ourselves. We seek to steal as much as possible without thinking of the reprecutions. We hate everybody and each other. Above all we desire to be erased from the planet earth. Anything you do for greeks is a waste of time. Everything out there written about us is completely false. We are much much worse.

      Best Regards,

      V

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  5. Dear Mr. Kastner,

    In reply to your conclusions, many of the companies that closed simply closed for economical reasons. Just as big corprations and company around the world close every day. A good article of why this happens is "Why Good Companies Go Bad" by Donald N . Sull.

    You must also evaluate the global economics of supply which played a large contributing factor to the demise of many Greek factories. Both prior and post Globalization period and both prior and post euro monetray system period. Both periods which overall is not a span of no more than 30 years was a devistating factor in industry of not just in Greece but Europe as a whole. I can name dozens of sectors of industry and manufacturing that died due to the heavily dumped goods of Asia 91st round Japan/Korea and 2nd China). By the time the EU reacted to incorporate anti dumping laws, hundreds of european companies closed.

    Sincerely,

    V

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  6. The author only describes one type of Ghost Factories, the old type that actually produced goods. The goods were mainly for the Greek market, and enjoyed protection from competition due to high import taxes. During the transition period mentioned by Guest these factories received massive grants from EU to modernize the production equipment and methods. Alas, the grants were mainly used for increasing wages. Consequently, when the grace period ended they were even less competitive.
    The other type of Ghost Factory is the modern purpose build type. The purpose being to line the pockets of politicians, contractors and crafty entrepreneurs. This type of factory seldom reached the stage where it went into production. When the actors had received their EU development grants they stopped the work on the projects, this scam is still practiced.
    You mention the 4 EU freedoms, it can bee boiled down to one word, competition. In all aspects of life Greeks seek to avoid competition, they do not wish to be evaluated. The consequence of that ought to be that they go back to their own non-competitive world with trade barriers etc.
    Lennard

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    1. Dear Lennard,

      Although there is indeed truth in what you say about greek companys mismanaging the eu funded money, but generalizing the whole by a stereotype that all greek entrepauneurs did that is wrong.

      Sincerely,
      V

      Delete
  7. Here is a nice article on Democracy and the Euro...

    http://www.zerohedge.com/news/2015-05-14/why-not-tell-greece-how-run-democracy

    V

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  8. @V: Please tell us! Who the f..k is this Tyler Durden, the author of this silly article?

    Of course nobody has to tell the Greeks how to run democracy. In Kavala you now have an elected Mayor (Dimitra Tsanaka) from the major opposition party deciding that anti semitism will hopefully rally people to the cause. (http://www.avgi.gr/article/5540727/suriza-kabalas-terastia-opisthodromisi-i-apofasi-tsanaka-gia-mi-topothetisi-mnimeiou-gia-to-olokautoma)

    And while the comrades government struggles to find a place to hold a trial for sixty nine Neo-Nazis and while they treat criminals as victims and the victims with contempt, let us reflect that this all is happening in what Greeks laughingly call the "home of democracy".

    The political situation in Greece is unfortunately proving the old adage that the two political extremes will always meet on the far side of the circle.

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  9. @ V
    The euphemism is touching, they do not mismanage EU funds, they steal them. I'm not saying all entrepreneurs steal EU money like I don't say everybody cheat with their taxes, only those who can. Too many (the majority?) can, and they are admired, envied and hated by those who can't. Such are modern Greek values.
    Lennard

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