Vikings in Greece: Kleptocratic Interest Groups in a Closed, Rent-Seeking Economy

Abstract

Last December, downtown Athens experienced three nights of street battles, arson, and looting that became headlines in the international press. We argue that the reasons for this extreme social turbulence are related to the regulatory and institutional rigidities that still prevail in Greece’s economy, despite the strong growth that it enjoyed until recently. Furthermore, we describe the pattern of state intervention, institutional sclerosis, and high administrative costs that secure and allocate "rents" to interest groups that obstruct all efforts to reduce these rents and to open up the economy.

In particular, we argue that these numerous rent-seeking groups curtail competition in the product and services markets, increase red tape and administrative burdens, and actively seek to establish opacity in all administrative and legal processes in order to form an environment in which they will be able to increase the rents they extract. At the same time, they actively strive to ensure that the rule of law fails to such an extent that the society will not be able to hold them accountable for their actions. We finally argue that certain salient aspects of the design of the Greek political system suggest why Greek politicians are unable to champion reforms and effectively confront the designs of these predatory interest groups.

The design of an effective strategy that may initiate an unravelling of events that can lead to the construction of strong institutions and that will improve the quality of governance in Greece also requires a clear understanding of both the factors that have driven the strong growth of the past years as well as the causes that lead to what can broadly be described as the widespread failing of institutions in Greece today. Both of these factors shape the stakes of those who gain from perpetrating the status quo, which forms an environment that obstructs progress and that steadily excludes those who are not well connected with the interest groups from participating in economic and social activities.

Keywords: eurozone response to the greek financial crisis, euopean union austerity plan greece, entrenched interests

JEL Classification: D72, D73