Clientelism and Economic Policy

Greece and the Crisis

Aris Trantidis

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138101401
• eBook ISBN: 9781317326595
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

With its deep economic crisis and dramatic political developments Greece has puzzled Europe and the world. What explains its long-standing problems and its incapacity to reform its economy?

Using an analytic narrative and a comparative approach, the book studies the pattern of economic reforms in Greece between 1985 and 2015. It finds that clientelism - the allocation of selective benefits by political actors (patrons) to their supporters (clients) - created a strong policy bias that prevented the country from implementing deep-cutting reforms. The book shows that the clientelist system differs from the general image of interest-group politics and that the typical view of clientelism, as individual exchange between patrons and clients, has not fully captured the wide range and implications of this phenomenon. From this, the author develops a theory on clientelism and policy-making, addressing key questions on the politics of economic reform, government autonomy and party politics.

The book is an essential addition to the literatures on clientelism, public choice theory, and comparative political economy. It will be of key interest to scholars and students of European Union politics, economic policy and party politics.

1 Introduction Clientelism and economic reforms: the case of Greece

DOI: 10.4324/9781315656953-1

With its deep and prolonged economic crisis and dramatic political events since 2009, Greece found itself at the forefront of worldwide attention. The crisis left a profound impact on the Greek economy, society and politics. The country experienced a downward spiral of economic recession and rising debt levels, which led to high unemployment rates, rising poverty and workforce emigration. The Greek party system underwent seismic shifts – most noticeably, the electoral collapse of the Greek socialists (PASOK), the shrinking of the Greek conservative party (New Democracy) and the rise of the radical left-wing party SYRIZA.

We cannot understand the Greek crisis without looking further back into the country’s political and economic history. Greece’s substantial growth rates in the late 1990s and most of the 2000s proved to be unbalanced and unstable, given the rising level of public debt throughout that period and the structural weaknesses of the economy. For over three decades, growing macroeconomic imbalances constituted sufficient reason for the Greek governments to introduce bolder and more comprehensive reforms.¹ On many occasions during that period, the country faced the prospect of a fiscal collapse and came close to experiencing a serious economic crisis. Moreover, as a member of the European Union (EU, known as the ‘European Community’ until 1993), Greece was part of an institutional environment that offered national governments specific prescriptions and general directions for economic reform, either in the form of ‘hard-law’ directives or as recommendations of ‘best practices’ in several policy areas. Greece’s candidacy for entry to the euro in the late 1990s was an additional pressure for the country to reform its economy and fix its finances in order to meet the macroeconomic criteria of the Maastricht Treaty. Membership in the Eurozone later established new mechanisms monitoring the country’s fiscal performance next to a framework for policy coordination. In addition, the European Union allocated fiscal resources that were thought to help a reform-minded government in its effort to stabilize its finances and restructure the economy (Marks 1992; Sandholtz 1996). The governments could have also taken a strong initiative to communicate the case for reform to the Greek public (Antoniades 2003). This setting could have strengthened the capacity of consecutive Greek governments to promote a reform agenda, even in the presence of recalcitrant domestic interests.

1 The notion of ‘economic reforms’ refers to policies of fiscal stabilization and structural reforms that change the terms under which markets operate (labor reforms, privatization, deregulation/re-regulation, tax reform, etc.), as well as administrative reforms related to the operation of economic activities.

Why did Greek governments fail to implement the necessary economic reforms that might have prevented this crisis from happening? To explain Greece’s longstanding fiscal and economic problems and its incapacity to restructure its economy, most of the literature made use of two frameworks of analysis: interest-group theory and cultural accounts, often in a combined way. Since the 1990s, research on Greece added the dimension of ‘Europeanization’ as ‘a process by which domestic policy areas become increasingly subject to European policy-making’ (Börzel 1999: 574).² The interest-group framework was transferred in the study of Greek politics as a clash between modernizing and recalcitrant political and social forces in view of reform prescriptions and recommendations from the European Union. The literature introduced the notion of informal veto players to refer to domestic interests in Greece that were hostile to comprehensive and deep-cutting reforms (Featherstone 2005a: 232; Featherstone and Papadimitriou 2008). This literature explored specific cases in which reform initiatives were launched, and observed clashes between the government and interest groups, which seemed to confirm its group-centered view.³ These recalcitrant groups sought to defend ‘the current privileges and protection, fearing the risks of more open competition and the consequences of low state welfare provision’ (Featherstone 2008: 27; Featherstone and Papadimitriou 2008: 19, 62 and 192; also, Featherstone 2005a: 225 and 2005b). The reform agenda had weak support from other social and economic groups (Featherstone, Kazamias and Papadimitriou 2001; Matsaganis 2002: 119; Vourloumis 2002: 74–5, 77, 110–111).

2 See also Vink and Graziano (2007). Applications of this framework in the Greek case include the work of Lavdas (1998); Featherstone, Kazamias and Papadimitriou (2001); Sotiropoulos (2004b); Featherstone (2005b); Featherstone and Papadimitriou (2008); Zartaloudis (2014). For a discussion of issues concerning causal analysis in the Europeanization studies, see Exadaktylos and Radaelli (2009). 3 See Featherstone (2005a; 2005b and 2008); Allison and Nicolaidis (1997); Sotiropoulos (2004a); Featherstone, Kazamias and Papadimitriou (2001); Spanou (2008).

These studies can be situated in the broader analytic framework in the literature on economic policy, which focuses on how interest groups seek to influence economic policy and associates policy change with their relative influence (cf. Stigler 1971; Krueger 1974; Buchanan, Tollison and Tullock 1980; Becker 1983; Tullock 1993 and 2005). On these accounts, when economic reforms are under consideration, interest groups lobby the government in order to gain benefits and avoid the costs of the reforms which the government considers or is about to enact.⁴ The influence of each group largely depends on the group’s ability to organize and undertake collective action (Kaempfer and Lowenberg 1992: 132). Well-coordinated groups are likely to exert more influence on government policy (Callaghy 1990; Evans 1992; Waterbury 1992; Haggard, Cooper and Moon 1993). For part of the literature, politicians often yield to the demands of strong interest groups at a significant cost to the rest of the population, which does not have the capacity to engage in collective action (Denzau and Munger 1986; Bates and Krueger 1993). In that regard, policy outcomes are endogenously determined by competing interest-group dynamics (Kaempfer and Lowenberg 1992: 9–10).

4 See Geddes (1994); Schamis (1999). Group-centered and formal analysis includes the work of Stigler (1971); Becker (1983); Velasco (1993); Tornell (1995); Alesina and Drazen (1998); Labán and Sturzenegger (1994 and 1998).

This analytic framework, however, must pay due attention to the degree to which governments and political parties can be autonomous from interest-group pressures and enjoy a room for maneuvering and a wider menu of strategic options, such as co-optation, realignment, compromise and compensation, versus these groups (Evans 1992; Waterbury 1992).⁵ According to this view, a group-centered approach can miss important factors that explain why policy changes that harm powerful groups sometimes occur (Geddes 1994: 4). Far from being a neutral arbiter, the government can play a powerful role in shaping the terms and the outcome of domestic competition (cf. Evans et al. 1985; Scharpf 1992; Hall and Taylor 1996). Political entrepreneurship strengthens the autonomy of the state from interest groups, and state officials have greater freedom in choosing how to respond to economic crises and changes in the international economy (Haggard and Kaufman 1992; Geddes 1994). If a latent public interest lacks ‘voice’ through collective action, political entrepreneurship can use its own resources, which are quite significant, to mobilize broader support.

5 For a discussion of the role of compensation to groups expecting losses – when this is possible – see Martini (2007).

In Greece, the government’s autonomy in the design and implementation of a reform agenda should have been facilitated by key properties of the country’s institutional and political setting: the fact that the country was governed, most of the time, by one-party governments with comfortable parliamentary majorities, strong executive powers and a politically subservient bureaucracy (Sotiropoulos 2012: 10). However, the literature has suggested that the Greek state had weak capacity to enact and implement reforms (Petmesidou 2000: 317; Ladi 2005; Monastiriotis and Antoniades 2009; Featherstone and Papadimitriou 2012). This is a paradox. Without any formal veto players and under strong pressures for reform, it is logical to ask the question why the reform capacity of the Greek governments was so limited. How autonomous were the Greek governments from the groups that opposed a bolder reform agenda? Why were these groups powerful enough to block much-needed economic reforms? What is the nature of their association with political power?

Cultural accounts have sought to propose an alternative explanation that stresses the resilience of a political culture hostile to reforms, which is associated with a historical division within Greek politics and society between ‘modernizing’ political forces and ‘traditionalist’ political forces – a division that cuts across political parties (Diamandouros 1994). According to this view, the roots of a ‘cultural dualism’ can be found in two contrasting cultural and historical traditions: on the one hand, the ‘backward’ East (with references to the Ottoman past and the Balkans) and, on the other side, the ‘rationalist’ West (with references to Enlightenment and the Industrial Revolution) (Diamandouros 1994 and 1997). Cultural accounts can be seen as additional explanations of the tensions and controversies in the design and implementation of economic policy (Featherstone and Papadimitriou 2008: 41 and 192; Featherstone 2005a: 225; Triantafyllou, Gropas and Kouki 2013). From a broader perspective, this sociological approach brings center-stage the impact of norms on the domestic policy arena as effectuated through a process of socialization.⁶ However, norms and ideas are not shielded from change and will evolve following social interactions and the choices of the actors involved. It sounds reasonable to expect that domestic actors, including the government, will choose a set of norms which they think best serves their interests.

6 See Hall (1986); Ikenberry (1988).

From the perspective of public choice theory,⁷ a government will choose a policy if the gains it expects from this move will outweigh the anticipated costs. This benefit-and-cost calculation gives a specific meaning to how government autonomy versus groups plays out. It accommodates the possibility that government decisions will favor the political coalition that provides the main support for the government (Stallings 1990: 114) or that the government will be a recalcitrant reformer itself, driven by its desire to win the election or preserve its commitments to its own supporters. External institutional pressures (such as in the context of Europeanization) may lead governments to change their policies, but their response is still conditioned by typical domestic factors: government preferences and interest-group relative power and competition.⁸ More broadly, social actors will also follow a rational process and assess competing policy ideas and proposals against a perception of utility, for example, re-election for the government, career advancement for a politician or the preservation of special benefits for a group, such as jobs for the unemployed, profit increases for business, job security, higher wages or extra benefits for groups already in employment, etc. What constitutes utility in politics may differ among politicians, too, depending on their position in the party system_ the prime target of party leaders may be the preservation or advancement of their leadership position, which primarily depends on their party’s electoral success. For middle-ranking and career-aspiring politicians, their ‘utility’ may be more related to the ongoing support and loyalty of party members and sympathizers, as this could be more important for their political survival in the long run than the next electoral victory. Perceptions of ‘utility’ may include other considerations which, as the following chapters will show, are traceable in a given empirical context.

7 The general assumption is that politicians, just as actors in the economic field, aim at utility maximization which primarily regards re-election and the advancement of their careers and that they make a calculation of costs and benefits in view of alternative policy choices. 8 In the EU context, the degree to which European integration affected party politics was found to be very small (Mair 2000).

How does a case study like Greece fit in any of these analytic frameworks? Using these approaches mechanically comes with the risk of assuming away, or assigning less importance to, key properties of the political and economic system under review. Instead, rational and sociological approaches offer complementary models of explanation (cf. Bulmer 2007: 51) that call for a synthesis. In this combined approach, preferences and the relative autonomy of the political and social actors can be inferred with reference to their assumed roles and positions in a given institutional context, and with reference to their recurrent interactions with others in that environment: the kind of commitments and responsibilities these actors have undertaken, the type of relations they are engaged in and the structure of incentives and norms that guides their decisions. Different environments have distinct sets of norms, routines, roles, power relations and institutions that can be associated with recurrent patterns of political behavior. In a rational choice analysis, these sets delineate the preferences of the social and political stakeholders, and limit the range of options for strategic behavior.

Attention to a given empirical setting will also indicate that formal and informal institutions, as well as recurrent social relations, give rise to distinctive systems.⁹ The literature on comparative political economy has sought to cluster ...

Table of contents

• Cover Page
• Half Title Page
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Preface
• 1 Introduction: clientelism and economic reforms: the case of Greece
• 2 The Greek political economy in historical perspective
• 3 Clientelism as a policy equilibrium
• 4 Muddling through reform: crisis and policy response between 1985 and 1989
• 5 Departure from the clientelist equilibrium: the economic agenda of the Mitsotakis government (1990–1993)
• 6 Clientelist bias in macroeconomic stabilization: fiscal and monetary policy under PASOK (1993–2000)
• 7 Clientelist bias in structural reforms: the case of PASOK (1993–2004)
• 8 Within-party dynamics in clientelist politics: PASOK under Simitis
• 9 Beyond clientelist bias: the impact of economic restructuring on the nature of distributional politics
• 10 The slippery slope to the Greek crisis (2004–2009)
• 11 The Greek crisis (2009–2015)
• 12 Conclusion: a new insight into the clientelist system
• Bibliography
• Index