By Michelle Caruso-Cabrera, CNBC Anchor
ATHENS ( CNBC) -- From the German press to Stephen Colbert's hit show on Comedy Central, Greece has been the butt of jokes throughout the financial crisis. The implication is always the same -- that the Greek people are lazy and don't like to work. The stereotype makes Michalis Chrysochoidis, Greece's minister of development and competitiveness, bristle. "There is a myth that the Greeks don't work many hours. This is a big lie," Chrysochoidis said. "The reality is that the Greek people work more than any other country in the European Union."
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Chrysochoidis, the minister of competiveness, agrees with this assessment. "The Greek economy was not competitive during the last decades," he said, adding emphatically, "We are going to create a new Greece." The first step, Chrysochoidis said, is to "reform the business environment." Chrysochoidis used to be the minister of public order, and is credited with shutting down two Greek terrorist organizations. His new task may be even more daunting -- eliminating the mountains of bureaucratic red tape that hinder entrepreneurship and business investment. He's taken some key first steps. Beginning in April of this year, his ministry established a new streamlined electronic registry system for new businesses called One-Stop Service (OSS). "A new firm can now be established through a single procedure, in one day, with significantly lower costs," according to a ministry statement. Before the OSS, it would take at least 38 days to register a limited liability corporation in the country. Now, it takes as little as 38 minutes, according to the ministry. The cost of registering a new business has dropped by more than two thirds, as well -- to 910 euros ($1,243) from 2,377 euros ($3,248). Chrysochoidis adds that the ministry has identified 72 additional obstacles to entrepreneurship and has introduced new legislation that will eliminate them. Among those obstacles are the role the government plays in many sectors of the economy -- either through outright ownership of assets, such as a utility; price controls; and high barriers to entry, such as strict limitations on the number of players in a profession, and/or difficult licensing requirements, according to the McKinsey report. Add to all that very tough labor restrictions on large enterprises. The result is that very few businesses have been able to get started or grow in size, and among those that do small family-owned businesses still dominate -- 30% of manufacturing employment in Greece is in firms with nine or fewer employees. In Italy, that number is 15%, while in Germany it's just 5%. Without what economists call "economies of scale," such as the advantages achieved when you have a large factory versus a small one, it is impossible to achieve higher levels of productivity. That means lower profitability and fewer jobs -- something desperately needed in a country where unemployment is at 16%.
It's tourism industry is also beset by red tape, which has lead to fewer large-scale hotels and resorts being built. "Cumbersome licensing processes and a volatile tax framework discourages investments," according to the McKinsey report. Hence Greece hasn't been able to cater as effectively to modern demand patterns in tourism, such as integrated resorts, vacation homes, large ports for cruises, and marinas for yachting. That leads to an industry based on mass-market travelers rather than the affluent, and hence a loss in revenue: In Greece, tourists spend on average 146 euros ($200) a day, while in Turkey they spend 162 euros ($222) a day, and in Italy it's 200 ($274) a day. McKinsey also takes aim at the power of unions in the country and the collective bargaining agreements struck over time. Greece, because of its location on one of the largest intercontinental routes, ought to be a good place for cargo port hubs. Yet the country is losing customers to Bulgaria, Turkey, and Romania, because they offer "better operational stability (e.g. fewer non-operating days due to strikes)," the report said. Perhaps the most difficult hurdle for Greece to overcome, at least politically, is the size of the public sector versus the private sector. "We cannot serve this huge public economy," said Chrysochoidis. "The small private sector cannot serve the huge public sector." That kind of talk, unheard of by a member of the government just six moths ago, will be welcome by the country's leading business people. In June, Dimitri Papalexopoulos, the head of Titan Cement, one of the largest publicly traded companies in Greece, said the country needs to reduce the size of the public sector, and "take a hatchet to this bloated system that pervades all economic activity, cut it down, reduce regulatory burden, (and) cut red tape." The size of the public sector isn't known for certain. For the first time, the government took a census of government workers and estimated the number at 800,000, but not all municipalities provided data. The Athenian Chamber of Commerce puts the number at 1 million.
Downsizing the public sector is going to be enormously difficult, because the mere notion violates a long-held social compact between the government and the Greek people. The Greek Constitution states that once you are an official government worker, you have a job for life. This rule is the result of a well-intentioned labor reform from early last century -- at the time government workers were fired every time there was a change in the party in power. The government's attempts to lay off a mere 30,000 workers out of 800,000 is already meeting stiff, and sometimes violent, resistance. Wednesday, a massive two-day strike will get under way, in which thousands of government workers and union members are scheduled to descend on Parliament to protest the layoffs, as well as a new law that would effectively eliminate the minimum wage and reduce the influence of collective bargaining agreements. For the most part, the public sector has stopped functioning already: Garbage collectors have stopped collecting garbage; tax collectors have stopped collecting taxes; and the permitting office isn't issuing permits. The city is set to run out of gasoline in a few days because workers are on strike. (These are known as "white strikes," when employees go to the office but don't actually do any work.) The leader of one of the nation's Communist parties refutes the notion that the government sector is too large. Alexis Tsipras, leader of the Syriza coalition for the radical left, says the government is just too inefficient. McKinsey agrees: The report found that northern European countries have even larger governments relative to their sizes -- however, they're far more efficient. In addition to contributing to a lack of efficiency, giving government workers a job for life has led to another tough economic consequence -- Greece has the lowest employment turnover rate in Europe, the sign of a stagnant economy. It contributes directly to high levels of youth unemployment, which minister Chrysochoidis acknowledges: "Imagine that in Greece we have 45% of young people unemployed," he said. "It's a defeat for Greece because the economy could not employ and absorb those people." -- Written by Michelle Caruso-Cabrera, CNBC anchor