By Michalis Zaouras on June 29, 2010

Corruption, is Cyprus different?

There has been quite a fuss lately in Cyprus about this issue, after the accidental exposure of an internal email from AKEL. Surely corruption in Cyprus is not a unique phenomenon. Additionally most of the people while they declare themselves against these practices they act differently when they are in need. As for the last one it is not contradicting at all, since a prisoners dilemma emerge. If everyone choose not to maintain corruption they will be better off from cherish corruption instead.

However an interesting question that arises is whether corruption is necessarily bad. Academia has not established a clear answer. It seems that if governmental agencies fail to deliver the required services corruption is beneficial, since the services are delivered by the corrupted agents. Note that I am not considering the ethical issues of this matter and I focus entirely on economic efficiency.

On the other hand, as an optimist, I refuse to accept that government agencies in Cyprus fail to be productive at all. As a consequence of that corruption in Cyprus has to be destructive. The problem is how to fight corruption. Academia again has been very creative as with ways to overcome it. A second best solution is to introduce competition between agencies. To be more precise allow two different agencies to have the same responsibilities; this at least will lower rents between corrupted agents. Obviously the right way to face this problem is to restructure the public sector by changing the contracts offered to workers in the public sector, invest to fight corruption within the political parties and even change the legal system with respect to parties’ sponsorships and so on. However doing that is not costless; labor unions which most surely control the decision making of political parties will not be easily convinced, but most importantly voters from the public sector will switch political parties if one of the parties tries solely to face this problem.

By Alexander Apostolides on June 16, 2010

A dedication to a true gentleman scholar

I have just finished my Ph.D. and I have realised that although I have thanked many people who have helped me over the years in the thesis, there is a more general debt which i will not be able to repay as Professor Angus Maddison (1926-2010) has past away.

Maddision was an economic historian of the old school - the school who thought that it was important to (to paraphrase David Landes) had to "think big". Many doubted his vision when he painstakingly started estimating the historical GDP of the world, bit by bit, country by country. Now over 45 years latter the world is indebted in having a huge dataset of the GDP of the world (broken in countries) from the birth of Christ until the present day. In that way he blew our blinkers away and forced us to look globally, long before the word "globalisation" became popular. It is one of the most cited sources and his vision enabled a tremendous amount of research as well as providing comparative context. He even estimated the GDP of Cyprus and Malta, proving to me that it can be done. It took me 5 years to prove that his estimate was 34% higher that what it should be for Malta/Cyprus; in the same amount of time he estimated the GDP of the world form the 1700's to 1AD. My phd was based on him and other pioneers who wanted to know in numbers the conditions of the past.

A polyumath and bit nosy, he stuck his head in all issues , from Chinese development to the moguls in India and Latin America. His dynamism, intelligence and restless spirit meant that he spread controversy wherever he went, not helped by the fact that he decided whether he liked you or not on first impressions.

His instinct on numbers and on "what was going on" was immense; his drive even more so. While quite unwell he finished a book which chronicles the history of the world since the roman empire in a qualitative way. I met him at a dinner to commemorate his new book less that two years ago. When he heard i was estimating the GDP of Cyprus and Malta for the interwar period he eyes shone "its a great research project, but you need one more country" he said excitedly, "why don't you do China?".

The exchange shows both his immense and global way of looking at things, and looking back it also shows his lament that he would not survive enough to complete such a grand project of getting robust estimates for china. I am so sorry to have disappointed him with my limited outlook.

I had asked him if it was possible to separate his data for small countries in order for me to able to better compare my series with his. I found out at my viva yesterday that despite being very ill he started separating his estimates so i could do just that, but he was never able to complete it.

Thus today i also dedicate my completed thesis on Angus Maddison - economic history is much poorer without him.

By Alexander Apostolides on June 15, 2010

The most dangerous and silly move by the Cypriot government

In one fell swoop, the government has managed to undermine the economy and our standing in international credit rating agencies. The government has moved the jurisdiction of the national debt out of the central bank, which is independent, and into the ministry of economics, which is not.

This is exactly the type of thing that led to the mess in Greece. The appointment of Dr. Orphanides as the director of the central bank was an inspired choice that affirmed the independence of the central bank from the government for the first time. This independence upheld the standing our our banking system at times when real political pressure was placed on the Bank by the government to accommodate a looser regulatory framework for banks (remember the pressure applied to the Central bank of Cyprus by the Minister of Economics in order for the Central Bank to give in to Marfin's demands for it not to move out of Cyprus?).

Yet the government now is sick and tired of having an independent authority challenging its decision and has devised a scheme to remove the handling of debt from the central bank. Once under the jurisdiction of the ministry of economics it is easier to place political pressure on the ministry than the bank. It a very short step from being able to place pressure to trying to fiddle the books - once the debt servicing is removed from an independent authority and it goes to a political authority where you boss is a politician the incentive to massage the figures is very large.

This decision takes us back 20 years. This government has now completely lost my confidence in being able to handle the economy of Cyprus - rather than tackling the issues that have led to a structurally unsound economy, the government is browbeating the defenders of sound monetary principles. Alas, I get the feeling that more poor decisions are on their way...

By Alexander Apostolides on June 12, 2010

The Economics of Gaza Tunnelling

There was a great interview with a person who is perhaps one of the main Gaza tunnel bosses. The tunnelling system has now reached a certain level of maturity after the prolonged blockage of Gaza by Israel.

The man very unusually sold his land to have enough capital to open a tunnel and there is free entry in the tunnel market, as long as the local authority, Hamas, is notified and a tax on all goods is paid to them. So it sounds like the market is operating in near-perfect competition terms. I am guessing that some tunnels may well end up coming too close to each other and collapsing, since the strip of land that connects Gaza to Egypt is pretty narrow.

What is very interesting is the fact that the tunnel's construction workers have a rudimentary welfare system in place. You get paid a certain sum of money for injury or death that seems to be set by nobody other than the social custom. Most ingeniously though is that when the tunnel is up and running the original construction workers get a share of any goods trafficked through it. This solves two problems:
1) running a tunnel needs less workers and so the other workers now left without a job can act as very active agents for business for the tunnel
2) The majority of the wage cost for building the tunnel is differed in the future rather at the beginning when cash flow is nil.

I found it interesting to note that the interviewers did not believe that weapons did not get smuggled through but they failed to grasp what the tunnel boss was saying: they were so many weapons that had already been smuggled through that their price was too cheap. This is explained by the fact that guns have a very high value relative to their bulk - making them perfect for their transportation through tunnels. High value low bulk goods are perfect for the tunnellers as there is great profit for minimal problems of running them through the dangerous Egypt/Gaza border strip. Thus too many weapons have been carried through, making them cheaper than in the Egyptian market.

What is much more difficult to smuggle is low value bulky goods such as cement, sand, piping and automobile parts (engines ect). Such material have been banned from entering Gaza by Israel, but because they can only be carried in limited quantities and they give limited value per kg, there is an insufferable scarcity of such goods in Gaza.

By Alexander Apostolides on June 04, 2010

Τι λένε γνωστοί οικονομολόγοι για την ελληνική οικονομία

From Today's Kathimerini (Cyprus)
Τι λένε γνωστοί οικονομολόγοι για την ελληνική οικονομία
Ο Νουριέλ Ρουμπινί δεν αποκλείει έξοδο της Ελλάδας από την ευρωζώνη ενώ ο Πολ Κρούγκμαν μίλησε για ενοποίηση των δημοσιονομικών και φορολογικής πολιτικής της.
Στην ελληνική οικονομία αναφέρθηκαν οι γνωστοί οικονομολόγοι Νουριέλ Ρουμπίνι, Αμάρτια Σεν και Πολ Κρούγκμαν κατά τη διάρκεια ομιλιών τους τις τελευταίες μέρες στην Ελβετία, όπως περιγράφονται από τον ελβετικό τύπο.

Σε συνέντευξη που παραχώρησε στην «Tribune de Geneve» ύστερα από ομιλία του στη Γενεύη, ο Νουριέλ Ρουμπίνι υποστήριξε ότι οι επιθέσεις που δέχεται η ευρωζώνη αποτελούν το δεύτερο στάδιο της κρίσης, που ξεκίνησε από τις μεγάλες επενδυτικές τράπεζες. Για την Ελλάδα πιστεύει ότι θα προβεί τελικά σε αναδιάρθρωση του χρέους, ενώ δεν αποκλείει έξοδο της χώρας από την ευρωζώνη.

Κατά τον κ. Ρουμπίνι, στην ευρωζώνη, περισσότερο από τον πληθωρισμό, η ευρωπαϊκή οικονομία απειλείται από τον αποπληθωρισμό: κρίση, στη συνέχεια ελαφρά ανάκαμψη, που ακολουθείται από μία νέα ύφεση, που οφείλεται στα προγράμματα λιτότητας που εφαρμόζονται για τη μείωση του ελλείμματος.

«Η Ελλάδα ίσως χρειαστεί να εξέλθει από το ευρώ και κυρίως να προβεί σε αναδιάρθρωση του χρέους της αναγκάζοντας τους πιστωτές της να συναινέσουν σε μεγάλες απώλειες.

Το σχέδιο σωτηρίας της Ελλάδος μεταθέτει απλώς το πρόβλημα. Όλες οι χώρες, συμπεριλαμβανομένων των ΗΠΑ, της Μεγάλης Βρετανίας ή της Ιαπωνίας, θα πρέπει να τακτοποιήσουν τα δημόσια οικονομικά τους, να μειώσουν δηλαδή τις δαπάνες και να αυξήσουν τα έσοδα από τους φόρους. Επίσης, η Ευρώπη πρέπει να αφήσει το ευρώ να διολισθήσει έως την ισοτιμία 1:1 με το δολλάριο, για να γίνει πιο ανταγωνιστική».

Στην ομιλία του Nouriel Roubini αναφέρεται και η εφημερίδα «Le Τemps» που σημειώνει ότι ο γνωστός οικονομολόγος αμφιβάλλει για τη δυνατότητα των χωρών, όπως η Ελλάδα, να υλοποιήσουν σχέδια λιτότητας τόσο αυστηρά.

Σύμφωνα με τον γνωστό οικονομολόγο, η Ελλάδα μπορεί να αποφύγει τη στάση πληρωμών προς τους πιστωτές της, τύπου Αργεντινής, αλλά να προτείνει στους δανειστές της να ανταλλάξουν τους τίτλους που κατέχουν με άλλους που λήγουν αργότερα, όπως έκανε η Ουκρανία και το Πακιστάν.

Για την ομιλία που πραγματοποίησε προχθές στη Λωζάννη ο νομπελίστας οικονομολόγος, Αμάρτια Σεν γράφει η εφημερίδα «Le Temps». Αναφερόμενος μεταξύ άλλων στην Ελλάδα δήλωσε ότι οι προηγούμενες κυβερνήσεις της Αθήνας είναι οι κυριότεροι ένοχοι της ελληνικής κρίσης, όμως οι αγορές την ενίσχυσαν στοιχηματίζοντας στη χρεοκοπία της.

Σύμφωνα με τον Αμάρτια Σεν, «ο πανικός που ακολούθησε κατέστησε πολύ δύσκολη την πρόσβαση στα κεφάλαια και αύξησε το κόστος δανεισμού. Και αντί ορισμένες χώρες της ευρωζώνης, κυρίως η Γερμανία, να φανούν αλληλέγγυες, άρχισαν να δίνουν μαθήματα. Κι έτσι χρειάστηκε να επιβληθεί στην Ελλάδα ένα πρόγραμμα λιτότητας πολύ πιο αυστηρό από αυτό που θα ίσχυε, εάν είχε ληφθεί εγκαίρως, με αποτέλεσμα η χώρα να βυθισθεί στην ύφεση».

H εφημερίδα «Le Temps» δημοσιεύει άρθρο για την ομιλία που πραγματοποίησε χθες στο Ιντερλάκεν ο Πολ Κρούγκμαν, κάτοχος του Νόμπελ Οικονομικών 2008, προσκεκλημένος του Ελβετικού Οικονομικού Φόρουμ.

Αναφερόμενος στην ελληνική κρίση, ο Αμερικανός οικονομολόγος δήλωσε ότι υπάρχει 50% πιθανότητα η Ελλάδα να χρειαστεί να εγκαταλείψει τη ζώνη του ευρώ, αφού είναι δύσκολο να κατανοήσει κανείς πώς το πρόγραμμα λιτότητας, που επέβαλε το ΔΝΤ στην Ελλάδα, θα μπορούσε να λειτουργήσει. «Το ελληνικό χρέος, παρά τις τεράστιες θυσίες των Ελλήνων, θα συνεχίσει να αυξάνεται έως το 2015 και θα φθάσει το 150% του ΑΕΠ. Ακόμα και αν η Αθήνα αποκήρυττε το χρέος της, όπως έκανε η Αργεντινή το 2001, τα προβλήματα θα παρέμεναν στο ακέραιο εφόσον οι δημόσιες δαπάνες ξεπερνούν κατά πολύ τα έσοδα και οι μεγάλες ανάγκες προσαρμογής θα εξακολουθούσαν να υφίστανται».

Η Ελλάδα συμπεριφέρθηκε με ανεύθυνο τρόπο και εξαπατούσε για μία δεκαετία, αλλά τα προβλήματά της οφείλονται επίσης και στο προβληματικό οικοδόμημα της νομισματικής ένωσης, πρόσθεσε. Η Ελλάδα θεωρούνταν για χρόνια ως ενταγμένο μέρος ενός συνόλου και μπορούσε να δανείζεται με πολύ χαμηλά επιτόκια, όπως και η Πορτογαλία, η Ισπανία και η Ιρλανδία. Όμως, ούτε η Μαδρίτη ούτε το Δουβλίνο «εκτροχιάστηκαν», όπως η Ελλάδα, ανέφερε χαρακτηριστικά

«Πάντως, η κρίση της υπερχρέωσης βρίσκεται ενώπιον μας. Και εάν δεν καταρρεύσει το ευρώ - ίσως με την έξοδο της Ελλάδας από το κοινό νόμισμα -η λύση θα ήταν η ενοποίηση των δημοσιονομικών και φορολογικών πολιτικών της ευρωζώνης. Η αγορά εργασίας θα πρέπει να εξελιχθεί προς μία μεγαλύτερη ευελιξία, ενώ η ΕΚΤ θα πρέπει να λειτουργεί όπως η αμερικανική κεντρική τράπεζα αγοράζοντας τίτλους, που κανείς δεν επιθυμεί», κατέληξε. με πληροφορίες από ΑΠΕ-ΜΠΕ