Thursday, October 07, 2010

Greece's Corruption Problem

Greece is a corrupt place. But how corrupt, in what areas, and it is getting worse?

A good place to start is estimating the size of the "shadow economy." Friedrich Schneider, an authority on the topic, has released new figures on Europe. He defines the shadow economy as activities that are "deliberately concealed from public authorities" to evade taxes or social security payments; to "avoid having to meet certain legal labour standards"; and to "avoid complying with certain administrative procedures."

According to Schneider, Greece's shadow economy was 25.2% of GDP in 2010, compared to an EU-27 average of 21.1% of GDP. However, Greece's shadow economy has shrunk since 2003. From seventh place in 2003, Greece was ranked eleventh in Europe in 2010. In that place, Greece is at the bottom of the EU-15 list but better than almost all the new member states (not the Czech Republic and Slovakia). 
 
Looking at which economic sectors are most susceptible to the shadow economy, Schneider calculates that 22% of the shadow economy comes from services (hotels, restaurants, etc), followed by entertainment and the leisure sector (21%).  The rest is split between "construction and skilled manual trades," "other trades and industries," and "miscellaneous trades and domestic services." Overall, the shadow economy in 2008/09 was estimated at 61.5 bn.

To zoom more into the question of corruption, Transparency International is the source. In 2009, Greece got a score of 3.8 (10 being least corrupt), which tied Greece in 71st place with fellow Balkan counties Bulgaria and Romania. These three were also the bottom of the European regional table, almost ten places below Italy which was next from the bottom. More worrisome is the deterioration in Greece's score in 2006; from 2006 to 2008, Greece ranked around 54th to 57th with a score of 4.4 to 4.7. So the main story is not just the extent of corruption but also the perception in 2009 that things got worse.

Transparency International also breaks down which sector the people perceive as most corrupt. The most distrusted institution is the political party - 58% of the respondents saw political parties as the "sector most affected by corruption." This number puts Greece at the very high end of concentration of corruption perceptions against political parties, tied with India (also 58%) and just below Nigeria (63%).

Notable also is how little distrust there is of business, at least in the sense of people perceiving business as corrupt. Just 4% of respondents thought the private sector was the most corrupt (versus 23% in Europe as a whole). Greece's corruption rating for business, however, at 3.4 is on par with the European average (5 being extremely corrupt). By contrast, the score for corruption perception for political parties is 4.4 versus a European average of 3.7.

Finally, Transparency International reports the share of the households that had paid a bribe in the last twelve months. In Greece, this was 18%, which is the second worst in Europe (behind Lithuania) and also more than three times above the European average of 5%. Other countries with an 18% response rate included Pakistan and Nigeria.

The picture one gets from these numbers is of a country at the bottom of the EU-15 scale in terms of a shadow economy and whose population is three times as likely as the average European to have paid a bribe. Greece is also one of the most political countries in the sense of political parties wielding excess power, which in turns means they both despised as well as admired, at least by the people who see them as the path to success.

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