To secure a second bailout, the Greek government is pledging to cut an additional 15,000 public sector jobs by 2012. Such a move is necessary. But Greece also needs a plan to improve the capabilities of the state not just shrink its size.
Greece’s state is not too big relative to other European countries, at least not when looking at state spending as a share of GDP: at 44% (excluding interest), the Greek government spends less than the Eurozone average of 48%. Therefore, we cannot frame Greece’s problem simply as “the state spends too much.” Rather, the problem is that the Greek state *wastes* too much, and that the people do not get their money’s worth. At issue is not merely the level of spending but also its efficiency. If Greece got Scandinavian-type services, it could survive with such a big state. But it does not.
The core problem is accountability. Simply put, Greece solved a legitimate trade-off with an extreme response. At the turn of the last century, the aftermath of an election would involve the newly elected government firing bureaucrats who supported another party so that it could hire its own constituents into the state sector instead. To stop such a destabilizing practice, Greece instituted a stringent tenure system. But in solving one problem it created two others. First, the practice of firing people ceased but that of hiring did not; as a result, the country had a bias towards higher public sector employment. And second, without the ability to fire people, the state lost its ability to enforce standards. The challenge, therefore, is how to construct a medium path whereby the state does not devolve back into a complete bureaucratic collapse after every election and yet it can reward hard work and punish bad work.
And so in the desire to lower government spending, Greece risks devolving into a wholesale reduction in government services and civil servants. Reducing the state must thus be accompanied by three parallel efforts: first, a comprehensive and objective assessment of public sector employees; second, a program to recruit and retain talented people to work for the state (at first in pockets of excellence); and third, a system to ensure that the private sector (for-profit and non-profit) can step in and fill any voids created by the retreat of the state. Greece needs less state but also a better state.