Greece Isn't a Morality Tale

2 JUL 29, 2015 2:00 AM EDT

By Mark Buchanan

Bloomberg

One of the more troubling elements of the recent drama over Greece's debt was the urge by many to see a deficiency of national character, rather than euro-zone economics, as the problem. Right-leaning opinion, not only in Germany but around the world, put the trouble down to Greek corruption and, worse, laziness:  The bad people of Greece retire too early and produce less per capita than the European average, despite working longer hours.

We shouldn't conclude much of anything from such comparisons. It's a complete myth that economic productivity somehow reflects the average ability of people to work hard. It has far more to do with the nature of industries in different nations, and how technology has changed their productivity over time.

Nearly 20 percent of Greek economic output comes from tourism, which is natural enough, given the nation's surpassing beauty. Aside from the Internet making it easier to book and advertise trips, however, tourism remains a labor-intensive activity not that different from 30 years ago. People take planes and taxis, stay in hotels, eat meals, listen to music and take excursions on boats. All of that requires a large number of people to cook and serve, entertain, clean rooms and drive taxis for long hours. The amount of these things that can be produced per hour and per person hasn't changed a lot with time.

Compare that with, say, the German automobile industry. According to Eurostat data, the total output of the European motor-vehicle industry -- German companies account for about half of it -- grew in the decade before the financial crisis by about 4.4 percent a year. That corresponds to a doubling of output in 15 years. Much of this increase came from gains in manufacturing productivity -- value created per hour of work -- which in Germany, according to OECD numbers, grew by 40 percent over the same period.

In other words, rapid economic growth in Germany and other fast-growing, developed nations has come mostly from improvements in industrial efficiency, not from some morally superior character of the workers in those nations.

All this links up with a notion that economists call Baumol's cost disease, originally proposed by William Baumol and William Bowen in the 1960s. Why, they wondered, do some things like education, medical care and live musical performances get more expensive with time, while so many other things, like manufactured goods, get cheaper?

The answer is simply that productivity improves faster in some industries than in others. As auto manufacturers make ever more and better cars -- faster and with fewer workers -- they can sell them more cheaply and still afford to raise wages. In contrast, a live orchestral performance today takes as long and demands as much skilled labor as it did two centuries ago. Getting good musicians requires wages that rise as fast as elsewhere in the economy, and so prices in "stagnant" sectors of this sort go up relative to others.

This dynamic is a significant contributor to relentlessly rising medical costs around the world. Medical technology certainly drives productivity improvements, but time-consuming individual interactions between doctors and patients remain necessary. Doctors can't give high-quality health care to more patients in one hour today than they could a few decades ago. Prices rise, but not because doctors are getting lazy.

Getting back to Greece: It's no surprise that the productivity per capita of its tourism-heavy economy hasn't kept up with Germany's industrial juggernaut. These are different economies supplying different kinds of goods. Before 2010, Greek productivity per capita was stable at a level of about 93 percent of the European average. Productivity in Greece only plummeted after 2010, following the imposition of severe austerity.

Here's the simple, amoral story of Greece and Germany: One economy thrives on rapidly advancing industrial technology, the other on valuable economic services that get created and delivered in ways that just don't change a lot with time. The Greeks aren't lazy, and the euro zone's problems have nothing to do with anyone's moral shortcomings.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:

Mark Buchanan at buchanan.mark@gmail.com

To contact the editor on this story:

Paula Dwyer at pdwyer11@bloomberg.net