Two countries consumed by the ideals they symbolise
In SA as in Greece, incorrigible politicians continue to favour entrenching the privileges of powerful factions ahead of creating a dynamic economy. Populist pressures are then pacified at great expense thus undermining both nations' treasuries and competitiveness. While this provokes breaking points, the differences are no less telling. SA is a hectically unique country, isolated geographically and economically. Greece, a generally affluent nation, resides among richer and poorer neighbours that have aggressively linked their economies.
As with the rise of Asia, the integration, and thus success, of the European Union requires political environments that encourage thriving economic competition and collaboration. Maintaining such an elusive balance places demands on political elites that they are tempted to shirk. Greece's and SA's polities remain deeply influenced by the norms of an earlier, less globally integrated era while most nations today have advanced politically to support sufficient economic vibrancy - that is, hectic competitiveness interwoven among intense collaborations - to spawn broad opportunities.
The key political-economy innovations have revolved around creating “institutions” to advance justice and mitigate uncertainties. Institutions range from constitutions and voting rights to contract enforceability. In both Greece and SA respect for such institutional restrictions on the powers of political elites has remained soft and malleable. Voters who support politicians with give-away programmes which are too good to be true can also be faulted.
Among SA's long list of qualification's for having the world's most unique political-economy is how the country pivoted from being the pariah nation to being the international icon for fairness. Therein lies the danger. Whereas seeking justice is a profoundly powerful organising principle conducive to broadly advancing prosperity, the temptation to favour fairness ahead of justice is an affliction which harshly constrains Greece and SA.
Notwithstanding the largely self-serving promotion of the inequality debate advanced by media and politicians across the West and SA – which, tellingly, is far less ubiquitous in the East - the world has become vastly fairer over the past several decades. This traces directly to a series of justice-focused reforms. The 20th century juxtaposed dozens of nations which failed while purporting to pursue fairness whereas Asia's extraordinary poverty alleviation successes traced to national and international institutions focused on advancing justice through improving contract enforceability and thus global integration.
The pursuit of justice is amenable to institutional protections whereas pursuing fairness is not. However, justice focused institutions have the power to constrain elites sufficiently that the aspirations of the least advantaged can flourish thereby advancing fairness. Conversely, there is much potential for politicians to exploit unequal outcomes through promoting unworkable programmes. Greece and SA today exemplify the tragic consequences which politically appealing, but economically non-viable, fairness-focused programmes provoke.
The Greek economy is not capable of servicing its current debt schedule. Write-downs, extensions, or both are inevitable. The key priority however is to reform its political economy. A long series of Greek governments have proven incapable of doing this. The most responsible path its neighbours can now follow is to use the country's excessive indebtedness as a negotiating lever to achieve well-reasoned reforms. That Greeks are richer than some of their neighbours and poorer than other is beside the point – despite this being of keen interests to commentators, politicians and the tax payers of less affluent creditor nations.
Germany's Finance Minister has responded to pressure for debt forgiveness, that is, greater fairness, by stating that Greece should re-establish its own currency, at least temporarily, if it wants to push for debt forgiveness. More importantly, the German chancellor has entered the moral debate by saying, “the most important currency has been lost and that is trust.”
Chancellor Merkel, who grew up under an authoritative government that falsely celebrated fairness while impoverishing its people, seeks to counter a cacophony from fairness choruses by making a subtle case for justice. When people, companies or countries can't fulfil their debt obligations, both sides should negotiate in good faith.
Fairness is not sustainable when it is achieved through side-stepping paths to justice. Of course lenders tend to be wealthier – but with Greece it's not so simple. Fairness based arguments are routinely counter productive because focusing on outcomes distracts from addressing underlying impediments.
Merkel fully appreciates that powerful people, and those aspiring to power, will exploit the appeal of fairness while institutions which embed justice are necessary to achieve broad prosperity. Importantly, fairness and equality of opportunities have improved massively during Merkel's lifetime as a result of the old imperial world giving way to a global order where nations place great reliance on justice-instilling institutions, internally and for cross border dealings. Institutions, from the United Nations to national constitutions, advance justice by, in effect, institutionalising trust.
When there is faith and trust in institutions, people are much more inclined to invest and strive for success. Much of management science rests on such principles. Pay which is uncertain and arbitrary is not only unfair and unjust; it is also ineffective at motivating workers. Countries, companies and people get ahead when well-reasoned risks and efforts are rewarded. Such justice typically leads, however imperfectly and inconsistently, to far greater fairness.
Athens is the birthplace of democracy while SA's 1994 transition was heralded as a miracle showcasing human potential to peacefully transition from oppression through open elections. Institutionally protected justice is the most effective tool for ensuring responsible government. It is thus bleakly ironic that Greece and SA are among the democratic countries which have struggled the most to take this lesson to heart.
Policy makers in both countries must focus less on whether outcomes are fair and more on creating environments which advance trust. As countries around the world have demonstrated, through - unlike SA - successfully integrating into the global economy, this leads to investment in people sufficient to unlock their potential. Greater fairness then follows.
Shawn Hagedorn is a strategy adviser
@shawnhagedorn
This article first appeared on www.BizNews.com
