One chart in my last post was the spark that made me go back and try to make sense of something I’d written in a late 2011 post. Here’s that particular chart that made me stop and scratch my head in confusion.
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| source: AMECO, own calculations |
The Greek corporate sector is a net lender, which can only mean that fixed investment must have been a bit restrained for the whole of the 00s. To put these words into a chart, here’s Greek corporate sector’s Gross Capital Formation (this figure is not exactly the same as Gross Fixed Capital Formation but it’s not that different).
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| source: AMECO, own calculations |
The Greek corporate sector, ranks last among those of all peripheral Euro Area as far as gross capital formation is concerned. It turns out that the corporate sector being a net lender isn’t a such good thing after all...
This is the very point that is in stark contrast with that older post. Here’s that chart about fixed investment in equipment.
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| source: AMECO, own calculations |
Investment in equipment should mostly concern the corporate sector, right? And it seems to rise sharply after 2000, right? Well, wrong on both counts, since investment in transport equipment is included in that figure too.
Just look at that chart, it is an indication of what a sorry excuse for a growth model Greece had these past few years.
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| source: AMECO, own calculations |
Greece tops the peripheral Euro-Area ranks for investment in transport equipment. Probably cheap credit after EMU accession helped too (although cheap is relative).
But what about investment in actual equipment? Well, I think you can guess without even setting eyes on the chart. During the second half of the 90s, Greece was the peripheral countries laggard in that respect too, but during the 00s it was surpassed by Ireland, where property investment crowded out all other kinds. One more excuse for Ireland could be that its corporate sector is dominated by multinational corporations which tend to be mature companies (if that explanation’s lame and someone has a different opinion please enlighten me and say so in the comments section). The picture that the chart paints cannot be too good for the indigenous Irish corporate sector though.
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| source: AMECO, own calculations |
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| source: AMECO, own calculations |
As you can see, before the 00s set in and abundant and cheap credit gave a push to the property sectors in Spain and Ireland (something that contributed to them reaching bubble-ish proportions) Greece comfortably led the table in investment in dwellings. Even at the height of the Irish and Spanish property bubbles, Greek investment in dwellings wasn’t that far behind.
When added, Investment in dwellings and in transport equipment should be the main ingredients of household fixed investment. Here’s one more chart to make your eyes hurt.
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| source: AMECO, own calculations |
For the span of the 90s Greece topped that table too, with the exception of the years that the Irish property bubble was at its apogee. One could think that it couldn’t be bad that the households invested that much. In my humble opinion, it is. Investment in dwellings generally does not lead to higher labour productivity and in that scale it’s just evidence of distortions being present (or a bubble). It would be more preferable for the households to save more and their savings to be directed to other more productive forms of fixed investment (of course this is more easily said than done and particularly in the case of Greece I wouldn’t bet money that t would happen in the case that households did save more).
Finally, let’s have a look at investment in non-residential construction. I speculate that this could include investment in office buildings, warehouses, industrial structures, logistics hubs, malls, shops, big boxes, etc.
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| source: AMECO, own calculations |
Greece is the laggard in that form of fixed investment as well. It’s not that all of the components of this type of fixed investment are particularly desirable in my humble opinion, but they are certainly more productive that investment in dwellings.
Let me wrap this up since you’re probably dizzy from that swarm of charts above. It wouldn’t be an exaggeration to say that not one of the charts gives away something positive concerning the Greek growth model and the way that resources were allocated. One could say that the least productivity-enhancing categories of gross fixed capital formation got all the juice and it would be spot on. The worst thing about this model is that the growth that was generated was short-lived and not the least bit sustainable. It seems to me that during the 00s Greece experienced a household gross capital formation bubble (but we have to note that level could be pernamently higher than in other countries, so either distirtionary factors are at work or we are just a very special case) and we’re now living through the hangover (among a million other things). The Greek growth model (if one would be that kind and call it that) was had its fair share of distortions and now that it’s past its expiry date a complete overhaul is needed…
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