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Business and Management Practices in Greece
Business and Management
Practices in Greece
A Comparative Context

Edited by

Rea Prouska
and

Maria Kapsali

Palgrave
macmillan
Selection and editorial matter © Rea Prouska and Maria Kapsali 2011
Individual chapters © contributors 2011
Softcover reprint of the hardcover 1st edition 2011 978-0-230-24585-3
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No portion of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency,
Saffron House, 6–10 Kirby Street, London EC1N 8TS.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
The authors have asserted their rights to be identified as the authors of
this work in accordance with the Copyright, Designs and Patents Act 1988.
First published 2011 by
PALGRAVE MACMILLAN
Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
Hampshire RG21 6XS.
Palgrave Macmillan in the US is a division of St Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN 978-1-349-31907-7 ISBN 978-0-230-30653-0 (eBook)
DOI 10.1057/9780230306530
This book is printed on paper suitable for recycling and made from fully
managed and sustained forest sources. Logging, pulping and manufacturing
processes are expected to conform to the environmental regulations of the
country of origin.
A catalogue record for this book is available from the British Library.
A catalog record for this book is available from the Library of Congress.
10 9 8 7 6 5 4 3 2 1
20 19 18 17 16 15 14 13 12 11
Contents

List of Tables and Figures x

List of Abbreviations xii
Acknowledgements xvi
Notes on the Contributors xvii
Introduction xxi

PART I THE GREEK BUSINESS SYSTEM

1 Politics 3
Political and Economic Developments through a
Historical Perspective
Maria Kapsali and Joseph Butler
Overview 3
Modern Greece from 1830 to 1900 5
Modern Greece from 1900 to 1950 8
Modern Greece between 1950 and 2010 and the roots
of the debt crisis 13
Summary 21
2 Economics 26
Productivity Performance, Determinants and
Future Prospects
Ioannis Bournakis
Overview 26
A conceptual definition of productivity 27
The Greek economy 1995–2005 29
The de-industrialization process in Greece and
manufacturing productivity 30
Does Greece’s productivity equal levels in
the rest of the EU? 34
The sources of labour productivity growth 37
An econometric model for the sources of
labour productivity 40
Technology catch-up and productivity growth 42
Summary 44
Appendix 2.1 47

v
vi Contents

3 Finance 49
Banking and Investment
Athanasios Kouloridas
Overview 49
The economic outlook and the financial sector 49
Financial regulation: the banking sector 53
Financial regulation: investment services 59
Prospects – the way forward 62

4 Development 66
The Role of the Public Sector and Firms in Economic
Development
Kyriakos Hatzaras
Overview 66
The economic role of the state in the periphery
of Europe 69
The empirical reality 76
Regional programming implementation in
Greece, 1994–2002 78
National programming implementation in
Greece, 2000–06 84
Summary 88

5 Innovation 96
The National Innovation System
Maria Kapsali
The Triple Helix model – a tool for analysis of
national innovation systems 96
The structure and performance of the Greek
National Innovation System 99
Innovation policy and politics within the system 102
Summary 107

6 Law 112
Company Law, Tax and Employment Law
Eirini Kokkori, Ageliki Katsiyianni and Nektarios Polychroniou
Overview 112
Company law 113
Tax law 122
Employment law 128
Summary 136
 Contents vii

PART II MANAGEMENT PRACTICES IN GREEK FIRMS

7 Strategic Management 141
Efthimios Poulis
Overview 141
Micro-external environment 142
Internal environment 144
Competitive strategies 145
Corporate strategies 150
Summary 152
8 International Business 155
Konstantinos Poulis
Overview 155
International business in Greece: the outward
activity of Greek firms 157
Structural weaknesses of the Greek economy
and their effect on IB 158
The geographical and product scope of Greek firms abroad 159
Greek multinationals 161
Doing business in Greece – the foreign multinational
perspective 165
Summary 167
9 Human Resource Management 170
Rea Prouska
Overview 170
Historical overview 171
Supply and demand in the Greek labour market 172
The HR department and HR managers 173
HR practices 174
Outsourcing HR activities 179
e-HR 180
Critical HRM issues 181
Summary 182
10 Marketing 186
Panagiotis Ballas
Overview 186
The marketing environment in Greece 186
Challenges faced by marketing agencies in Greece 191
E-marketing and mobile marketing 195
Corporate Social Responsibility 198
Summary 200
viii Contents

11 Sales 203
Ioannis Gedeon
Overview 203
The sales force 204
Customer relationship management 206
E-advertising and e-sales 207
Comparison of sales practices in a local and a
multinational firm 210
Summary 212
12 Total Quality Management 214
Alexandros Psychogios
Overview 214
The nature of the Greek management system 215
The quality movement in Greece 218
Aspects of TQM in the private sector 219
Aspects of TQM in the public sector 221
Driving TQM application: barriers and facilitators 222
Summary 231
13 Accounting and Auditing Practices 236
Constantinos Caramanis and Emmanouil Dedoulis
Overview 236
A brief account of the politico-economic history
of modern Greece 237
Origins and development of accounting and
auditing up to the 1970s: a conservative,
state-oriented mentality 238
The ‘Europeanization’ era: 1980 to date 241
Accounting and auditing following the adoption
of IFRSs: the view of financial executives and auditors 247
Summary 250
PART III CONCLUSION: SUMMARY, COMPARISON AND
SUGGESTIONS
14 The Business System and Management Practices in Greece 259
Rea Prouska and Maria Kapsali
Overview 259
Systemic factors in the Greek business system 262
Management practices in Greek firms 265
The bigger picture 269
 Contents ix

15 Systems and Practices: Peripheral Countries Compared

with the UK 272
Rea Prouska and Maria Kapsali
Overview 272
State, institutions and infrastructures in the peripheral
and UK business systems 272
A comparison of finance, market, firm and labour figures
in the peripheral countries’ and UK business systems 283
Challenges faced by SMEs in the EU 287
Management practices in the peripheral countries
and the UK 290
Summary 297
16 Suggestion for Further Research on the Business
System and Practices in Greece 300
Rea Prouska and Maria Kapsali
Strategic management 300
International business 301
Human Resource Management 301
Total Quality Management 302
Marketing and sales 302
Accounting and auditing 303
Comparative research 303

Index 305
List of Tables and Figures

Tables

2.1 Employment and output shares of various sectors

1970 and 2005 30
2.2 Average labour productivity growth 1970–2005 33
2.3 Relative labour productivity of Greece and Germany
1970–2005 35
2.4 Regression results for the convergence hypothesis
in Greece 37
2.5 Determinants of labour productivity 1987–99 41
2.6 Determinants of labour productivity 1987–99 with
higher-order lags of exports and imports 43
2.7 Technology catch-up and labour productivity growth 45
4.1 ROP Central Macedonia SAEP expenditure 80
4.2 ROP Central Macedonia SANA expenditure 81
4.3 ROP Central Macedonia SAE expenditure 82
4.4 ROP Epirus SANA expenditure 83
4.5 ROP Epirus SAE expenditure 83
4.6 Information Society programme beneficiaries,
December 2005 85
4.7 CSFIII Competitiveness programme beneficiaries 87
6.1 Legal form of Greek commercial enterprises 113
10.1 Top advertising revenue earners 2009 192
12.1 Effects of ‘soft’ and ‘hard’ aspects of TQM
on the nature of managers’ work 225
12.2 Effects of ‘soft’ and ‘hard’ aspects of TQM
on organizational performance and process 228
13.1 The Greek audit market by numbers in 2009 246
15.1 Main indicators of the non-financial business
economy 2006 284

x
 List of Tables and Figures xi

15.2 Value added by enterprise type, non-financial business

economy 2006 287
15.3 Problems with government regulations 289

Figures

2.1 GDP per capita 1970–2005 31

2.2 Labour productivity in Greece 1970–2005 32
2.3 Manufacturing labour productivity growth and
GDP growth 34
4.1 Model of local development 73
4.2 The socioeconomic trajectory of Greece 75
4.3 Information Society approved funds by beneficiary type 86
4.4 Information Society beneficiaries by type 86
5.1 The Triple Helix model and the innovation firm 98
5.2 The evolution of the Greek innovation policy 105
10.1 Advertising expenditure by various media 2009 191
12.1 Two antithetical forces in the application of TQM to the
Greek business system 230
14.1 The relationship between state type, business system and
managerial practices 261
15.1 The business system 273
List of Abbreviations

ADECH Athens Derivatives Exchange Clearing House

ADEDY Confederation of Public Servants
ADEX Athens Derivatives Exchange
ASE Athens Stock Exchange
ASEP Supreme Council for Human Resources Selection
ATHEX Athens Exchange
BoD Board of Directors
BoG Bank of Greece
CAF Common Assessment Framework
CAP Common Agricultural Policy
CCP Central Counter Party
CEC Commission of the European Communities
GMID Global Market Information Database
CIA Central Intelligence Agency
CLA Collective Labour Agreements
CLAs General National Collective Labour Agreements
CORDIS Community Research and Development Information
Service
CPR Cost Per Rating
CSD Greek Central Securities Depositories
CSF Community Support Framework
CSGR Centre for the Study of Globalisation and Regionalisation
CSR Corporate Social Responsibility
DEPANOM National Health System Construction Company
DINK Double Income, No Kids
DSS Dematerialised Securities System
EAGGF European Agriculture Guidance and Guarantee Fund
EC European Commission

xii
 List of Abbreviations xiii

ECB European Central Bank.

ECJ European Court of Justice
EEC European Economic Community
EGSSE National General Collective Agreement
ELTE Accounting and Auditing Oversight Board
ELOT Organization for Standardization
EMU Economic and Monetary Union
ENA Alternative Market of the Athens Stock Exchange
EOMMEX Hellenic Organization of Small and Medium Enterprises
and Handicraft
EPEs Limited Liability Companies
ERDF European Regional Development Fund
ESEE National Confederation of Greek Traders
ESF European Social Fund
ETF Exchange Traded Fund
ETVA Hellenic Industrial Development Bank
EU European Union
FDI Foreign Direct Investment
FIFG Financial Instrument for Fisheries Guidance
FSF Financial Stability Fund
GAP General Accounting Plan
GATT General Agreement on Tariffs and Trade
CCP Central Counter Party
GDP Gross Domestic Product
GMID Global Market Information Database
GSEBEE General Confederation of Professional Craftsmen and
Small Manufacturers of Greece
GSEE Greek General Confederation of Labour
GSI General Secretariat for Industry
GSRT General Secretariat for Research and Technology
HCMC Hellenic Capital Market Commission
HELEX Hellenic Exchanges SA, the listed holding company of
Athens Exchange
xiv List of Abbreviations

HRM Human Resource Management

IB International Business
IFRS International Financial Reporting Standard
IKA Social Security Institution
IMF International Monetary Fund
IMP Integrated Mediterranean Programme
IOBE Foundation for Economic and Industrial Research
IS Innovation System
ISO International Organization for Standardization
KETHI Research Centre for Gender Equality
KKE Communist Party of Greece
KVS Income Tax Legislation
KYP Hellenic National Intelligence Service
LSDV Least Squared Dummy Variables
MA Managing Authority
MBO Management by Objectives
MC Monitoring Committees
M&Cs Municipalities and Communities
MBO Management by Objectives
MELRA Ministry of Education, Lifelong Learning and Religious
Affairs
MiFID Markets in Financial Instruments Directive
MEF Ministry of the Economy and Finance
MIAPAD Ministry of Internal Affairs, Public Administration &
Decentralization
MNC Multinational Corporation
MoD Ministry of Development
MTF Multilateral Trading Facility
NATO North Atlantic Treaty Organization
NBG National Bank of Greece
NBS National Business System
NIS National Innovation System
 List of Abbreviations xv

NPL Non-Performing Loans

NUTS2 Nomenclature of Units for Territorial Statistics
OAED Greek Manpower Employment Organization
OECD Organisation for Economic Co-operation and Development
OLS Ordinary Least Squares estimator
PASOK Pan-Hellenic Socialist Movement
PPPs Public–Private Partnerships
RBV Resource Based View
R&D Research and Development
ROI Return on Investment
ROP Regional Operational Programme
SCP Structure–Conduct–Performance
SEA Single European Act
SELE Association of Certified Accountants Auditors
SEV Hellenic Federation of Enterprises
SF Structural Fund
SMART System for Money Settlement of Athex Reconciled
Transactions
SME Small and Medium-sized Enterprise
SOEL Institute of Certified Public Accountants of Greece
SOL Institute of Sworn-in Accountants
SPD Single Programming Document
STI Science Technology and Innovation
TIF Thessaloniki International Fair
TFP Total Factor Productivity
TQM Total Quality Management
UNIDO United Nations Industrial Development Organization
UCITS Undertakings for Collective Investments in Transferable
Securities
VAT Value Added Tax
WHO World Health Organization
Acknowledgements

The editors would like to thank all of the authors for their valuable
contributions to this volume and also the publishing team at Palgrave
Macmillan for their continuous support throughout the project.

xvi
Notes on the Contributors

Panagiotis Ballas holds a PhD in innovative services adoption market-

ing from Manchester Business School. His main research interests lie in
the area of innovation adoption and consumer research. He also holds
two master’s degrees, one in Internal Auditing and Management and
one in Accounting and Financial Management. He has work experience
not only in academia, but also in banking.
Ioannis Bournakis is Lecturer in Economics at Middlesex University
Business School. He holds a PhD in economics from the University
of Kent. His research interests include international trade, economics
and productivity growth, exporting and productivity at firm level, and
industrial organization with emphasis on the analysis of market con-
centration and measure of mark-ups.

Joseph Butler holds a PhD in historical anthropology from the National

University of Ireland (Maynooth). His research interests are the social
and political history of Europe and its consequences for the contem-
porary world. He currently teaches modern history and politics at
Hampstead Fine Arts College in London.

Constantinos Caramanis is Associate Professor of Accounting at Athens

University of Economics and Business. He holds a PhD in accounting
from the University of Edinburgh. His research interests include the
history and current developments in the Greek auditing profession,
the market for audit services and issues in financial reporting. He has
published widely and has also worked in the industry as a certified audi-
tor. He has recently served as a member of the Greek Accounting and
Auditing Oversight Board and as chair of a committee on the reform of
Greek accounting law. He has undertaken consultancy projects with pri-
vate sector companies on financial reporting issues, as well as with the
Greek Ministry of Finance on public sector accounting and auditing.

Emmanouil Dedoulis is Lecturer in Accounting at Athens University

of Economics and Business. He holds a PhD in accounting from the
University of Essex. His research interests include the development of
the institution of auditing, the Code of Ethics and current develop-
ments in the accounting and auditing standards. He has published in
reputable international journals. He has professional experience as an

xvii
xviii Notes on the Contributors

assistant certified auditor and is a member of the Institute of Certified

Auditors in Greece.

Ioannis Gedeon is Business and Marketing Intelligence Manager at the

Institute for Work-Based Learning at Middlesex University. He holds an
MSc in marketing from the University of Lincoln. He has held various
senior positions in sales and marketing in Greek and British firms.

Kyriakos Hatzaras is a member of the Health Management Group

at Imperial College Business School. He holds an MEng in electrical
and electronic engineering with management from Imperial College
London, and an MPhil in European studies from the London School
of Economics and Political Science. His research has been published by
the European Commission, the OECD, the universities of Tokyo and
Warwick, the LSE’s Hellenic Observatory, and the World Council of
Hellenes Abroad.

Maria Kapsali is Research Associate in the Innovation and Entre-

preneurship Group at Imperial College Business School. She holds a PhD
in business administration with a specialization in operations, technol-
ogy and innovation management from Manchester Business School. Her
research interests include innovation policy, innovation systems, policy
implementation instruments, operations in innovation firms, and inno-
vation projects in healthcare.

Ageliki Katsiyianni is an attorney at law specializing in commercial,

banking and finance law. She holds a Master of Laws (LLM) from
University College London (UCL).

Eirini Kokkori is legal counsel at Coral SA (former Shell Hellas SA) of

Motor Oil Hellas group of companies. She has held various senior posi-
tions as a legal consultant in companies such as OTEplus SA, the affiliate
of the Greek telecommunications organization OTE. Her work focuses
on company, labour and commercial law. She holds a Master of Laws
(LLM) from University College London (UCL) and is currently studying
for a PhD in securities law at the University of Athens law school.

Athanasios Kouloridas is Visiting Lecturer in the Department of

Business Administration of the Economic University of Athens. He is
a partner at Athens Business Lawyers and legal counsel for the Greek
Union of Listed Companies.

Nektarios Polychroniou is an attorney at law specializing in commer-

cial law. He holds a Master of Laws (LLM) from Georgetown University.
 Notes on the Contributors xix

He is currently completing his PhD, with a specialization in money

laundering, at the University of Athens law school.

Efthimios Poulis is Senior Lecturer in Strategic Management at

Norwich Business School, University of East Anglia. He holds a PhD
from Manchester Business School. He has held positions at the Athens
University of Economics and Business, Manchester Business School,
Bournemouth University and Buckinghamshire New University. He is
a reviewer for top international academic journals and track chair for
Dynamic Capabilities (European Academy of Management) and Strategic
Management (British Academy of Management).

Konstantinos Poulis is Lecturer at the University of Essex. He holds a

PhD in international business from Manchester Business School and
has worked in several European countries. He has published in several
outlets while his work features in conference proceedings of various
business academies.

Rea Prouska is Senior Lecturer in Human Resource Management

at Middlesex University Business School. She holds a PhD from
Manchester Business School and specializes in outsourcing HR activi-
ties. Her research interests are in HR outsourcing/offshoring, graduate
employability and gender. She is co-editor of Critical Issues in Human
Resource Management.

Alexandros Psychogios is Senior Lecturer in management and human

resources, as well as Academic Research Coordinator in the Department
of Business Administration and Economics in City College, International
Faculty of the University of Sheffield. He holds a PhD in business admin-
istration from the University of Warwick. His research interests are
associated with international HRM and business strategy, knowledge man-
agement and change, organizational learning and development, organiza-
tional theory and analysis, TQM and public services management.
Introduction
Rea Prouska and Maria Kapsali

The purpose of this book

We started this book with a need to satisfy our own curiosity to have
an almost complete picture of the business system and management
practices in Greece. Most of the contributors have conducted research in
Greece and have knowledge of the theory and practice of management in
Western European firms, and have identified key differences between the
system and practices in Greek counterparts. However, we still needed a
comprehensive explanation as to how the national business system func-
tions and how management is really practised at the firm level in Greece
overall. We felt that now more than ever is an appropriate time for this
endeavour in the light of the recent economic crisis. We believe that the
example of Greece has educational value as a case study, drawing atten-
tion to crucial issues and suggesting directions for solutions for peripheral
countries that share many similarities and challenges. Therefore, our
main questions are: What are the main issues of concern that one should
know about in the business system and management practices in Greece?
Where does the firm stand in the midst of all of this? Where do these
stand in comparison with other peripheral European countries?
Our curiosity was further strengthened by the fact that academic
literature on the Greek business system and management practices in
firms is scarce, compared to research on these subjects in other countries,
such as the UK. This is because research has focused mostly on observ-
ing ‘core’ or ‘developed’ business systems, while there is less research on
semi-peripheral and even less on peripheral business systems. As a result
markets, investors and business people work on assumptions based on
reputation about these systems, rather than comprehensive and accurate
descriptions based on evidence from in-depth research. For this reason,
we chose to compare the Greek business system with those in the other
peripheral EU countries (Portugal, Italy, Ireland and Spain) and the UK,
which is selected as a representative of the core EU economies. The differ-
ence between the two categories is based on the definitions of the world
systems theory (Wallerstein, 1974; 2000) as ‘core is the developed, indus-
trialized part of the world, and the periphery is the “underdeveloped”,

xxi
xxii Introduction

typically raw materials-exporting, poor part of the world; the market

being the means by which the core exploits the periphery’.
This is the gap that this book is aiming to bridge: to bring together
current knowledge on the Greek business system and management
practices and to present these in an analytical and comparative way
that would enable the reader to see them from a holistic point of view.
Hence, this book is, firstly, a valuable resource to anyone doing research
on or interested in research focused on Greek business and management;
secondly, an excellent reference for students studying undergraduate or
postgraduate programmes with a comparative or international element;
and thirdly, it can provide a holistic picture for anyone interested in
doing business with or investing in business in Greece.
The book is arranged in three parts, with the intention of providing
a succinct outline of the business system in the first part, and the man-
agement practices of modern firms in Greece in the second part. Part I
(Chapters 1 to 6) deals with the country’s political, economic, financial,
legal, development and innovation institutional structures, and fre-
quently attributes management practices to them. Cause and effect rela-
tions between systemic structures and practices also appear often through
Part II (Chapters 7 to 13), which looks at management practices within
the firm (strategic management, international business, sales, marketing,
human resource management, total quality management, accounting
and auditing). The idea was to draw out these cause and effect links from
both parts to reveal how the systemic structures in the first part are linked
to the management practices in the second part. However, it was not a
clear-cut division between systemic causes and management practices,
nor should it be; therefore the chapters in Part III (Chapters 14–16) bring
all the pieces together to discuss the complexity of the whole picture in
the light of comparison with the other peripheral business systems. The
rest of this introduction provides brief summaries of the chapters.

Summary of chapters

Part I: The Greek Business System

Chapter 1: Politics – political and economic developments through
a historical perspective
The first chapter highlights the turbulent political environment since 1830
and how this formed the economic system. This period is described in
three parts, separating in more or less equal time periods the 180 years of
Greece’s recent history as a free state. It concludes with three main themes
 Introduction xxiii

cutting through this historical transition, which was characterized by

wars, internal conflicts and economic highs and lows. These three themes
are: first, a pattern of social, political and economic division; second, the
way in which geopolitics, foreign relations and external powers interfere
in domestic politics, contributing to these patterns of division and creat-
ing a culture of dependency of political action on exogenous systems; and
third, the use of the public sector as a tool for politics. The consequences
of this triad are cycles of economic deconstruction and reconstruction
which are characterized by policy discontinuity, and partisan political
practice, creating a vacuum in supportive business infrastructures and
institutions. The business system is characterized by a majority of micro
firms and a small minority of medium and larger firms and multinational
corporations. The role of business is precarious; the firm is kept under the
control of the owners, in a small organic form characterized by a strong
entrepreneurial spirit, which is responsive, flexible and opportunistic,
inhabiting markets with unstable conditions.

Chapter 2: Economics – productivity performance, determinants

and future prospects
Chapter 2 highlights productivity performance. Greece’s traditional area
of specialization has been agriculture, a sector over-protected with the
imposition of government tariffs and quotas. However, this sector shrank
when the market become quite competitive after Greece’s entry to the EU.
The industrialization period was short, and since the 1970s the manufac-
turing sector has been shrinking due to the process of de-industrialization.
At the same time as manufacturing and agriculture are in decline, there
is a steady increase in specialization in financial, hospitality, retail, trade
and water transport services. Despite the convergence of nominal macr-
oeconomic fundamentals, the process of productivity convergence over
the last 40 years has been very slow and GDP per capita is consistently
less than the average in the EU and other developed countries. A major
reason for the productivity gap is the fact that the Greek business system
cannot undertake intensive research and development (R&D) activity
due to large budget deficits and low technology uptake. Finally, there are
concerns about whether the current specialization in financial services can
constitute a model of sustainable development.

Chapter 3: Finance – banking and investment

Chapter 3 highlights the main developments in the Greek financial
sector and the transition from the 1950s state of intervention that
restricted competition and dominated the market through state-owned
xxiv Introduction

and nationalized players, until the early 1990s, with the modernization
of regulation that led to the liberalization of the financial markets and
the complete modernization of banking, which led to a boom in the
industry in the late 1990s. Many state-controlled banks were privatized,
mainly through listing their shares on the Athens Exchange and public
offering programmes. Greek banks responded to the new conditions
by undertaking mergers and acquisitions and by expanding in regional
markets such as in South-eastern Europe. The banking system resisted
the current global crisis because they did not employ the US credit
system but difficulties started because of the public sector deficit which
raised problems in liquidity.

Chapter 4: Development – the role of the public sector and

firms in economic development
This chapter shows how the import of EU policy is not enough to modern-
ize the innovation system, and provides the reasons for this. This research
shows how wider public sector organizations are the ones which benefited
mostly from participating in the second and third Structural Programmes
(1994–2006), having marginalized the participation of private firms and
restricted their role to that of sub-contracting. The role and resources
of public organizations have been enhanced, while private innovative
firms have had limited participation in the development process, with
their potential still untapped and their entrepreneurship discouraged by
bureaucracy.

Chapter 5: Innovation – the National Innovation System

Chapter 5 explores the National Innovation System (NIS) in Greece, using
the Triple Helix model as an explanatory device. Innovation policy in
Greece started to develop in the 1980s. The NIS appears to have most of
the standard policy instruments in place, but shows disappointing per-
formance results on several scoreboards. The NIS has a strong international
supply-driven orientation, with EU funds as its main funding source. The
key institutional actors are public ministries and regional public services
and the private sector is a weak contributor in the creation and diffusion
of innovation. The system is characterized by a lack of operationaliz-
able policy and focuses on top-down implementation, without however
establishing a strong executive institution, or having institutionalized
measures to strengthen the position of firms, which are the weakest link
in the system. Firms have low levels of technology absorption and adop-
tion, and they are dominated by the public sector’s regulatory and supply
roles in the system. Firms have developed risk aversion and mistrust of
 Introduction xxv

established institutions, and they are confused about their choices due to
lack of information and substantial support. More specifically, the rela-
tions and interactions between the actors in the NIS are weak, because the
boundaries between policy and firms are too rigid.

Chapter 6: Law – company, tax and employment law

Chapter 6 highlights the main issues relating to company, tax and
employment law. Greek company law is primarily based on French
legislation and largely influenced by EU legislation. Companies can be
classified into two broad categories: personal companies (unlimited and
limited partnerships being the main types) and capital-based companies
(principally sociétés anonymes and limited liability companies) Greek
tax law has been known for its frequent changes (sometimes multiple
changes within the same tax year). Greek companies are subject to
income tax, value added tax, real estate tax, and social security con-
tributions. Employment law developed later in Greece than in most
European countries, due to the country’s belated industrialization.
Individual labour law regulates the relations between employer and
employee and the rights and obligations that arise from the employ-
ment agreement. Collective labour law regulates the relationship
between employers and trade unions and provides a framework for col-
lective employee voice mechanisms.

Part II: Management Practices in Greek Firms

Chapter 7: Strategic Management
Chapter 7 explores the link between the micro-external and internal
environments and the competitive and corporate strategic practices in
Greek firms. Firstly, using Porter’s model of the micro-external market,
the firms’ micro-external environment is characterized by powerful
suppliers and weak buyers, with little threat of substitutes, few com-
plementary products and low threat of entrants (with the exception of
the retail market). Secondly, using a Resource-Based View perspective it
is established that most firms do not possess significant resources and
competences to allow them to achieve sustainable competitive advan-
tage in the global environment (with the exception of some successful
Greek multinational companies).
Consequently, there are significant differences in the way local small
firms and MNCs compete. Local small firms are more risk-averse in their
competitive and market strategies, do not employ management practices
and rely on their local connections to create a competitive advantage.
MNCs, on the other hand, use networking, employ scientific management
xxvi Introduction

principles and have distinctive market directions to create a competitive

advantage. In terms of creating competitive advantages through the
value chain, firms tend to focus on operations and marketing/sales,
while support activities like logistics are ignored, and especially activities
that require larger investments, such as R&D. Competitive strategies are
mainly the outcome of intuition, bias, path-dependency and imitation.
The most common strategy for creating competitive advantage is based
on cost leadership rather than differentiation. Finally, regarding corporate
strategies, most firms use some related diversification, and mostly hori-
zontal integration, mainly through the acquisition of other competitors or
companies producing substitute products. Vertical integration is rare.

Chapter 8: International Business

Chapter 8 explores the business activity of firms through the bounda-
ries of the national business system. Firms demonstrate a remarkable
presence in world markets with multinational activity stretching from
the Balkans to North and South America and the Far East. Greece ranks
among the top 50 countries in the world for foreign investment, and
her multinationals account for almost a third of the overall turnover.
Two major powerhouses of the Greek international activity are tourism
and shipping. A paradox is observed here: while a significant number
of sophisticated firms have followed the ‘hard’ road of foreign direct
investment, exports are relatively lagging behind, and are not, there-
fore, a major contributor to the economy. The geographical and product
scope of exports remains one of the lowest in the EU, because it is to a
large degree regional with the majority targeting European markets.
The main structural weaknesses reflected in international practice
are: first, the small size of firms which is the reason for the weakness to
adjust to new forms of organization and to benefit from technological
advances that generate sources of competitive advantage; second, the
high degree of black market activity and the incomplete (but constantly
improving) infrastructure and transport network; and third, constant
changes in the corporate taxation regime and bureaucratic procedures
when setting up of companies, that discourage foreign investment.

Chapter 9: Human Resource Management

Chapter 9 examines the practice of Human Resource Management (HRM)
in Greece, which started to develop after the 1970s due to competitive
pressures on firms (participation in the EU, the presence of MNCs and
the higher educational level of professional management). Firm size
directly affects the size and role of the HR department and a difference in
 Introduction xxvii

practices between micro firms and MNCs is observed. Even though larger
firms and MNCs have more formalized HR policies and procedures in
place, these are usually absent in micro firms and SMEs. Key HRM activi-
ties are employee recruitment and selection, performance management,
training and development and employee rewards, and there is a trend
to outsource these activities to external consultants. Three critical HRM
issues are identified in this chapter: the mismatch between supply and
demand in skilled labour, the ageing workforce which affects pension
policy, and gender equality in the workplace, particularly the current
gender pay gap, working time, parenthood and sexual harassment. An
additional critical issue is the power asymmetry between employer and
employee and industrial action, especially in the public sector.

Chapter 10: Marketing

Chapter 10 highlights the differences in marketing practices between
micro firms and larger or MNCs. Micro firms are sceptical of spend-
ing on marketing activities, primarily due to their targeting mainly
local markets. Therefore, marketing is not their top priority, as they
do not find contemporary marketing methods necessary. Marketing in
micro firms is primarily based on personal relationships forged by sales
managers who are the ones that mainly perform marketing activities,
although salespeople are not formally educated or trained in marketing.
Consumer research in not available, accessible or useful to micro firms:
they use push-marketing and low-cost, low-risk promotional solutions,
such as flyers, and they procrastinate in applying marketing promotions.
Practices like e-marketing, mobile marketing and customer relationship
marketing are gaining ground. Micro firms imitate marketing practices,
in comparison to larger firms and MCNs that implement integrated
strategic marketing plans, focus on their corporate and product image
and use marketing consultants to outsource product campaigns and
promote themselves to the wider market. A tension is observed between
the clients and the consultants, however. The main challenge faced by
marketing consultants is large companies that have marketing depart-
ments in place (and often refer to them as ‘sales departments’).

Chapter 11: Sales

Chapter 11 explores the sales practices in Greek firms. The role of the
sales professional differs significantly between micro firms and MNCs in
terms of the volume and standardization of practice. Customer relation-
ship management (CRM) is valued by all types of firms, which emphasize
customer feedback as a way of evaluating levels of customer satisfaction
xxviii Introduction

and demand. Knowledge and understanding of customer needs are

gained through the relationships cultivated between the sales operative
and the customer. CRM and sales professionals focus on building long-
term relationships, rather than simply selling products and services. As a
result, the sales profession has been thriving, even since the latest crisis,
and it has evolved to have greater access to information, training and
education than a few years ago. Inside the firm, performance manage-
ment of sales professionals is based on output rather than behaviour.
However, sales professionals are still considered generalists rather than
product specialists or customer specialists. The e-advertising and e-sales
fields are currently being developed in Greece and there are already a few
good examples of organizations advertising and selling online.

Chapter 12: Total Quality Management

Chapter 12 examines the application of the Total Quality Management
(TQM) philosophy in the Greek business system, taking into consid-
eration that it is significantly different from the systems from which
it originated; this fact is the cause of difficulties in its implementation.
The chapter examines this argument in terms of the cultural and insti-
tutional factors in the private and public sectors.
The main cultural factor which are not conducive to the devolved,
participatory practices of TQM are: the centralized control structure in
firms, the autocratic/authoritative practice of senior managers and CEOs,
the (mainly administrative) role of middle managers, and the trust gap
within organizations due to the lack of open and clear communication.
The institutional factors explain this cultural phenomenon in terms of
the small size of firms, the locality of the markets, the quasi-industrial,
low-process efficiency business system, individualism and the fact that
people perceive TQM as synonymous with ISOs and both as a regulation
rather than an improvement practice. TQM never evolved from business
practice, but was rather a response to external competitive pressures.
Although larger firms created TQM departments they still perceive
TQM as a peripheral function. MNCs were keener to adopt TQM; how-
ever, it is still far from being fully integrated into the production processes.
Although managers understand its importance, they are not familiar as
much with process quality and with TQM methods; firms emphasize
product quality. On the other hand, facilitators of TQM implementation
include the fact that competitive productivity has become a significant
issue for managers and firms, the need for firms to implement ‘hard’
TQM practices (such as ISO), and the reformative cultural force which
supports the modernization of the system. The public sector has tried to
 Introduction xxix

use TQM to improve services; however, few of them had limited success
because of their complex structure, regulations and procedures.

Chapter 13: Accounting and Auditing

Chapter 13 explains how accounting and auditing practices did not
emerge from a business need, but were rather imposed by state legisla-
tion in the early 1900s, and thus they were seen as an auditing tool
in the service of government tax collectors. The business system did
not adopt auditing practices easily, since micro firms and SMEs usually
have centralized control mechanisms and did not need complicated
auditing practices, which imposed restrictions on their laissez-faire
operations. When Greece joined the EU, however, the institutional
and legal framework for accounting and auditing practices changed,
because there were pressures to modernize corporate legislation and
adopt International Financial Reporting Standards, International
Standards on Auditing and EU directives for the operation of the
financial sector (banking and insurance) and capital markets. However,
Greece’s performance in the implementation of EU-inspired reforms
has been poor, because of structural and institutional problems. State
intervention was successful only after the creation of a watchdog,
which dictated the status and practices of the profession. The liberaliza-
tion of the auditing profession eventually took place in 1992 following
an intense intra-professional struggle, which so far, has failed to pro-
duce any significant results.
The modernization of accounting practice has been undermined by the
government’s frequent ad hoc interventions in reporting issues. At the
moment, companies implement two diametrically opposite accounting
models: IFRSs (the Anglo-American model) which are market-oriented,
and accounting rules (Law 2190/1920 and the General Accounting
Plan – GAP) which draw on a deep-rooted, tax-oriented tradition. The
EEC GAP and the transposition of EEC accounting and auditing directives
were introduced in the 1980s, but have not been kept up-to-date with
international developments, while it is an over-procedural and unnec-
essarily costly system. In the 2000s, the introduction of IFRSs helped
progress accounting practice, but also revealed the weakness of local
accounting standards as well as the inappropriateness of legal provisions
in corporate legislation, even of those introduced in conjunction with
the switch to IFRSs. The chapter concludes with a few recommendations:
to establish a new watchdog, to create a new tax system for accounting
standards for unlisted companies, and to create new corporate and tax
legislation.
xxx Introduction

Part III: Conclusion: Summary, Comparison and Suggestions

Chapter 14: The Business System and Management Practices in
Greece
The first conclusion chapter provides a summary of management prac-
tices and the business system, by bringing together all the causal factors
from the business system which explain certain types of management
practices. The discussion describes the situation in typical firms (micro
firms and SMEs), with references to larger counterparts for comparison.

Chapter 15: Systems and Practices – Peripheral Countries

Compared with the UK
The second conclusion chapter completes the picture by comparing the
Greek business system with, first, other peripheral countries’ business
systems (Portugal, Italy, Ireland and Spain) and, second, the UK (which
is a representative of a core-developed business system). It is not the
purpose of this chapter to compare business systems per se, but rather to
show how the systemic factors discovered in the book exist in different
business systems and how these affect management practices. We then
include some statistical evidence from EU databases to illustrate them.

Chapter 16: Suggestions for Further Research on the Business

System and Practices in Greece
The final chapter discusses ways forward in terms of academic research
focusing on Greek business, based on the suggestions by the contributing
authors.
Part I
The Greek Business System
1
Politics
Political and Economic Developments
through a Historical Perspective
Maria Kapsali and Joseph Butler

Overview

This chapter describes the political history of the Modern Greek state
since its re-establishment in the nineteenth century and the impact it
has had on the economy and the business system. It should be empha-
sized that this is an outline, highlighting certain themes in Greek poli-
tics, economy and business, and not a political analysis. There is plenty
of scientific literature on that (from which we draw on) because this
chapter is intented to inform people that are unfamiliar with the history
of Modern Greece and provide them with the background information
that will help them understand the more analytical chapters later. We
therefore provide a summary of the political events and the major eco-
nomic and business trends that went along with them. It is a top-down
picture that brings to the surface certain themes that will be referred to
in later chapters. These themes derive from the intertwining of political,
economic and social factors which results in a complex mix of choices
and events.
At the time of writing, Greek economic difficulties are in the news.
The recent global recession hit the national economy hard, the conse-
quences making international news. European powers have been pon-
dering ‘solutions’ while there has been a spate of criticism of domestic
economic and public affairs which even go as far as to brand the whole
country with certain characteristics. The impact of politics on business
practices and the economy is now a poisoned chalice for Greek politi-
cians, who are aware of the internal structural problems and that they
are (considered to be) part of the problem (Beesley, 2010).
There are a number of themes arising from this chapter that are fun-
damental to understanding the other chapters. The first theme is that

3
4 Politics

throughout Modern Greek history (1830 to present) outside forces have

actively interfered and even intervened in political and social affairs
very much in a colonial way. Greece geographically is on the south-east
periphery of Europe, right at the crossroads between Western Europe,
the Balkans (recently under the influence of the former Soviet Union),
the Middle East (under the influence of Islamic cultures) and North-east
Africa. The constant contact with this eastern Mediterranean cocktail of
cultures and socioeconomic systems, which has been causing turbulent
global historical events for centuries, exposes the country to levels of
complexity and uncertainty verging on chaos, and the evolution of
habits that it is difficult to understand without the help of anthropolo-
gists.
On a practical level, Greece’s position on the southeast flank of Europe
is hugely strategic, and for that reason the country is being pulled in
different directions to compromise with various (and often conflicting)
forces, which have often explicitly interfered, taking the role of the ‘pro-
tector’ or patron. In the last century alone, Greece has been affected by
two World Wars, the Great Depression, a civil war, the Cold War, seven
military coups, numerous ‘local’ wars (with the Balkans and with Turkey),
the oil crisis and other economic pressures, the political and monetary
integration with EEC (European Economic Community)/EU (European
Union) and the latest global ‘crunch’. During all these (often violent)
events, the country was to be outnumbered and financially exhausted.
Greek politicians have had to walk a thin line between accepting (mainly
from western political sources) economic or military aid (during conflict
and for recovery and reconstruction) and giving up some of their govern-
ment’s sovereignty by allowing interference in domestic affairs, leading
to loss of internal control.
Apart from the importance of external politics in internal affairs, the
second theme is how these geopolitical factors affect the type and size
of the economy and business practices. For example, political events
have affected the mobility, skill level and type of labour, which in turn
affected the type of industrial sectors that emerged and grew and others
which perished. The combination of the political instability with a large
public bureaucracy has made it difficult to attract both foreign direct
investment (FDI) and inwards investment. Frequent changes in regime
and economic policies have led to a lack of consistent national strategy
and the lack of a developed institutional base to provide guarantees for
industrial investors. Firms found they needed to be small in order to
be low-cost, low-investment and short-term oriented and to develop
an agile, entrepreneurial attitude; this makes for a business landscape
 Maria Kapsali and Joseph Butler 5

which is volatile and mercurial, with a high rate of self-employment

and a micro-family structure (up to ten employees), with single owner-
ship and management. The system as it is cannot sustain large manu-
facturing sectors. These elements create a uniquely unbalanced national
system that is highly competitive and efficient in some sectors, espe-
cially services and smaller-scale agricultural production, and very weak
in others such as manufacturing.
The development of this business system is explained in more detail
in the rest of the chapter in three sections: (i) from the formation of the
country until the end of the nineteenth century, (ii) the first half of the
twentieth century, and (iii) the second half of the twentieth century.

Modern Greece from 1830 to 1900

The main historical events of this period were the establishment of a gov-
ernment (monarchy), industry and successive liberation of the country. The
principal issues were: partisanship, the patronage of the Great Powers
and the controversial function of the monarchy; the establishment of
economic and political structures through choices such as land reforms
and public bureaucracy; and social issues such as education, social dispar-
ity, the modernization of the language and ecclesiastical issues, along
with the constant battle to liberate areas of Greek population that
remained under occupation.
Modern political Greek history starts with the formation of a newly
created state in 1830, after a war of independence from occupation by
the Turkish Ottoman empire. The new country was but a fragment
compared with the part that was still occupied, most of which was to be
liberated in successive steps over the next 90 years. At that time, there
were more Greeks living outside the new state’s borders than within
(Clogg, 2002). The issue of irredenta (national populations within other
states) was, and still is, a major one in the region generally. Mazower
writes, ‘in the ethnic kaleidoscope of the Balkans, above all, the princi-
ple of nationality was a recipe for violence’ (Mazower, 2000: 104). From
the beginning there was foreign influence in Greek affairs. Lord Byron,
as an envoy of the British, predicted that ‘an “independent” Greece
would be a colony of the sovereigns of Europe’ and the British ambas-
sador in Athens in 1841 said that ‘Greece is either Russian or English
and, since she must not be Russian, she must be English’ (Sarafis, 1990:
124). From its very creation the country’s fate was decided by the triad
of ‘great powers’, as they were then called, Britain, France and Russia,
which played an active political role even within the parliamentary
6 Politics

processes and legislation by patronizing their own political parties. It

was the Greeks themselves who had fought the war of independence
but it was the Great Powers (Britain, France and Russia) that negoti-
ated the boundaries of the country and even its sovereigns (Clogg,
2002: 39–46; Legg, 1969). The first monarch of independent Greece,
who was chosen by the British, was Bavarian, and the first government
was dominated by Germans (later replaced by a Danish dynasty on
the throne). Greek politics were to remain dynastic up until 1974, with
monarchs interfering in parliamentary politics, often using the army or
the police to affirm their authority. This caused a deep division in the
country (called ‘the Schism’) between royalists and liberals, which on
many occasions led to violent confrontation resulting in several coups
and causing radical shifts in economic and external relations policies,
as well as two national catastrophes in 1922 and 1974.
Dynastic politics created economic and social fragmentation and
conflict. The Turkish tyranny was replaced by a foreign bureaucracy, the
‘Bavarocracy’, which did not solve problems and had no appreciation
of indigenous cultural, economic and social issues. The period follow-
ing liberation was a missed opportunity to change that situation – the
first government merely formalized the rule of patronage and bribery
that had previously thrived under the Ottoman system. In short, the
foundations of the infamous bureaucracy that still exists today were laid
at that time, combining a western-oriented multi-layered centralized
procedural system with the oriental system of decentralized political
patronage and clientilism (the Bavarian bureaucracy did not make proc-
esses transparent). That system has changed little since then. In a sense,
it is being artificially sustained because it acts as a safety net against the
consequences of radical change: every time a catastrophe (economic or
military) happened, the state had to pick up the pieces and essentially
revive a damaged economy by creating jobs in the public sector. The
system functioned through political favouritism and patronage. This
inevitably led to a large public sector and some levels of corruption
(Herzfeld, 1991: 289) a situation which is typical of Mediterranean
countries (Zinovieff, 2004: 160–1; Legg, 1969). All political parties have
relied on this system to gain and retain power (Clogg, 2002: 199–200).
This system created the cultural basis for the clientelist behaviour of
politicians and civil servants, which had many consequences. First, it
affects internal co-ordination: society is fragmented into small groups
that can be adversarial. Second, the system functions mainly through
informal channels and cliques. As a direct outcome of these, any kind
of formal political structure that does not allow for this behaviour but,
 Maria Kapsali and Joseph Butler 7

conversely, tries to subdue it, is simply ignored. It did not help that the
first government was not sensitive to the burning social issues at the time,
such as the language division and the political role of the church, which
were important for progress and some sort of social cohesion (Legg, 1969).
It did not help that the king ruled without a constitution and effectively
delayed the establishment of civil codes of liberty and obligation, which
would have rid the system of the remains of the Ottoman culture. The
window of opportunity to escape the system of eastern authoritarian
statism with paternalistic and particularlist allocative practices was missed
(Taylor-Cobby, 2006). This situation continued after 1863 with the arrival
of the new Danish king and his successors.
There were a number of consequences across the political–business
axis. The economy lacked any kind of industrial infrastructure; education,
law, public state, executive organs and industry had to be reconstructed
from scratch. There was only a small wealthy mercantile class of Greeks
living in different parts of the Mediterranean region which had inspired
the independence movement and provided support (Clogg, 2002: 23–5).
The population was illiterate, agrarian and untrained, ravaged by a pro-
longed period of occupation, siege and massacre. Greece had access to
36,000 km2 of land expropriated during the War of Independence. Land
reform was the first challenge for the new kingdom. The countryside was
devastated, depopulated and hampered by primitive agriculture meth-
ods and marginal soils; poor communications prohibited wider foreign
commerce until the late nineteenth century (Moffett, 1889). It took
several decades of redistributive land reforms to create a class of free
peasants among veterans of the War of Independence and the poor, and
by 1870 most Greek peasant families owned about 20 acres. The Law for
the Dotation of Greek Families of 1835 extended low-cost loans of 2,000
drachmas to every family to enable them buy a 12-acre farm at auction.
These farms were too small, but signalled the social goal of equality for
all Greeks. The Turkish tsifliks (very large estates cultivated by tenant
farmers) were abolished and the class rivalry between land owners and
peasants was reduced. This pattern of small ownership continues to the
present, even with the huge shrinking of the agricultural industry in the
last two decades.
The Modern Greek state spent the nineteenth century trying to estab-
lish itself, but remained in debt to the London financial institutions
(including Rothschilds Bank), which had financed the independence war.
The state taxed heavily to raise the repayments, but little remained to
invest in developing an industrial infrastructure. The economy remained
agrarian and poor; the peasant classes, which were the majority, unable
8 Politics

to benefit from proper education, turned to emigration to the USA.

Piperopoulos (2009) quotes Agriantonis (1991, 1986) on the character-
istics of industrialization during this period: lack of specialization in
production capabilities, industrial production was chosen at random
and production processes were basic. With a lack of specialization in the
supply chain activities and vertical integration, industrialization emerged
more from the initiatives of a few entrepreneurs and remained so since
there was no strategically planned policy taking advantage of industrial
infrastructures and since the middle classes did not have influence or
resources to invest. The majority of the labour force still depended on
agriculture. Services, such as marine trade, and small-scale industries,
such as weaving, became the main business activities (Liberakis, 1991;
Agriandonis, 1986). Industry was therefore marginalized in the economy
from the start. It did not complement the other types of production, and
did not develop the critical mass needed to develop industrial clusters;
their emergence was mainly opportunistic. For example, in 1850 prob-
lems with silk cultivation in France increased the demand for silk thread
and the first Greek industry emerged (Demiris, 1991; Limberakis, 1991).
However, successful growth was observed; the port of Piraeus expanded
to become by 1879 the country’s most important harbour, while an
industrial landscape developed around it (Kabouroglou, 1985).
Non-industrialized sectors such as trade and commerce which
produced a quicker, lower-risk profit dominated the economy at the
expense of industrial production. This was another reason why the pub-
lic sector grew disproportionally large, since it tried to absorb the
surplus of unspecialized labour. But the war was still on, the fortunes of
the new state were still uncertain and large amounts of funds were spent
on military equipment for defence. However, productivity in the areas
that did benefit from investment (commerce and agriculture) expanded
rapidly, and the railway infrastructure rapidly developed, showing that
the country had high capacity for growth, albeit insufficient to over-
come deficit. Effectively the country was formally declared insolvent
in the 1890s.

Modern Greece from 1900 to 1950

The main historical events of this period were, in order: the Balkan
Wars, World War I, the Great Depression, National Schism, the Asia Minor
campaign and Greek genocide, a dictatorship and thirteen coups, World
War II and the Civil War. Among the principal issues during this period
were the constant civil unrest of the Schism between the royalist and
 Maria Kapsali and Joseph Butler 9

liberal factions and the resultant instability in policies; the military

disaster with Turkey which resulted in the genocide of the Greek
population in Smyrna; a huge wave of immigration creating a crush-
ing economic burden; and several coups that severely affected business
investment. Another is the triad of economically and socially devastat-
ing international events, the Great Depression, the World Wars and
the Civil War, which left the country in urgent need of reconstruction,
not only economically but, most importantly, socially, with frequent
uprooting and resettling of populations leaving little margin for
stability and growth.
Greece’s strategic geographical location has meant little security for her
borders. Between 1912 and 1922 Greece was involved in the Balkan Wars
and later sided with the Entente Allies (Britain, France and Russia; later
Italy, Portugal, Japan, Serbia, Romania and Belgium) against the Central
Powers (the German, Austro-Hungarian and Ottoman empires and the
kingdom of Bulgaria) in World War I. After the war Greece was encour-
aged by Allied promises of the Greek-populated land in Turkey, but was
left on her own in the middle of a military campaign after France and
Italy withdrew their support and the rest of the Allies declared their neu-
trality. Without backing in the middle of a military progression, it became
a disaster culminating in what became known as ‘the Catastrophe’, when
the Turkish nationalist offensive against the Greek army turned on the
indigenous population. The Greek minority in Turkey was uprooted,
slaughtered or deported (along with the Armenians and other Christian
minorities). Under the terms of the Treaty of Lausanne (1923) Turkey
renegotiated the Treaty of Sevres with the Allies, who decreed an
exchange of the remaining populations (1,400,000 Christians on Turkish
land for 500,000 Muslims on Greek soil). Almost 1.4 million refugees
swelled the existing population of 5 million native Greeks (Pallis, 1929;
Black, 1948). These population exchanges did make the populations of
both countries more homogeneous (Mazower, 2000: 107), but they came
at a tremendous human cost, and with huge economic implications
for Greece which could not handle the country’s population suddenly
increasing by a quarter.
The period of recuperation after the Catastrophe was not smooth.
After a decade of war and the resettlement of the refugees, Greece was
unable to secure or to pay back any loans from abroad to finance the war
with Turkey. The Finance Ministry declared the dichotomization of the
drachma: the value of drachma was halved in 1922 (and again in 1926).
Half of the drachma’s value would be surrendered by the government in
exchange for a twenty-year 6.5 per cent loan. This led to large revenues
10 Politics

for the state, but deflation resulted, interest rates rose and investment
decreased as people began to stop holding cash and began holding real
goods (Freris, 1986). The economic devastation caused by World War II
would ensure that these loans would not be repaid, but it is doubtful
that the government would have been able to repay them anyway. On
the other hand, industries such as textiles and ammunition grew to
supply the military. Catastrophe refugees contributed significantly to
the boost in business and banking, as many of them were well-educated
and entrepreneurial (Lampsidis, 1989; Issawi, 1984), especially in urban
areas where the majority settled (Hirschon, 1989). The population
exchange also affected the agricultural sector since refugees settled on
abandoned estates. The reshuffling among the other powers had some
positive effects. After the disintegration of the Ottoman empire, Britain
saw Greece as the ideal means of keeping the Dardanelles and the Suez
Canal under its control (Goldstein, 1989) and provided capital and
loans for the construction of a public and commercial transport system
(Mouzelis, 1978).
The Great Depression hit Greece particularly harshly in 1932, as a poor
country dependent on agricultural exports and with emigration to the
USA, the escape route from rural poverty, closed off. The Bank of Greece
adopted deflationary policies but these failed because the drachma was
pegged to the dollar and the country had large war debts and a trade defi-
cit. Remittances from abroad declined sharply, the value of the drachma
plummeted and the foreign exchange reserves were almost wiped out.
The economy went off the gold standard, and Prime Minister Venizelos
was forced to default on Greece’s national debt in 1932 and declare a
moratorium on all interest payments. The protectionist policies which
were adopted then, however, allowed domestic industry to expand, and
by 1939 industrial output exceeded that of 1928 by 79 per cent. In spite
of everything the growth rate was, on average, 3.5 per cent from 1932–
39 (Freris, 1986), and the economy entered a capitalistic phase, with,
selectively, high levels of investment in industry, tax allowances and
protectionism, and the emergence of monopolies. To support inefficient
business taxes were imposed on low and middle-class incomes. Even this,
however, did not reduce the gap between the primary and tertiary sectors
on one hand and the secondary on the other, or the gap between small-
and medium-sized enterprises (SMEs), which were in the majority, and
larger organizations (Piperopoulos, 2009; Tsouflidis, 2003; Kostis, 1999).
The most significant problem, however, was that education restructuring
was halted due to the lack of any strategic direction to support an indus-
trial infrastructure. Any change in government or ministerial leadership
 Maria Kapsali and Joseph Butler 11

resulted in changes to educational practices, leading to unstable labour

markets detrimental to a developing society that wants to industrialize
(Iakovidis, 1998).
Just before World War II, the regime had changed to a dictatorship
which was backed up by the monarchy and the government tried to
remain neutral in order to deal with internal dissatisfaction, but also to
sustain the trend towards economic growth that was finally achieved
after 1932. The country was dragged into war by Mussolini, who tried
to invade but was defeated in 1940. Hitler invaded in 1941 in support
of Mussolini; the country succumbed and was split into three occupied
zones, Italian, German and Bulgarian. The strong resistance move-
ment that followed led to savage German reprisals against civilians:
2,000 villages were burnt and 70,000 people were executed (Beevor,
1992). Privation in the guise of a full-scale famine was inflicted by the
Germans, who appropriated most agricultural production and banned
fishing; industry was halted for lack of raw materials and two-thirds of
the Greek mercantile fleet was sunk (Carabott and Sfikas, 2004). As a
result, Greek industries, such as tobacco, lost their foreign markets. Due
to appropriations, and because the British blockaded foreign relief from
the Red Cross to Greece, 300,000 people starved to death in 1941–42,
and thousands were sent to camps along with the Jewish communi-
ties which resided mainly in the north. It is estimated that the Greek
population was reduced by 7 per cent (Sedgwick, 1948). Forced loans
imposed by the occupying Axis powers severely devalued the drachma
and Greece experienced the third severest hyperinflation in recorded
economic history, compared only to Germany’s after World War I and
Hungary’s after World War II (Freris, 1986). In 1943, prices were 34,864
per cent higher than in 1940; in 1944, prices were 163,910,000,000
per cent higher than 1940 (Carabott and Sfikas, 2004; Clogg, 2002).
The Greek resistance, which had a number of successes against
the occupation, was ideologically inclined towards communism, but
supported the Allies’ (and Churchill’s) plans. After the war, however,
Churchill and Stalin divided the Balkans into ‘areas of influence’ and
Greece was to be in the British zone. The resistance came to be con-
sidered a threat by Britain and the new governments, including the
king, whom she supported. Eventually the two sides came into conflict,
resulting in a five-year Civil War (1944–49). When the British govern-
ment was no longer able to maintain their support for the ‘democratic’
side in the Civil War (Marr, 2008), the mantle of safeguarding Greece
was passed to the Americans (Weiner, 2007: 24-5), who were never
overly concerned with the ‘democratic credentials of their ‘client states’
12 Politics

during the Cold War, as long as they were anti-communist. The Civil
War ended with the military defeat of the left in 1949. The Communist
Party of Greece (KKE) was outlawed. The Civil War resulted in 100,000
deaths and caused catastrophic economic disruption. In addition, at
least 25,000 Greeks and an unspecified number of Slavs living in the
Greek region of Macedonia were either voluntarily or forcibly evacuated
to Eastern block countries; many of them emigrated. To make matters
worse, there were now 700,000 displaced persons in the country (Clogg,
2002; Collard, 1990). Apart from the human cost and the disruption to
supply and demand in the economy, the Civil War extended the tradi-
tion of the Schism: the division between royalists and liberals-centralists
was now added to that between capitalists and communists, creating a
literal cultural schism, socially and politically.
During this 50-year period, national sovereignty was either obsolete or
under constant threat. Economic disruption came either from conflicts
within or from external shocks, and made the country unable to sustain
any consistent economic and business growth, as the basic layers of its
institutional fabric had to be reconstructed several times. Nevertheless
business seemed resilient and periodically achieved high levels of growth
(Polizos and Panagiotopoulos, 1998). and to further this, governments
chose either to accept debt or to follow protectionist or devaluation
policies. However, no matter how much they borrowed, it is naive to
assume that a system which is so fragmented, its structures conflicting
with each other, would be magically restored to a functional whole just
by the injection of cash. The economy during these fragmented peri-
ods resembled that of underdeveloped capitalism, with low agricultural
production; bureaucratic public administration; control of most deposit
accounts; direct or indirect management of the insurance sector and
SMEs (through the National Bank of Greece and the Commercial Bank of
Greece); ever growing services; and an industrial sector unable to invest
and grow (Piperopoulos, 2009; Choumanidis, 1990). Inward and direct
investment was mainly state- derived and the frequent resettlement of
populations meant an unstable labour supply which discouraged invest-
ment even further. In an unstable environment business depended more
and more on entrepreneurship and small business. For these reasons
industrialization was slow and the vast majority of business consisted of
family SMEs competing without the advantages of larger firms to invest
in modernization. This situation was pervasive in all sectors, primary, sec-
ondary and tertiary. Due to the inability of Greek SMEs to collaborate in
co-operatives or clusters, as in Denmark and Italy, the gap between them
and the small proportion of politically connected and oligopolistic larger
 Maria Kapsali and Joseph Butler 13

firms remained and grew (Piperopoulos, 2009). Education remained a low

political priority (especially technical education), and thus a lack of spe-
cialized labour was added to the lack of investment in industrialization.

Modern Greece between 1950 and 2010 and the roots

of the debt crisis

The main historical events of this period in were, in order: recovery

from the period of conflict through joining international alliances such as
NATO, the Marshall plan, the Cold War and the continuation of the socio-
political divisions culminating in the military dictatorship, the restoration
of parliamentary democracy and the end of monarchy, the turn towards
redestributionary politics to mend social divisions, joining the EC and the
EU monetary union, and the upturns in the economy that led to the current
crisis.
In 1947, the USA formulated the Truman Doctrine and began to
actively support a series of authoritarian governments in Greece, Turkey
and Iran, in order to ensure that these states did not fall under Soviet
influence (Miller, 2009, 1998). Through the Marshall plan, the North
Atlantic Treaty Organization (NATO), the General Agreement on Tariffs
and Trade (GATT), the World Bank and the International Monetary
Fund (IMF) the USA began to foster economic, military and political
integration, The Central Intelligence Agency (CIA) (Weiner, 2007; Pelt,
2006) began to work closely with the Greek military, the newly-founded
and US-backed Hellenic National Intelligence Service (KYP) and the
LOK Special Forces (Mountain Raider Companies). This collaboration
was especially strengthened after Greece joined NATO in 1952 since she
is a vital link in the NATO defence arc (Pelt, 2006; Ganser, 2005). The
controversial and unstable relationships mainly with the then commu-
nist Balkans (Hatzivassiliou, 1995) and with Turkey, which has always
been a source of friction (Koliopoulos and Veremis, 2007), combined
with the need for reconstruction of industry and infrastructure after
World War II and the Civil War, were the major incentives to be part
of this partnership. This partnership was characterized by high levels of
interference in government ministries and domestic policies, much as
the Great Powers did in the previous century (Legg, 1969).
After the end of the Civil War the economy was in an extremely poor
state. According to Maddison (1995), Greek purchasing power compared
to French fell from 62 per cent in 1938 to about 40 per cent in 1949.
However, an impressive rate of economic development was achieved
from the early 1950s to the mid-1970s due to a combination of factors
14 Politics

such as the Marshall Plan, a drastic devaluation of the drachma, price and
import controls, reduced interest rates, developments in the chemical
industry, tourism and the services sectors and massive publicly-funded
infrastructure reconstruction (particularly the road network). The Fordist
model of industrial production was partially implemented in Greece,
principally geared towards export production and achieving a mod-
est peripheral form and level of integration within the international
economy (Vasiliadis, 2008). The average rate of economic growth was
7 per cent, second only to Japan’s during the same period. Growth rates
were highest during the 1950s, and exceeding 10 per cent for several
years, mostly in the 1960s. This resulted in an ‘urban renewal’ that
encouraged migration from the rural areas to the urban centres, and espe-
cially Athens. Despite improvement in the economy though, the basic
conditions of the 1940s (widespread poverty, illiteracy, shortage of for-
eign exchange, repressive and ineffective government) remained within
the 1960s, leading to a series of constitutional crises and to a particularly
brutal and backward military dictatorship. The Marshall plan was not
implemented well, in the sense that there was no balanced development
of infrastructure throughout the country because the government used
the resources mainly in the urban centres, causing massive migration
and urbanization (which led to a temporary growth of certain sectors like
construction) and creating a business sector dependent on state funds,
without establishing institutions for supporting entrepreneurship and
technological progress. Industrial production and agriculture were mar-
ginalized and services (mainly shipping, trade and tourism) started to
dominate the business sector.
However, the theme of political and social division that was initi-
ated by the Schism mutated after the Civil War into a division between
conservatives and leftists, with the military-king-conservatives and
central-liberal political trends fighting for power ( Jesse, 2007). After the
Catastrophe, the military had gained political significance that lasted
from 1922 until the end of the ‘Colonels’ dictatorship’ in 1974, and was
involved many times in coups, always using the ‘communist threat’
to intimidate the population. However, it was the last king of Greece,
Constantine II, who triggered a course of events that led to a dictator-
ship that ruled the country from 1967 to 1974.
The young king wanted to play an active role and exercise power
like his predecessors, so he dismissed the centralist Prime Minister
Papandreou in 1965, creating a constitutional crisis that finally led in
April 1967 to a dictatorship beyond his control. In December 1967 he
went into exile after his unsuccessful counter-coup.
 Maria Kapsali and Joseph Butler 15

The Colonels’ dictatorship caused Greece to become an international

pariah and interrupted her process of integration into the EU at an
incalculable cost of lost opportunity (Coufoudakis, 2002; Stern, 1975).
The worst thing, however, was that when internal divisions occurred
among the heads of the regime (the Colonels) a counter-coup (organ-
ized in December 1973) by one of them tried to legitimize itself by
intervening in Cyprus, thus providing Turkey with the opportunity for
invasion and occupation of northern Cyprus, a tragedy that continues
until today. The historical repercussions of the dictatorship were pro-
found and are still felt to this day.
Although it is common knowledge that the US government actively
supported the coup d’état of 1967, there is no direct evidence to sup-
port such claims (Kassimeris, 2006; Moseley, 1999). It is, however, likely
that the US military was informed of the coup by Greek liaison officers
(Miller, 1998) and it is a fact that the junta gave financial support to the
White House (Weiner, 2007: 282–7) which officially remained ‘neutral’.
In 1999, however, US President Bill Clinton apologized on behalf of the
US government for supporting the military junta in the name of Cold
War tactics, as did Ambassador Nicholas Burns in 1998 (Hunt, 1999).
This situation led to the rise of anti-American feeling in the population,
which treated any subsequent attempts to interfere with suspicion.
In contrast to the political aspect, the regime managed to sustain high
rates of economic growth, low inflation and low unemployment during
1967–73, mainly by encouraging FDI. GDP continued to grow from the
1950s on, driven by investment in the tourism industry, public spending
in significant infrastructure development, and pro-business incentives
that fostered both domestic and foreign capital spending and investment
by international companies. Although capital flowed from private US
companies such as Esso, Reynolds Metal, Dow Chemical, Coca Cola and
Chrysler, large sections of the economy were effectively controlled by
US capital and the financial health of the country remained precarious.
Economic growth started to decline by 1972, when public dissidence
and internal infighting in the regime made the country unattractive
investment-wise, and when the Bretton Woods system collapsed. The
collapse of the dictatorship in 1974 was followed by a major annual
contraction in GDP (about 5 per cent), the worst recorded in Greece’s
post-war history (OECD, 2009). Marginal GDP contractions were also
recorded in the 1980s. In total, the Greek GDP grew for 54 out of the 60
years following World War II and the Civil War (Bairoch, 1976).
However, after the fiasco in Cyprus, senior military officers withdrew
their support from the junta, which collapsed. The ex-prime minister,
16 Politics

Kostas Karamanlis, who fled into exile in Paris before the coup, returned
to establish a government of national unity until the elections which
he won in November 1974 with his newly organized conservative party,
New Democracy.
With the Third Hellenic Republic, a period of unobstructed parlia-
mentary democracy began for the first time, after the monarchy was
abolished with a referendum in 1974, essentially putting an official
end to the bitter division and conflict that had plagued the country.
Societal transformation started to take place on a large scale: the peas-
antry disappeared, Greece began to receive immigrants and participa-
tory democracy became embedded in the political culture. Karamanlis
worked to defuse war with Turkey and also legalized the Communist
Party, offering reconciliation between different political factions and a
new constitution (Clogg, 2002). On 1 January 1981, Greece became the
tenth member of the EU. Membership of the EU has been desirable, not
just for economic, but also for strategic reasons. The risk of military con-
flict remains; Greece was almost embroiled in the Balkans conflict of the
1990s and in 1996 nearly went to war with Turkey over the Imia islands.
Military fiscal commitment remains high, largely as a result of tensions
with Turkey (Beesley, 2010) with severe effects on the economy since
expenditure on defence were proportionally the highest among NATO
countries during the 1990s (Clogg, 2002: 224). Clogg (2002) writes that
one of the reasons that Karamanlis had been so determined to gain
entry for Greece into the EEC was to prevent future military takeovers.
In 1981 the first socialist government was elected when the Pan-
Hellenic Socialist Movement (PASOK) won, led by Andreas Papandreou.
The next three decades were characterized by successive governments
between the conservative party (New Democracy) and socialists (PASOK).
After two rounds of parliamentary elections in 1989 and weak coalition
governments, New Democracy won in 1990, to be succeeded by PASOK
again three years later. In 2004, New Democracy won, remaining in
power until 2009 when PASOK took over again. The coming to power
of centralists-socialists had both positive and negative implications
politically. The PASOK governance of the 1980s entailed a wholesale
renovation of the nation’s power structure, with vital consequences.
The part of the right-wing establishment created during World War II
and the military junta that determined the allocation of resources and
public sector jobs was overthrown. Essentially, the gap between the
poor masses and the rich right-wing establishment was reduced mas-
sively and a large middle class emerged, where conflicts (at least of the
violent type) were infrequent. But this came at a price.
 Maria Kapsali and Joseph Butler 17

The price was the slowing down of the high levels of economic growth
which was achieved since the 1950s due to the redistribution policies,
which were contrary to good economic practices, and which were used
extensively by the socialist governments to achieve a less fragmented
society. This was to be the Achilles’ heel for the economy. It initiated a
series of shocks in the 90s that led to the current crisis.
The story goes like this: These policy shocks, according to Alogoskoufis
(1995), resulted from the political change in the early 1970s from a
controlling authoritarian regime to a series of both conservative and
socialist governments. Before 1974, the political regimes were (sometimes
extremely) autocratic with negative social effects. However, their fiscal
and monetary policies were tightly controlled (fulfilling the require-
ments of Bretton Woods), and had established a steady and quite high
growth in the economy and trust from external funders. Greece was
considered a high-performing newly industrialized economy amongst
the OECD countries before the 1970s (rapid growth, high investment
and low inflation). This economic regime, however, broke down after
1974. Subsequent governments failed to sustain the commitment and
co-ordination mechanisms that guaranteed high returns to capital. The
post-1974 governments created market distortions (radical socialist poli-
cies that led to a steep increase in labour costs; semi-regulated financial
system; public monopolies; nationalizations and subsidies; enlargement
of public administration; and a supply-driven system based on invest-
ment grants and EC transfers). These market distortions not only discour-
aged private investment, but also caused a reduction in the return on the
investment undertaken. The reason was the social unrest about redistri-
bution, one of the principal objectives of government policies. Successive
governments had relatively short lives and did not develop continuity of
strategic direction either in industrial policy or in governance structures.
And even if they did, the implementing institutions function through the
bureaucratic system, rendering attempts to establish transparent account-
ability systems and unity of action (or even intention) very difficult.
Another cause of economic deterioration is the lack of the institu-
tions to absorb the tremors of these economic and social ‘shocks’
(Alogoskoufis, 1995). Vasiliadis (1998) attributes this to the lack of
institutions supporting relations between the government, the labour
system and credit. The struggle for redistribution between various socio-
economic groups after 1970 left governments in the middle trying to
satisfy the conflicting objectives of re-election, growth, redistribution
and social harmony. Eventually, the state ended up being a negotiator
between rival groups in society without having the power to enforce
18 Politics

real change in the structure of their relationships. Governments have

tried to introduce formal procedures for social dialogue, but the ‘social
partners’ perpetuated the culture of partisanship, corporatism and polari-
zation, and failed to agree on policy reform (Petmezidou, 2000), mak-
ing industrial relations highly costly and leading to political inertia
(Venieris, 2003). The resulting disequilibrium was unsatisfactory, but
resolution through political means was displaced by using the EU
transfers that temporarily provided relief from its consequences. The
problem both then and now for politicians who attempt to tackle these
issues is the cost in votes and the reaction from the electorate who
perceive these reforms as another wave of autocratic policies. For exam-
ple, after 1985 PASOK initiated a series of reforms designed to tackle
these economic problems. The party discouraged imports, cut public
expenditure and attempted to increase government revenues. The result
was limited success, a wave of strikes and a swing to the opposition in
municipal elections (Clogg, 2002). For similar reasons, all subsequent
attempts to modernize industrial policies have not been extremely suc-
cessful. Nonetheless, by 1999 a dramatic improvement was achieved in
inflation, budget deficit (below 3 per cent) and growth rate (an aver-
age of nearly 4 per cent), meeting the criteria for Greece’s entry into
the Eurozone (Oltheten et al., 2003), mainly due to the ‘hard drachma
policy’ employed since 1995, under which the exchange rate was used
as a nominal anchor. Despite these reforms and measures, however, the
structural problems remained (Pirounakis, 1997).
The economic growth continued albeit slower and discontinuous, with
some stagnation during the 1980s, however the annual growth consist-
ently outperformed most European nations. This high performance
made Greece an advanced economy, with an income per capita close to
that of France or Germany (IMF and World Bank, 2008). However, three
key landmarks can be identified in the evolving politico-economic land-
scape: the slowdown of economic growth after 1974; the deterioration
in the balance of payments; and the failure to control inflation in the
1980s when inflation fell sharply elsewhere in the OECD (Organisation
for Economic Co-operation and Development) countries (Alogoskoufis,
1995). There are several reasons for these. Expansionary fiscal policies
tripled the debt-to-GDP ratio from 34.5 per cent in 1981 to triple figures
in the 1990s, and by 1991 interest payments on public debt reached 12
per cent of GDP. The budget deficit peaked at 9 per cent in 1985 and the
‘black economy’ emerged during that time. Inflation rose as a result of
populist policies, so politicians pursued stabilization programmes to cut
inflation from 25 per cent in 1985 to 16 per cent in 1987.
 Maria Kapsali and Joseph Butler 19

The Greek public sector became one of the largest among OECD coun-
tries. Within the Greek economy there was, and still is, a large ‘black
economy’, which produces corruption, which in turn raises the need for a
highly regressive taxation system much encouraged by the public sector,
and high public sector deficits. Therefore, low performance cannot be
correlated with low productivity. Greece has the highest percentage of
employers and self-employed people in the EU, while worker productiv-
ity has been rising significantly (Timmer et al., 2007). However, labour
costs increased rapidly during the 1980s and industry could not invest to
modernize due to a lack of finance (Oltheten et al., 2003). Performance is
more linked to the hydrocephalic structure of the business sector (huge
service sector, low agricultural and weak industrial sector) which defines
the demand for certain types of labour (Piperopoulos, 2009), combined
with the loss of protectionist and monetary policies after the adoption of
the Euro, which in turn raised costs and reduced investment. The major
challenge, therefore, was to decrease the large debt, while increasing eco-
nomic growth. In November 2009 the new PASOK government admitted
that the debt and deficit were too high and revealed an estimated deficit
of 12.7 per cent of GDP for 2009, which was far greater than initial esti-
mates. It was alleged that this was due to the fact that the previous gov-
ernment had hired Goldman Sachs to hide the debt (Schwartz and Dash,
2010). The new budget proposed by the government was projecting total
debt to raise from 113.4 per cent of GDP in 2009 to 121 per cent in 2010,
while the Stability and Growth Programme was aiming to cut deficit from
12.7 per cent in 2009 to 2.8 per cent in 2012. European leaders resolved
to protect the Euro through approving a US$ 100 billion bailout plan
(Frayer, 2010), backed Greece’s Stability and Growth Programme and
urged public sector restructuring to cut the wage bill. The programme
aimed at implementing a combination of public sector wage cuts and
tax increases which would generate a4.8 billion in savings. However, the
government warned that the borrowing costs were too high to make this
programme a success. Despite this, by April, the government announced
that the deficit was reduced by 39.2 per cent for the first quarter (Vima,
6 April 2010). The news were ignored by the main financial media and
therefore markets were not informed of this development. In May, the
government announced the fourth round of austerity measures to meet
the terms of the EU agreement and also announced that the deficit had
been reduced by 41.5 per cent for the first quarter of the year, but the
news was again ignored by the main financial media.
It seemed that being a member of the Eurozone had limited the
policy options available to Greece to resolve this crisis. In the 1950s
20 Politics

and up until the 1980s, the economy could be stimulated with

monetary policies, but now the government’s sole option was to cut
costs. Before joining the Eurozone, Greece could print new money and
inject it into the system by purchasing outstanding debt, but this is no
longer an option. It is for this reason that economists consider the pos-
sibility of Greece exiting the Eurozone to be a good solution (Hankel
et al., 2010).
The austerity measures led to protests, clashes with police on the
streets of Athens and general strikes (The Guardian, 24 April 2010).
There is a spirit of popular resistance among the Greeks (Boyes, 2010)
because citizens perceive the new policies as driven by outside interests-
which is not far from the truth. The crisis is seen as a justification for
imposing fiscal austerity on the population in exchange for European
funding. Democratic accountability in public sector structures is in
dispute, but not only in Greece, since the truth is that the western
world was and still is unprepared for the level of corrupt dealings that
brought a world recession in the name of liberal capitalism (a term
which can be interpreted in many ways). Stiglitz (2010) criticized the
EU for being too slow and insufficiently supportive of the government,
too deferential to bond rating agencies and lacking the willpower to
establish ‘a solidarity and stabilization framework’ like Bretton Woods
(Alogoskoufis et al., 1996). The fact that the actions of many financial
actors is beyond the control of the law is obvious from the reactions
of heads of state. Spanish and Greek Prime Ministers and the German
Chancellor accused speculators and hedge funds of worsening the crisis
(O’Grady, 2010; Stevenson, 2010). Chancellor Merkel stated that ‘insti-
tutions bailed out with public funds are exploiting the budget crisis in
Greece and elsewhere’ (Donahue, 2010), implicating Goldman Sachs
in the Greek bond yield increases (Connor, 2010; Schwartz and Dash,
2010).
These politico-economic and social phenomena have significant
effects on the economic situation, because they affect the form and
implementation of policies and the institutions which are their basis.
Alogoskoufis (1995) argues that policy regimes and their institutional
underpinning are crucial to the investigation of the causes of the cur-
rent politico-economic situation. The phenomenon is reproducing itself
in a cycle. If this infrastructure was actually established, eventually
social practices would be acculturated into a new mode of operating
business (Clogg, 2002). It is this before/after comparison that shows
how political practices and institutions have formed business and how
they can help achieve growth at the levels that were once.
 Maria Kapsali and Joseph Butler 21

Summary

This chapter summarized key political and economic events from 1830
until the present day. The scope of the timeline was wide but the presen-
tation allowed us to identify the patterns of behaviour and their causes.
To sum up, three recurring themes throughout this politico-economic
history affect the business system: division, structure and policy.
The most common theme historically is that of, as Jesse (2007) elo-
quently puts it, a pattern of socio-political division that repeatedly strikes
throughout the country’s political history, leading to partisanship: divi-
sions over foreign patronage (e.g. the Great Powers), divisions between roy-
alists and liberals since the Schism, communists and fascists/-centralists,
conservatives and socialists, supporters of foreign allies (the USA, the EU
etc.) and opposition, and so on. It seems that in every conflict, especially
where foreign interference was involved, divisions formed which collided,
creating a highly volatile environment. The phenomenon is not unlike
that observed in other countries: continuous infighting for power that
leads to the search for effective structures based on social negotiation and
compromise. This is a social phenomenon in all societies; it is only that
in the case of Greece, because of the higher occurrence of dynamic events
than in other parts of the western world, this fight is more intense and
frequent, and the effects and people’s reactions more dramatic.
This pattern of division is mirrored in the public sector which has
been used as a tool for more politics rather than for the implementation
of policies. This again is not a unique phenomenon, but it is observed
at a high level, because of two phenomena: first, the public sector plays
several socioeconomic roles: a token for votes; a safety net for business
and employment during economic shocks; and an anchor to impose
some kind of order in a highly volatile environment where social
groups lack an institutionalized ‘negotiating space’. Second, because
the boundaries of the public sector are very strong since they were
made for controlling political opposition based on the control and the
distribution of state resources in the economy; public administration is
not designed to provide infrastructures for business and industry or to
(formally) collaborate with private economic actors. As a result, institu-
tions to regulate the actors in the business system (government, credit,
labour) or the innovation system (government, academia, business at
firm level), and the infrastructure to support the function of such a busi-
ness system are only partially in place or not well developed.
A third pattern is the political choices and their implementation through
those absent or patchy institutional and infrastructural frameworks.
22 Politics

Geopolitics has created a political ‘culture of dependency’, upon mainly

westernised organizational and political structures and economic systems
which however contradict local practices. In this way, interference leads
to internal divisions and loss of internal control as has been manifested
so often. Symptoms of this attitude are military conflicts, civil unrest and
the expensive weapons race (the other source of public debt). Therefore,
the imitation and importation of policies from other systems has not
been a successful recipe for the growth of the business system.
The business system is also affected by divisions and the policy struc-
ture. The constant change and conflict created discontinuity in policy,
a loss of strategic direction and this weakened implementation. For
example, the successive social divisions wounded society so much that
governments after the 1970s were forced to use unsuitable redistribu-
tionary policies in ineffective attempts to reduce social and economic
inequalities, damaging business development and inflating public debt.
The policies are mostly imitations of foreign models. However, these do
not fit the Greek business system, so they were not implemented cor-
rectly. In addition, the legacy of electional politics has forced contem-
porary governments, which genuinely try to modernize, to make tough
choices through a public machine whose structure is archaic.
Where does the business world stand in the midst of all of this? Most
firms are micro firms, family-type concerns which are trying to stand
on their own feet, not having much institutional support or access to
resources like investment, finance, markets or technology, trying to
respond flexibly to changes in the market and very much controlled
by the state machine. There is a strong entrepreneurial spirit, which is
responsive, flexible and opportunistic. It is very much an organic form
of organization with all the advantages and disadvantages this entails.
Actually this seems to have worked well as it kept the business sector
alive even in tough circumstances, but it really needs to be supported if
the economy as a whole is to grow sufficiently to raise productivity and
tackle the current and future crises.

References
Agriantonis, C. (1986) The start of industrialization in Greece in the nineteenth cen-
tury. Athens: Historical files of the Commercial Bank of Greece.
Agriantonis, C. (1991) ‘Hellenic industry in the 19th century, prospects and
problems of integration’, in Dertilis G. and Kostis, K., (eds), Modern Greek
History Themes (18–19th Centuries). Athens: Tipothito.
Alogoskoufis, G., 1995. The Two Faces of Janus: Institutions, Policy Regimes and
Macroeconomic Performance in Greece. Economic Policy. 10(20): 149.
Exploring the Variety of Random
Documents with Different Content
 Although busy during the winter in Parliament, Lincoln worked
very hard at his business. He knew that no one can succeed in
anything without hard work, and he saw that to become a really good
lawyer would help him in politics, and make him a more useful citizen
of the State. Moreover, he understood, more clearly than most men
have done, that every deed in life is connected to every other; no
man can escape the consequences of what he is and does. Every
act and every speech is important.
Lincoln was four times elected to the Illinois Parliament—that is,
he sat in it for eight years. For four years—between 1845-49—he
was member for Illinois in Congress. In Congress he spoke and
voted against the war that was being waged against Mexico. The
aim of the war was the conquest of Texas and California. The South
urged this because they wanted the number of slave-owning States
to be equal to the number of free States. They were always afraid
that new States would be created out of the undeveloped territory in
the North-West; and, if this were to happen, the slave States would
be in a minority in Congress. If Texas were added as a slave State,
the slave States would have a majority of one: there would be
fourteen free and fifteen slave States. The Northern members, for
the most part, did not see the point; they did not unite against the
Southern demands; and consequently the South succeeded. In the
war Mexico was defeated, and Texas was added to the Union.
At the end of his last year of membership, 1849, Lincoln applied
for a post in the Government office. Why he did so it is difficult to
understand, for it would have put an end to his political career, as
officials may not sit in the House. Fortunately his request was
refused.
He returned to his home in Springfield, where he lived in a big,
plain house, painted a dirty yellow, with a big piece of untidy garden
behind, and a small field at the side. He had married seven years
before, and had now three sons. He was devoted to these boys, and
used to play all sorts of games with them, as they grew bigger.
 For the next five years he devoted himself mainly to his work as a
lawyer. He was now forty years of age. In Springfield and
everywhere in Illinois he was admired, respected, and loved. But the
high opinion of other people never made him easily satisfied with
himself. To the end of his life he never stopped working and learning.
He now resolved to become a really good lawyer. He knew that in
law he could learn the art of persuading people, and of expressing
clearly what he wanted to say. To help in this he took up the study of
mathematics with extraordinary energy. Examining his own
speeches, he seemed to find in them some confusion of thought. To
make his own ideas clear, and to be sure that he expressed them
clearly and truly, and never conveyed to others an impression that
was not true, he bought a text-book of Euclid. The first six books of
this he learnt by heart. He said “I wanted to know what was the
meaning of the word ‘demonstrate.’ Euclid taught me what
demonstration was.”
After a year or two Lincoln was regarded as the equal of any
lawyer in Springfield. He had one weakness, however. If he did not
believe in the justice of his case, or if he thought the man for whom
he had to speak was not quite honest, he did not defend well. His
friend Judge Davis says, “A wrong cause was poorly defended by
him.”
A story is told of a man who came to Lincoln’s office and asked
his help in getting six hundred dollars from a poor widow. Lincoln
listened to the man and then said, “Yes, there is no reasonable doubt
but I can gain your case for you. I can set a whole neighbourhood at
loggerheads. I can distress a widowed mother and her six fatherless
children, and thereby get for you six hundred dollars which rightfully
belong, as it appears to me, as much to them as it does to you. I
advise you to try your hand at making six hundred dollars some
other way.”
Every one in Springfield valued “Honest Abe’s” opinion. All sorts
of people brought their troubles to him. His sympathy and his
tenderness of heart made them trust him. He was one of the people;
he never felt himself above them. To the end of his life he did not
grow proud, and he was never ashamed of his early poverty. When
he was President he told some of his friends of a dream he had had,
which might very well have been true. He dreamt that at some big
public meeting he was walking through the hall up to the platform,
from which he was going to speak. As he passed, a lady sitting at
the end of one of the rows of seats said to another sitting next her,
so loudly that he could hear: “Is that Mr. Lincoln? Why, he looks a
very common sort of person!” “I thought to myself in my dream,” said
Lincoln, “that it was true, but that God Almighty seemed to prefer
common people, for He had made so many of them.”
Nothing in Lincoln is more truly great than his power of seeing the
value of common things and common people. He knew that the
things which appeal to men as men, which are common to humanity,
are the most valuable of all. He counted on this when he abolished
slavery. Freedom is a right common to all men; and there is
somewhere in every one an instinct which knows that it is wrong to
make other people do things which are too disagreeable to do
yourself.
During these years at Springfield, Abraham read a great deal.
Shakespeare and Burns were his favourite poets: he knew
Shakespeare better than any other book except the Bible. He read
and thought unceasingly about politics, and he talked about them
with his friends. The history of America he studied until he knew
everything there was to know. Above all, he thought about slavery.
Events were taking place which made it plain that the question of
slavery could not be left where it was. It was no longer possible to
act as if the difference between North and South did not exist.
As years went on the difference became more and more plain.
The North, which had been poor and barren, only half cultivated by
ignorant and uneducated settlers, was growing richer than the
prosperous lazy South. Workmen came to the North from all parts of
the world: poor men with good brains and strong arms, ready and
able to work intelligently, to improve the land, to make wheat grow
where stones and bushes had been. None of these men went to the
South, for there work was done by slaves so cheaply that no paid
worker had a chance. But the difference between the intelligent
labour of free men working for themselves, and the mechanical
labour of slaves working for their masters, soon began to tell.
In the North schools sprang up everywhere: the people became
better and better educated. Men who had grown up in the
backwoods, like Abraham Lincoln, taught themselves, and rose to be
lawyers and statesmen by their own efforts; others who had had the
chance of being taught, did the same. It was possible for any man of
brains to rise from the bottom to the top. Inventions were made
which enabled all kinds of new work to be done and new wealth
produced. The North was rich in material: richer in the men she had
to work it, who were helped and encouraged by the freedom which
threw every career open to real talent.
In the South all power was in the hands of the aristocratic
families, who had had it always. The work was done by slaves:
owners did not want to educate their slaves, for then they were afraid
that they would want their freedom. The coal mines of the South
were not discovered; they could not have been worked by slaves.
The South began to be very jealous of the North, and the North
began to disapprove of the South. More and more people began to
see that slavery was wrong: people were not yet ready to say that
slavery ought to cease to be, but they were ready to say that it must
not be extended.
At the time of the Mexican war the South had shown that it
wanted to extend slavery. This frightened the North. In 1850 an
agreement was made, known as the Missouri Compromise. By this a
line (36°30’), called Mason and Dixon’s line, was drawn across the
map of America. North of this line, slavery was never to exist.
Speakers on both sides declared that the Missouri Compromise was
as fixed as the Constitution itself. Stephen Arnold Douglas was the
loudest in expressing this opinion. “It is eternal and fundamental,” he
declared.
 Douglas was a trader of the great party known as the Democrats.
He held that the people of every State had a right to decide
questions affecting that State, and not the Central American
Government.
Douglas had one great aim, which was to him far more important
than any question of political right or wrong: he wanted to be made
President. To secure this, he saw that he must get the support of the
South. To win the support of the South, he took a most dangerous
and important step: one which was the immediate cause of the war
which broke out six years later. He declared that the people of any
state or territory could decide whether or not they would have slavery
in their State: they could establish it or prohibit it.
He went further than this. Two new territories had been organised
in the north-west—Nebraska and Kansas. They claimed to be
admitted to the Union as States. Both States were, of course, north
of Mason and Dixon’s line, and therefore by the Missouri
Compromise they must be free States. But the South was bent on
creating new slave States as fast as the North could create free
States: they wanted to make Kansas a slave State. Stephen Douglas
therefore introduced, in 1854, the famous Kansas-Nebraska Bill. It
declared that Kansas might be slave-holding or free, as the people of
the territory should decide.
The result of this Bill was for the first time to unite together a
strong party in the North in opposition to the Democrats, who were
allied to the South. This new party called itself Republican. Lincoln
was a spokesman of their views. They declared, firstly, that
Congress, which is the Parliament representing all the States which
together formed the Union, has the right to decide whether slavery
shall be lawful in any particular State or not, and not the people of
that State alone. Secondly, they declared that, in the case of Kansas,
Congress had already, four years ago, decided that Kansas could
not have slavery, because it lay beyond the line, north of which
slavery could not exist. Resolutions were passed in many of the
Northern State Parliaments against the Kansas-Nebraska Bill. The
Parliament of Illinois sent one.
Now it was quite clear to keen-sighted politicians that, while
Douglas and his party pretended that they wanted to give the people
of Kansas the choice between owning slaves and not doing so, what
they really wanted was to force Kansas to have slaves. Those who
supported the Missouri Congress declared that it was illegal to give
Kansas the choice however she used it.
Events soon proved that Kansas was not to have any choice at
all. Kansas had few inhabitants; but the opinion of the people of the
State was against slavery. Next door to Kansas, however, on the
east, was the slave-holding State of Missouri. From Missouri bands
of armed men came into Kansas in order to vote for slavery at the
election and to prevent the real voters from using their votes against
it. Free fighting went on in the State. An election was held at which
armed men kept away those who would have voted for freedom, and
a pro-slavery man was chosen. But few of the people of Kansas had
been allowed to vote. The free party met at another place
afterwards, and a genuine popular vote elected an anti-slavery man.
Civil war went on in Kansas for two years.
Now the importance of these events is this. Up till now most
people in the North had believed that slavery ought to be left alone,
because it would gradually die out. The Kansas-Nebraska Bill and
the Kansas election made it perfectly clear that the South was not
going to let slavery die out; on the contrary, they wanted to spread it
to strengthen themselves against the North.
Douglas was member for Chicago, in the north of Illinois. He
came down to Illinois to win the State to his views, and made a
series of speeches there. This at once called Lincoln to the fore. He
saw more clearly, perhaps, than any man in America what the
Kansas Bill meant. It meant that either North and South must
separate, as the Abolitionists—that is, the party which held that
slavery ought to cease to be—and some people in the South hoped;
or that the North would have to force the South to abandon the
attempt to spread slavery. He made a series of great speeches in
Illinois, in which he made it quite clear that Douglas and his
followers, and the men of the South, might say that they wanted to
leave States free to have slavery or not as they chose, but what they
really desired was to force them to have slavery whether they chose
or not. “This declared indifference, but, as I must think, covert real
zeal for the spread of slavery, I cannot but hate: I hate it because of
the monstrous injustice of slavery itself ... I say that no man is good
enough to govern another man without that man’s consent. Slavery
is founded upon the selfishness of man’s nature; opposition to it, on
his love of justice.”
 CHAPTER V
DEFEAT OF THE LITTLE GIANT

Lincoln had worked very hard in Illinois. All this year he was
making speeches; educating the people of the State; helping them
to understand the big questions before them; making things clear in
his own mind by putting them into the clear and simple words that
would carry their importance to the minds of others.
A great meeting was held, summoned by the editors of the
newspapers that were against the Kansas Bill; they invited prominent
men from different parts of the country to come and address them.
Lincoln was among those who went, and his speech was by far
the most important of all that were delivered there. He had not,
indeed, intended to say anything; but he was roused by the
weakness of those who did address the meeting. Springing to his
feet, he poured out what was in his mind, and could not be kept
back, in such burning and eloquent words that the reporters dropped
their pencils and listened spellbound. The whole audience was
carried away by excitement: it was one of the greatest speeches that
Lincoln ever made, we are told by all who heard it, but there is no
record of it. Lincoln himself spoke in a transport of enthusiasm: the
words came, how he hardly knew; he could not afterwards write
down what he had said. The reporters were so deeply moved that
they only took down a sentence here and there. The speech was a
warning to the growing Republican party: sentences were quoted
and remembered.
The North was indeed beginning to awaken to the need of uniting
against slavery; but it took four years before it fully awoke. And as
long as the North was divided the South was irresistible. When the
presidential election came, in 1856, the votes of the South carried
the day.

Springing to his feet, he poured out what was in his mind

Had a strong man, with definite and wise views, been elected,
had Lincoln been elected, the war between North and South that
came four years later might have been prevented. But Lincoln’s fame
had not yet travelled far beyond Illinois; he was not even nominated.
Mr. Buchanan, the new President, called himself a Democrat: he
believed in Douglas’s policy of State rights; but he was a tool in the
hands of the South. Weak and undecided, his stupid administration
made war inevitable. He did not satisfy the South; and he showed
the North how great a danger they were in, so that when the next
election came they were ready to act.
The Republican party gradually grew strong. More and more
Northern voters came to see that its policy, no extension of slavery,
was the only right one. The pro-slavery party in Kansas continued to
behave in the most violent way; civil war continued.
In Congress, Charles Sumner made a number of eloquent
speeches on what he called the “crime against Kansas”; and in them
he openly attacked slavery. One day, as he was sitting in the
members’ reading-room, a Southern member called Brookes came
in. Although there were several other people in the room, Brookes
fell upon Sumner, and with his heavy walking-stick, which was
weighted with lead at the end, beat him within an inch of his life. For
the next four years Sumner was an invalid, and unable to take part in
politics. This incident caused great indignation in the North; their
indignation was heightened by the attempt to force slavery on
Kansas, till it grew in very many cases to a real hatred of slavery
itself.
But there was still a large party in the North which did not
disapprove of slavery. This party was led, of course, by Douglas.
Douglas had been successful up till now, because he represented
the ordinary man of the North, whose conscience was not yet awake,
who did not see that slavery, in itself, was wrong. Lincoln had never
really succeeded until now, because his conscience had always
been awake, and the ordinary Northerner was not ready to follow
him.
The whole question of slavery was brought under discussion in
the next year—1857—by the famous case of a negro called Dred
Scott. Dred Scott claimed his freedom before the United States
courts, because his master, a doctor, had taken him to live in the free
State of Illinois. The chief-justice—Taney—was an extreme pro-
slavery man. He was not satisfied with deciding the case against
Dred Scott; he went much further, and declared that since a negro is
property and not a person in the legal sense, he could not bring a
case before an American court. A negro, he declared, has no rights
which a white man is bound to respect.
The South, of course, was delighted with this verdict. What it
meant was this. When the Declaration of Independence declared
that all men are equal, and possess right to life and liberty, what was
intended was not all men, but all white men, since black men are not
legally men. And yet free negroes had fought in the War of
Independence, and signed the Declaration.
To the North such reasoning was hateful. People like Mr. Seward
of New York began to say, If slavery is part of the Constitution of
America, there is a law that is higher than the Constitution—the
moral law. Abraham Lincoln in a noble speech declared: “In some
respects the black woman is certainly not my equal, but in her
natural right to eat the bread she earns with her own hands she is
my equal, and the equal of all others.” The point was, could a negro
have rights? The Dred Scott decision declared “no,” the South
shouted “no.” The Republican party said “yes.” In this same year a
free election at last took place in Kansas; and a huge majority
decided that the State should not hold slaves.
All these events showed that troublous times were coming.
In the next year a set of speeches was made which showed
people how things stood. In 1858 Lincoln stood against Douglas as
candidate for the State of Illinois. Douglas was one of the most
famous and popular men then living in America. He was far the
cleverest man and the best speaker of his party; he stood for all
those who, though they might not want to have slaves themselves,
thought that slavery was not wrong; that black men were intended by
a kind Providence to be useful to white men. If any State wanted
slaves, let them have them—why not?
 As Lincoln said, “Douglas is so put up by nature, that a lash upon
his back would hurt him, but a lash upon anybody else’s back does
not hurt him.”
Those who did not know Lincoln thought it absurd that he, an
unknown man from the country, should dare to stand against
Douglas, the “Little Giant.” But Lincoln was not afraid; he did not
think of himself; he wanted people to hear what he had to say. He
arranged with Douglas that they should hold a number of meetings
together in Illinois. They arranged it in this way. At half the meetings
Douglas spoke first for an hour; then Lincoln replied, speaking for an
hour and a half, and Douglas answered him in half-an-hour’s
speech. At the other half, Lincoln began and Douglas followed,
Lincoln ending.
You can imagine one of these meetings. A large hall, roughly built
for the most part, the seats often made of planks laid on top of
unhewn logs, packed with two or three thousand people, intensely
eager to hear and learn. Some of them were already followers of
Douglas, the most popular man in America: all of them had heard of
the “Little Giant,” the cleverest speaker in the States. Immense
cheering as Douglas rose to his feet. A small man with a big head: a
handsome face with quickly moving, keen, dark eyes; faultlessly
dressed. A well-bred gentleman, secure of himself—a lawyer with all
his art at the end of his tongue: able to persuade any one that black
was white, to wrap up anything in so many charming words that only
the cleverest could see when one statement did not follow from
another, when an argument was not a proof: quick to see and stab
the weak points in any one else. A voice rich and mellow, various
and well trained, pleased all who heard it.
For an hour he spoke, amid complete silence, only broken by
outbursts of applause. When he ended, there were deafening cheers
—then a pause, and “Lincoln,” “Lincoln,” from all parts of the hall.
Lincoln seemed an awkward countryman beside the senator. His
tall body seemed too big for the platform, and his ill-fitting black
clothes hung loosely upon it, as if they had been made for some one
else. When he began to speak his voice was harsh and shrill. His
huge hands, the hands of a labourer, with the big knuckles and red,
ugly wrists, got knotted together as if nothing could unfix them. Soon,
however, he became absorbed in what he was saying; he ceased to
be nervous; everything seemed to change. As he forgot himself, his
body seemed to expand and straighten itself, so that every one else
looked small and mean beside him; his voice became deep and
clear, reaching to the farthest end of the hall, and his face, that had
appeared ugly, was lit up with an inner light that made it more than
beautiful. The deep grey eyes seemed to each man in the hall to be
looking at him and piercing his soul. The language was so simple
that the most ignorant man in the hall could follow it and understand.
Everything was clear. There was no hiding under fine words; nothing
was left out, nothing unnecessary was said. No one could doubt
what Lincoln meant; and he was not going to let any one doubt what
Douglas meant.
The greatest debate of all was that at the meeting at Freeport. At
Freeport Lincoln asked Douglas a question, against the advice of all
his friends. He asked whether, if a State wanted not to have slavery,
it could so decide? Lincoln knew that if Douglas said “No. A state
which had slavery must keep it,” the people of Illinois would not vote
for him, and he would lose this election. If he said “yes” he would be
elected, and not Lincoln. Lincoln knew this; he knew that if Douglas
said “yes,” he was safe, and he would say “yes.”
“Where do you come in, then?” his friends asked him. “Why do
you ask him this? If you do, Douglas is sure to get in. You are ruining
your own chances.”
“I do not come in anywhere,” said Lincoln; “but that does not
matter. What does matter is this. If Douglas says ‘yes,’ as he will, he
will get into the Senate now; but two years after this he will stand for
election as President. If he says ‘yes’ now, the South will vote
against him then, and he will not be elected. He must not be elected.
No one who believes in spreading slavery must be elected. It does
not matter about me.”
 Lincoln was quite right. He saw further than any one else.
Douglas said “yes,” and he was elected for Illinois. But the
Democratic party in the South, whose support had made him strong,
began to distrust him. “Douglas,” said Lincoln, “is followed by a
crowd of blind men; I want to make some of these blind men see.”
Lincoln was defeated, but he did not think of himself. His
speeches against Douglas were printed and read all over America.
He was invited to speak in Ohio; and in the next year, in the
beginning of 1860, a society in New York asked him to come and
give them an address on politics.
A huge audience, in which were all the best known and most
brilliant men of the day, gathered to hear him; an audience very
much unlike any that he had addressed before. They were all
anxious to see what he was like—this backwoodsman and farm-
labourer, who had met the great Stephen Arnold Douglas and proved
a match for him in argument; whose speeches had been printed to
express the views of a whole party.
His appearance was strange and impressive. When he stood up
his height was astonishing, because his legs were very long, and
when sitting he did not appear tall. His face, thin and marked by
deep lines, was very sad. A mass of black hair was pushed back
from his high forehead: his eyebrows were black too, and stood out
in his pale face: his dark-grey eyes were set deep in his head. The
mouth could smile, but now it was stern and sad. The face was
unlike other faces: when he spoke it was beautiful, for he felt
everything he said. Abraham Lincoln was a common man: he had
had no advantages of birth, of training: he had known extreme
poverty: for years he had struggled without success in mean and
small occupations: he had no knowledge but what he had taught
himself. But no one who heard him speak could think him common.
Speaking now to an audience in which were the cleverest people
in New York, people who had read everything and seen everything
and been everywhere, who had had every opportunity that he had
not, he impressed them as much as he had impressed the people of
Illinois. He was one of the greatest orators that ever lived. His words
went straight to the people to whom they were spoken. What he said
was as straightforward and as certain as a sum in arithmetic, as
easy to follow: and behind it all you felt that the man believed every
word of what he said, and spoke because he must. The truth was in
him.
Lincoln’s address in New York convinced the Republican party
that here was the man they wanted.
In 1860 there came the presidential election, always the most
important event in American politics; this year more important than
ever before.
For the last half-century almost the Democratic party had been in
power. They had been strong because they were united: they united
the people of the South and those people in the North who thought
that it was waste of time to discuss slavery, since slavery was part of
the Constitution. Their policy on slavery had been to leave it alone.
As long as they did this there was nothing to create another party in
the North strong enough to oppose them. But when Douglas, in
order to make his own position strong in the South, made slavery
practical politics by bringing in a bill to allow Kansas to have slaves;
and when the judges in the Dred Scott case roused sympathy with
the negroes by declaring that slaves were not men but property, then
the question united the divided North into a strong Republican party
in which all were agreed. There was to be no slavery north of Mason
and Dixon’s line. The attempt to force slavery on Kansas split the
Democratic party. One section was led by Douglas, who had gone as
far as he could: he was not ready to force Kansas to have slaves, if
she did not want them, because people from Missouri wanted her to
have them. He saw that to force slavery on the North in this way
would mean division and war, and therefore he refused to go any
further. By this refusal Douglas lost his supporters in the South. They
joined the section led by Jefferson Davis—the Southern candidate
for the presidentship.
 Jefferson Davis was the true leader of the South. Douglas as well
as Lincoln had begun life as the child of a poor pioneer: each had
risen by his own abilities and by constant hard work. Jefferson Davis
was a true aristocrat. He was the son of rich and educated parents.
All his life he had been waited on by slaves and surrounded by every
comfort. While Lincoln was ploughing or hewing wood, while
Douglas was working hard at the bar, Davis went first to the
university at Kentucky and then to the military academy at West
Point, from which he passed to the army. He served as a lieutenant
at the time of the Black Hawk war, and it is very likely that he came
across Lincoln, who was serving as a volunteer. After serving seven
years in the army he married and settled down as a cotton planter in
Mississippi. His estates were worked by slaves, of course. To him
the negro was an animal, quite different from the white man, meant
by nature to be under him and to serve him. Black men, unlike white,
did not exist for themselves, with the equal right to live possessed by
a man, an insect, or a tree, but had been created solely to be useful
to white men.
No two men could be more unlike than Lincoln and Davis. The
groundwork of Davis’ nature was an intense pride. A friend described
him as “as ambitious as Lucifer and as cold as a lizard.” He was cold
in manner and seldom laughed. Lincoln was entirely humble-minded,
full of passionate longing to help the weak. To Lincoln what was
common was therefore precious. Jefferson Davis said the minority,
and not the majority, ought to rule. And their looks were as unlike as
their minds. Jefferson Davis, with his beautiful proud face, as cold
and as handsome as a statue, expressed the utter contempt and
scorn of the aristocrat for everything and every one beneath him.
When the Democratic party met at Charleston to nominate their
candidate for the presidentship, they were hopelessly divided.
Douglas’s Freeport speech had set the South against him. For the
last four years there had been a growing section which said that, as
long as the South was fastened to the North, slavery was not safe.
Now seven states, led by South Carolina, left the Democratic
meeting and nominated Davis as their candidate.
 The Republican party met at Chicago. There was only one man
strong, reasonable, and sane enough for every section of the party
to accept. This was Abraham Lincoln. At the time of his nomination,
Lincoln was playing barnball with his children in the field behind his
house. When told that he had been chosen, he said, “You must be
able to find some better man than me.” But he was ready to take up
the difficult task. He knew that he could serve his country, and he
was not afraid. He had a clear ideal before him—to preserve
America as one united whole. He saw that war might come. As he
had said, five years before, America could not endure for ever half
slave and half free—it must be all free: and the South would not let
slavery go without war.
The election came in November. The result was that Lincoln was
elected President. For four years the destiny of his country was in his
hands.
 CHAPTER VI
THE NEW PRESIDENT AND SECESSION

Lincoln’s election was a thunderbolt to the South. It meant that the

great question of slavery would have to be decided one way or
another. Lincoln was a man who had opinions, and opinions in which
he believed, for which he would fight; he would not let things drift as
Buchanan did. Buchanan’s policy would have ended in allowing the
South to separate itself from the North; the Southern politicians knew
this, and they wanted Buchanan’s policy carried on, so as to make
that separation possible.
Few men in the North, although many in the South, understood
as clearly as Lincoln did the position of affairs. He saw that the time
had come when active measures must be taken, a strong and
decided policy maintained, if the Union was to be held together. He
was a true patriot. He believed in the Union; he thought it a great and
glorious thing. That North and South should be separated was to him
like separating husband and wife; their strength and happiness lay in
each other; they had grown together for eighty-four years; if they
parted now, each must lose something it could never regain. He
loved his country. He loved the South as well as the North. He
believed that if the South tried to separate, the North would be
justified, in the true interests of the American nation, in compelling
her to remain.
The great problem was now, as he saw: Could America hold
together as one nation, half slave and half free? Could the Union be
a real Union while there was this deep division, a division which it
was now clear could not be got rid of, as the Northerners had hoped
for so long, by the slow passage of time? Time alone would not
induce the South to give up slavery. Slavery was a barbarous
institution, degrading to the slaves and to those who owned them;
the North could not accept it. If North and South were to hold
together slavery must go. The great thing was to keep North and
South united. This and this only was Lincoln’s great purpose. He
hated slavery, but he would not have compelled the South to give up
slavery if he had believed that the Union could have been
maintained without that. North and South must hold together
whatever it cost; only so could each part of the nation, and the nation
as a whole, attain the best that was possible for it.
Lincoln’s great difficulty was this. The South saw that the nation
could not hold together for ever half slave and half free. Two years
before Lincoln’s election, one of the members for South Carolina had
written what was afterwards known as the Scarlet Letter. In it he
declared, “We can make a revolution in the cotton States,” and there
were many, even at that time, who shared his views. The South saw
that, if they were to remain united to the North, slavery must go, and
they were ready to separate from the North in order to keep slavery.
But, while the South understood the position, the North did not. It
did not understand it fully at the time of Lincoln’s election, or, indeed,
until the end of the second year of the war. And because they did not
understand they could not appreciate Lincoln’s policy, or support it
as they ought to have done. All the time they criticised, blamed, and
abused him, making his hard task harder.
Not until after his death did all the Northerners see how great and
how right he had been. Not until his death did Americans realise that
had it not been for Lincoln the United States might have ceased to
be.
Lincoln’s speeches had been plain and outspoken enough; the
South was terrified by his election. They resolved on separation.
Lincoln, though elected in November 1860, did not actually
become President until February 1861. During these three months
he remained in the plain, yellow house at Springfield, his little office
crowded every day with visitors who came to consult him, to advise
him, or often merely to shake his hand. “Honest old Abe,” as they
called him, had a joke or a kindly word for all of them. He was
presented with many quaint gifts. An old woman came one day, and,
after shaking hands with Lincoln, produced from under her huge
cloak a vast pair of knitted stockings for the President to wear in
winter. Lincoln thanked her graciously and led her out; then
returning, he lifted up the stockings, and showing the enormous feet,
said to his secretary, “The old lady seems to have guessed the
latitude and longitude about right!”
Lincoln spent the time reading and writing, drawing up
memoranda, choosing his Cabinet, learning the difficult ins and outs
of the new work before him. All these months he was thinking hard.
His purpose was already clear: but the presidentship, always a
heavy burden, had never been so heavy as it was to be for Lincoln.
Things grew more serious every day. The weakness of
Buchanan, who had no plan or purpose, allowed the South to do as
it chose. The only chance of avoiding war lay in firm action now; but
it was not in Buchanan’s nature to be firm. He had been made
President by the votes of the South because he was not firm,
because he would allow them to do as they chose. They dreaded
Lincoln because he was firm, and therefore acted while there was
yet time.
On December 20, 1860, the chief men of South Carolina met
together and declared the Union to be dissolved. Posters appeared
all over the State: the South was in a state of feverish excitement.
Within the month the States of Missouri, Alabama, Florida, Georgia,
Louisiana, and Texas—the chief cotton-growing, slave-owning States
—also declared themselves to be separated from the Union; and
these six States joined with South Carolina to form what they called
the Southern Confederation, independent of the North. They chose
for their first President Jefferson Davis.
Buchanan did not know what to do. The question was: Has a
State any right to leave the Union? America, of course, is a
Federation: at the time of the Declaration of Independence the
thirteen States that then existed joined themselves together for ever,