THE OPENING OF THE BALKAN MARKETS AND CONSEQUENT ECONOMIC PROBLEMS IN GREECE by Lois Labrianidis University of Macedonia, Greece

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MODERN GREEK STUDIES YEARBOOK A PUBLICATION OF MEDITERRANEAN, SLAVIC AND EASTERN ORTHODOX STUDIES

UNIVERSITY OF MINNESOTA Minneapolis, Minnesota

THE OPENING OF THE BALKAN MARKETS AND CONSEQUENT ECONOMIC PROBLEMS IN GREECE b

y

Lois Labrianidis University of Macedonia, Greece

Introduction The subject of this article has been much discussed in Greece during the last four years. The so-called economic penetration of Greek companies into the Balkans 1 and the Black Sea region are on the daily political agenda. The mass media, economic analysts, political parties, ministers, and even the prime minister constantly refer to the supposed success stories of Greek companies in these areas and to the bright prospects for investment there. It is widely believed that this economic penetration will substantially promote the economic development of the country and particularly of its northern regions, while Thessaloniki is bound to become the metropolis of the Balkans. There are no grounds for such optimism, which borders on delusion. The opening of the Balkan markets was, and to a certain extent still is, a great opportunity for the country as a whole and particularly for Northern Greece. Nevertheless, although there has been a significant increase of Greek trade with these countries, optimism is misplaced: nothing is bound to occur without the creation of the necessary conditions. One has to be pessimistic since the above-mentioned picture of flourishing prospects in the Balkan markets is in direct contrast with reality. The Greek economy is far from flourishing. Greek foreign policy has isolated the country from its neighbors and policies to promote direct investment in neighboring countries have failed. More important, there is no strategy either for the promotion of economic cooperation with the Balkan countries or for the development of the Greek economy. Finally, the socio-economic and political situation of the Balkan states is rather unstable, apart from the ever-present threat of war. 211

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It seems that the economic dynamism of Greek entrepreneurs in the Balkans cannot overcome the above-mentioned negative factors. The present strong position of Greek companies in the Balkans came about basically by default, because foreign direct investment (FDI) from developed economies is limited, big investors at the moment maintaining a wait-andsee attitude. This opportunity, if used properly, will give Greek firms a breathing space to restructure. This, however, presupposes an abrupt break with past policies which unfortunately is not to be expected in the near future, and also a well structured development strategy. Hence, at the moment the implications in the short run are significant unemployment in the clothing industry in Northern Greece and in the long run the postponement of an urgently needed restructuring of the Greek industry towards more competitive products, since there is little demand for such products in Balkan countries. The article focuses mainly on Albania and Bulgaria, since these are the countries where Greeks have invested most heavily. Moreover, the article is based on field research undertaken in these two countries by the author on three occasions. 2 However, though there are only limited references to the developments in other Central and Eastern European Countries (CEE's), we believe that the article describes a general trend as far as Greek investments in the Balkans are concerned.

Greece's Economy Differs From Those of Other EU Countries The Greek economy differs from those of the developed countries in several respects. A quarter of the population works in agriculture, as opposed to 5 percent in O E C D countries, and there are high percentages of self employed (28.7 percent) and unpaid family members (14.3 percent). Public debt was 110 percent of GNP in 1992, and the declining competitiveness of the Greek industry is manifested by the rapid increase i n imports and decrease in exports, leading to a significant trade deficit. Inflation (10.8 percent in 1994) and interest rates (nominal 28 percent, real 12.5 percent in 1992) are both high, and there is an alarming number of dud cheques. The black economy is estimated at over 40 percent of GNP, and there are 400,000 illegal immigrants, 200,000 of whom are Albanians. Until 1992 Greece's GDP/capita was slowly approaching the EU average, but since 1992 it has been falling increasingly behind. The share of manufacturing in GDP has been dropping steadily since 1975, and is now 18.5 percent against the EU average of 30 percent. The Greek manufacturing sector is limited (170,000 establishments and 600,000 employees) and has a weak structure, being based primarily on traditional sectors (i.e. clothing and footwear, food, textiles, transport equipment including car repair) and characterized by a plethora of small firms. In 1988 93.5 percent of the total number of establishments had no more than 9 employees and only one firm in 200 had over 100 employees.

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The average number of employees per industrial firm remains extremely low at 4.9. Due to high wage increases, the country's post-war economic boom, based on low-wage/low-skill, standardized production, grounded to a halt. The competitive advantage of Greek manufacturing was dependent on low wages and productivity gains through mechanization and standardization. This gave rise to a production structure with low design and technology content and a specific pattern of integration within the International Division of Labor. As wages went up and productivity slowed down in the mid-seventies, competitiveness gradually eroded. This was reflected in diminishing preference of domestic and international markets for Greek products (engineering, clothing and plastics). Domestic producers appear to be caught in the vice of intense international competition manifested in imports penetration. On the one hand they have to face European competitors catering for the top end of the domestic market (high precision, sophisticated components in the engineering/metalworking sector, fashionable and design-intensive garments in the clothing sector and high quality plastic products, etc.). On the other hand, they are undercut by low-wage Third World firms catering to the lower segment of the market, where standardization prevails and price is the most important competitive element. The only way forward for the country is to restructure its economy to enable it to produce quality goods for the medium and upper segment of the international markets. Needless to say it is easy to identify the solution but extremely difficult to apply it, since it involves changing the operation of the whole production system, not to mention the culture of Greek society. Moreover, there is no such thing as a blueprint strategy to be followed, since one cannot predict the future and plan the development of a country. However, a government must have, as a minimum, a development strategy to avoid the obvious undesirable occurrences. The opening of the Balkan markets where there is a demand for products that are not of the highest quality gives Greek companies the time they need to restructure their production. This is of major importance since we are living in a period of international economic crisis and intense competition, and Greek products are of low competitiveness.

Bulgaria and Albania in Crisis An Overview The communist system, introduced in Eastern Europe 3 in 1944-48, was based on the Soviet model, of which it was at first literally an exact carbon copy. From the economic point of view Eastern Europe can be divided into two halves. The northern, developed half (Poland, Czechoslovakia, Hungary, Slovenia, and Croatia), which even before World War I had capitalist systems, large indigenous middle classes and

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extensive railway networks, and the southern half (the rest of Yugoslavia, Romania, Bulgaria and Albania), which was more backward. 4 In all Eastern European countries manufacturing became the strongest sector of the economy, and was promoted at the expense of agriculture. After the accelerated industrialization of the 1950s and 1960s, these countries faced the '70s with a need to adopt a more resourceefficient growth path. In the crucial field of manufacturing industry it was decided, during the communist era, that modern Western technologies could be secured through co-production plans. The idea was for handpicked Eastern European enterprises to enter into participation with Western companies. The peak period for such deals was 1970-78. 5 The requirement for a different development pattern, induced by domestic conditions, coincided with the deterioration of the world economy. It was from this double squeeze that the countries had to try to escape. 6 By the late 1980s external debt had become one of the most acute problems in East European economies. 7 Within each East European country there were communist functionaries who realized that the system was doomed. Their reaction was to simply salvage as much as possible from the sinking ship and keep what they could for themselves. Some were satisfied with villas and money. Others decided to help themselves with some of the capital assets they had managed and administered for the state, using it to start their own private companies. As a result, the end of the 1980s saw the eruption, mainly in Hungary and Poland, of a rash of what had been dubbed nomenclatura companies. To this should be added the thriving unofficial economy of services (e.g., car repairs or house construction), retailing and even p r o duction (e.g., clothing). 8 The separation of original producer and ultimate purchaser, except perhaps for contact over minor details such as precise delivery time, severely aggravated the problem of quality in production and marketing. 9 Poor quality was also a result of the fact that Eastern European countries had pursued a policy of extreme protectionism and import substitution which proved to be even more harmful than in Latin America, promoting the production of obsolete goods of poor quality. 10 There were severe endemic difficulties experienced by command economies in conducting international trade between themselves and the West. The traditional system is a state monopoly of foreign trade and payments. Until 1991 bilateral trade predominated the intra-Comecon trade, being balanced between two countries over a period of time. The socialist countries accounted for 1/3 of the world's national income, but only 12 percent of world trade. Over 60 percent of the CMEA's (Council for Mutual Economic Assistance) export to the EU were fuels and raw materials, and only about 7 percent constituted machinery and equipment. In contrast, machinery accounted for more than 35 percent of imports from the EU. 1 1 It would be a mistake to see the deterioration of the economic situation in Eastern Europe since 1989 as evidence that growth and investment opportunities will be restricted for a long time. Even a well-established market economy would undergo a serious frictional crisis if it were

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compelled to restructure its production system to an extent comparable to the restructuring in postcommunist countries. Finnish industry, which depended heavily on sales to the Soviet Union, has been contracting sharply since the breakdown of markets, with the whole economy shrinking by 7 percent in 1991, an altogether unusual event for a capitalist country, which comes close to the dimensions of the Great Depression. One should differentiate between lower output and worse performance for there is a substantial difference between the two. It is only partly true to say that there is a lack of investment funds in Eastern Europe. In 1989 the role of the private sector in the economy was extremely limited. The contribution of private enterprises to G D P was only 3 percent in the CSFR and 15 percent in Poland and Hungary. There is a process of primitive accumulation of capital, much of it of illegal origin (e.g., the money put aside by illegal migrants in Western Europe, often multiplied by profitable commercial transactions). 12 Those who could afford to purchase or start businesses were black marketeers, corrupt nomenclatura and people illegally backed by foreign i n v e s t o r s . 1 3 Corruption and corrupt inflationary practices are rampant. In particular, cheap credits are being issued to a few people with good connections, al lowing them to enrich themselves at the expense of the people who pay the inflation tax. 14 The primary comparative advantage of Eastern European economies is their low wage costs and this may, for some time, remain the primary determinant of export growth. 15 In almost all cases of privatization there were reports of some kind of irregularity. Given these problems under communism, it is hardly sur prising that post-communist Eastern European countries are still grappling with the problem of how best to control state enterprises, at least before they are privatized. Privatization has proceeded at a considerably slower pace than anticipated. 16 Hence, government revenues from privatization proceeds have been smaller than expected. 1 7 Privatization processes are under way in all East European countries, but at an uneven pace. Until 1991 Poland led the privatization race, followed by Hungary, Yugoslavia, Czechoslovakia, Bulgaria, Romania and Albania. 18 The new political leaders quickly realized that the success of their macroeconomic reforms depended on a) privatizing the large, inefficient and unproductive state-owned manufacturing firms, and b) creating a critical mass of small- and medium-sized businesses that could generate jobs and income for the millions of workers who would inevitably be displaced by industrial restructuring. 19 This process of macroeconomic reforms has been particularly slow in Bulgaria and Albania. Furthermore, C E E economies suffer from at least three important deficiencies they must overcome if they are to catch up with Western Europe. 2 0 There is a capital stock gap due not only to capital obsolescence but also to the fact that these countries mainly specialized in lowtechnology capital goods. Then there is a technology gap due to lack of innovative private firms and competition, as well as to lack of intracompany technology flows and cross-licensing that dominate international

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technology trade. Finally there is a lack of entrepreneurship because the market economy in these countries is dead. Consequently, the shortage of capital and entrepreneurship in the CMEA countries makes foreign capital necessary for these countries. Foreign capital historically played an important role in the course of Russian, Hungarian, and Czechoslovakian industrialization. One might conclude, therefore, that there is an urgent need for significant FDI in all of CEE. The volume of FDI in Eastern Europe and the number of new enterprises created as a result have been snowballing for a number of years, but from an almost zero base. In 1986 there were barely 1,000 such enterprises in all of Eastern Europe, of which 650 were small businesses set up in Poland. By the end of 1989 this total climbed to just under 3,000 and by the end of 1990 to over 7,000. The volume of capital invested has grown even faster: from less than $300 million in 1986 to over $2 billion in 1990. Until 1989 the actual scale of foreign investment was very small while in 1992 it reached $46,018. 21 There is very little FDI in Albania and Bulgaria as well as in Eastern Europe as a whole (table 1). However, F D I in C E E countries has been mounting since 1992 and is concentrated heavily in Hungary, the former Soviet Union, the Commonwealth of Independent States, the Russian Federation and the Czech Republic (table 2). However, hopes that social transformation would rapidly translate into massive inflows of FDI that would effectively rebuild the capital stock have not been fulfilled. This has been due largely to conceptual problems, hyperinflation, political conflicts and serious economic p r o b l e m s , " but also to the fact that Western businessmen tend to have an uncertain grasp of the realities in these countries, though this varies, with Germans and Austrians having the best appreciation of the situation. The absence of massive inflow of FDI is definitely not due to popular resistance to foreign investment, which the majority of society looks at as a spur to modernization of economies, acceleration of growth and europeanization. 23 Inward F D I stock is heavily concentrated in the former Czechoslovakia (mostly in the Czech Republic), Hungary, and Poland. As regards the sector distribution, manufacturing has attracted half or more of foreign capital. In some countries the stock in manufacturing is concentrated in a single undertaking. 24 In the 1970s and 1980s, FDI played a very important role as a driving force of growth in O E C D countries and in underdeveloped countries. FDI increased three times faster than the world trade and four times faster than the world output in the period 1983-90. The qualitative effect of F D I can be greater than the quantitative figures suggest. FDI is most valuable because it creates considerable technology spill-overs, stimulates exports in host countries, and could raise the technological level in C E E countries. 2 5 FDI, however, is unlikely to solve the problem of capital scarcity as such; nor are foreign investors very likely to contribute directly to compe tition. FDI inflows typically contribute to a trade balance deficit in the medium term, because, as they expand, subsidiaries tend to import modern equipment from industrialized Western countries. 2 6 The necessary conditions for F D I inflows are political stability, a set of credible political

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institutions and stability-oriented monetary and fiscal policies. Moreover, the employment creation effects of FDI are positive only in the case of greenfield investments, which are very few anyway. While in the case where FDI takes the form of the acquisition of a privatized state enterprise, the employment effects are negative, since acquisition leads to its modernization and the layoff of many of its former employees. 27 The trade relations of the Balkan countries did not start with the fall of the communist regimes. Strong ties existed for quite some time with some countries, such as Germany, while Greece was of minor importance. 2 8 Throughout Eastern Europe the biggest role is played by Germany. The successes of German enterprises have been facilitated by such factors as geographical proximity, the prominent place occupied by Germany in Eastern Europe's foreign trade, the co-production deals concluded by large German companies with enterprises in Eastern Europe in the 1970s, and the historical tradition of German capital expansion into that region. The German business world is strongly supported in its attempt to operate in CEE by the whole German society. For example, any new regulations issued by an Eastern European country are instantly translated and analyzed by German companies, research institutes, and government agencies; German banks have opened offices in the majority of Eastern European capitals; German embassies have become very energetic; and, finally, numerous international agreements have been concluded between Germany and Eastern Europe. Germany's biggest competitors in Eastern Europe are Italy, Austria, France and the USA. The countries of the former communist bloc, as well as many other countries including Greece, are faced with an acute development strategy dilemma. One strategy is, as Thiessen 29 argues, to maintain the comparative advantage of relatively low unit labor costs, while simultaneously improving product differentiation in the wake of a rise in the capital labor ratio. Singapore, an initially labor surplus economy that followed a lowwage, export-led growth path whose structure changed to one of high-wage, technology and skill intensive, higher value-added activities, is such an example (or is it an exception?). Another strategy is to accept the fact that we are passing through a new phase of capitalist production, characterized by the saturation of mass markets for standardized products and by the creation of small-scale production units that can produce small quantities of customized products, with multipurpose machinery using the latest information technology. The emphasis in this strategy is on quality, design, and innovation, and not on the lowest possible price. 30 Perhaps the notions of industrial districts, cooperation, and competition could be added simultaneously to this strategy.

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Greek Enterprises in Albania and Bulgaria Greece's Comparative Advantages in the Balkans Bearing in mind the very poor record of all the economic indices in Greece, one must admit that there is an almost impressive activity of Greek companies in the former socialist countries. Exports and investment there have boomed, mainly in Bulgaria and to a lesser extent in Albania and Romania. Indications to 1992 suggest that similar results would have been achieved with FYROM (former Yugoslav Republic of Macedonia) and Serbia, but for Greece's dispute with FYROM 3 1 and the UN embargo against Serbia. There is no doubt that there are substantial grounds for arguing that the new situation in the Balkans has opened up immense possibilities for growth for Greece and mainly for northern Greece, which is close to the Balkan states (Albania, FYROM, and Bulgaria) and has historical, religious, cultural and, to a certain extent, language ties with them. Looking back over the economic history of northern Greece, and most importantly of Thessaloniki, one sees that this area flourished when it maintained strong relations with its hinterland (i.e., its Balkan neighbors), and declined when it was isolated from them. Despite a long history of regional integration and ethnic and cultural interpenetration, twentiethcentury and, especially post-World War II, developments contributed to limit drastically the degree of interdependence between Greece and its northern neighbors. The Greek economy became basically oriented towards western countries, the EU in particular. Border regions to the north were practically isolated from neighboring countries, though activity related to trade with northern neighbors was probably more intense in northern Greece, but even here, weighted very little compared to exports towards the EU and other areas. One of the few sectors where dependence from northern neighbors (see Yugoslavia for that matter) was considerable was retail trade in Thessaloniki (making up to 10 percent of total retail turnover), Fiorina (up to 40 percent) and Kilkis. Another sector with significant dependence on northern neighbors was tourism, especially in Pieria and Thessaloniki. 32 This situation has changed drastically since 1989. At present the economy of the country as a whole is oriented towards the EU. However, economic relations with the Balkans are still significant for the whole country and primarily for the north. Further, consumer tastes are similar (Bulgarians have been buying from the Greek market for quite a long time now) and Greece is attractive to the people of the Balkan countries due to its higher level of economic development and consumption, as well as to the fact that it is a full member of the EU. The new regimes in all the Balkan states have an interest in promoting economic relations with Greece for several reasons. First, they can offset a tendency to one-sided dependency on other countries, as they know that Greece is not in a position to colonize them economically while

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other countries like Germany and Italy a r e . 3 3 Furthermore, through Greece they can gain improved access to EU funds and markets. Finally, Greece's intermediate level of development, with its predominance of SMEs and a business mentality more suited to the Balkan economies, might make it a more compatible business partner. Characteristics of Greek Firms Investing in Albania and Bulgaria There is an element of opportunism in all Greek firms investing in Albania and Bulgaria since they invest under conditions of political instability, frequent changes in the legal framework, profound economic, social and political crises and high levels of crime and bribery. These are mainly small family-owned firms that can decide more easily to enter the market under conditions of high risk, while more established firms take a waitand-see attitude. Among those investing in Albania and Bulgaria are companies that have been thrown out of the Greek market, some of them having left the country overnight, leaving debts behind as well as unpaid employees. The manufacturing companies that started production in these two countries were almost exclusively in clothing. Generally, such companies move there to take advantage of cheap labor and create sweatshops, in Greek society's terms. 3 4 There is no transfer of technology, no greenfield investment, and no fixed investment. They send over sewing machines, electric irons, etc., all of which can easily be packed into a small lorry and sent back to Greece in a matter of hours. Greek entrepreneurs compete against local employers for the lower end of the market. Moreover, there may be a backlash against Greek investments in the Balkans since entrepreneurs do not significantly improve the technological base and managerial skills of these countries. There is a myth regarding prospects for profits in the Balkans which, in part, is advanced by the Greek government itself. This explains why a high percentage of companies that tried to operate in the Balkans have failed.

Albania Albania is a very small market both in size and purchasing power. It was the only Eastern European country in which communists retained total control until mid-1991, though after abandoning some of their fundamental ideological tenets. Albania is relatively well endowed with natural resources. The Albanian economy differs from other Eastern European economies in that it started its socialist development at a less-developed stage. Pre-war Albania was the most backward country in Europe. In 1938 industry accounted for only 4.4 percent of national income. This is particularly true of its inherited branch structure of industry and its high rate of population growth. After World War II, industry in Albania was oriented towards

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such natural resources as minerals and fossil fuels, in particular oil, since they offered an immediate source of income. Albanian industrial growth was initially financed by accumulation in agriculture and to some extent by Soviet credit. 36 Soviet aid and trade were important until 1961. Albania started to open up trade with the West in the early '70s, but after the mid-70's import substitution was followed to extreme lengths. The desire for self-reliance and self-sufficiency increased after the split of Albania with China in 1978. 37 Albania is of great interest to Greek investors wishing to exploit its natural resources, agricultural and dairy products, and extremely low wages. Firms investing in Albania mainly come from southern Greece (Athens and the Peloponnese) and Epirus. However, one must not forget that until very recently there was a technical state of war between Albania and Greece, which had existed since the Italian invasion of Greece in 1940. This state of war was not lifted until August 1987; the following April the two countries signed an agreement to encourage border trade. 3 8 Since 1992 (L. 2008/92) Greece has supplied Greek entrepreneurs investing in Albania incentives in the form of grants equal to those offered in the least developed regions in Greece (up to 30 million drachmas each). The incentives were supplied to firms that were located primarily (80 percent) in the Greek minority areas in Albania: Agioi Saranda (28 percent), Korytsa (28 percent), and Argyrokastro (24 percent). Incentives were concentrated in a few industrial sectors: 40 percent clothing, 3 9 26 percent food industry (cheese-dairy, fish-farming, oil-mill etc.), 10 percent tobacco processing/cigarettes, 8 percent building materials, and 4 percent footwear. They are investments oriented to exploit the cheap labor force, agricultural and cattle raising products and quarries. The supplying of incentives by Greece for the creation of Greek companies in the Balkans is unique. The way to secure the Greek minority's rights in Albania is through foreign policy, which is not necessarily supported by Greek investments in Greek minority areas. Such an incentive policy might arouse suspicions as to the intentions of the Greek government in these areas. The mere existence of such incentives tends to give the impression of an intention to intervene in the internal affairs of another country. On the other hand this policy does not protect Greece from the influx of immigrants of Greek or other origin. The granting of such incentives must cease and Greece must switch to helping Greek com panies invest abroad through well-established practices used by developed countries (see p. 16).

Bulga ria Bulgaria's nine million inhabitants live in a country relatively well endowed with fertile soil. Bulgaria still has a fairly traditional centrallyplanned economy, and the economic system is dominated by state-owned enterprises. In 1988 state enterprises produced 92 percent of GNP, coop-

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eratives 3.2 percent, and private enterprises 4.8 percent. Compared to any region in the world with similar living standards, Bulgaria has a high level of education and good facilities and infrastructure, and provides low transportation costs for exports. 40 The Bulgarian economy is still heavily dependent on trade with former CMEA countries which account for 80 percent of total foreign trade, 60 percent of that taken up by the former Soviet Union. 4 1 Bulgaria imports vast amounts of oil, gas, and iron ore at low prices from the USSR in return of great quantities of manufactured goods and agricultural produce at prices exceeding the world market level. Therefore the quick shift to ordinary trade will be a big blow to Bulgaria (and Romania), aggravating its already difficult structural problems. 4 2 Bulgaria is a model of development based on maintaining an artificial price structure and nominal employment, on growing foreign debt, and on over-industrialization. 43 It has an unstable and declining economy, an unstable currency, and a very large black economy. It is difficult to attract foreign capital since there are no incentives. Bulgarian banks issue loans only to a few people with good connections (Mafia, nomenclatura), allowing them to enrich themselves at the expense of the population at large, which pays the inflation tax. Things, however, have been improving during the last year. Greek companies investing in Bulgaria come almost exclusively from northern Greece, and, while numerous, they are very small. In 1994 Greek companies in Bulgaria invested on average $25,000, Dutch companies $1,000,000 and German companies $1,250,000 (table 3). For a long time, 1991-94, Greece was the biggest investor in Bulgaria (70 percent), but things changed abruptly in 1994, when a huge German investment was re alized and Greece's percentage fell to 3.6 percent (table 3). It is estimated that over 90 percent of Greek companies in Bulgaria are engaged in some sort of trading. One can produce a typology of Greek investments in Bulgaria which also applies to Albania, as well as to other C E E countries, classifying them into three main categories:

1. Odd Jobs This category includes all kinds of odd jobs, in some cases even semi-legal: a. Odd jobs: Two examples: A Greek farmer was selling raki in Bulgaria. Then he opened a small restaurant in Sofia. Every weekend he comes to Greece to see his family and travels around in his car selling raki in Greece. In another case a man from Kavala opened a small fish shop in Sofia, where there is a huge market for fresh fish. At 3 a.m. he buys fish from the fish-pier in Kavala and arrives in Sofia at 8 a.m. in the morning. However, since he is short of capital and cannot drive to Sofia every day, he retails olives too. b. Racketeering: This takes various forms. In auctions, "entrepreneurs" may agree (for a fee) not to bid up the price against the truly interested buyer. They also trade defective/reject products (e.g., defective electric appliances, clothing-footwear, food past its

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expiration date). They sell their products to what is called "the garage economy" (wholesale trade), that is, to businessmen operating from kiosks. There is no demand for quality and they do not use invoices. Until recently some Bulgarian shop owners were buying from "the garage economy"; now it is the Yugoslavs that buy such products. 2. Services a Restaurants/fast-food/confectioneries: These need an investment of $65,000. A cook is brought from Greece for 2-3 months to train a Bulgarian. The owner and 2-3 Bulgarians run the shop. Profit margins are high (70 percent). b. Retail trading: Retail trading is in clothing, footwear, food, electric appliances, etc. This is mainly trade in old-fashioned, reject products of Greek manufacturing firms. Greek companies have managed to control the office furniture market (Dromeas, Neosset, Sato and Skouropoulos) as well as the ice cream market (Delta, Agno, Algida, Evga). Little capital is needed ($17,000) to start such a business. The owner and 2-3 Bulgarians run the shop. c. Distribution networks: The fall of the previous system led to the privatization of consumer product trading, which meant that distribution networks had to be set up from scratch. This has created flourishing prospects for companies in this area which establish a distribution network selling Greek products (clothing, electric appliances, etc.). These are usually small companies, investing only in a small warehouse and 5-l0 small lorries, even though the staff has to work hard. These companies keep the price to the consumer low since they find ways to avoid import duties. The Bulgarian market is a buyers' market 4 4 which is characterized by unfair competition due to the inadequacies of the legal framework. The distribution networks established by Greek firms are of extreme importance for the Greek economy since Greek products enter the Bulgarian market through cooperation with these small trading and distribution companies. d. Representatives of non-Greek companies: Many multinational companies decided to enter the Balkan markets (Bulgaria and in some cases Romania) through their Greek representatives. 4 5 This might help Thessaloniki become a major center in the Balkans, although in order for this to take place, significant improvements in infrastructure are necessary. 3. Manufacturing Companies a Large investments in manufacturing: There are only very few important projects (fewer than 10) under way by large manufacturing companies which are leaders in their sector (Amstel, 3e, Delta, etc.) in Greece. b. Small investments in manufacturing: Most of the manufacturing firms are in this category. The great majority of them are clothing manufacturing firms which have developed on the basis of subcontracting from abroad. 46 It is mainly capacity subcontracting (i.e., the

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parent firm has the necessary equipment, etc., but gives out the work for other reasons, such as lower cost) and not quality subcontracting (i.e., the parent firm lacks the necessary equipment or know-how). Subcontracting of capacity, whose strength lies in the comparative advantage of cheap, non-union labor, cannot be a way out of the economic crisis, nor is it meant to be. It is not a development strategy but rather the outcome of the functioning of the market taking advantage of wage differentials. Hence, it cannot lead to the economic development of any area let alone of the whole country, since there are no technology transfers through subcontracts awarded by foreign firms, etc. These products were addressed primarily to the EU countries, helped by the protectionist quotas against non-EU countries. Moreover, the EU protectionist policies favored primarily Thessaloniki which, due to its productive specialization and its favorable location, was able to export "just-intime," low-cost products. 47 Clothing manufacturing firms have often moved operations to the Balkans (what is said below for Bulgaria applies to Albania too). Usually the Greek firm subcontracts clothes production to a Bulgarian manufacturer, but it may do its own production in a rented factory, with second hand machinery imported from its Greek operation. At the moment, it is mainly sewing that is relocated, since sewing is the most labor-intensive part of the whole process, but soon the whole process will be relocated. Firms relocate to take advantage of the enormous wage differentials. For example, in the clothing industry the ratio of Bulgarian to Greek wages is from 1:8 to 1:15 while the productivity ratio is 1:1.5, and the ratio of Albanian to Greek wages is 1:15. Otherwise they would subcontract directly to Bulgarian companies, as German, Italian, and English companies have already done. The firms come almost exclusively from northern Greece, and are both small and large. Even companies that are vertically integrated and well placed in the international market have shifted at least a small part of their sewing to Bulgaria, since they realize that this will be unavoidable in the near future. Soon foreign firms subcontracting to Greek companies in Bulgaria will force Greek firms to work on cost estimated on the basis of the Bulgarian cost of living, without lowering the quality they expected when the subcontracting work was done in Greece. Greek firms in Bulgaria will move from one subcontractor to another in search of the cheapest labor. Greek companies might relocate their production to Bulgaria, leaving empty shells behind, where there will be little or no production. From these shells in Greece, materials and other intermediate inputs will be sent to Bulgaria, thus bypassing restrictions on the EU imposed by the Multi-Fibre Agreement, through the "finishing" (passive improvement trade) arrangements. 48 Then the finished product will be sent back to the Greek "shell" factory for packing and shipping.

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Greek Policies of Economic

Cooperation

with

the

Despite the importance officially attached to the so-called economic penetration of the Balkans, the Greek state has done nothing to support it. Below we refer in detail to foreign policy, lack of strategic planning and policy regarding FDI. G r e e k Foreign Policy Towards the Balkans Greece is a major power in the Balkans and its policy influences the general prospects of the area. One might have expected that this influence would be positive, but in fact it is just the opposite. In particular, Greece has an aggressive policy towards FYROM, and a strategic coalition with the Serbs, who are pursuing expansionist policies. There is, to say the least, a tolerance of irresponsible activities towards Albania with regard to the Greek minority there. Relations with Turkey are deadlocked. Finally, there is a minor problem with Bulgaria: Despite strong pressure from the EU, Greece is dragging its feet over opening new customs ports on the Bulgarian border because of a minority, the Pomacks, who straddle it. In their attempt to gain electoral support, the main political forces in Greece are led to foster a sort of nationalist hysteria (mass mobilizations of more than a million people in each case in Thessaloniki and Athens two years ago over the use of the name "Macedonia" by FYROM). Such policies can produce dividing lines between nations and religious groups, notions of national purity and a siege mentality. There is a need for a foreign policy that will promote friendly relations, rather than hostility with the Balkans. Surprisingly, despite of all these efforts and the turbulent past of the region, the general attitude of the Greek people towards the C E E countries and in particular the Balkan countries remains positive. Lack of Strategy In its recent history, Greece lost several opportunities to restructure its economy. The most recent one was presented by the EU through the use of the massive influx of EU structural funds. During the same period another country, Ireland, managed to do so. It is therefore vital for Greece not to lose the opportunity offered by the opening of the Balkan markets. For that matter it is extremely important to advance a different development strategy and support for Greek companies investing there, as well as a strategy to make sure that Thessaloniki will be able to benefit the most by becoming a center that will facilitate investments in the Balkans by companies from other countries. In Greece there is no effective planning policy at any level. This is due to the nature of the social system. In fact, politics have never ceased to have the upper hand in determining the rules governing the everyday o p eration of the economy, and the market has never become adequately

Opening of the Balkan Markets and Economic Problems in Greece

225

autonomous from politics. Thus political criteria, operating within the network of political patronage and clientelism, not only distort the economy but also play a very important role in the distribution of wealth. 4 9 Moreover, the fact that some businessmen can make money by noneconomic means has serious implications for the structure of the economy because it impedes attempts to improve the competitiveness of the economy, and creates a climate of uncertainty among potential investors. However, successful development of economic relations with the Balkan countries requires decisions as to which particular sectors and branches and parts of them must be developed in Greece, and which will be promoted to relocate to the Balkans. Policies are needed to promote production in Greece for the medium and upper segment of the international market (e.g., improvement of tangible and intangible infrastructure, no tolerance of the black economy or exploitation of illegal migrants since these, among other things, lead entrepreneurs to consider low-cost production as their only comparative advantage). FDI Greece, at least until mid-1993, had not signed a bilateral agreement with Bulgaria on the protection of FDI and the prevention of double taxation, while in both cases such agreements had been signed between Bulgaria and other developed 5 0 and less developed 5 1 countries. Greece does not give its businessmen a clear picture of investment conditions in the Balkans. By exaggerating its comparative advantages, Greece has contributed to the existing euphoria about the economic prospects there. It argues that Thessaloniki is bound to become the Metropolis of the Balkans, while Greece as a whole and Thessaloniki in particular are bound to become centers for other countries investing in the Balkans. Most importantly, Greek governments have not used the policy measures to promote FDI used by industrial countries. 52 For years industrial countries have encouraged their firms to make direct investments in developing countries with a broad range of policy measures, such as fiscal incentives, investment insurance, financing and bilateral investment treaties designed to increase the return or reduce the risk of these investments. In addition, industrial countries have supported a range of promotion programs, operated by both bilateral and multilateral institutions to directly promote direct investment in developing countries. A wide range of promotional services are offered by industrial countries and multilateral agencies. 5 3 Information services provide potential investors with general information on the economies of developing countries. Investment missions and other proactive programs take industrial country firms to developing countries and bring firms from developing countries to the industrial countries to look for opportunities. Information on investment opportunities is also made available to potential investors through seminars, trade fairs, and electronic media such as teleconferences. Matchmaking is used to match an individual with an

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identified opportunity. In sector promotion the promotional agency identifies opportunities in a particular country and sector and may also identify the kinds of investment that could best take advantage of these opportunities. The agency may assist firms in developing specific projects but does not itself take responsibility for project identification. Governments also support feasibility studies and once a project's feasibility has been established, a few bilateral programs provide support for project development and start-up. This type of assistance is particularly welcome by smaller firms with no experience in investment projects in developing countries, and often includes help in finding financing, p r e p a r i n g contractual agreements, adapting technology to developing country environments, and training local personnel. Western governments favoring private investment in Eastern Europe may 5 4 provide investors with guarantees, some of which are built into bilateral agreements between Western and Eastern European countries, and which are very useful in the high-risk, legally volatile Balkan countries. They may also ease credit provisions. The swift growth of foreign investment in Eastern Europe has given banks a greater role in this process. The majority of investment is financed out of enterprises' and entrepreneurs' own funds, supplemented by commercial loans. The most important support that the Greek state can provide to all those interested in investing in the Balkans is reliable information 55 that should be circulated or disseminated promptly to Greek businessmen. Information must be considered as a public good of the utmost importance particularly for the small, and medium-size enterprises that cannot internalize this cost. Large firms and multinationals, on the other hand, tend to have their own forecasting departments that have a global view of the existing situation and its prospects in their particular area of interest. The state must assure that firms can get the information and then use it in any way they think is most suitable to them. Provision of information will help businessmen get a clear view of the conditions they will encounter when they decide to invest in these countries. On the contrary, at the moment it seems that the state contributes significantly to the existing confusion, i.e., to the exorbitant euphoria that exists with regard to the Balkan markets.

Implications

of Greek Economic

Activities

in the

Balkans

Favorable There is an impressive increase in foreign trade with the Balkans (table 4). In 1992 for the first time the balance of trade with Bulgaria became positive for Greece. With Albania, the balance of trade has been positive since 1988 but trade is much more limited. Moreover, there has been an increase in Greece's foreign trade with other Eastern European countries through the Balkans (e.g., to Russia through Bulgaria). At the

Opening of the Balkan Markets and Economic Problems in Greece

227

moment the problematic structure of the Balkan economies does not seem to be a significant obstacle prohibiting Greeks from entering the Balkans. On the contrary, the less demanding markets of the Balkan countries enable the Greek enterprises to sell. The increase in foreign trade enlarges the market for Greek manufacturing firms. The small Greek market is one of the major obstacles manufacturing firms face, usually forcing them to work below capacity. This internationalization of their markets forces Greek manufacturers to take into account the tastes of non-Greek consumers. TNCs are a totally new experience for Greece (there are very few such manufacturing companies: Petzetakis, 3e, Metaxas). As has been pointed out, 5 6 Greek outward FDI has been led by shipping, with banking and migrant workers following. Most importantly, the economic relations with the Balkans (possibility to sell Greek manufactured goods and lower cost production) gives manufacturing companies a breathing space which could allow them to restructure their production so as to become internationally competitive. Unfavorable As early as the beginning of the '80s Greece faced the consequences of the export-oriented development strategy it had pursued during the previous decade. Hence, one might suggest that it would be a mistake to connect the development prospects of Greek industry to an exogenous parameter such as the development of the markets of ex-socialist countries. The orientation of the productive structure of the country towards foreign markets (i.e., of the CEE) may render the country extremely vulnerable to changes of the socio-economic environment. The emphasis of Greek industry must be placed on Greece's dominance in the internal market with the production of goods that are competitive on an international scale and not on the basis of tariff protection measures. The problem might be quite serious in the sense that there is a onesided orientation of the Greek economy towards the low product markets of the C E E (i.e., Bulgaria, Albania, and Romania). In fact the CEE can be divided into three main economic zones, from the point of view of Greek investors' behavior, that is: First zone: This includes the southern Balkans (Albania, Bulgaria, and Former Yugoslavian Republic of Macedonia). In all these countries (including FYROM to the time the embargo was imposed) Greece has a strong presence in economic terms which is due, among other factors, to the lack of economic interest on behalf of important investors from developed countries. Second zone: This includes the countries of the Black Sea, mainly those that are relatively close to Greece, such as Ukraine, Russia, and the countries of the Caucasus. In these countries there is some presence of Greek economic interests.

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Third zone: This includes the most developed countries of C E E , that is, Slovenia, Croatia, the Wissengrand countries (i.e., Hungary and Poland), and the Baltic countries. These countries, with the exception of Croatia, are expected to enter the EU quite soon. These are markets that demand quality products. In this zone the Greek presence is almost nonexistent. The most important unfavorable results for Greece due to the opening of Greek firms to the CEE are the following: • The much-needed restructuring of the Greek economy so as to produce for the middle and upper segment of the market will once again be postponed, since the Balkans offer a new market for Greece's existing standard of goods. • The manufacturing companies that have been relocated in all or in part to the Balkans are labor intensive. This will lead, at least in the shortterm, to significant unemployment in certain sectors, such as clothing, in certain areas, particularly Northern Greece. • The black economy prevailing in the Balkans is something the Greek genius knows very well how to deal with. It is mainly the spivs that are succeeding at this stage. Moreover, some are earning immense profits by breaking the international embargo on Serbia and the Greek government's embargo on FYROM. The much-needed break with the past, as far as the mentality of Greek entrepreneurs is concerned (search for quick profits, etc.) has once again been postponed. • There may be a backlash against Greek investments in the Balkans. Since they do not significantly improve the technological base or managerial skills in these countries and do not really invest in these countries (the average investment is very low, $25,000), they compete for the lower end of the market where local entrepreneurs will soon be able to enter. Greek firms are active almost exclusively in trade (90 percent) while those that are in manufacturing are concentrated in labor-intensive production (such as clothing) taking advantage of cheap labor, with only a handful of exceptions active in other sectors. This situation will create an unfavorable image of the Greek entrepreneur which will place obstacles in the way of later investors. • Due to the existing euphoria, Greek entrepreneurs are encouraged to invest in the Balkans without really knowing the market. • Bulgaria and Albania, where Greek entrepreneurs primarily invest, do not seem at the moment to be of much interest to other countries for FDI. In these two countries foreign investors seem to be following a tactic of wait and see. The challenge for Greek entrepreneurs in these markets will come when Western FDI enters en masse. However, when the present state of chaos in the neighboring economies is curtailed, and these markets get used to competition, FDI will become important. Greek entrepreneurs there will be marginalized and the structure of the Greek economy will once again prove in sufficient. The true competitiveness of Greek products will prove to be of critical importance in these markets too.

Opening of the Balkan Markets and Economic Problems in Greece •

•

•

229

The Greek economy is not in much need of the money that will come through the repatriation of profits, since Greek banks are flush with cash. What Greek companies need from these countries is 1) to penetrate their markets so as to find outlets for their products, which is very important since the Greek market is very limited and many companies work below capacity, and 2) to transfer there some labor intensive activities, provided that capital- (technology-) intensive activities will replace them. In its recent history Greece has lost several opportunities to restructure its economy. The latest of these lost opportunities was an offer by the EU to provide substantial structural funds. It is therefore extremely important that Greece should not lose the opportunity offered by the opening up of the Balkan markets, especially of the least developed countries. Thus it is vital to advance a strategy to support Greek companies investing in the Balkans as well as a strategy ensuring that Thessaloniki will benefit as much as possible from the opening up of these markets by becoming a center that will facilitate investment in the Balkans by foreign companies. Such economic relations as have developed with the Balkans are the outcome of private initiative, with the Greek state limiting itself to rhetorical support.

Needless to say, nobody can prohibit Greek entrepreneurs from investing in the Balkans. What has been argued here is that these investments, though at first glance important, may seriously hinder Greek economic development. What is needed is a government strategy to maximize benefits. Moreover, Greek companies should not orient all their efforts towards entering the Balkans. It must not be forgotten that apart from the opportunities in these markets there is always the possibility of deepening their relations with existing markets using new technologies and making new and better products.

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TABLE 1 Foreign Direct Investment Inflows by Host Country Central and Eastern Europe, Greece, World Total 1982-98 ($-million) 1982-87 Annual Average 1989 1988 1990 1991 1992 Central and ( %) 0.03 % 0.01 % 0.14 % 0.14 % 1.51 % 2.86 % Eastern Europe 17 15 268 300 2448 4526 Albania -1 1 Belarus 7 Bulgaria 4 56 42 Former Czechoslovakia 257 207 600 1103 Estonia 58 Hungary 1462 1479 Kazakhstan 100 Latvia 14 Lithuania 10 Moldavia 17 Poland 17 15 11 89 291 678 Romania 40 77 Russian Federation 700 Ukraine 200 Uzbekistan 40 G R E E C E ( %) 0.73 % 0.57 % 0.38 % 0.48 % 0.7 % 0.72 % Greece a.n. 494 907 752 1005 1135 1144 Rest of the World 67015 158179 195112 206607 158541 152743 World Total 67526 159101 196132 207912 162124 158413 Source: United Nations, World Investment Report 1994. Transnational Corporations Employment and the Workplace (1994). Country

TABLE 2 Cumulative Foreign Direct Investment in Central and Eastern Europe, 1991-93 a 5' ore

(number of cases and $-million) 1991 Country Bulgaria Former Czech Rep. Czech Slovakia Hungary Poland Romania Former Soviet Union Commonwealth of Independent States Russian Federation Ukraine Belarus Estonia Latvia Lithuania Slovenia TOTAL Source:

1992

1993

Investment % a.n.

Million $ a.n. %

Investment % a.n.

Million $ a.n. %

900 4000

130 1076

9117 5583 8022 4206

2.3 10.1 0 0 22.9 14 20.2 10.6

2593 2022 400 283 1100 295 220 1000

6.5 5.1 1 0.7 2.8 0.7 0.6 2.5

3137 479.5 268.7 4462.2 4300 2827.4 440 84.2 45 33 650

Investment a.n. %

Million $ a.n.

%

s OS

0.7 6 0 0 17.5 2.7 1.5 24.9

1200

1.3

170

0.7

2300

1.7

200

0.7

3120 2875 17182 5740 20684 15300

3.5 3.2 19.1 6.4 22.8 17

1573.5 231.2 3680 1545.6 539.8 5566.5

6.7 1 15.7 6.6 2.3 23.8

5000 4350 21468 6800 29115 27200

3.6 3.1 15.5 4.9 20.9 19.6

2053 380 6005.7 2100 755 6800

6.8 1.3 19.8 6.9 2.5 22.3

24 15.8 2.5 0 0.5 0.3 0.2 3.6

8007 3252 2000 714 2662 2621 2000 2815

8.9 3.6 2.2 0.8 3 2.9 2.2 3.1

5250 2850 480 265.5 142 84.5 90 962.2

22.4 12.2 2 1.1 0.6 0.4 0.4 4.1 100

17200 7989 2800 1250 4150 2850 3000 3300

12.3 5.8 2 0.9 3 2.1 2.2 2.4

6300 3153.2 600 340 220 150 140 1200

20.6 10.4 2 1.1 0.7 0.5 0.5 3.9

17933 100 100 90172 100 23430.8 138772 39741 100 30396.0 100 United Nations, World Investment Report 1994. Transnational Corporations, Employment, and the Workplace (1994).

ft. s

I a s a

Ϊ 5"

O Pi

1

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TABLE 3 Foreigi i Investments in Bulgaria Average Capital/ Investment $ 1,253,178 1,018,907 560,854 549,177 270,474 231,696 160,053 25,054 242,634 41,088 7,063 9,450

Total Capital Invested % 13 0.7

Number of Invested Projects Capital Country a.n. % a.n. % 96 4.7 Germany 40.6 Holland 30 1.5 10.7 47 Switzerland 2.3 9.2 37 1.8 7.1 Belgium 69 USA 1.6 3.4 6.5 56 2.8 4.5 Gr. Britain Austria 75 3.7 4.2 0.9 20.7 80.0 3.6 Greece 77 421 France 30 1.5 2.6 2.5 62 3.1 0.9 Cyprus 200 9.8 0.6 Turkey Russia 116 5.7 0.4 792 39.0 9.1 Others 2031 TOTAL 100.0 100.0 620.0 Sources: Ναυτεμπορικη, Special Annual Issue (7 April 1995), p. 288 (cf. Investment Committee of Council of Ministers, Bulgaria); Επιλογη (November 1993); Emxeipeiv 2 (1993), p. 27.

TABLE 4 External Trade of Greece with the Balkans ($-million) Exports Imports 1993 1988/89 1992 Country 1988/89 1992 126.3 5.8 41.3 Albania 11.9 41.2 161 Bulgaria 51.2 303.4 68.1 167.2 89.3 68.6 68 Romania 37.1 107.4 185.5 82.4 Former Yugoslavia 85.6 173.5 90.5 Slovenia 10.5 8.1 Croatia Bosnia-Herzegovina 15.3 139.6 Rest of Yugoslavia Source: NSSG (National Statistical Service of Greece) (1993).

1993 15.4 198.3 65.7 63.2 13.7 17.1 3.3 29.1

Opening

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Markets

and Economic

Problems

in Greece

233

NOTES 1. That is Albania, Bulgaria, former Yugoslavia, Romania and the European part of Turkey. 2. L. Labrianidis, If. Karatzia, and N. Zaharis, "Working Conditions of SMEs in the Border Area of Northern Greece," Commission of the E E C , Directorate General 23 (1993) (mimeo); L. Labrianidis and St. Karagianni, "Κΰνητρα ανάπτυξηε τηε βιομηχανικηΒ δραστηριοτηταβ στην Αλβανία" ("Industrial Development Incentives in Albania"), in Ερ€υντ\τικό Πρόγραμμα (Athens: Epistimonikos Ipefthinos Panethimitakis, 1993) (mimeo); L. Labrianidis and D. Hundahl, "Investigation of Investment Opportunities in Southern Albania," E E C — I N T E R R E G I—Prefecture of Kastoria (1994) (mimeo) (in Greek). 3. The concept of Eastern Europe was introduced after World War II and is now used interchangeably with East-Central Europe to refer to the countries (other than East Germany) that used to be called people's democracies, namely Poland, Czechoslovakia, Hungary, Yugoslavia, Romania, Bulgaria, and Albania. In discussing Eastern Europe, there is a tendency to treat it as a single entity and use terms such as the east European market. This, however, is a major oversim­ plification; there is no such a thing as a single Eastern European market and there never has been. 4. Z. Dobosiewicz, Foreign Investment in Eastern Europe (London & New York: Routledge, 1992), xi, 3. 5. Ibid., 23. 6. Z. Bekker, "Response Patterns to External Shocks in Five East-European Countries," European Economic Review 34 (1990): 921-40. 7. Dobosiewicz, Foreign Investment in Eastern Europe, 2-4. 8. Ibid., 6, 10. 9. I. Jeffries, Socialist Economies and the Transition to the Market. A Guide (London & New York: Routledge, 1993), 24. 10. O. Sjoberg and M. Wyzan, eds., Economic Change in the Balkan States: Albania, Bulgaria, Romania, and Yugoslavia (London: Pinder, 1991). 11. Jeffries, Socialist Economies and the Transition to the Market, 35, 37. 12. Dobosiewicz, Foreign Investment in Eastern Europe, 12. 13. D. Rondinelli, ed., Privatization and Economic Reform in Central Europe: The Changing Business Climate (Westport, Connecticut and London: Quorum Books, 1994). 14. A. Aslund, "The Nature of the Transformation Crisis in the Former Soviet Countries," in Overcoming the Transformation Crisis: Lessons for the Successor States of the Soviet Union, ed. H. Siebert, Institut fur Weltwirtschaft an der Universitat Kiel, Symposio and Conference Proceedings (Tubingen: Mohr, 1993), 39-56. 15. U. Thiessen, Aspects of Transition to Market Economics in E.E. (Avebury, England: Aldershot, 1994), 108. 16. See S. Johnson and O. Ustenko, "Corporate Control of Enterprises be­ fore Privatization: The Effects of Spontaneous Privatization," in Overcoming the Transformation Crisis: Lessons for the Successor States of the Soviet Union, ed. H. Siebert (Tubingen: Mohr, 1993), 83-106.

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17. See P. J. J. Welfens, "The Growth of the Private Sector: Privatization and Foreign Direct Investment in Eastern Europe," in Siebert, Overcoming the Transformation Crisis, 119-70. 18. See Dobosiewicz, Foreign Investment in Eastern Europe. 19. See Rondinelli, Privatization and Economic Reform in Central Europe. 20. See Welfens, "The Growth of the Private Sector." 21. Dobosiewicz, Foreign Investment in Eastern Europe, xii, 5 1 ; United Nations, World Investment Report 1993. Transnational Corporations and Integrated International Production (1993), 56. 22. See Welfens, "The Growth of the Private Sector." 23. Dobosiewicz, Foreign Investment in Eastern Europe, xii, xiii. 24. United Nations, World Investment Report 1994. Transnational Corporations Employment and the Workphce (1994), 98-100. 25. See Welfens, "The Growth of the Private Sector."

26.

Ibid.

27. United Nations, World Investment Report 1994, 101-103. 28. For example Bulgaria imported from Germany 11.1 percent of its total imports in 1960, 8.6 percent in 1970, 6.6 percent in 1980, and 5.3 percent in 1985 and it exported 9.8 percent, 12.5 percent, 5.5 percent, and 5.2 percent in the respective years. The respective numbers for Greece were, for imports: 0.2 percent, 0.9 percent, 0.5 percent, and 0.4 percent; and for exports: 0.6 percent, 0.7 percent, 3.8 percent, 8.5 percent, and 1.5 percent. Comecon Foreign Trade Data (Vienna Institute for Comparative Economic Studies, 1986), 47, 50. 29. See Thiessen, Aspects of Transition to Market Economics in E.E., 115. 30. See M. Piore and C. Sabel, The Second Industrial Divide (New York: Basic Books, 1994); and C. Sabel and J. Zeitlin, "Historical Alternatives to Mass Production," Past and Present 108 (1985): 103-76. 31. This practically developed into a Greek trade embargo against FYROM. 32. S. Wallden, Greece in the Changing Balkans. The Impact of Changes in Albania, Bulgaria, and Former Yugoslavia on Greece and its Regions, study prepared for the Commission of the European Communities, 1992. 33. Needless to say the FDI is highly welcome. What is not wanted is economic colonization of their country. 34. However, due to the state of turmoil that these societies are in, such Greek firms are vital in the short run due to the fact that they offer employment (labor intensive). Needless to say, the working conditions that Greek firms offer are not worse than those of the average firm in these countries. 35. See Jeffries, Socialist Economies and the Transition to the Market. 36. See Sjoberg and Wyzan, Economic Change in the Balkan States. 37. Jeffries, Socialist Economies and the Transition to the Market, 233. 38. Ibid., 227. 39. One qualification is necessary here since this seems to contradict the remark made earlier (p. 9), that is, that Greek manufacturing companies were almost exclusively in clothing. In the incentives granted there is an underrepresentation of clothing firms in the sense that the great majority of these firms are small, do not want to invest heavily and, hence, do not even think of going through the perplexing bureaucratic mechanisms that are necessary to get incentives. 40. E. Panusheff and G. Smatrakalev, "Bulgaria Towards Europe: Taking the Challenge," National Westminster Bank Quarterly Review (Nov. 1990): 66, 74. 41. Ibid., 66.

Opening

of the Balkan

Markets

and Economic

Problems

in Greece

235

42. See Sjoberg and Wyzan, Economic Change in the Balkan States. 43. Panusheff and Smatrakalev, "Bulgaria Towards Europe," 65. 44. Rather than a seller's market, where the seller is able to determine the price, keeping a higher profit margin for himself. 45. Car industries: Daihatsu (I. E. Kontelis), Suzuki (Sfakianakis), Yamaha (Yamaha Hellas), Mazda (Vardinogianis); batteries: Toshiba (Germanos); razor blades: Wilkinson (Germanos); cosmetics: Johnson & Johnson and ten other companies (Papaelinas, et al.); clothes: Lacoste (Sportsman), etc. 46. D. Vaiou et al., Διάχυτη Εκβιομηχάΐ'ηση στο Πολέοδομικό Συγκρότημα Ευρΰτερηε Περιοχηε θίσσαλονικης (Diffused Industrialization in the Greater Thessaloniki Area), Research Report for the Ministry of Housing and Spatial Planning, 4 vols. (Thessaloniki, 1991) (in Greek); Z. Chronaki et al., "Diffused Industrialisation in Thessaloniki. From Expansion to Crisis," International Journal of Urban and Regional Research 17 (2) (1993): 178-94; and L. Labrianidis, "Flexibility of Production through Subcontracting: The Case of the Poultry Meat Industry in Greece," Environment and PL·nnίng (27 April 1995): 193-209. 47. Chronaki et al., "Diffused Industrialisation in Thessaloniki." 48. That is, export for processing, which usually involves exploitation of cheap labor in neighboring countries for the production of apparel. 49. L. Tsoulouvis, "Aspects of Statism and Planning in G r e e c e , " International Journal of Urban and Regional Research 11 (1987): 500-21. 50. Austria, Belgium, Finland, France, Germany, Italy, US, etc. O E C D , Foreign Direct Investment in Selected Central and Eastern European Countries and New Independent States. Policies and Trends in Fourteen Economies in Transition, O E C D Working Papers (11) (1993): 39-40, 50-52. 51. Argentina, China, Cyprus, Malta, etc. Ibid. 52. Th. Be'lot and D. Wergel, "Programs in Industrial Countries to Promote Foreign Direct Investment in Developing Countries," World Bank Technical Paper 155 (1991); J. H. Dunning, "Re-evaluating the Benefits of Foreign Direct Investment," Transnational Corporations 3 (1) (1994): 23-51; A. J. Easson, "Tax Incentives for Foreign Direct Investment in Developing Countries," Australian Tax Forum 9 (4) (1992): 387-439; O E C D , Foreign Direct Investment Relations between the OECD and the Dynamic Asian Economies (1994); T. Ozawa, "Foreign Direct Investment and Economic Development," Transnational Corporations 1 (1) (1992): 27-54; and L. T. Wells and A. G. Wint, "The Public/Private Choice: The Case of Marketing a Country to Investors," World Development 19 (7) (1991): 74961. 53. Th. Be'lot and D. Wergel, "Programs in Industrial Countries," 12-23. 54. Dobosiewicz, Foreign Investment in Eastern Europe, 118-19. 55. This information can be selected through the trade attaches of Greek embassies and processed by research institutes and universities. 56. See G. Petrochilos, "An Analysis of Foreign Direct Investment in Greece, 1953-92," paper presented at the Conference of Regional Studies Association "Regional Futures," in Gothenburg, 6-9 May 1995.