"A house built on sand cannot stand"
The current train wreck that is Greece emphasises the importance of what is in the tin rather than what is one the outside, or to use a quote from Warren Buffett: "Not only cannot you turn a frog into a prince through kissing it, you can't by repackaging it".
Greece at the time of its accession to the EU and then the euro seemed to be meet the requirements for statehood and financial membership – it was "democratic" indeed it was hailed as the "cradle of democracy" and had banks that were open most of the day. However when one attempts to analyse the Greek governmental system using a coherent methodology it clearly appears as a Third World rather than a First World country.
The first stage in this attempt to quantify the performance of Greece would be to agree on what any government should be trying to achieve in the short, medium and long term. This overall balanced scorecard then will link to key performance indicators within specific areas of government charged with their delivery (a standard SBU/ knowledge centre approach to improving performance.
The creation of these KPI's allow the comparison of Greek performance with external benchmarks, which for this exercise could be considered the European Union. The role of KPI's is always central to efficient management – understanding what needs to be fixed, what needs to be supported to continue to drive out superior performance and how urgent the problem.
Sadly there appears to be little agreement on what should make up quantifiable government objectives. Franklin Roosevelt was famously quoted as stating that the goal should be the four freedoms: freedom from want, freedom from fear, freedom of expression, and freedom of worship. This attempted to set targets for the utilitarian philosophy of the greatest good for the greatest number, but still falls short in quantification.
Most surveys of the typical voter on the bus find that the economic considerations far outweigh the others on the basis that one cannot philosophise on an empty stomach. Surveys suggest that the voter works on an overall level of satisfaction which combines sub-scores from 9 components:
Adequate disposable income;
Adequate full time "satisfying" employment;
Adequate and affordable infrastructure (housing, water, power, water treatment, roads, rail, air transport, ports, rivers, telephone/Internet, control over pollution);
The promotion of trade and opportunities abroad;
Quality health and social services;
Quality education providing for social mobility over time;
Effective control over violent crime;
Protection of the polis from foreign invasion and support for disaster relief.
Surveys suggest that what matters to the bulk of the population is the ability of the political system to deliver on these requirements. The form of government is seen as less important than the substance, though electoral mechanisms through which administrations can be changed (aka democracy) will provide some form of eventual relief in the replacement of incompetence, unless there is a de facto or de jure single party system, with both parties supporting their private rather than public interests (aka corpocracy).
A universal government balanced scorecard
In this exercise of blank sheet planning where one is focusing on functionality rather than political theory, a government balanced scorecard might take the following form:
Voter satisfaction. Overall voter satisfaction will be the most accurate measure of the way in which the government delivers its performance.
GDP growth. A growing GDP should lead to long term improvements in disposable income.
Income distribution. The way in which income is distributed will heavily influence the impact of changes in GDP and whether the benefits are seen throughout society.
Inflation & unemployment rates. The so called misery index, the combination of inflation and unemployment is a central measure for the delivery of government services.
Poverty. Rates of poverty are a good indication of the effectiveness of long term delivery of public services. High rates/ and or rising rates suggest major structural problems.
Taxation levels. High rates of taxation will need to be balanced by high rates of income to ensure that levels of disposable income are not damaged. Decisions must also be taken about the way the taxation system is managed and how progressive it is: Does the CEO of a large enterprise pay less tax than the secretary? Does the government collect the tax that in theory the economy should be generating?
Total government borrowing % GDP. Government borrowing is essentially a tax on current and future generations – the higher the level, the greater the burden. In common with the enterprise, the management of financial headroom permits governments in theory to borrow during recessions and pay down during periods of growth. The Maastricht limit for EU governments was set at 60% – a ceiling that almost all governments have since ignored.
Government GDP % for current expenditure. Rising proportions of governmental expenditure as a percentage of GDP may occur during times of recession, but also in response to investment requirements. What is of more concern is the so called "structural" expenditure requirements. This structural expenditure essentially sets the government break even point – the higher it is, the more the real economy has to generate to keep the country's finances in order.
Government borrowing requirement. This is the second of the Maastricht criteria, and was set at 3%, in a attempt to ensure that governments were broadly living within their annual means. This ceiling has also been repeatedly ignored.
The position of Greece on this balanced scorecard has always been poor. Greek public opinion has always been hostile to the government; Greece has been one of the slowest growing economies in the EU with an extremely poor income distribution. The history of Greece since during the euro has been one of using lower borrowing costs (and the implicit guarantee of the euro) to increase employment in the public sector. The non-public sector has continued to rely on the service sector (especially tourism and tourism related construction) for employment, and this received little investment.
Organising for delivery
From an analysis of what functions the system is required by its customers, the polis, to deliver one can sketch out an organogram to improve delivery. This would consist of seven separate departments:
An office of chief executive sharing powers with a president (best practice in corporate governance) which supervises the Central Bank, tax collection and expenditure;
A Ministry of Economic Development which combines employment and income functions (replacing the Ministry of Finance, the Ministry of Employment, the Ministry of Agriculture, The Minister for Business, The Minister of Fisheries the Ministry of the Budget etc, etc);
A Ministry of External Relations;
A Ministry of Health and Social Services;
A Ministry of Education;
A Ministry of Local Government;
A Ministry of Civil Defence (which would incorporate police and paramilitary functions, justice and prison services while closing down the Ministry of Defence).
This would then create a much cleaner decision making system at the top of government with only 7 ministers. It would also reduce one of the major job creation programmes in many countries – the appointment of ministers for the most minor and time filling roles. It also escapes a common problem of many administrations in removing the "money minister" who becomes essentially partially equal (or more than equal) to the prime minister because of the powerful position that distribution of resources always provides. This suggestion is obviously an exercise in blank sheet planning as it ignores the historic structure of ministries and how government has traditionally been organised.
Greece has always maintained a plethora of ministers as part of the normal policy to pass around the benefits of office.
Building KPI's for each department
Once this delivery system has been created, one can turn to the analysis of the relevant KPI's for each department and the relevant European benchmarks to identify where Greece stands in reality rather that some rose-tinted perception of its "culture" or "rich history". What is important is not that a country should be perceived as "modern", but rather that is should be perceived as "efficient". It is surely on this basis that KPI's should be chosen.
1. The office of the Chief Executive or Prime Minister
The office of the Chief Executive on this basis would operate under the mission statement of "providing the greatest overall level of voter satisfaction at the lowest possible cost"
An analogy with a chief executive in the private sector would see the Prime Minister responsible for the overall direction of the country. This would suggest that the Prime Minister should be judged on both strategic and implementation targets. These should include the balanced scorecard components (see above) and key measures of management effectiveness:
Major project success. The CEO is responsible for major expenditure and the ability of the governmental machine to deliver on time, budget and specification.
Corruption. The CEO is responsible for ensuring that the governmental machine operates effectively with the minimum of perceived and actual corruption.
Transparency. The higher the level of transparency in key decision making areas, the more likely the governmental machine will operate successfully.
Market competitiveness. Achieving higher rates of market competitiveness will generate additional inward investment. The value of market competitiveness is that it integrates a range of variables into a single measure which can be compared against other competing economies.
Voter turnout. The measure of voter turnout at national elections clearly demonstrates the perceived relevance of the political system to the polis.
Greece has always performed poorly on these criteria. It has one of the worst track records on bringing major projects in on time, budget and specification. It also rates poorly on corruption, governmental transparency and market competitiveness. Voter turnouts have been steadily declining in common with most other European countries, demonstrating clearly the perception that all political parties are following private interests rather than those of the broader country.
2. The Ministry of Economic development
The Ministry of Economic development should co-ordinate the investment policies of the administration to maximise return from the economy. Studies show that the three key drivers of economic growth are increases in population, increases in productive capital, and greater intellectual capital. As Greece, in common with other European economies suffers from an aging population, the emphasis must be on the other two drivers.
On this basis the ministry should operate under the mission/ vision statement of "stable and rising disposable income at the lowest possible cost through investing in productive and intellectual capital"
Disposable income %. The level of disposable income will be central in determining economic growth. This can either generate expansion through consumer spending or through investment via a high level of savings.
Added value. Measuring added value in the economy encourages a focus on high margin activity (specifically manufacturing but also high value added services) and away from areas of poor return (retailing, tourism, restaurants).
Patents per 00000 of population. The ability of the economy to innovate will probably best be measured by the level of patent activity rather than government expenditure on research and development which will often be poorly focussed.
Net business formation. The ease with which businesses can be formed and the willingness of the population to take risks will be measured by the rate of net business formation.
Labour productivity. Overall labour productivity within the economy provides a valuable long term indicator of the effectiveness of economic development.
Training days. The ability of the economy to adapt to changing circumstances will demand an investment in continuing training. Research shows a relationship between the level of continuing training and economic performance.
Capital investment. Plant must be replaced to ensure operating efficiency and improved productivity. The level of capital investment in the economy provides the most useful measure of whether individual enterprises/ organisations are meeting this demand.
Bank lending policies. Ensuring that bank lending is not focussed on one or two sectors (such as tourism and construction) or limited to major organisations will be vital for long term employment creating investment.
Savings rate. The savings rate provides a measure of how much the country can rely on internal resources to generate economic growth provided that the flows are properly managed.
Useful life index. All infrastructure and plant have finite lives. Maintenance and replacement will be continually necessary. Maintenance will also be more expensive if the asset has substantially deteriorated. Identifying the useful life of all main infrastructure components provides a measure as to how well the state is performing in controlling this vital part of economic development.
Subsidies % GDP. Though a crude measure, the level of overall subsidies provided to various parts of the industrial base give an overall indication of the likely effectiveness of government expenditure and management of economic development.
Monopolies. Monopolies reduce industrial efficiency. Measuring the monopoly rate will identify structural problems within the economy that must be managed.
Utility cost. The lower the overall utility cost, the greater the chance of adding value within both service and manufacturing sectors.
High speed Internet access. The percentage of the population connected to high speed Internet is becoming a more and more important component in competitive advantage.
Cost per ton kilometre by rail. Across most economies the percentage of final product cost accounted for by transport is around 7% though there are wide variations. A substantially higher physical distribution cost can have significant effects on competitive advantage.
Cost per passenger kilometre by rail. Rail systems provide competitive advantage in transport when properly managed.
Motorway miles/ 00000 population. The maintenance of a motorway system is central to achieving effective road transport management.
High speed train track/ 000000 population. High speed train networks when properly designed and supported by effective investment appraisal have significant economic impacts.
Average vehicle speed. Measures of average vehicle speed provide an indication of congestion and the need for improved road management.
Port turnaround speed. The ability of ports to move goods inward and outward will again be an important measure of economic viability.
It is in the analysis of economic development KPI's that the true mediocrity and poor management of the Greek economy for decades becomes starkly apparent. On all measures the country does not operate or attempt to operate as an advanced economy. Subsidies are bloated with, for example, all priests being on the public payroll while the Church is allegedly the largest landowner in Greece). Costs on the rail system are so high that it would be cheaper to put all passengers into taxis for free according to a Minister of Economic Affairs. Net business formation is low because of high regulatory barriers; the useful life index is one of the worst in Europe.
3. The Ministry of External Relations
For the average inhabitant, the most important elements in foreign policy will be the ability of the country to live in harmony with the world community and generate favourable trade opportunities to enhance the quality of life.
From this analysis, the vision statement of the ministry should be: "To encourage peaceful relations with the world community while driving economic expansion and inward investment".
Cost % GDP. The cost of the external relations programme (including all foreign visits by legislators) will be important in measuring its overall effectiveness.
Outstanding disputes. Conflicts are resource intensive, reducing them improves the operating effectiveness of the state.
Number of trade missions. The support given to industrial sectors through well structured and supported trade missions can significantly improve the overall share of world trade.
Export growth. There is a clear relationship between export growth and increases in GDP. Ensuring that this is part of external relations will focus this department on this aspect of trade development.
FDI per capita. Levels of inward investment are also strongly linked to GDP growth. Ensuring that this is part of external relations will focus this department on this aspect of trade development.
Foreign students. Long term relationships with the world community are substantially enhanced by the presence of foreign students, who will (hopefully) take away a positive image of the country which will influence their future behaviour.
Greece has always had a high cost of external relations for its size, and with a lack of clear definition of responsibility and authority for other functions there has been little progress on external conflicts and trade development.
4. The Ministry of Health and Social Services
A healthy population is more productive and happier than one that is unhealthy. It is far cheaper to prevent rather than cure health and social service problems.
On this basis the vision statement of the Ministry could be summarised as: " Creating and maintaining a healthy population requiring the minimum of intervention at the lowest possible cost"
Cost % GDP. The overall cost to the stakeholders of the health and social services will obviously be a key performance indicator.
% Private medicine. The importance of the private sector will indicate general approval/disapproval of the public sector; it will substantially raise overall health costs, and will reduce the incentive for the elites to improve public provision.
Life expectancy. The effectiveness of the health and social services system will be measured at least in part by average life expectancy.
General practitioners/ population. As over 97% of contact with the health system will be via the general practitioner, the numbers per head of population are a key element in the management of the health system.
Hospital waiting times. Though overall hospital waiting times provide a crude measure of the effectiveness of the hospital system (as they must be weighted for urgency of procedures) they are a useful overall indication of performance.
% Obesity. Obesity levels have a clear link with long term health problems.
% Smoking. Smoking levels have a clear link with long term health problems
% Alcoholism. Alcoholism levels have a clear link with long term health problems
Water. The percentage of the population with access to clean water is a key health performance indicator.
Water treatment. The percentage of the population with access to water treatment is a key health performance indicator.
Air pollution. Levels of air pollution are an important health performance indicator.
% Social housing. Research suggests that adequate levels of social housing significantly reduce social problems.
Greece has a lack of clarity in its health and social services provision. It accounts for a significantly higher than benchmark expenditure per individual than elsewhere in the European Union with a high use of private medicine. Other public health measures such as sanitation are also poor and there is limited social housing.
5. The Ministry of Education
The introduction to economic development stressed the need for the economy to add to its intellectual capital, though this obviously must be focussed for specific medium and long term needs, and cannot be purely education for education's sake.
This basis suggests that the mission statement for the education system should be: "To enhance the long term value of education to the individual and the state through focussed investment in knowledge and skills".
Employer satisfaction. The evaluation of the employers (both public and private) on the value of the education system will provide a valuable indication as to its effectiveness.
Cost % GDP. The overall costs of the education system will obviously be an important performance indicator.
Average class size. The average class size provides one measure of education performance.
% Private education. The importance of the private sector will indicate general approval/disapproval of the public sector; it will substantially raise overall education costs, and will reduce the incentive for the elites to improve public provision. It will also substantially reduce the degree of social mobility.
Level of basic skills. The education system must first of all deliver basic skills in reading, writing and arithmetic.
Vocational qualification levels. The ability of the education system to deliver quality vocational training is perhaps the most important leading indicator of long term economic development.
University education levels. The university education KPI will be a combination of the percentage of the population entering tertiary education and the quality of the output.
Social mobility. Social mobility is one of the most important output measures of the education system, especially the measure of educational resistance (the measure of the ability of the poorest socio-economic groups to rise through the educational system.
Greece has a high cost of education relative to GDP coupled with high staffing levels, neither of which is not matched by other output criteria. It scores poorly on basic skills, vocational qualification levels and the quality of university education. It has, as might be expected from the previous output measurements, a poor degree of social mobility, and a high level of private education expenditure.
6. The Ministry of Local government
Local government should be a central part of the management of the state, with the maximum possible decentralisation of power, to improve the potential for local decisions being matched with local demands.
The mission/ vision statement for local government should be to: maximise local satisfaction via delivering the maximum possible level of services at a local level at the lowest possible cost.
% GDP. The total cost of local government is obviously a key performance indicator, but must be judged against what local government is directly responsible for.
Voter satisfaction. The measure of voter satisfaction with local government services should be central in any management review.
% Total taxes collected locally. Decentralisation of authority and responsibility in many areas should lead to increased efficiency. Decisions on expenditure in primary and secondary education, local roads, housing and small scale industrial development, police and fire services should probably all be vested in local authorities. This type of investment will obviously require substantial tax raising powers.
% By value local planning decisions. Decentralising planning powers will improve the ability of the system to deliver what the local community wants – some will be obstructive and others supportive, but this should be the local choice.
Cleanliness/ maintenance. The broken window theory has important implications for local government, with greater efficiency in maintaining the local environment leading to greater cohesion.
Complaints.The level of complaints will provide a valuable measure as to the efficiency of the local government system.
Voter turnout. A declining voter turnout provides clear evidence of a failure of local government to provide relevant support to the local community.
Care of the elderly. With an aging population and the decline of the extended family, the ability of local government to deliver effective care for the elderly will become more and more important.
7. The Ministry of Civil Defence
Over time the role of both the judicial system and the armed forces over time has changed from the protection of the citizen (against invasion by a foreign power and the protection of life and limb) to the external and internal projection of statist power. This has had major consequences for the citizen with the loss of control over a vital part of the state apparatus.
A new mission/ vision statement for the new Ministry of Civil Defence which incorporates the armed services and the justice system should be: "to protect the civil population at the lowest possible cost".
% Cost. The total cost of the judicial system and the armed forces must be measured against benchmark and output criteria.
Homicide/ population. The level of homicides in the population will provide the best comparable measure of overall violent crime and the effectiveness of the system in protecting the polis.
Prison population/ population. The number of prisoners as a percentage of the population provides a measure as to how effective the balance between retribution and reformation is in the justice system.
Police numbers/ population. The manning structure of the police services should be constantly under review.
Complaints. The volume of complaints within the legal system provides an important measure of how well it functions and how well it is perceived.
Military personnel/ population. The number of personnel employed in the armed forces as a percentage of the population will be important for any review of governmental effectiveness.
Litigation costs per hour % average income. Justice denied is no justice. Access to the law will be important in maintaining a functioning system both for the individual and for the business.
Civil liberties. External measurement of civil liberties will provide one objective measure of how well the justice system functions, and whether checks and balances are being maintained.
Press freedom/ independence. External measurement of the level of press freedom and independence will provide information about whether checks and balances within the justice system are being maintained.
Greece has one of the highest rates of expenditure on the military in the EU, for no discernible purpose. Levels of violent crime are low, with a better than average prison population and police numbers throughout the country.
What lessons can we learn from the Greek experience?
It is clear that the lack of a formal planning and review system within European administration was a major cause of the Greek failure. The EU failed to adequately analyse Greece prior to its accession, and certainly continued to fail to monitor its performance.
Secondly, the use of limited review tools made it easy for the Greek administration to present a false picture of the economy. Though it is quite correct that using too many review points causes the classic problem of metrics (just because you can measure it, you should), too few are equally disastrous. It is here where the creation of key performance indicators are vital.
Thirdly, when a problem is identified, action must be immediately taken to correct it. Unless such action is taken, the experience of fiddling while Rome (in this case Athens) burns will be inevitable.
Fourthly, the emphasis of elites in maintaining a particular policy direction need to be continually questioned both internally and externally as otherwise there is no possibility of a self correcting mechanism but one that will rely on violent change.
Survival and recovery
This analysis of Greece demonstrates that the system is broken, and has been broken for a long time. A lack of functionality has been matched by a lack of will to deal with the important issues, and supported by the acceptance of the EU of moral hazard within their member states of which Greece has taken advantage.
The action that is required must occur at two levels – the nation state and supra national co-ordination. The nation state must re-direct resources towards industrial growth (initially by supporting existing national champions, by improving net business development and then developing new industrial champions), effective investment in economic development and away from wasteful statist behaviour. At a supra national level, the importance of moral hazard must be backed by appropriate sanctions.
The Ibis team developed the key performance indicators in this article as part of a blank sheet planning exercise on the Greek economy. It follows their normal analytical framework for the development of quality planning systems within organisations, creating an initial backbone for plan delivery and monitoring. They can be contacted via e-mail at Ibis