Environment and Planning C: Government and Policy, 1990, volume 8, pages 455-476
Regional distribution of industry and the role of the state in Greece L Labrianidis Department of Economics, Graduate Industrial School of Thessaloniki, PO Box 10380, 54110 Thessaloniki, Greece N Papamichos Department of Urban and Regional Planning, University of Thessaloniki, 54006 Thessaloniki, Greece Received 15 May 1990; in revised form 11 July 1990
Abstract. This paper is an examination of how state policies have influenced the spatial distribution of industry in Greece throughout the period after World War 2. The focus is only on those aspects of state policy that directly influence the spatial distribution of industry, that is regional policy, which was always orientated, in theory at least, towards the vague notion of the 'more even' regional development of the country. It is argued that state regional policies were not on the whole successful. The regional incentives system for industry in particular, which was the most important instrument of state regional policy, was quite inadequate, and, moreover, its cost to society increased steadily while its contribution towards a more even spatial distribution of industry was marginal. That is, the incentives system does not seem to have facilitated the regional reorganisation of industry in the sense of diminishing the spatial inequalities in the distribution of industrial activities. It was not 'accidental' that the regional incentives system, with its innate weaknesses and increasing cost, survived for so long, despite the fact that it was ineffective. Its survival can be explained in terms of the particular characteristics of Greek society, such as the predominance of the political over the economic sphere and the prevalence of clientelism in politics. In such a context the innate weaknesses of the incentives system allowed certain groups of people to enjoy economic benefits with noneconomic means. 1 Introduction In Greece, industry, especially 'large' establishments ( 1 ) , was heavily concentrated geographically throughout the period after World War 2, far m o r e so, in fact, than before the war. Since the late 1970s, however, some trends have a p p e a r e d that point towards a m o r e even spatial distribution of industry, primarily through the creation of new firms in peripheral areas. In this p a p e r we focus o n how the state has influenced the spatial distribution of industry. We discuss the role of the state and in particular its regional policies, by analysing t h e regional incentives for industry which are the most important state policy in this field. Moreover, we attempt to give an account of the actual results of this policy in the country and particularly in the north. This is the first attempt at a systematic evaluation of the innate weaknesses of all the incentives legislation p r o d u c e d so far, as well as of the implications of this legislation, based on the investment projects realised u n d e r its provisions. ( 2 ) T h e evidence concerning n o r t h e r n G r e e c e in particular is based on primary sources, derived from the unpublished records of the Ministry of Finance ( 3 ) . (1)
In the Greek context this means establishments with more than ten employees. There is an extensive literature on industrial location as well as on regional incentives for industry, as is indicated in the list of references below. However, most of them tend to be inconclusive descriptive evaluations, either of individual laws (for example, Hatzigrigoriou, 1982) or of series of laws (for example, Drillerakis, 1979; Lemonias, 1985). (3) These are records kept for individual firms and kept separately for each law of the regional incentive legislation. (2)
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L Labrianidis, N Papamichos
The basic argument advanced here is that, because of the innate weaknesses and contradictions of the incentives system, its contribution towards a more even spatial distribution of industry was marginal, while the cost to society of the incentives increased steadily. However, the most important question to be asked is how such an inadequate and ineffective system remained in force for such a long time. It is our view that the answer to this will be found in the particular characteristics of Greek society, that is, the predominance of the political over the economic sphere, which makes state regional policy into a tool that is used to serve the clientelistic interests of Greek society on an ad hoc basis. Such a policy, while it permits capital to realise profits, annuls any attempt at long-term planning. This assertion is supported in this paper by our analysis of the internal logic and effectiveness of the regional incentives system for industry. It must be pointed out here that in this paper we have not applied formal techniques to the estimation of the effects of regional policy, because we believe that these are totally inadequate for the Greek case. Attempts in this direction for Greece (for example, Louri, 1989) reveal only an apotheosis of techniques that are applied without sufficient data, without theory, and worst of all without reference to the general conditions of the society where this policy is practised. Hence, we draw 'softer' conclusions (for example, a policy has been more succesful in such and such a region than in another, but we cannot say how effective it has been in either). 2 The spatial distribution of industry and the regional policies of the state Industrial activity in Greece was unevenly distributed throughout the period after the World War 2, being primarily concentrated in the prefectures of Athens, Piraeus, and to a lesser extent Thessaloniki, whereas before the war the spatial distribution of the young industry was much more even (Kottis, 1980, among others). The postwar period can be divided into three main subperiods with quite distinctive characteristics with regard to the spatial distribution of industry and the state policies pursued. 1948-62 This was the period of political and economic 'stabilisation', and regional disparities were not taken explicitly into consideration. There were, however, state policies with very important regional implications. Such were the large-scale projects undertaken in rural areas (for example, irrigation, electric power, and telecommunication networks) which had immense regional implications as they contributed to the unification of the Greek market and facilitated the movement of factors of production. In this period, the key factor that shaped industrial location trends was the lending strategy pursued. This greatly increased the concentration of industry in the prefectures of Athens and Piraeus (Ellis et al, 1964, page 273; Kafkalas, 1984, page 83). 1962 - 73 This was a period of unprecedented industrial accumulation. The spatial concentration of industry continued, together with increases in the regional disparities in the distribution of income (Kottis, 1980). The spatial distribution of industry was no longer determined primarily by the state, but by the locational choices of private capital and the comparative advantages offered by each region for the development of particular industries. Of central importance for the spatial distribution of industry was the strategy pursued by foreign capital, extensively invested in Greece under the auspices of a very favourable law introduced in the 1950s (law 2687/53). Athens was not as attractive to foreign as it was to indigenous capital. Foreign capital investments presented a kind of spatial dispersion which was mainly a result of the nature of these investments (that is, they were primarily large concerns, with vertical
Regional distribution of industry in Greece
457
integration and transactions with other firms abroad, etc). This same nature, however, meant that the dispersed location of these firms did not result in the promotion of economic activity in the regions where they were located (for example, through economic transactions with other companies in their region). They remained more or less 'parachute industries' and did not contribute significantly to the development of their regions. 1974 - today This has been a period marked by the stagnation of investment and restructuring of production. The spatial pattern of economic activity is more the outcome of the spatial implications of disinvestment and the restructuring of existing industrial concerns than the outcome of new investments. The distribution of the negative consequences of the crisis reflects the ability of each region to adjust to the new conditions, as well as reflecting its position in the framework of the national and international division of capital. Recently the spatial distribution of manufacturing establishments has changed in favour of the peripheral regions of the country. However, this trend is weak, and up to 1978 there was a pattern of continuous growth of the prefecture of Athens and the other developed prefectures in central Greece and Macedonia, while the rest of the country was displaying trends of decline. However, the reduction in the rate of growth for industrial establishments and the severe reduction in the rate of growth for industrial employment in the prefecture of Athens since 1978 might be primarily a result of the reduction of employment levels in companies of a particular size only (Coutsoumaris, 1976). Hence, one might argue that there was a selective decentralisation of only some sections of the production activity, which resulted in the creation of a new spatial hierarchy and a new polarisation. In this paper we attempt to give an account of the extent to which the state influenced the regional distribution of socioeconomic activities through its regional policy.(4) Explicit regional policies appeared in Greece for the first time in the late 1950s, and the most important instrument was the system of regional incentives that was primarily directed at industry, which forms the main focus of the paper, as well as the regional distribution of public investment (that is, provision of the social and physical infrastructure). In particular, the spatial distribution of public investment indicates that the distribution of per-capita public investment in the various prefectures often contrasted with the incentive zone into which each prefecture was classified by the regional incentives legislation for industry [for the period 1 9 7 5 - 7 9 see Andrikopoulou-Kafkala (1984, pages 260-264)]. Moreover, the industrial estates (BIPE), which were introduced as part of the industrial location policy in the 1960s, also failed. The programme began with the creation of BIPE near the capitals of prefectures displaying trends of fast industrial growth, and the long-term objective has been the construction of BIPE in every prefecture. However, up to 1977 only two BIPE were in operation (in the heavily industrialised cities of Thessaloniki and Volos), in 1980 there were eight, and in 1986 nineteen. Only a small number of firms decided to locate in BIPE. In 1985 on average BIPE contained as few as 0.6% of the manufacturing establishments and 6.2% of employment in their prefectures. Firms' restricted use of BIPE can be accounted for by the peculiarities of the context within which BIPE policy has been carried out. For instance, in a country in which the informal economy has been thriving for a long time [and which constitutes an addition of at least 30% to the <4) The regional policy of the state, as well as its other policies, is an almost direct reflection of the balance of power between the different socioeconomic forces prevailing at any moment. Hence, the emphasis at times may be on the attempt to create and preserve the necessary conditions for accumulation to continue, and at others on the attempt to secure social cohesion.
L Labrianidis, N Papamichos
official gross national product (Pavlopoulos, 1987)], it seems logical to assume that the small firms that constitute the overwhelming majority of Greek firms try to avoid any control that locating in a BIPE might imply for them. Most of the firms that locate in BIPE are footloose, controlled to some extent by foreign capital, use modern technology, and operate independently of the local economy (Papamichos and Tsoulouvis, 1987). The regional implications of other state policies such as those on tourism, agriculture, infrastructure, transportation, communications, housing, and on particular industrial branches, such as nationalised industries, which are very important (see for example Bennett and Krebs, 1989), were, one suspects, characterised by the same contradictions and were equally ineffective. However, the spatial implications of these state policies tend to be underestimated (both by researchers and by political parties), and the extent of their practice is even more underestimated, and they have not been studied as yet (see Hadjimichalis, 1988). As to the regional development projects pursued in the context of EEC policies (for example, the integrated Mediterranean Programmes), they too failed to alter the unplanned character of Greek society. Hence, they were themselves introduced simply as lists of public works rather than as programmes. 3 Regional incentives for industry The incentives for the regional distribution of industry were not the only ones offered to industry in Greece. In fact, Greek industrial incentives can be divided into eight main groups according to the purpose for which they were granted. There were incentives to stimulate regional development, related to large investments, to attract capital from abroad, to favour export enterprises, to promote the creation of larger enterprises, to protect domestic industry, to protect the environment, and exemptions from import duties and other taxes. Incentives with a regional dimension appeared in Greece for the first time in 1922. They began to be systematised and acquire a certain importance in 1952, and since 1972 their importance has markedly increased. (5) The increasing importance of regional incentives during the 1970s (Giannitsis, 1983, page 96) was a result, on the one hand, of a realisation about the adverse consequences of inequality in the spatial distribution of population, resources, financial development, cultural activities, etc. On the other hand, it was a result of the prospect of Greece becoming a full member of the EEC. That is, the fact that EEC policy discourages almost all incentives except those concerned with regional development led to a gradual shift of emphasis in the Greek incentives system towards regional development. Throughout the period studied, seventeen basic categories of regional development incentives were introduced.^ The historical evolution of the different categories of regional incentives shows the great emphasis placed on indirect subsidies up to the late 1970s. However, since then the emphasis has almost reversed, in favour of direct subsidies (table 1). This shift was primarily a result, once again, of EEC policy, which favoured direct incentives. In EEC countries there was always an emphasis on capital grants [(in 1974 they constituted on average 75% of all regional incentives offered (Vanhove and Klaassen, 1983, page 150)]. This picture was totally different from that which existed in Greece before the attempts to harmonise its policy with other EEC countries when it became a full member of the Community <5> All West European countries have had experience of such policies over the postwar period and now regional assistance is also a major part of EEC policy (Bennett and Krebs, 1989). <6> These seventeen categories of incentives are more or less included in the twenty-three main categories offered in the various member states of the EEC (Vanhove and Klaassen, 1983, pages 145-148).
Regional distribution of industry in Greece
459
in 1981. However, one suspects that, if the total cost of the regional incentives in Greece could somehow be estimated, the ratio of direct to indirect subsidies would still be the reverse of the E E C average. The regional incentives system had many problems which rendered it ineffective. These problems have been grouped together below in four basic categories. (1) First, the regional incentives system operated with nonobjective criteria. This in turn was manifested in four main ways which are analysed below. (a) The incentives system was remarkably complex. At each moment a number of different laws were in force, as each new law was introduced without abolishing all the provisions of the previous ones. Also, in these laws (Drillerakis, 1979, pages 1 8 6 - 1 8 7 , 1 9 0 - 1 9 1 ) there were often different definitions for the same thing (for example, tax-free reserves and investment) which led to confusion. Moreover, the number of incentive zones the country was divided into, as well as the relative position of each prefecture, changed frequently (Labrianidis, 1989). The legislation also changed remarkably frequently(7); in fact, since 1952, no law has been in force for more than two years, and this period becomes even shorter if the amendments and supplements to the legislation are taken into consideration. On top of all this, the various articles of the same law were, very often, in force for different periods of time! This complexity in the legislation meant that the benefits of the incentive system could be reaped mainly by large and organised firms. Hence, if one takes into account that the great majority of manufacturing firms throughout the period employed fewer than ten persons (8) , one may conclude that only a tiny fraction of firms in Greece was likely to apply for the regional incentives. This complexity, in juxtaposition with the duplication of responsibilities between the various government departments, made any form of control by the state impossible. (b) The evaluation of investment projects for their inclusion in the incentives legislation had in practice become a responsibility of the banks. This was a result of the necessity of securing a bank's support, as this was the only form of finance available, because the lack of a capital market. As the Centre for Planning and Economic Research (CPER) reports (1980, page 36), no application was actually submitted for inclusion in the regional incentives legislation unless the financial support of a bank had already been secured. However, the banks, though they operated under the rigid control of the state (Xanthakis, 1986), tended to have their own criteria for the evaluation of investment proposals. Their criteria were 'commercial' and very often differed from those set by the incentives legislation, which emphasised the contribution to the country's economic development. Moreover, potential investors were hindered by the extremely high barter insurances that were required by the banks in order to secure their money and by the bureaucracy in the banks which delayed decisions on their applications (Committee on Anti-Incentives, 1979, page 25; CPER, 1980, pages 2 1 8 - 2 2 4 ; Kintis, 1980, pages 3 4 - 3 7 ; Xanthakis, 1986, page 234). (7) In the period 1 9 4 8 - 8 0 , forty-seven laws, compulsory laws, and legislative decrees were issued, together with eighteen decrees, five acts of the Council of Ministers, seven ministerial resolutions, and twenty-one resolutions of the Monetary Committee (Andrikopoulou-Kafkala, 1984, pages 1 5 2 - 1 5 6 ; CPER, 1980, page 34; Hadjisokratis, 1982, page 16). (8) Establishments with 0 - 4 employees constituted around 85% of the total number of establishments throughout the period, and those with 5 - 9 employees 8%. The number of persons employed in establishments with 0 - 4 employees was around 30% of the total number of persons employed in industry, and that with 5 - 9 employees 1 1 % (NSSG, various years). The importance of these small firms has been only slightly reduced during the period after World War 2.
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L Labrianidis, N Papamichos
Table 1. Categories of incentives by individual laws governing the regional development of industry, Greece: 1952-today (source: Greek Government Gazettes). Categories of incentives
LD2176/52 A
B
C
LD2901/54 A
B
C
L3213/55 A
B
LD4002/59
C
A
B
C
L4171/61 A
B
C
1. Establishment-expediency licences 2. Preferential purchase of products by the public sector 3. Reduction of turnover tax for (%): a. existing industries b. industries that are being established or relocated
20
30
-
20
30
-
20
30
-
20
30
-
20
30
30
40
-
30
40
-
30
40
-
30
40
-
30
40
4. Reduction of import duties, burdens and taxes for the import of machinery, components, and spare parts (%)
50
5. Prohibition on imposing any local tax or duty
-
6. Interest subsidy for fixed investments, expansion, modernisation, and relocation (%) for: a. equity loan b. bank loans or credits c. industrial estates (additional) d. minimum interest rate payable by the firm e. minimum amount of investment to be covered through firm's own funds 7. Increased depreciation rates for buildings, machinery, and other installations for (%): a. 1 shift b. 2 shifts c. 3 shifts 8. Compulsory expropriation of land is allowed 9. Deductions (%) from net profits for: a. coverage of future damages b. new installation or expansion and improvement of existing ones c. creation of working capital 10. Reduction of social security contributions (%)
- 2 0 20 _ _ _
-
50 •
•
50 -
50 •
•
100 100 _
•
_ _
_ _
_ _
_ _
_
_
_
_
_
_
_
100 100 100 100 100 100 _
•
25
25
•
_
_
200 200 200 200 200 200 -
•
•
37.5 37.5
•
•
-
200 200 200 200 200 200 _
•
•
100 100
•
_ _
•
•
•
_ _
_
•
100 100 _
20 - 2 0 20 20 20 20 _ _ _ _ _ _ _ _ _ _ _
-
•
•
• •
-
•
•
• - • _ _ _ _
• • _ _
_
200 200 200 200 200 200 _
• 25
•
_
200 200 200 200 200 200 _
-
•
•
25
40
25
40
-
40
80
100 100 100 100 100 100
10
20
10
40
_
20
10
20
11. Capitalisation of social security debts and of any kind of taxes due to the public sector 12. Reduction of the tax for third parties on the income of workers and employers (%) 13. Reduction of burdens, duties, etc on contracts for the construction and fitting of plant facilities (%)
100 100 -
100 100 -
100 100
90
90
14. Grants for: a. covering expenses for the erection of buildings (%) 1.1. low financial support branches 1.2. moderate financial support branches 1.3. high financial support branches 2. maximum amount of grant 3. minimum participation with own capital (%) 4. industrial estates or areas with special regional incentives (additional) b. limiting pollution, economising on energy, industrial laboratories c. relocation from zone A 15. Reduction of the property transfer tax (%) 16. Granting of loans without interest for (%): a. relocation from zones A and B to: 1. areas of continental Greece 2. islands b. production investments to: 1. areas of continental Greece 2. islands c. limiting pollution, establishing or expanding research laboratories d. economising on energy e. minimum participation with own capital 17. Incentives for the workforce: a. to change residence b. rent allowance Note: CL compulsory law, CM act of the Council of Ministers, L law, LD legislative decree; A, B, C, etc are the regional incentive zones; • means that the incentive was offered in the zone, - means that it was not.
Regional distribution of Industry in Greece
Table 1 (continued) CL147/67 A
B
-
LD1078/71
C
A
20
30
30
40
-
B
C
LD1312/72 A
B
C
LD1377/73 D
A
B
C
L289/76 D
A
B
C
D
E
20
30
25
25
50
50
25
25
50
50
25
25
50
50
75
30
40
-
25
50
50
-
25
50
50
-
25
50
50
75
- 100 100 - 100 100 - 100 100 100 - 100 100 100 - 100 100 100 100 - • • - • • - • • • - • • • - • • • • 27
67 47 13 2
24
13 3
53 33 13 2
- -
40 25
50 35
70 70
12 3
60 42 12 2
12 3
40
40
30
25
3
3
2
2
1
40
40
30
25
40
40
30
25
15
25 50 75
100 150 25 200 50
25 50 75
100 100 150 150 20 200 200 50
25 50 75
100 100 150 150 25 200 200 50
25 50 75
100 100 100 150 150 150 200 200 200
25
40
50 10
100 20 20 -
50 10
100 100 20 20 -
50 10
100 100 20 20
50 10
100 100 150 20 20 25
10
20
20
20
20
20
•
• •
53 53
53 53
53 53
53 53
53 53
3
3
3
3
3
3
13 3
40
40
40
40
40
40
50 50 50
400 800 400 800 25 400 800 50
25
40
-
100 100 100 20 10
20
20
27
24
48 30 12 2
53 53
40
20
40
20
20
20
20
40
50
100 100 -
100 100 -
100 100 100 -
100 100 100
100 100 100 100
90
90
90
90
90
90
90
90
_
_
25 25 25 150 25
40 40 40 400 15
90
90
-
90
90
25 25 25 150 25
- '
_
90
90
25 25 25 150 25
-
462
L Labrianidis, N Papamichos
Table 1 (continued)
C a t e g o r i e s of incentives
L849/78
A
B
CM40/14.3.79
C
D
Ea Eb
A
B
Ca-Cc Da-Dd Ea-Eb Ed-Ef
25
25
50
50
75
75
25
50
50
75
75
100
100
100
100
100
14-28 7-21
21-35 14-28
28-43 28-43
35-50 35-50
7
14
14
14
1. Establishment-expediency licences 2. Preferential purchase of products by the public sector
•
•
•
•
•
•
3. Reduction of turnover tax for (%): a. existing industries b. industries that are being established or relocated
25
25
50
50
75
-
25
50
50
75 75
4. Reduction of import duties, burdens and taxes for the import of machinery, components, and spare parts (%)
-
100 100 100 100 100
75
-
5. Prohibition on imposing any local tax or duty 6. Interest subsidy for fixed investments, expansion, modernisation, and relocation (%) for: a. equity loan b. bank loans or credits c. industrial estates (additional) d. minimum interest rate payable by the firm e. minimum amount of investment to be covered through firm's own funds
-
7. Increased depreciation rates for buildings, machinery, and other installations for (%): a. 1 shift b. 2 shifts c. 3 shifts
25 25 50 50 75
8. Compulsory expropriation of land is allowed 9. Deductions (%) from net profits for: a. coverage of future damages b. new installation or expansion and improvement of existing ones c. creation of working capital
64 64 18 1
18 36 14 27 9 4 4
45 36 18 4
55 55 18 1
40
25
15 15
30
25 50
25 50 75
100 150 200
100 150 200
100 150 200
100 150 200
-
-
•
•
•
•
•
40 70 100 100 100 100
40
70
100
100
100
100
25 60 100 100 150 150
25
60
100 20
100 20
150 25
150 25
20
20
20
40
50
50
100 100 100 100 150 150 150 150 200 200 200 200
20
10. Reduction of social security contributions (%)
20
11. Capitalisation of social security debts and of any kind of taxes due to the public sector
_
12. Reduction of the tax for third parties on the income of workers and employers (%)
-
100 100 100 100 100
-
100
100
100
100
100
13. Reduction of burdens, duties, etc on contracts for the construction and fitting of plant facilities (%)
-
90
-
90
90
90
90
90
25 25 25 150 25
40 40 40 400 15
40 40 40 400 15
14. Grants for: a. covering expenses for the erection of buildings (%) 1.1. low financial support branches 1.2. moderate financial support branches 1.3. high financial support branches 2. maximum amount of grant 3. minimum participation with own capital (%) 4. industrial estates or areas with special regional incentives (additional) b. limiting pollution, economising on energy, industrial laboratories c. relocation from zone A 15. Reduction of the property transfer tax (%) 16. Granting of loans without interest for (%): a. relocation from zones A and B to: 1. areas of continental Greece 2. islands b. production investments to: 1. areas of continental Greece 2. islands c. limiting pollution, establishing or expanding research laboratories d. economising on energy e. minimum participation with own capital 17. Incentives for the workforce: a. to change residence b. rent allowance
20
20 25 25
_
20 40
50
_
_
_
90
_
90
90
50
_
90
_
25 40 40 25 40 40 25 40 40 150 400 400
25 15 15
-
_
_
_
_
_
_
_ _
_ _
_ _
_ _
_ _
_ _
-
-
25 25 - - _ _ 20 20 25 -
-
5050
35 50 50 50 50 40 55 55
-
25
25
35
50
50
35 55 55 40 40 60 60 60 60
-
-
5-25 10
10-40 15
20-45 25
20-60 25
50 50 50 50 50 50 35 35 35 35 35 35 35 35 30 25 20 20
-
Note: CL compulsory law, CM act of the Council of Ministers, L law, LD legislative decree; A, B, C, etc are the regional incentive zones; • means that the incentive was offered in the zone, - means that it was not.
463
Regional distribution of industry in Greece
Table 1 (continued)
L l 116/81
CM45/81
A
A
Ba-Bc
Ca-Cc
25 50
25
25
50
-
25/50
50
75
25
-
25
50
-
25/50
50
75
100 100
-
100
100
-
100
100
100
30 30
50 50
20-30
20-30
40-50
-
10-25 15-40 20-50 10-25 15-40 20-50
-
25 50
25 50 75
50 100 150
-
25 50
25 50 75
50 100 150
-
20 40 80
35 70 120
20
50
80
20
50
80
40
55
20
20
20
20
20
20
100
100
-
100
100
10-20 15-20 20-30
30-40 35-45 40-50
-
10-25 10-25 10-25
15-40 15-40 15-40
35
25
25
B
C
50
L1262/82
20 40
50 100 150
70 50
100
90 90
20 25 30
40
40 45 50
40 40 30 50 50
-
-
-
-
-
15
-
-
50
-
-
25
25
5-25 10
20-50 20-50 20-50 15
464
L Labrianidis, N Papamichos
(c) The legislation had only positive incentives, that is, incentives to attract industries to certain regions. It did not contain any negative incentives or anti-incentives (a 'stick and carrot' policy) which would have prevented the location of certain industries in some areas (Hadjisokratis, 1982, page 23; Kintis, 1980, page 62; Kottis, 1980, pages 181-182), such as the Industrial Development Certificate in Britain. The consequences of this were aggravated further because of loopholes in the legislation that led to the granting of incentives even in zone A! (See table 1.) (d) Applicants were not treated equitably. The legislation left to the discretion of the responsible ministers the designation of the level of incentives to be offered in each particular case, as only the highest levels were laid down in the legislation (table 1), the requirements for granting the loan, the appropriate documents that should be submitted, and, most important of all, the expediency licence itself. The fact that the incentives legislation left a substantial margin for action to the responsible ministers meant that criteria of a noneconomic nature (such as the interests of a particular investor, political pressure, etc) could influence their decision. In fact, ministers very often abused the wide margins given to them. For instance (Ellis et al, 1964, pages 184-185), often no expediency licence was issued, with the excuse of a supposed abundance in the sector; in this way new firms were prevented from entering the market. The 'connections' that a firm had with decisionmaking ministerial officials or even with the responsible ministers themselves gave it the opportunity to gain financial benefits by employing noneconomic means. In Greece, politics have never ceased to have the upper hand in determining the rules governing the everyday operation of the economy, in the sense that the market has never become relatively autonomous from politics. Thus political criteria, which operate within the network of political patronage and clientelism, not only distort the economic function of the incentives system but in general play a very important role in the appropriation of financial returns (Petmezidou-Tsoulouvi, 1987, pages 1 8 2 - 2 2 8 ; Tsoulouvis, 1987). Moreover, the opportunity for some investors to secure an income by employing noneconomic means has serious implications for the structure of industry, because it impedes attempts to reinforce the competitiveness of industry (Coutsoumaris, 1963, pages 3 1 7 - 3 1 9 ; Ellis et al, 1964, pages 179-191). It also creates a climate of uncertainty among potential investors because, when they are deciding on the kind and size of a potential investment project, they cannot estimate the amount of incentives that they might receive,' if any. On the contrary, an 'automatic' scheme of assistance, such as the Regional Development Grants in Britain (which accounted for about 85% of expenditure on regional investment incentives in the period 1972-85) has many advantages: it is straightforward, quickly and inexpensively administered, and its availability and value are readily calculable by businessmen who can take them into account at an early stage in planning'and financially appraising their investments (Begg and Mcdowall, 1987, page 460). (2) The second main problem of the incentives legislation concerns the extensive controversies surrounding it, which are classified into three main groups and are analysed below. (a) The aims of the policy were never spelled out clearly [for example, in the case of Britain, the Distressed Areas have usually been defined by criteria of unemployment levels or pressures for economic adjustment (Ashcroft and Taylor, 1977; Bennett and Krebs, 1989)], something that was characteristic of most state policies. This lack of a clear-cut regional policy is reflected in the regional incentives for industry. Hence, the definition of the areas that were classified in each zone, the differentiation of the incentives system between the zones, and the changes that took place were not
Regional distribution of industry in Greece
465
based on experience from the enforcement of previous laws. Moreover, they were not based on the level of development of the various areas. For example, the financial support granted to the various zones in the period 1 9 6 3 - 7 8 was not related to their level of development (Kioukis and Papakonstandinidis, 1985, pages 246-269). The zones which were considered more problematic got less financial support, and vice versa. Last, as is shown later (section 3), the zones were not based on the spatial distribution of industrial activities. This is indicated by the lack of time association between changes in the incentive zones and the publication of industrial censuses by the National Statistical Service of Greece (NSSG). Thus, of the eleven different statutes that regulated the incentives zones some can be understood on the basis of the industrial activity of the areas, their level of development, their comparative advantages or disadvantages, etc, but most cannot. Even the question of whether the emphasis should be on labour-intensive or capital-intensive methods was never answered. Until 1981 the legislation promoted the substitution of labour with capital, because it subsidised the cost of capital, and this had very important repercussions on employment. In particular, the promotion of capital-intensive methods resulted (CPER, 1980, pages 3 6 - 3 7 ; Giannitsis, 1983, page 9 6 - 9 7 ; Kintis, 1980) in the underuse of the comparative advantages offered by the existence of an abundant labour force, in pressures for wage increases, and in the unnecessary leakage of foreign exchange abroad to acquire expensive machinery, which in the end was underused. That is, there was a gross discord between the legislation and the demands and abilities of the society. Since 1981 the level of incentives offered has depended both on the number of new jobs created and on how modern the unit is. That is, the legislation uses two usually conflicting criteria, thus bringing the controversy within the legislation itself. In sum, one might argue that the controversies that existed in the regional incentives legislation were not simply a matter of technical incompetence; they were not 'accidental'. Rather, they were the product of the socioeconomic conditions of the country, in the sense that the more fragmentary and contradictory they were, the more they created opportunities, on the one hand, for those in power to use these laws as a means of adding to their political clientele, and, on the other hand, for those with access to political patronage to enjoy financial gains. (b) The differentiation of the incentives by industrial branch was introduced very late in regional development legislation, and was never systematically employed. It was introduced in 1978 and at first the level of support that each branch received was left to the discretion of the ministers responsible. Later on, the legislation specified the classification of all branches into three groups: of high, moderate, and low financial support. This classification simply related the degree of subsidy for each branch to the level of investment required. The branches which required large amounts of investment fell into the group of high financial support and those which required small amounts of investment fell into the low group (Labrianidis, 1989). This sort of grouping of branches should be seen as the outcome of the lack of a branch policy which, on the one hand, led to timidity and, on the other hand, allowed pressures to be exercised (individual or collective) for a more favourable treatment of certain branches. This lack of a systematic branch differentiation of the regional incentives has contributed to concealing the relative advantages of certain areas as well as to perpetuating the structural problems of Greek industry (Hassid, 1983, page 53). In particular, most of the investments that fell under the regional incentives schemes were in the traditional branches. In fact, there was a clear preference for investments in the branches of moderate and low financial support (table 2).
L Labrianidis, N Papamichos
466
(c) Whereas the incentives for the regional development of industry seem to have been effective in part, the incentives offered for other purposes tended to negate its more even spatial distribution. About 80% of the investment that fell under incentives legislation other than the regional incentives legislation was concentrated in the prefectures of Attica, Thessaloniki, and Corinth, that is, exactly in the prefectures that were considered by the regional legislation as being in need of least support! Moreover, if one takes into account that the industrial investments made with the incentives offered to industry for purposes other than those of regional development involved substantially larger amounts of capital, one can understand that the spatial implications of these laws eventually negated the accomplishments, if any, of the regional development incentives (Labrianidis, 1989). (3) The third main problem of the regional incentives legislation was that they were often offered mainly for the general development of industry rather than its more even spatial distribution. Four main factors are described below which indicate that: (a) Up to 1972 the incentives operated through the tax system. Since then the situation has begun to change (table 1). These incentives (such as the reduction of turnover tax, duties, burdens, etc on imported machinery, the discount of net profits, etc) greatly contribute to the increase in the productivity of firms. However, they have a serious disadvantage: their cost cannot be estimated beforehand by the state. Thus, the state in a sense takes a risk with tax-orientated incentives. This inability to estimate the cost of incentives either beforehand or afterwards leads to obscurity and of course makes an overall cost-benefit evaluation of the incentives impossible.(9) Table 2. Existing investments, and investments entitled to receive regional development incentives, by industrial branch (in percentages) (sources: DPI, 1981a; 1981b; 1981c; Giannitsis, 1983, page 74; Hassid, 1983, pages 94-95; Ministry of Finance, 1988). Industrial branch
Food products and beverages Textiles Clothing and footwear Wood and furniture Plastics Chemicals Nonmetallic minerals Metal products Miscellaneous
Total
Existing investment (fixed capital)
Law Law LD a Law Law 1312/72 289/76 849/78 1116/81 1262/82 (3) (4) (2) (2) (1)
1972
1977
13.2 18.6 2.4 4.3 4.1 11.8 16.2 5.6 23.8
15.9 19.4 2.9 8.2 5.2 5.3 16.5 5.2 21.4
24.6 35.5 2.3 3.7 3.3 1.1 4.0 4.8 20.7
18.1 14.5 9.5 5.3 3.9 4.1 12.0 10.5 22.1
17.4 17.3 1.8 2.2 1.7 4.6 11.0 16.1 27.9
17.4 13.7 2.0 2.6 1.3 7.5 11.4 14.2 29.9
24.0 4.8 4.7 5.5 3.5 5.7 21.2 7.8 22.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Notes: from the introduction of the law up to: (1) 30 June 1980; (2) 31 December 1980; (3) 12 October 1981; (4) 30 April 1985. a LD legislative decree.
(9
> Needless to say, this obscurity was considered to be positive by some. Otherwise, as the industrialists argued (CPER, 1980, page 186; Kottis, 1980, page 219) if the grants to industry were known to the general public, they would have caused unfavourable comments upon industry. In Britain in the 1970s, tax allowances were eroded and grants became the main instrument of policy (Bennett and Krebs, 1989).
Regional distribution of industry in Greece
467
A further disadvantage of some tax-orientated incentives, such as the establishment of tax-free surpluses, is that they do not apply to many firms. They apply only to those that have considerable profits to be taxed (which are very few given the huge tax fraud that characterises the Greek economy). (b) Until 1971, there was a marginal spatial differentiation of the regional incentives. The whole country, with the exception of the prefecture of Attica, was treated by the regional incentives legislation as a single zone.(10) This may stand as an adequate explanation of the concentration of industrial establishments on the borders of the Attica prefecture. Then gradually the rest of the country was divided into zones too and in some cases this was overdone (for example, the Act of the Council of Ministers, 40/14.3.79 distinguished fifteen zones!) The division of the country into many or into few zones and subzones can both lead to problems. The differentiation of the incentive zones was not based on a clear-cut policy (for example, priority in supporting the most underdeveloped, and/or the most dynamic areas, and/or creating new centres of development—see above) but served some obvious and general objectives which in fact rendered the incentives ineffective. That is, at first there was a priority of creating industrial activity outside the Athens prefecture, and later in attracting it to border areas. Some of the incentives of the regional development legislation had no regional dimension. That is, either they were applied to the whole country, or they were simply differentiated between zone A and the rest of the country, which in itself negated their regional dimension. (d) There has never been a positive relocation policy. On the contrary, the state, fearing that relocation costs could cause the closure of those firms that would be led to relocate, has always considered problematic, and for this reason undesirable, any policy to push firms away from cities (Tsoulouvis, 1987). The relocation incentives offered were of marginal importance. They appeared after 1971 and were no higher than the incentives provided for any other purpose, such as establishment, expansion, and modernisation. Thus, the combination of relocation with the restructuring of production was not promoted. This lack of satisfactory incentives for relocation may explain in part the failure to check the rate of growth of industrial activity, even in the prefectures of Attica and Thessaloniki, an aim which constituted the cornerstone of regional policy in Greece! Papamichos and Tsoulouvis point out (1987, page 23) that decentralisation of firms is apparent rather than real. In fact, the shift that is noted in favour of a somewhat more even spatial distribution of industry is a result of new firms locating in underdeveloped areas rather than existing firms in central areas decentralising to underdeveloped ones. (4) The last main problem of the regional incentive system was the ineffective operation of the state apparatus. This ineffectiveness, which in many ways was intentional, had far-reaching implications in the operation of regional incentives. (a) The legislation provided no safeguards for checking that the incentives granted to the various investors would be properly used. To be more specific, it was not anticipated that the public sector should control the course of firms that fell under the provisions of these laws, after the investment had materialised. Moreover, for quite a long time no sanctions were anticipated for those who circumvented the purpose for which the incentives were granted to them. The first sanctions appeared in 1972 and only after 1982 did they acquire any importance. (10
> This is in contrast with the common practice in most countries where only a small part of the country is characterised as an assisted area [for example, in Britain the Assisted Areas covered 44% of the labour force in 1979 and 15% in 1985 (Bennett and Krebs, 1989)].
468
L Labrianidis, N Papamichos
However, the 'penalty' was neither automatic (but was negotiable with the minister), nor was it really a penalty as it was simply a partial return of the incentives granted. That at least partly explains why some 'investors' did not hesitate to direct a part of the incentives received to other purposes, such as paying the various financial obligations of their firms, forming a working capital, or even to luxury villas and bank accounts abroad. Thus the state did not safeguard as far as possible the public money given to industry under the regional legislation against the danger of failure to observe the conditions under which the assistance was offered, not even against possibilities of fraud and legal abuse. Perhaps this was an indirect, though explicit, admission that no substantial results were expected from the incentives and that they were mainly offered for other purposes (such as the support of industry in general or for personal and 'political' reasons). Thus, the state had no substantial reason to control the course of investments in order to evaluate the benefits created (for example, new jobs created and economic transactions with other firms) and correlate the resulting benefits with the cost to the state of each investment, as as to make the appropriate changes in the legislation.(11) (b) There were abrupt changes in the incentive zone classification of neighbouring prefectures. Some prefectures, being next to others which belonged to a much higher incentive zone, were 'condemned' to underdevelopment. In particular, the areas that were hit most severely were the less developed ones within these 'condemned' prefectures. Similar problems appeared with the designation in 1978 of a 20 km zone along the borders, introduced for reasons of national security, which was certainly not a homogeneous area. (c) A quite long period of time intervened both between the submission of an application for regional incentives and its approval, and between the approval and the granting of the subsidy. These delays were costly for firms in terms of money and time lost, as they resulted in postponement of their operation, changes in market conditions, etc. These delays were caused by the complex and time-consuming procedures of government departments, the concentration of decisions in the hands of the ministers responsible, and the bureaucracy of the banks. 4 Evaluation of the regional incentives system In this paper we have concentrated on estimating the effect of regional policy on the movement of industry to the supported areas as well as on evaluating the economic efficiency of this policy. Because, even if the regional policy caused a substantial diversion of industry to the supported areas, it does not necessarily follow that the policy has been economically worthwhile. After almost forty years of regional policy of one kind or another, a convincing assessment of its effects has not yet been made. Such an assessment is extremely difficult because it involves trying to measure what would have happened if there had been no regional policies or if there had been regional policies of some other kind from those actually in operation. One of the difficulties is that regional policy is not the only factor affecting the flow of industry to the supported areas. Other factors are at work as well, in which case it is necessary to construct a model capable of separating out the effect of regional policy from these other determinants of industrial movement. The assessment of Greek regional policy is even more problematic for a number of reasons that are mentioned below. Hence, it is meaningless to apply to the (n
> In other words, even the basic stages in a planned procedure, that is, monitoring, evaluating, and revising, were not followed.
Regional distribution of industry in Greece
469
Greek case any of the statistical and econometric models used in the international literature to provide quantitative estimates of the impact of regional policies in assisted areas—for example, residual approach or trend projection (Brown, 1972), standardisation techniques (Dessant and Smart, 1977; Moore and Rhodes, 1973; Moore et al, 1978), policy methods or explicit modelling (Moore and Rhodes, 1976a; 1976b; Tyler, 1980)—see Ashcroft (1982) and Nicol (1982), among others. In particular, it is extremely difficult to evaluate the direct and even more difficult to evaluate the indirect cost of regional incentives to industry. Until 1972 the incentives system was based mainly on fiscal incentives (rather than grants) which are almost impossible to estimate. Since then the situation has changed and grants have also been introduced into the system (table 1). At that time the Ministry of Finance started to keep records on the financing of investments covered by the incentives legislation. These records, however, concern only some of the incentives offered (that is, subsidies and grants) and they do not take into account other financial implications (such as increased liquidations and reduced turnover tax). Moreover, because the incentives were provided disjunctively, these records completely ignore those investments which rightfully enjoy all other categories of incentives, but not the subsidy or grant. Consequently, the financial data that the Ministry of Finance provides for approvals as well as for realisations of the regional incentives legislation understate the actual situation. These records heavily underestimate the economic cost to the state of the industrial investments that enjoyed regional incentives. A further problem with the available data, including the data kept by the Ministry of Finance, by individual law and firm, is that the data on, for example, the level of investment and of new jobs created are for the investment project when it was approved. They do not incude final readjustments. Furthermore, overall comparisons of data for each prefecture are problematic because the sums given are in current prices and the exact time that they were granted is not specified. There is also the problem of what the 'basis' for evaluating the various regional development incentives should be. For instance, should the subsidy derived from the regional development incentives be included in the cost of subsidising interest rates, or should the fact that the current interest rates for industry were already subsidised also be included? The fact that almost all prefectures in the country were considered to be assisted areas, though to a varying degree, renders it meaningless to use the residual approach to estimate the effects of regional policy. And the fact that there was no trend for relocation (section 3) renders meaningless the estimation of the impact of different instruments of regional policy based on the number of firms moving into development areas (that is, the opening in a new location of a new manufacturing establishment, the origin of which is in some other location) as other authors have done (Ashcroft and Taylor, 1977; Moore and Rhodes, 1976a). In addition to the problem that is posed by the time lag between the announcement of a change in regional policy and its effect on the number of moves to the development areas(12), there are more problems in the Greek case: the significant time lag between the approval of a project and its realisation, the remarkably frequent changes in regional incentives, and the enormous complexity of the system. These factors make it almost impossible to estimate the effectiveness of industrial location policy as a whole, let alone the effectiveness of individual measures.
(12)
The time lag for a new factory opening is approximately one year, whereas the time lag in the employment buildup in a new factory is approximately eight to ten years (Moore and Rhodes, 1976b).
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L Labrianidis, N Papamichos
It is also extremely difficult to estimate the benefits of the regional incentives legislation for industry. Such an estimation presupposes that it is possible to estimate which investments would have been made, if different regional incentives legislation had been in force, or even if there had been no incentives at all. In fact, both these estimates are impossible to make. Firms might move for reasons other than policy and yet be influenced by policy to locate in an assisted area. Alternatively, certain policy instruments might induce firms to move—for example, the British policy of Industrial Development Certificate control—but might fail to influence the location decision (Ashcroft, 1982, page 294). For example, cases could be mentioned of firms which located in underdeveloped regions without receiving any of the incentives that were on offer. Moreover, because of the lack of appropriate data it is almost impossible to identify the firms which received regional incentives, because even those firms which applied for regional incentives but were not eligible still automatically received most of them except grants. Furthermore, once the firms that do receive investments are established, it is almost impossible to find out the amount of money that they received, not only indirectly (for example, through tax allowances and higher depreciations) but even directly. From what has been stated above it is clear that it is impossible to estimate accurately the system of regional incentives for industry that has existed up to now, that is, to assess whether it was correct, adequate, and operated effectively. Hence, we attempted to identify the more qualitative effects of policy. In this context, some first thoughts are presented below in an attempt at a provisional evaluation of the fiscal cost of the decentralised location of some industrial units which were established, modernised, relocated, etc, under the incentives legislation, as well as of the benefits that resulted from these industries (such as creation of new jobs and economic transactions with other firms in that region). Needless to say, it is absolutely impossible to measure the relative impact of the different policy investments used to steer industry to the supported areas. Some initial estimates are presented below, with great reservations, which concern the cost of industrial development incentives in general, and not only the costs of regional development incentives. Statistical data on the amount of cash flow through incentives are almost nonexistent.(13) According to the evidence cited in Hadjisokratis (1982, page 16) and Roumeliotis (1978, pages 101-102), during the period 1 9 6 1 - 7 5 the incentives represented 35.0% of the total cost of private investments made during the same period. Xanthakis (1986, pages 2 2 4 - 2 2 5 ) estimates the total amount of cash flow to industry (based only on the incentives whose cost he managed to calculate) to be 32.1% of the total cost of industrial investments for the period 1 9 5 9 - 6 7 , 34.4% for 1 9 6 8 - 7 3 and 47.7% for 1 9 7 4 - 8 1 . Thus, it may be argued, bearing always in mind that the data are based on approximate estimates, that a considerable amount of cash was transferred to industry through the incentives. There are some researchers (for example, Xanthakis, 1986, page 226) who even assert that Greek industry would not have existed if it had not been for the incentives and the relatively favourable support of the banking system. It may be argued further that industrial investments under regional development legislation became increasingly more and more costly to society as a whole. The share of investors' own capital in the total investment represented a considerable reduction throughout the period studied. This was observed for the country as a whole as <13) It is worth mentioning that so far there has been no official account by government departments of the financial cost of the incentives for society as a whole! Such an estimate would have permitted the evaluation of their effectiveness, and supported certain necessary changes in the incentives legislation, which until now have occurred without being based on actual data.
Regional distribution of industry in Greece
471
well as for its northern part in particular, and was related not only to the approved investments but also to those which were completed. Specifically, the participation of investors' own capital was reduced from about 0.34% for law 1312/72, to 0.27% for law 849/78, and finally to 0.21% for law 1116/81 and law 1262/82 (Kalogirou et al, 1989). If it is difficult to estimate the direct cost of regional incentives to industry (that is, the burden imposed on the state budget), it is almost impossible to estimate their indirect cost: that is, the potential increases in production costs which might have been caused by the establishment or relocation of a factory to a peripheral region because of the incentives offered. This cost for the individual firm was most likely more than covered by the regional development incentives. However, for the economy as a whole it is not certain whether the net cost was positive. For instance, additional expenses might have been incurred for the transfer and training of the labour force employed because of an 'irrational' location of an industrial firm. Moreover, a very important indirect cost was, according to Coutsoumaris (1963, pages 3 1 7 - 3 1 9 ) and Ellis et al (1964, pages 179, 191), that the financial benefits of the incentives (including the regional development ones) in the long term have contributed extensively to the formation of a noncompetitive industry. The consequences of regional incentives for the spatial distribution of industry are analysed below at two levels. The first level of evaluation is based on the effectiveness of the incentives, that is, the appeal that they had in attracting investments to less developed regions. Andrikopoulou-Kafkala (1984, pages 171-197), in her analysis of the regional distribution of industrial investments approved under the incentives legislation in the period 1 9 7 2 - 8 2 , asserts that the operation of the incentives legislation was more or less successful. Such an evaluation, which is based only on the approvals and not on realised investments, can be quite misleading, as approvals lag well behind realised investments. Specifically, only 23.3% of the approved investments of legislative decree 1312/72 materialised, 3.8% of law 289/76, 0.4% of law 849/78, and 20.3% of law 1116/81 (based on evidence cited in Athanasopoulos, 1984). Another problem with such an evaluation is that the economic features of the investments that were in fact realised were quite different from those mentioned in the approvals. However, our own estimates, based both on approvals and on realisations, lead to the same conclusions. Two further qualifications must be made though. First, it appears that in most cases the investments which were approved aimed at the establishment and expansion of firms and very rarely at their relocation (Kalogirou et al, 1989 based on the elaboration of data for northern Greece only). A strong presence of cases of relocation would have contributed to a more even spatial distribution of industry, because it was only the cases that referred to the relocation from the most developed to the less developed areas that were subsidised by the incentives legislation. And, second, the industrial projects that fell under the provisions of these laws were located either in their headquarters' prefectures or in the most developed prefectures (that is, Attica and Thessaloniki).<14> This means that, even in the case of investments in underdeveloped areas, the fact that the headquarters of the firms that made such investments remained in the two most developed prefectures indicates that spatial polarisation was maintained, though at a 'higher level', in the sense that the polarisation was reduced between the areas with industrial activity and those with almost none, but was maintained between the areas where administrative activities were O4) This conclusion was derived from the elaboration of data on northern Greece only, and applies both to the investments for which regional incentives were approved, and to those that were realised (Kalogirou et al, 1989).
472
L Labrianidis, N Papamichos
concentrated and those that had industrial production. The second level of evaluation could be based on the changes that took place in the location of all industry during the period that the incentives were in force, if we assume that part of the decentralisation of industry that might have occurred in that period was caused by the regional incentives. In fact, such an analysis, shown in table 3, indicates that the investments that fell into the provisions of the incentives legislation (both those that were simply approved as well as those that were realised) does not seem to have led to the elimination of regional inequalities in the distribution of industry. More specifically, the overall industrial development^ of the prefectures that enjoyed higher incentives did not present higher rates of growth in relation to the number either of industrial establishments or of their employees than those that received lower incentives. In fact, quite the opposite was often observed. More specifically, when one compares the degree of financial support from the incentives legislation of the various prefectures with their rates of change of industrial establishments and industrial employees, it appears that the incentives legislation was completely ineffective. In particular, with regard to the rate of change in industrial establishments in the prefectures in relation to the incentives they received under the regional incentives legislation, it appears that almost all the prefectures that enjoyed the higher incentives (sixth group) never had rates of change higher than the average for the country as a whole (see table 3). Almost all the prefectures in third place with respect to the level of the incentives (fourth group) also never had higher rates of change in their industrial establishments than the average for the country as a whole. Almost all the prefectures with the lowest level of incentives (first and second groups) had rates of change higher than the average for the country as a whole. Where the incentives legislation seems to have functioned was in the prefectures in second place with regard to the degree of support they received (fifth group). Table 3. Classification of Greek prefectures into groups according to the investments that they received from the Legislation for the Regional Development of Industry, 1 9 5 2 - 8 2 (source: Greek Government Gazettes). Group 3
LD b
Law
LD
LD
LD
Law
Law
Law
Law
2176/52 3213/55 1078/71 1312/72 1377/73 289/76 849/78 1116/81 1262/82 1 a.
b. c. 2 a. b. 3 4
5 6
A B B B B
A B B B B
A C B C C
A B B B C-D
A B B C C
A B B C C
A B B C C
A A-B B B B
A A B C B
B B B
B B B
C C C
C-D C-D C-D
C-D C-D C-D
C-D C-D E
D D-E E
C C C
C C D
a
Group prefecture: 1 a. Attica, b. Thessaloniki, c. Beotia, Korinthia; 2 a. Euboea, b. Achaia, Iarissa, Magnissia; 3 Intermediate (16 prefectures); 4 Evritania, Aetolia-Akarnania, Arkadia, Lakonia, Messinia, Zante, Grevena/Kozani, Kephalonia, Lefkada, Arta, Preveza, Cyclades; 5 Kastoria, Pella, Serres, Thesprotia, Yannena, Drama, Fiorina; 6 Evros, Rodopi, Xanthi, Dodecannesos, Lesvos, Samos, Chios. b LD legislative decree; A, B, C, etc are regional incentive zones. (15)
This refers both to industrial concerns that enjoyed regional development incentives and to those that did not.
Regional distribution of industry in Greece
473
Similar conclusions can be derived from an analysis of the rates of change of industrial eployment by prefecture in relation to the incentives that they received under the regional incentives legislation. Moreover, if the rate of change in the industrial establishments and their number of employees in each prefecture is examined for the whole of the period 1 9 5 8 - 8 4 in relation to the degree of support per prefecture under the incentives legislation, the conclusion remains the same; namely, that the rates of change were higher in the groups of prefectures that received the least support and lower in those groups that received the most support. To sum up, it could be asserted that it seems that the incentives for the regional development of industry simply facilitated the existing locational tendencies. Regional incentives might also be evaluated on the effects they had on matters other than the spatial distribution of industry. In particular, another effect of the regional incentives is that they do not seem to have promoted the sectoral restructuring of industry, and that, on the contrary, one may argue that they have aggravated the existing structural weaknesses of Greek industry. In particular, a sectoral analysis of investments under the incentives legislation indicates a clear concentration of the approvals as well as of the realisations of investments in certain traditional branches (section 3), such as those of food products and beverages, textiles, nonmetallic minerals, and metal products (table 2). Thus, the investments of the incentives legislation on the whole perpetuated the structural problems of the sectoral mix of Greek industry, rather than promoting their solution. 5 Conclusions In the foregoing discussion we have attempted to show that the regional policies of the state and more specifically its industrial location policies were quite contradictory and in effect proved to be quite ineffective with regard to their stated goals. Furthermore we can argue along with others (for example, Kioukis and Papakonstandinidis, 1985, page 217) that, not only were the objectives of industrial location legislation not attained, but also that there was no such policy. The existing legislation on industrial location may be seen as a product of wishful thinking and very often of conflicting economic and other interests that manage to express themselves in the legislation primarily because of clientelistic affiliations. Hence, one may argue that changes in industrial location trends in the country throughout the period studied most likely took place not because of the existence of a well-orchestrated regional policy, because there was no such policy, but rather because they would have taken place sooner or later in one way or another anyway (Kintis, 1980; Kottis, 1980). With regard to the trends that have appeared recently (since the late 1970s) towards a more even spatial distribution of industrial activity, these should be related to far more important phenomena, rather than to the regional incentives on offer. Phenomena such as the general restructuring of industry worldwide and the new devices created by industrial firms in an attempt to adapt themselves better to (that is, to exploit better) the new socioeconomic and political conditions. These new conditions include drastic changes in the labour processes used, flexible working, subcontracting, introduction of computerised systems of production, inventories, the shift from just-in-case to just-in-time production, and the rise in part-time employment and unemployment, as well as constraints and disincentives in areas of rapid economic growth. It is difficult to argue conclusively at this stage of research whether those trends that have been reported, however weak they may be, towards a more even spatial distribution of industry may be explained as the reaction of some firms to the new conditions, or as the creation of more suitable conditions for household manufacturing.
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T h e 'new' locational strategies pursued seem to b e to exploit the underdeveloped areas within countries, the so-called ruralisation of industry. Some indications o n the existence of such a locational trend have been reported already in G r e e c e (for example, Hadjimichalis and Vaiou, 1 9 8 5 ; 1 9 8 7 ; Labrianidis, 1987). A s they argue, some firms in G r e e c e seem to have realised the advantages offered to them in rural areas, such as the holding of second jobs by farmers, the diseconomies of concentration that a p p e a r in large u r b a n areas, etc. H e n c e , they try to take advantage of the opportunities offered by new technologies (flexible technology), subcontracting, etc. O t h e r s argue (for example, Tsoulouvis, 1987) that it may b e related to the continuation of the very strong presence of household manufacturing which today has been reinforced by state policies that encourage people to exploit all their opportunities as self-employed p r o d u c e r s . Acknowledgements. This article is part of a research project on "The Implications of the Regional Incentives Legislation on the Spatial Distribution of Industry in Northern Greece". The project is financed by the Ministry of Public Works and Environment. In this project we are involved with our colleagues C Hadjimichalis, N Kalogirou, S Karagianni, and S Tsopoglou. References Andrikopoulou-Kafkala E, 1984 State and the Regions: The Regulation of Regional Space in Greece doctoral dissertation, Department of Urban and Regional Planning, Aristotelean University of Thessaloniki, Thessaloniki Ashcroft B, 1982, "The measurement of the impact of regional policies in Europe: a survey and critique" Regional Studies 16 2 8 7 - 3 0 5 Ashcroft B, Taylor J, 1977, "The movement of manufacturing industry and the effect of regional policy" Oxford Economic Papers 29 8 4 - 1 0 1 Athanasopoulos K, 1984, "Legislation of regional development", reprint from the volume in commemoration of Professor Pintos, Pantios School, Athens Begg H, Mcdowell S, 1987, "The effect of regional investment incentives on company decisions" Regional Studies 21 4 5 9 - 4 7 0 Bennett R, Krebs G, 1989, "Regional policy increase and the relative costs of capital in assisted areas in Britain and Germany" Regional Studies 23 2 0 1 - 2 1 8 Brown A J, 1972 The Framework of Regional Economics in the UK (Cambridge University Press, Cambridge) Committee of Anti-Incentives, 1979, "Reports of the Committee of Anti-Incentives", Bank of Greece, Athens Coutsoumaris G, 1963, "The morphology of Greek industry", Centre of Economic Research, Athens Coutsoumaris G, 1976, "Finance and development of industry", Institute of Economic and Industrial Research, Athens CPER, 1980, "The system of incentives of regional and economic development", report of a working group, Centre for Planning and Economic Research, Athens Dessant J W, Smart R, 1977, "Evaluating the effects of regional economic policy: a critique" Regional Studies 11 147' - 1 5 2 DPI, 1981a, "Report on investments which have been approved to enjoy the provisions of the LD 1312/72", extract from internal report, Department of Private Investments, Athens DPI, 1981b, "Report on investments by industrial branch which have been approved to enjoy the provisions of L 289/76", extract from internal report, Department of Private Investments, Athens DPI, 1981c, "Report of spatial allocation of investments which have been approved to enjoy the provisions of L 849/78", extract from internal report, Department of Private Investments, Athens Drillerakis I, 1979 Incentives for Industrial and Handicraft Enterprises L 849/78, L 289/76, L 1078/71 (Zaharopoulos, Athens) Ellis H, Psilos D, Westebbe R, Nicolaou C, 1964, "Industrial capital in Greek development", Center of Economic Research, Athens Giannitsis T, 1983, Greek Industry: Development and Crisis (Gutenberg, Athens) Greek Government Gazettes "Legislation for the regional development of industry" (Government Printer, Athens)
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Hadjimichalis C, 1988, "Modern Greek state, regional policy and social control", in Problems of the Welfare State in Greece Eds Th Maloutos, D Economou (Exantas, Athens), pp 115 - 148 Hadjimichalis C, Vaiou D, 1985, "Changing regional markets and forms of social reproduction in Greece", paper presented at the Conference on 'Spatial structures and social process", Lesvos, August-September; copy available from Department of Urban and Regional Planning, Aristotelean University of Thessaloniki, Thessaloniki Hadjimichalis C, 1987, "Capitalist restructuring and flexible labour markets in northern Greece", paper presented at the Conference on Changing labour processes and new forms of urbanization", Samos, August-September; copy available from Department of Urban and Regional Planning, Aristotelean University of Thessaloniki, Thessaloniki Hadjisokratis D, 1982, "New law for the provision of incentives 1262/82" Sychrona Themata 15 1 4 - 2 4 Hassid I, 1983, "Investment incentives and investment behaviour", Institute of Economic and Industrial Research, Athens Hatzigrigoriou K, 1982 Economic Incentives for Regional Development (Paratiritis, Thessaloniki) Kafkalas G, 1984 Regional Organization of Industry doctoral dissertation, Department of Urban and Regional Planning, Aristotelean University of Thessaloniki, Thessaloniki Kalogirou N, Karagianni S, Labrianidis L, 1989, "The consequences of incentives on the regional development of Greek industry" Greek Review of Social Research 73 3 9 - 7 7 Kintis A, 1980, "Regional industrial development in Greece and the impact of the EEC" Monthly Bulletin of the Commercial and Industrial Chambers of Thessaloniki 34 5 0 - 7 1 Kioukis K E, Papakonstantinidis L A, 1985, "Regional development incentives in the EEC countries", Agricultural Bank of Greece, Athens Kottis G, 1980, "Industrial decentralization and regional development", Institute of Economic and Industrial Research, Athens Labrianidis L, 1987, "Problems in the industrialisation of an agricultural area" Greek Review of Agrarian Studies 2(1) 1 9 - 5 0 Labrianidis L, 1989, "Regional development incentives for industry: a critical review" Technica Chronica 9 2 2 7 - 2 5 6 Lemonias E, 1985, "Development incentives in Greece and the EEC", Centre for Planning and Economic Research, Athens Louri H, 1989, "Regional policy and industrial behaviours: the case of Greece, 1 9 7 1 - 8 2 " Regional Studies 23 2 3 1 - 2 3 9 Ministry of Finance, 1988, "Records on the regional development incentives by law and firm", unpublished, Ministry of Finance, Athens Moore B C, Rhodes J, 1973, "Evaluating the effects of British regional economic policy" Economic Journal 3 8 7 - 1 1 0 Moore B C, Rhodes J, 1976a, "Regional policy and the movement of manufacturing firms to developing areas" Economica 43 1 7 - 3 1 Moore B C, Rhodes J, 1976b, "A quantitative analysis of the effects of the regional employment premium and other regional policy instruments, in The Economics of Industrial Subsidies Ed. A Whiting (HMSO, London) pp 1 9 1 - 2 1 9 Moore B C, Rhodes J, Tarling R, 1978, "Industrial policy and economic development: the experience of N Ireland and the Republic of Ireland" Cambridge Journal of Economics 2 99-114 Nicol W R, 1982, "Estimating the effects of regional policy: a critique of the European experience" Regional Studies 16 1 9 9 - 2 1 0 NSSG, various years, "Survey of industrial and commercial establishments", data for years 1958, 1963, 1969, 1973, 1978, 1984, National Statistical Service of Greece, Athens Papamichos N, Tsoulouvis L, 1987, "Industrial estates and employment structure in Greece", paper presented at the Conference on "changing labour processes and new forms of urbanization", Samos, August-September; copy available from Department of Urban and Regional Planning, Aristotelean University of Thessaloniki, Thessaloniki Pavlopoulos P G, 1987, "The informal economy in Greece", Institute of Economic and Industrial Research, Athens Petmezidou-Tsoulouvi M, 1987, Social Classes and Means of Social Reproduction (Exandas, Athens) Roumeliotis P, 1978 Multinational Enterprises and Overpricing/Underpricing in Greece (Synchrona Provlimata, Athens) Tsoulouvis L, 1987, "Aspects of statism and planning in Greece" International Journal of Urban and Regional Research 11 5 0 0 - 5 2 1
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