Much has been said about European periphery’s economic problems and how they led to economic crises and the IMF intervention. Much of the discussion centers on overleverage, lost competitiveness and other macroeconomic figures. This is what one could call technical analysis. On the other side much of the “softer” or at times irresponsibly “casual” analysis gravitates towards cultural traits some of them being well-indented and some not so.
Let’s look at the Greek crisis in particular: The Troika(lenders) are complaining about inefficient public administration, corruption, opportunistic political system and the absence of civic society as manifested through tax evasion and other. On the other side Greeks are complaining about the recovery plan being unrealistic, recessionary, insensitive, flawed. The bailout plan supporters may jump into what’s called in psychology attribution bias error confirming their prejudices while the subjects find painful gratification in self fulfilling prophecies: since we are not up to par why bother trying improve after all? But then again and allow this parenthesis why Greeks or other nationalities perform much better in well structured economic systems such as that the immigrant communities in the US, Australia or Germany prosper? Is it because of the existence of institutional framework in these countries as argued by the work of Daron Acemoglou (Why Nations Fail: The Origins of Power, Prosperity, and Poverty)?
Whatever the cause of the economic malice, the slow implementation or failure of the bailout plans may be attributed to mistakes in analyzing the problem in the first place both from technical but equally importantly from cultural and sociological perspective ie the doctor has to prescribe the right treatment before complaining that the patient didn’t respond, as well as not well managed expectations and communications if that was the case. In this article we will focus on the sociological/cultural perspective. Before proceeding however we have to caution that culture can become an uneasy topic as such discussions may raise concerns over stereotyping. However, cultures do exist and do interfere with life and business decisions same as corporate cultures, a much celebrated principle in management, that has been coined for many company successes or failures. It’s not that new of invention, after all the saying goes: “when in Rome do as the Romans do”.
Culture, when it refers to ethnographic aspects is a rather new addition to management topics mainly gaining attention with the rise of multinational companies. In such environments people from different ethnic backgrounds, often painfully, realize that what’s considered the norm in one culture is not so in another. Stories about egalitarian Americans using first name or hierarchy conscious Asians hesitating to ask questions or challenge a position have been abundant. The result is miscommunication and inefficiencies. Other instances in the context of cross-border M&As, are equally amusing but painfully costly. Once somebody mentioned a story about an investment in Eastern Asia; after closing a deal the Westerner went with signed contract in hand to plan implementation; the local executive laughed took out a bottle of wine and invited to start the real discussion about what’s to be done now that the legal part was out of the way…. In another instance in Eastern Europe Westerners and local investors were planning an investment. The tender called for cash and follow-up investment as part of the consideration. The local partner laughed: “that’s good. We can surely outbid anybody by promising a high follow-up investment”. But this is not possible” replied the buyers, “we can’t afford that”. “Don’t worry, we’ll just promise and never do it….” he replied. Off course the judicial system plays a role in enforcing such documents but sometimes it also seem to be accommodating or follow the traits of the surrounding cultures.
So how could culture play a role in the European economic crisis and the success or failure of the restructuring plans? Let’s analyze the theoretical background to that. To do so we will refer to the work of Max Weber, Geert Hofstede and even Samuel Huntington to name a few. To some extent they have used religion as a paradigm for peoples’ social psyche. In this respect European societies could be distinguished between:
a. Northern Europe that follow Protestantism/Calvinism/Lutheranism that lean towards individualism and embrace free market or regulated capitalism. North American and certain Commonwealth cultures follow these patterns too.
b. South and Eastern Europe that follow Roman Catholicism and Orthodoxy, which are characterized as collectivist in nature and lean towards corporatism.
According to Weber for example the Calvinist teaching calls for hard work as the road to business success while profits should be reinvested rather than spent in frivolous pleasures. The Protestant endorsement of usury, contrary to Roman Catholicism at the early ages might have affected economic development in some extent. Same effects mat be attributed to Orthodoxy’s mysticism and its apprehension towards materialism as also manifested in Greek philosophy’s Stoicism and Epicureanism.
According to Geert Hofstede’s famous Cultural Dimensions Theory (not accidental that was developed within multinational IBM) there are 5 traits upon which cultures can be characterized:
– Power distance (we’d call that in other words “respect towards hierarchies”)
– Individualism (or the “degree of interdependence” within the society)
– Masculinity/Femininity (we’d prefer to call that “materialism vs. spiritualism” )
– Uncertainty avoidance (we’d prefer to call this “adaptability” or “resistance towards change”)
– Long term orientation (pretty much self-explanatory: long term versus short term society focus)
In our case now: Greece is a collectivist culture where although business is conducted in a rather relaxed way, power distance is high and respect is important. In collectivist cultures more important than anything are relationships and accountability towards the person’s immediate social grouping be it immediate family, extended family, locality, ethnic group, company, union etc. Next to relationships, written communications might fade (especially when mandated by an outsider to the group). A Greek minister once even admitted that have not even read the bailout plan. There was no time for that or no purpose considering its supposed inevitability or stakes in hand. Obviously the details could be envisioned negotiable later, even after signing. Actually objections started soon after signing. It’s also well documented that statistics were falsified to achieve EU admission. Pretty much the same as ticking the box on Important Terms and Conditions before downloading a software. Who bothers? On the other hand Northern European cultures are in large individualistic where power distance is also high but relationships are not that important and communication can often be blunt. Written communications are respected and highly valued. There’s also a strong avoidance over uncertainty, which may be exacerbated with current financial problems and extremely high unemployment. These differences as illustrated by different scoring in Hofstede’s parameters are shown in the diagram below for Greece and a group of Northern European individualistic cultures.
But let’s set aside the major manifestations of individualism and collectivism and focus, for the interest of brevity, to the issue of how decisions are taken and communicated in these cultures. For example in our case, what went wrong, at least in the beginning, with the restructuring plan? The EU officials have been frustrated with the low pace and erratic implementation. When shortcomings occur they note with disdain their discontent: the plan has been agreed and signed departures from its wording are not expected. In AngloSaxons societies it’s normal for written agreements to be kept; that’s why negotiations are long. On the other hand in societies such as Greece’s, written agreements are of limited value. These are places where one can hear more often the phrase “that’s how we do things here” or these things are not possible here” versus the expression “that’s the law” that explains actions in individualistic countries.
In individualistic countries is quite straightforward, even to the not educated, of how they should operate within the society. In collectivist cultures however it’s not always possible to understand how things work if not through upbringing and subconscious. Locals mostly can adjust to that it’s just an outsider that might feel lost. It takes empathy and inquisitiveness to prosper. As one said don’t get distracted with what the law says but what the people really do.
So what’s the conclusion, the moral meaning from this analysis regarding enforcement of the restructuring plan? For Troika: should place more attention to what people think than what say or sign. Monitor implementation. Identify power brokers, decision-makers and involve them. Respect sensitivities, be introspective, try figure out motives and hidden messages and agendas. For Greeks: don’t hope for leniency, for lenders giving up or being intimidated. Not that they don’t have feelings; it’s just that they keep them away from work and don’t let them affect the goal. Be upfront and clear on intentions and concerns. Discuss and argue constructively.
This article has been in the making for quite a while. In the meantime it’s good to see that Troika is pretty much adjusting their approach now monitoring evaluation setting gradual landmarks and acting based on progress. Communications from North has been toned down a bit too, it’s so much of an unnecessary distraction anyway. Greeks have also given up on talking, bluffing and protesting and doing more. But then again most people know what’s right or wrong, large parts of what’s happening in the past was illustration of Mental Exit (something that Hirschman refers to in his famous book Exit, Voice, and Loyalty). Mental or Physical Exit by playing along, evading, immigrating and much of the frustration is also put up for other purposes. Once a football(soccer) player was asked why complaining so vividly to the referee for a decision since there was little chance to change opinion. Well, he said, this decision is lost but I may make him think twice about the next one and even if that doesn’t happen and we loose then I’ll put up a good excuse to the fans in bad refereeing…”.
For sure the story unfolds on this crisis and it’s quite early to jump into conclusions. The purpose of the article is just to contribute towards decision making and action taking from a cultural perspective both in this or other instances.
By Pete Chatziplis, CFA, ACCA, MBA. The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.
Pete Chatziplis, a finance and management consultant, is the creator of the Transatlantic Business Forum. Drawing on global work-experience he has been part of the Cultural Detective Organization (Intercultural Effectiveness, Increase Productivity-Strengthen Relationships) contributing to the development of a training manual about intercultural understanding.