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A new paper by Nicolas Bloom and John Van Reenen nicely illustrates one of the
underlying structural problems of the Greek economy: Greek firms get on average
the lowest score on a range of management practices. The low rank indicates s
erious governance problems and explains part of the sluggish productivity
growth and loss of competitiveness.
To calculate such a score, Messrs Bloom and Van Reenen conducted a survey,
asking managers of many thousand firms to describe their management practices.
Such practices include for instance setting incentives for employees and introducing
modern technologies. They also used a clever double-blind approach to avoid
self-promotion by the managers or bias by the interviewers: the managers
didn’t know they were being scored.
The high rank for US firms might suggest that the survey reflects primarily
US management thinking. But note that German, Swedish and Japanese firms
also score relatively high, although they follow very different management philosophies.
The upshot is that the Greek private sector has a lot potential to improve sales
and profitability by adopting modern management techniques. This would lift
the overall growth rate and thus would help to make debt levels more
sustainable in the long-run. But who could lead such change?
Solving management and governance problems is a core competency of
private-equity firms. Messrs Bloom and Van Reenen together with
Raffaella Sadun argued in a previous study that private-equity owned firms
have on average the best management practices and that a private-equity
sponsored takeover typically leads to substantial improvements in the
management of the target firm. Thus they appear to be likely candidates.
Yet, Greece has been ignored by private equity so far: only EUR 300 m were
invested in 2008. Some may fear that it is too difficult to introduce modern
management in Greece. But such concerns are unfounded:
Messrs Bloom and Van Reenen also find that multinationals operating in Greece
already use top-notch management practices on par with firms in the United States.
So let me ask our readers: what’s holding back private equity in Greece?
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