Friday, July 10, 2015

Weather Greece

With the Greek Grexit now nearly Grenevitable, discussions have shifted from "if" to "how." If Greece does in fact dump the euro and bring backs it old currency, the drachma, how will it go about re-organizing its economy? How will it deal with the inevitable devaluation of the new drachma against the euro? What will the Greek people be able to produce and consume under this scenario?

The questions are many, and there are no simple answers. However as I did in a previous blog post, I will discuss the issue in the context of a computer game I played as a child. That game was called Caesar III, which was a real-time strategy game where the player is the mayor of a certain city in the Roman empire. This town is built from scratch on an an empty map, and their are multiple moving parts and pieces that need to fit together in order for a successful city to be built. One crucial aspect of the game is that no one of the map choices has all the resources needed for prosperity. As the game continues, the citizens of your city begin demanding a wider variety of foods, drinks, and household items. Since no one map is capable of producing all these things, trade with other cities in the Roman empire becomes a necessity for success.

This trade scenario requires the player to decide how much of a particular specialty good needs to be produced for all its citizens' needs to be met, while also having enough to trade to other cities in exchange for their specialty goods. For example, one of the maps has a lot of marble, but no iron to make weapons. So in that city, you focus on producing as much marble as possible, and trading it for weapons produced by other cities. In the case of Greece, it needs to find its marble, its comparative advantage.

Unfortunately, Greece is not really competitive in many global markets, including agriculture, software/IT, manufacturing, financial services, or energy. But what it does have is great weather, endless miles of beaches, and rich history, all of which combines to produce a pretty unique and enviable tourist destination. Greece needs to fashion itself as the new tourism capital of Europe. With a new, cheap drachma, it could start building new hotels, restaurants, and boutique shops, along with airports and seaports to serve the incoming tourists. It could, as Iceland has, partner with airlines to provide cheap, direct flights from the dense population centers of Europe. This would help bring an inflow of Euro into Greece, which the Greeks could then use to buy whatever goods and services from the rest of Europe that they could not produce on their own.

In short, the Greeks need to take advantage of every grain of sand and ray of sunshine they can. Without building it tourism industry to become a world class competitive advantage, Greece risks slipping into 3rd world status.