Introduction:

We have always supported the statement that the fundamentals will always work in global economies and that good faith and hard work in business and the economy DO eventually pay off. Nevertheless, it seems that today we find ourselves in a position where the above statement may be under question, as we are witnessing specific threats and challenges to social welfare as a result of debateable economic policies adopted by governments around the world. The continuous printing of money in the US and recently Europe (with no obvious pitfalls at the moment) or, in the case of Cyprus, the reliance of the economy on passport schemes and the rapid growth of the construction sector, are some examples that would put even the best of economists under consideration as to their understanding and knowledge of how economics actually work.

What goes around the globe?

We have witnessed in the past how the burst of credit bubbles and financial crises have the power to dissolve plasmatic economic growth levels in a matter of days. By now, it should have been made very clear to most businesspeople, politicians and economists around the world that economic growth is (in most cases) healthy only if proven to be sustainable. “Growth” and “Sustainability” are two connected terms, but one does not imply the other. The phrase “Sustainable Growth” points out to the amount of growth an economy is able to experience without increasing its financial leverage beyond acceptable or manageable levels. That is not to say that bubbles will ever cease to exist, or that global financial crises should never happen again in an ever-dynamic (even healthy) economic environment where numerous interconnected parameters can affect markets in just seconds; the era of globalisation. Sustainable growth based on productivity and efficiency should always be positioned in the core of all economies de facto, especially during a period in which the world is experiencing the rise of extensive paper pushing, income-producing schemes.

Keeping in mind the above, the global markets have recently been subject to extreme levels of volatility, especially with regards to the Covid-19 pandemic. The way in which governments and economies around the world respond to such shocks directly impacts a country’s social welfare status. On one hand, for example, the greater levels of fiscal spending by the US government, which helped increase the real level of GDP by $607bn in Q2 of 2020 and by $900bn in both Q3 and Q4 of 2020 (Brookings, 2021). In the European Union, increased spending as a consequence of the pandemic has certainly contributed to the increase of 2021 Q2 (from Q1) of GDP levels by 2.1% (European Central Bank, 2021). Government policy often demonstrates its influence in guiding the progress of nations. As a result, policies adopted today can certainly affect the lives of people of both today and tomorrow. On the other hand, however, spending without planning is a dangerous hobby. Cyprus does not form an exception to this rule. Economic policies and developments during the last decade have opened up new opportunities for the island, together with which comes great responsibility and a social balance which is difficult to maintain.

Is there a price to pay for unsustainable economic growth, such as serious socioeconomic implications in the long run? According to famous economist John Maynard Keynes, “in the long run we are all dead” (mentioned along the context that Capitalism will fail and Liberal Capitalism will succeed). Does this provide a valid reason to settle and allow market forces “do their magic” in correcting potential economic anomalies? The ideal balance between government intervention and a free market system still remains difficult to determine and may vary between economies and time periods, but what stands as a fact is that today certainly affects tomorrow. Maybe certain consequences are presenting themselves already but are less apparent and difficult to distinguish from the mass. Be it the increase of inequality, the reliance on electronic money, the increase in amounts (who on Earth can comprehend what a trillion is?), the reliance of all economies on each other (recall the relationship status between the U.S. and China, when so much of U.S. bonds are in the hands of Chinese investors), the increase of political aggression around the globe, the influence of social media in creating wealth (e.g., see modern occupational terms, such as “media influencers”), technological advancements occurring which we could never have imagined, even the impact of climate change. Having mentioned all these phenomena which are defining our time and sometimes lay aside fundamental thinking, traditional behaviour, business ethics and human interaction, what else remains to be mentioned specifically about little Cyprus?

The case of Cyprus:

As a rule of thumb, whatever is happening around you will sooner or later affect you in some way.

• The labour market and income levels in Cyprus:

– Private Sector wages are considerably lower than the Public Sector on average, at a time when the employment security offered by the public sector job positions should possibly otherwise act as compensation for lower average wage rates.

– Consistently low average wage rates when compared to the rapid booming of the housing market and construction development during the last decade (the average monthly rent amount for a one-bedroom apartment in the city centre of Limassol is approximately €800 per month). The average salary in Cyprus amounts to approximately €1,916 per month for Q2 of 2021, as supported by the statistical service of Cyprus (cystat, 2021). This was approximately €2,200 per month in early 2020.

– A quarter of the population of Cyprus is living on a low-income budget when compared to the country’s costs of living. Nevertheless, it is still difficult to book a table at a restaurant in Limassol on a weekend’s evening without a week’s notice. A contradicting outlook of the two extremes.

• The figures point out to an unemployment rate of approximately 8.4% for Q2 of 2021 (not seasonally adjusted) amongst the local workforce in Cyprus (Moody’s Analytics, 2021), at a time when the country experiences considerable inflows of foreign workforce entering various sectors of the economy:

– The above may be partially explained by the claim that some practical jobs are not popular amongst Cypriot employee candidates. Even so, highly skilled foreign workforce inflows are also rising.

– Furthermore, high unemployment benefits discourage a continuously increasing number of unemployed people from entering into official, full-time professional contracts, therefore declaring themselves as unemployed while engaging in other non-official, private income activities (a phenomenon experienced in the UK, approximately 30 years ago).

• Bureaucracy and paper-pushing levels are now at a peak-high. Financial compliance has been intensified in order to help avoid future financial crises, but this shouldn’t be restricting healthy economic growth, wherever this has room to grow and flourish. In many cases of everyday business life in Cyprus, the saying that “time is money” simply does not work.

• Efficiency and quality of service in various sectors of the economy remain overpriced at average levels. Where does the incentive (both qualitative and quantitative) to do well and the motivation to remain efficient exist at a national level? Is this the beginning of a vicious cycle: does the lack of financial incentives (i.e., salaries) lead to lower quality of service, which remains overpriced due to unsustainable growth? Moreover, the absence of public – private sector integration further exacerbates the enormous gap between the two which is now clearly visible, and in many cases highlights a close relationship which is not mutually beneficial.

Is there a correct approach?

One could say: “If you cannot beat them, join them”. But then everybody becomes an estate agent and/or a developer. Surely, the last to enter will pay the price, as “the devil take the hindmost” (meaning that if everyone is running towards a direction, the devil will capture those who are farthest from the front). A long-term, responsible attitude would be to plan and invest in sectors with real potential. Health, Education, Energy, the Modernisation of the Public Sector, the incentivisation of Banking institutions to be strict but at the same time flexible and, most importantly, the enforcement of Law & Order without any standout exceptions. Lastly, few things are more important than embracing uniqueness. Each country of this world is distinct and special in its own way. Embracing unique attributes and incorporating these in structuring economic policy should be a priority for all governments. In the case of Cyprus, its strategic location and a warm climate throughout the year provide ground for healthy, sustainable investments (e.g., from utilising renewable energy resources such as sunlight, to attracting athletic tourism from colder nearby areas in spring and autumn).

The world needs raw models in the face of noble, honest, transparent and decisive people. However, this traditional fundamental description is by no means to be taken for granted as (by definition) certainly most of those who enter politics do not fit the above profile. Nevertheless, simply denouncing public policy without having an educated opinion is by no means an ideal response, as it does not create room for educated decision making in democratic institutions. The strive to improve should continue and the strive should be collective at all levels of society and all sectors of the economy. Last but not least, at the end of the day it’s sometimes good to take a step back, calm down, review the facts, recall your memories and ask yourself: “Is this progress?”

Bibliography:

(2021, November). Retrieved from Brookings: https://www.ecb.europa.eu/stats/ecb_statistics/escb/html/table.en.html?id=JDF_MNA_A_GDP_GROWTH_QOQ
cystat. (2021, November). Retrieved from https://www.cystat.gov.cy/el/PressRelease?id=64670
European Central Bank. (2021, November). Retrieved from ecb.europa.eu: https://www.ecb.europa.eu/stats/ecb_statistics/escb/html/table.en.html?id=JDF_MNA_A_GDP_GROWTH_QOQ
Moody’s Analytics. (2021, November). Retrieved from https://www.economy.com/cyprus/unemployment-rate

 

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