Brain vs brawn

It is hoped that the fortunes of 2004 change as the year progresses. The year did not start too well in respect of national well-being, the prospects of the economy and the present series of depressing news, particularly from the labour market.

The manufacturing sector, unable to compete in some areas and, in a number of cases, lacking the money to restructure, has continued to shed workers; Malta's most important services sector, tourism, is showing clear signs that lost ground will not be recovered during this year and that there will be more hotel closures.

People are losing their jobs, causing financial and psychological problems to them and their families. Instead of collecting national insurance contributions, Government has to fork out more social services benefits to help these people in need, thereby compounding and intensifying its financial headaches.

The General Workers Union's initiative of calling support to combat unemployment from all trade unions is laudable. The Malta Labour Party has endorsed this idea and wants to contribute so that this ugly spectre is not allowed to continue rearing its head. But the approach to solving the threat of unemployment is, to say the least, inappropriate.

It is clear that the GWU and MLP believe more in brawn than in brain power. Mass protests and street demonstrations will certainly not contribute one iota to improving our precarious situation. Actually, they make it worse because more financial resources have to be allocated to police and security forces to contain the problems arising from such events. The money would have been put to better use in the labour market or in social benefits.

A more mature approach is called for. The Prime Minister's willingness to meet the social partners of the Malta Council for Economic and Social Development (MCESD) to tackle the growing unemployment problem is a better solution.

It is hoped that at this meeting the underlying causes of unemployment are identified, remedial measures are taken and more employment opportunities are created. So far (until the time of writing) nothing has come out of this decision. The meeting has not been held and a date for it has not even been fixed. Surely, such a problem deserves immediate attention.

Simply put, unemployment arises when the labour supply is greater than demand for it. Labour demand can be increased if more business people are prepared to invest and increase economic activity. Low interest rates make the cost of investment relatively cheap and so enterprising people are tempted to apply their energies in the business world to generate more wealth for themselves and, in the process, create more employment opportunities for others, besides other spillover effects.

The question is whether Malta has enough investors and enterprising people. Assuming there are enough of them, the next stage to consider is whether they are prepared to face a mountain of inhibiting factors: these include lack of circulation of funds through a mostly ineffective stock exchange, lack of modern skills, particularly in the high tech field, accessibility and penetration of foreign markets, mobility of employable labour and cultural norms concerned with status symbols.

Unemployment may also be increasing because the present entrepreneurs are facing relatively higher costs per unit when compared to other emerging countries, forcing them either to downsize, shut down, or lower their costs by installint more efficient machinery. However, if their margin of profit is declining, their propensity to purchase new machinery will decline as well.

The existence of the black economy, when people are employed without being registered, helps to show that unemployment is increasing. Foreign students and workers, working without work permits, help to displace normal workers as they are paid less. Quite surprisingly, it was reported that a University of Malta student body asked the authorities to grant foreign students a work permit rather than have them work clandestinely.

If Malta really wants to solve its unemployment dilemma, there are two potential approaches, one pertaining to government and the other to the social partners and potential investors. In the first place, Government has to concentrate its energies on the needs of the national economy through three important ways: a comprehensive upgrade of all infrastructural requirements; financial and administrative assistance to people prepared to open shop in Malta for export purposes; and a more professional development of human resources to answer all industrial, commercial and services needs.

In the second place, the social partners and people interested in any business field should liaise to discover and tap new ideas that are conducive to the discovery of new niches that contribute to the creation of new demands, increased profits to themselves, more work places and national economic growth.

The situation now is different from the post-independence period during which labour-intensive industries were set up. Maltese workers are now used in industry that has contributed to their earning good money to enhance their standard of living. Precious time was frittered away during the time Malta was outgrowing herself from the textile industry.

Apparently, the social partners accepted all outcomes as long as employment opportunities were available and wage levels kept on rising. While Malta was concerned with the short run, other emerging countries succeeded in developing and modernising their economies, both in the industrial and services sectors. Malta's pains are now becoming unendurable.

Demonstrations and street protests will not mitigate the pain; neither will they provide solutions to the present unemployment malaise. Instead, interested people should put their thinking caps together to investigate why such a situation has arisen in the first place, what remedies have to be found to minimise the immediate hardship that is resulting; and an industrial and services sector plan be formulated and implemented within a reasonable timeframe. A monitoring team should be set up to ensure that targeted goals are actually achieved. Accountability must be seen to be functioning.

We certainly direly need to attract foreign direct investment to produce higher valued tech goods. In the general case, this type of firm is not labour intensive and thus we need to have many of them to cater for the increasing number of idle people.

In the services sector, besides tourism and financial services, we can create a flow of income from the many activities and resources that are now employed just to gratify a limited number of people without really enriching the national economy. These are the type of studies that should be carried out to solve present prevalent economic problems.

Malta anxiously expects new ideas to recover lost ground and pave the way to economic progress. Street demonstrations tend to give vent to one's political bias and embittered feelings. In the battle between brain and brawn power the lasting victory can only come about through an intelligent approach.

Dr Borda is an economist specialising in the economic development of small states.