Is competition the real problem?

Government is concerned; the constituted bodies are concerned; the trade unions are concerned; the people are concerned. One is the problem but different are the perspectives. A not so rosy economic scenario is pervading our country.

Different people are trying to grapple with the problem in different ways. Different bodies and different organisations are trying to abstract and identify its roots. Some are hoping that the problem will resolve itself out over time. Others are expecting EU membership to provide some sort of magic wand which will make many of our economic problems disappear.

The Malta Federation of Industries has been pointing out for quite some time that costs per unit have gone up as to make many industries uncompetitive. Costs of production reflect themselves in the final price. Higher price levels force consumers to be more selective and industries that are producing highly priced goods are generally driven away from the market. As a result, our manufactured goods, as well tourism services, are being edged out. Their market share has been dwindling and will continue to dwindle as long as prices keep on increasing.

In this respect, EU membership will help consumers to buy quality goods more cheaply. The problem is whether our manufacturing and tourism sectors will be able to compete in a global market. To stand a chance of competing, they have to lower their cost per unit as price levels are determining factors.

Competition imposes various modi operandi. The strategies normally applied in these situations are: installing more efficient machinery to lower costs of production and that entails increases in investment; and minimising excess capacity to enhance production efficiency to overcome the problem of idle capital, which involves engineering adjustments.

Other important strategies are: introducing human resources retraining programmes and flexible work practices to match skills with industry's needs, involving redeployment of labour; and enlarging the market share by endeavouring to discover new outlets to sell goods produced, which presents a major challenge to the marketing department. If progress is made in all these fields, the next logical step is to diversify production which calls for management's entrepreneurial innovation, flexibility and foresight.

These approaches may fail to materialise for various reasons: management's inward-looking attitude, lack of financial resources and marketing research, unavailability of skills, and strong trade unions that succeed in the short run to improve working conditions but which in the long run threaten the very existence of workplaces if they are unable to read the signs of the times.

Failure to compete in industry, manufacturing and in services will directly influence the labour market. Job opportunities will not be created; worse, those already available are likely to be adversely hit; unemployment will rise; people's earning capacity will decrease; and it is very doubtful whether consumers will enjoy the high quality goods at lower prices resulting from EU membership, simply because their income has vanished or substantially reduced.

Malta's inability to compete with overseas industrialists and manufacturing giants is not the real underlying problem. A thorough investigation of local work practices would show that we lack a serious human resources development programme.

Work regulations are not strictly enforced, particularly in the public sector, leading to a serious lack of work discipline. Accountability has lost its meaning. Thereby, efficiency and productivity are affected. In industrial relations Government appears to be weak, intent on buying industrial peace at any cost. These contributory factors have led to complacency and the urge to make easy money.

Malta needs a drastic cultural change. Normally, in small nation states, governments are the promoters of change. In our case, the constituted bodies have been at the forefront. They have been delineating the weaknesses for a considerable time and they have suggested remedial measures but their reasonable remedies landed on people requiring hearing aids.

Industrial and economic problems are now compounded as costs have kept escalating and complacency is rampant. It has been a question of political considerations prevailing over Malta's economic needs. We have serious economic problems.

But the Maltese people are resilient. If we use our resources and wits we are likely to overcome this impasse and succeed in making our economy flourish again and compete in all sectors. But we have to plan, adopt a strategic approach and implement it within a timeframe and not postpone delicate decisions as if the time element were not important.

The criteria to follow are not difficult to envisage. There are three wonder words: direction, waste control, and harnessing ideas that may be usefully employed to address our serious economic conditions. The economic situation need no longer suffer because of political exigencies; but the political scenario could improve because of economic progress, development and growth.

As Malta is a small state, Government should play a major role in formulating the direction the national economy should take. It is not enough to harmonise our institutions with EU laws and regulations; it is equally important to work for and discover new niches that will help improve our economic conditions and generate national wealth. The national institutions that have been set up by Government have to co-ordinate their efforts with the many embassies we have in a number of countries. It is not enough to pay lip service to their contributions, we have to quantify how many contacts each embassy has provided a month, what follow up action has been taken, what results have actually been achieved.

Waste control should be given high priority. We have created the Maghtab mountain and need to intensify the recycling approach: a substantial number of new products can be made, more employment created and Malta will have a healthier environment. But waste control should not be limited to recycling. We have a waste in deploying skills, idle financial resources, land, property, an unexploited commercially cultural heritage, the sea around us, insularity, geographical position, knowledge of languages, historical buildings and fortifications, philately, numismatics, music... We can really make history if we truly reflect about it.

Finally, the underlying problem is the serious lack of ideas, or going round in circles, simply to hide this shortcoming. A simple illustration should be enough. In the civil service there was one permanent secretary responsible for all heads of departments. That was changed because it was felt that each ministry should have a permanent secretary, equal in rank, to the permanent secretary at OPM.

After the change, at the cost of a substantial amount of taxpayers' money, it dawned on the powers that be that it is better to have one person responsible for all government activities. So we arrived at the same place where we were before but with less revenue. Let us hope the new government will never resort to such tactics.

Yes, at face value, it appears that we are becoming less competitive and, if proper action is not taken immediately, Malta will have to experience worse times. Being aware of the underlying problems and how to solve them, we shall be able to forestall this impending danger.

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