Vision of a prosperous Malta

In his budget speech, the Prime Minister said that both he and the Leader of the Opposition at least agreed on one thing: that Malta has to regain its competitiveness. Beyond that point they probably agree on little else on this issue.

This is understandable given that the loss of competitiveness is a symptom and not the cause of economic malaise. For far too long we have been neglecting good economics for political and social expediency. And in a society where every issue becomes grossly polarised, trying to figure out what went wrong is bound to have heavy political overtones.

Moreover, the government's failure to broker some sort of social pact requires a rethink of how the national dialogue is being conducted in the light of the conflicting messages that are being sent to society at large. This does not augur well for the future when our society will be called to make some hard decisions with regard to health, pensions and education.

Four years of almost zero real economic growth should tell us that the solutions have to go much deeper than just giving up a few public holidays. At best this will only slow down the haemorrhage. The economy does not have the capacity to create new productive jobs, to offset the on-going trade deficit, to enable the government to reduce its budgetary deficit and to enable our society to continue enjoying the present welfare system.

Our economy has been sick and has shunned from undergoing the necessary surgery. Simply taking a few aspirins and hoping that the market will do the rest will not serve. I am sure that many people will understand. We will once again rise to the challenge. Yet we must have the confidence that we are in the hands of a good surgeon and that after a period of convalescence we will return to a healthy lifestyle. So while addressing the negative issues, our leaders also have to start formulating a positive agenda, creating an economic vision of a prosperous Malta.

The Prime Minister is betting that this surgery will prove successful if the government focuses on proper fiscal management. This is now a necessity but will probably not be enough. The culture on tax issues that has crept into our society and the government's track record in this field are not encouraging.

The Leader of the Opposition has boldly suggested that the government should consider a gradual depreciation of the lira. For economists and global institutions such as the World Bank this, supported by proper domestic policies, could be an effective way of addressing the existing economic imbalances.

The Prime Minister retorted that the World Economic Forum deems that devaluation (implying also a gradual depreciation of the currency) is no solution to regaining competitiveness. The impact of devaluation is broad as it affects directly the price of all that we sell and buy from the international market. It is a measure of last resort. It means admitting failure. But then so are persistent high unemployment rates, lowering of real wages and the erosion of the value of money in the bank.

Moreover, two critical considerations condition the Prime Minister's line of action in this respect. The first relates to the cost of importing petroleum products. A strong currency partly offsets the increases in the price of oil which is denominated in the US dollar.

The second relates to the commitments that Malta has made on joining the European Monetary Union and its ambition to join the euro at the earliest opportunity.

Be it as it may, the Prime Minister will do well to make sure that any benefits to competitiveness arising from better fiscal management are not eaten away by a further strengthening of the lira. Analysts seem to agree that the weakening of the dollar vis-à-vis the euro will continue. This will inevitably lead to a further unwarranted appreciation of our currency at a time when, if anything, it should be moving in the other direction.

Equally important is the formulation of an economic strategy that will enable our country to achieve its potential. Promoting clusters of economic activity around the maritime, healthcare and education industries.

We need a fresh approach. A new mind-set; the realisation that doing more of the same will not enable us to make the qualitative leap necessary to support our standard of living expectations.

It is not in what industries we compete in which is important, but how we compete. We cannot continue to search for the next Eldorado while throwing away what we have learnt over decades as is happening with our clothing, footwear and furniture industries. Our Italian neighbours show us that it can be done.

Creating value goes beyond just cutting costs, in particular labour costs. We need to develop an innovative capacity and an ability to market it effectively. We need to build up a couple of world class companies as Singapore did with its port management and airlines, Ireland with its beer and Finland with cellular telephony.

Public policymaking is often about having to make trade-offs between highly desired objectives. In the present circumstances, economic regeneration and regaining competitiveness demand that they be given top priority. This is where leadership and vision come into play.

fms18@maltanet.net