Productivity and competition

The Malta Council for Economic and Social Development is a forum where the social partners can meet and discuss. Its setting up was a step in the right direction; sceptics believe it was created for political rather than social and economic objectives. Now the social partners, excluding the government, feel they have a right to be consulted before any policy measure is taken, whether it may border on the tax regime or changing conditions of work.

Though the government is a social partner, it wears two hats: one as an employer and the other as the institution responsible for the administration and governance of the country. Besides the fact that employers and trade unionists tend to have conflicting interests, it is perhaps difficult for them to come to any agreement, as happened with the public holidays issue. The inclusion of the government makes it even more difficult because it has other important considerations to contemplate.

What gave rise to the present impasse is Malta's lack of competitiveness. It is being stated that Malta's standing in this area should increase because the reduction of four public holidays helps to boost productivity, thereby becoming more competitive. At first sight, this approach makes sense but deeper reflection should throw more light on the misapprehensions of the issues involved, even though competitiveness and productivity are related.

To be more competitive costs must be cut, prices lowered, cost of capital minimised. Furthermore, exchange rates should fluctuate within reasonable bands when compared to Malta's competitors; there should be more professional deployment of skills; response to opportunities that arise intermittently has to be immediate; outsourcing employed where wage differentials can be gained. Different strategies should be adopted to increase market share through: innovation, quality of goods, service provided, knowledge of our and our rivals' markets, managerial competence and diversification.

Of greater significance is how a competitive market is defined. In his book Managing For The Future, Peter F. Drucker records the interpretation given by a number of Czech businessmen: "I have the feeling that you define a competitive market as one in which prices are kept high enough for every competitor to make a good profit". Seeing that they did indeed do so, he added that 'in a market economy there is no profit but only profit and loss; no reward but only risk and reward and that freedom is not just the absence of restraint but self-discipline and responsibility".

If profits are achieved at the cost of downgrading productivity or failure to implement innovation, they are only short-term profits. In real terms, capital is being destroyed. It is only if the productivity of all key resources and innovative standing are consistently improved that continued profits can be made.

Productivity is inherently related to the input of all major factors of production - money, materials, people, land; that is, in relation to their value added minus whatever is spent on buying supplies, parts and services from outside sources. Preferably, the productivity of each factor should increase steadily without resorting to factor of production trade-offs. This implies restructuring of all activities to ensure the minimisation of cost per unit. To achieve such ends there should always be continuous retraining programmes for workers and a flexible labour force, querying the utility of each task, controlling all processes with a view of improving them and introducing business audits.

Tackled in this way, productivity should be conducive to growth; but growth requires the dismantling of regulations, controls, negotiations that paralyse economic activity and force managers to spend most of their time discussing with a myriad of government agencies and/or trade unions.

Here in Malta trade unions are strong and cannot be ignored. Trade unions are not prepared to give up members' rights quite easily. They are expert negotiators. If employers and the government were to give something in return for the four public holidays on the line, the trade unions would surely reconsider their stand as their members will benefit more in the long run.

It is believed that if employers are prepared to set up a fund, administered by the three social partners and earmarked to retrain workers to ensure their employability and to invest in more potential foreign markets, and the government reduces its excess fat over a predetermined period, thereby being in a position not to increase taxation, the unions are likely to accept the reduction of public holidays falling on weekends.

They should feel more comfortable with the certainty of greater job opportunities as they would have proved that they are the best guarantors of jobs and ensure that their members end up with more disposal income.