The eroding competitiveness

On September 2, the Finance Minister dished out GDP figures for the second quarter. He anticipated the release of these figures by the National Statistics Office (NSO). Such a move would have raised eyebrows in any country that values the independence of its institutions, especially in Europe.

As far as I know, the NSO is - or, at least, should be - an autonomous and independent organisation.

Are we to assume that it is standard practice for the NSO to provide such unpublished data to the minister beforehand?

During the same meeting when the minister released the data, the president of the Malta Chamber of Commerce, Tancred Tabone, expressed concern over wage growth which is, he argued, rising faster than productivity growth. Hence, Mr Tabone said that this was leading to an erosion of competitiveness.

Such a claim by the president of one of the main constituted bodies begs analysis.

Eurostat data shows that labour productivity growth in Malta between 2006 and the first quarter of 2008 has been slightly above that in the eurozone (with the exception of 2006 Quarter4 and 2008 Quarter 1). Nevertheless, the gap has fallen from 0.9 per cent to 0.3 per cent in a single year. It went into the red at 1.2 per cent at the beginning of this year. Thus, this new trend clearly underlines the need to boost productivity.

The obvious knee-jerk reaction to such statistics is to point at wages and try to blame it on their increase. In fact, Mr Tabone suggested that one should do away with the Cost of Living Adjustment (COLA) mechanism, echoing a recent call by the Governor of the European Central Bank (ECB).

However, the same Eurostat figures show that the labour cost (nominal unit) in Malta has generally grown at a much slower pace than that in the eurozone, despite the fact that productivity was stronger in Malta. In fact, between 2006 and 2008, productivity growth in Malta was on average 0.3 per cent higher than in the eurozone while labour cost growth was actually 0.2 per cent weaker. This means that the erosion of competitiveness in Malta vis-à-vis the eurozone is not to be blamed on labour-related factors. Actually, if one considers the real unit labour costs figures provided by the same source one sees that these have actually been falling, on average by 1.2 per cent in 2006 and 2.3 per cent in 2007.

I will not bore readers with the intricacies of the statistics.

What I think needs to be further analysed is what happened during the first quarter of 2008. The rise in unit labour costs during that period was almost entirely underpinned by rising wage bills in the public and not in the private sector.

From where do I get this?

Simply look at the national statistics for the first quarter of this year and you will see that the contribution of the private sector wage bill to growth in gross value added declined from 1.8 per cent to 1.7 per cent. On the other hand, surprise, surprise, the public sector's wage bill contribution increased considerably from 0.6 per cent to 1.9 per cent.

In case you missed it, we had a general election in 2008 Quarter 1.

Thus, the concerns of the president of the Malta Chamber of Commerce could have been addressed by a more responsible attitude by the government in the run-up to the general election. Decisions taken by the Prime Minister within the public sector during that period did not lead to any overall increase in productivity. It actually eroded the country's productivity.

In contrast, the private sector and workers continued to give their contribution.

The worst part of it all is that if the government persists with such an attitude it can only lead to spill-overs and intensify the already sky-high inflation pressures.

I wonder whether the Finance Minister considered putting the record straight.

Dr Muscat is leader of the Malta Labour Party and a member of the European Parliament.

www.josephmuscat.com