Invariably, budget time brings talk about competitiveness. The underlying message changes little: employees should not expect big wage increases. Tough luck if the cost of living is rising fast; what matters is productivity. At this point, Joe Citizen feels lost. What can he tell his wife when she protests that his pay is no longer sufficient to pay for all the bills?
Productivity is essentially a measure of output over input. The more output from a given input, the greater the productivity. At an enterprise level, labour productivity is obtained by dividing sales by the cost of wages. At a country level, total output is represented by the Gross Domestic Product (GDP). As productivity rises employers can afford to pay higher wages. However, labour is not the only input determining output. Other factors such as machinery, computerisation, materials and components also play an important part. If all inputs are included, then we get total or multi-factor productivity.
Malta is no longer a cheap labour country. The World Economic Forum in its Global Competitiveness Report places our economy (based on GDP per capita) in transition from "efficiency-driven" to "innovation-driven". In other words, the challenge is not to work harder, or smarter, but differently. If Malta wishes to continue improving its standard of living it needs to be innovative. This represents a qualitative leap forward. Our enterprises need not only to produce higher value products (services) while containing costs but also to offer new and unique products. Gauging our innovation performance, the EU classified Malta among the "catching up countries" (European Innovation Scoreboard 2007). It estimated that we will reach the EU average level in about 20 years.
Ultimately, the onus for improved productivity at the enterprise level falls on management. At the macro-level, the government is directly responsible for productivity within the public sector (calculated by government expenditure rather than some value of its output). Together with all the social partners, the government is also responsible for creating the right conditions to help improve productivity. In particular, this can entail higher female participation in the workforce, better vocational training and incentivising social welfare dependents to take up jobs.
Competitiveness and productivity are the two sides of the same coin. Productivity belongs to economics, competitiveness to business management. Competitiveness seeks to identify all factors which, directly or indirectly, impact on society's capacity to prosper. Admittedly, the concept of competitiveness at a national level is a vague one.
Different economic sectors have diverse competitive realities. The main contribution of competitiveness is in shifting our mind-set from supply considerations to more holistic, marketing ones.
An economy that is not able to keep paying the same "real wages" cannot be doing so well. When in the early 1990s, the government and the social partners agreed on COLA (cost of living adjustment) it was an attempt to "protect" the standard of living. Further wage increases, and other benefits, were to be negotiated directly between employers and their workers within the framework of collective agreements. These arrangements contributed towards industrial stability and worked well as long as the economy (and productivity) grew at higher rates than the cost of living. Real problems started to emerge during the first half of this decade, when economic growth was practically stagnant. COLA increases during this period ate into our competitiveness. In these last three years, the trend has been reversed, productivity is outgrowing labour costs.
Should we abolish COLA? I believe it better to improve it. Presently, COLA already penalises workers because it is given retrospectively (since it compensates for inflation in the previous year) and because of the way the rate of inflation is computed (considering the mix of products and services taken into account). But, at least, it still offers workers a shield, even if there has emerged a class of precarious workers who have to accept inferior conditions of work.
Our economy, while growing, is not achieving its potential. Rampant inflation is eroding our purchasing power. Starting from the impending budget it needs to start sending the right signals. The country needs a holistic vision, a beefing up of Vision 2015 that will give direction and hope to Joe Citizen. But a vision is only as good as its roadmap that would facilitate the channelling and development of our human resources.
The SmartCity experience should have shown us the way.
We need a sober, non-political assessment of the state of our economy; the challenges and opportunities facing the respective economic sectors; to build clusters that promote inter-linkages and create synergy; to nurture a culture of innovation. The people have a right to know because their livelihood is at stake.
The government needs to act and fast. There are longer-term issues as well as more immediate ones. The outlook for the global economy is bleak, with inflation reaching its highest levels for decades. The high cost of food and energy are hurting the more vulnerable within our society. Now is the time to express our sense of solidarity and social justice without losing our economic sense.