Discussion gaps

The national conference on inflation organised by the Labour Party will not make economic disease disappear. Nor will it dent it by a fraction of a decimal point. Yet it was worth it on two counts. First, it brought together key sectors of the economy and civil society. Employers' representatives were conspicuous by their absence.

Minister of Finance Tonio Fenech, busy though he is, did attend and participated closely. So did his permanent secretary, who gave a presentation on an area which is his specialisation. Secondly, the conference heightened awareness about inflation implications and the waves the subject, as converted into the statutory cost of living increase, will be making in the Malta Council for Economic and Social Development.

The conference also enabled academia to make an interesting contribution to the discussion of the subject, as well as eliciting useful comments from the floor.

These included an observation from Alfred Mifsud that inflation, measured after it has passed, is a thing of the "past" - it would be more useful to focus on economic growth and job retention and creation.

In reality, it is essential to focus on all of the three areas. An inflationary environment discourages real investment, which is the key to growth. It is therefore of paramount importance to seek how to discourage inflationary forces.

That is the economic aspect. It translates, needless to say, into the social scene, pointedly covered by Mgr Anton Gouder. Inflation erodes the purchasing power of disposable income. Everybody feels the erosion, but none more so than those who have little, if any, margin of income to spare. That starts with those living on social security benefits, and most pensioners. It includes thousands of employees earning not much more than the minimum wage.

The erosion also affects higher-paid workers and the middle class, defined by the income criterion. Inflation is bad all round. One should keep a sense of perspective. The phenomenon is currently alarming in Malta not because we have rampant inflation, but because it is stubbornly running at a pace or two faster than it is doing in the rest of the European Union.

Minister Fenech found some relief in tracking inflation and finding it moving in the same direction as in the EU. But of course, it is not that which counts, but the persistent gap between the Malta rate and that of the rest of the EU. The gap punishes Maltese consumers and also impacts on competitiveness. That will be seen soon enough when the MCESD hosts a battle royale between employers and the unions, at least the GWU, over the fact that compensation for inflation up to the coming September will require an adjustment of some €7 weekly.

I feel the minister dismissed the gap far too easily. It will not go away. In this regard, I feel there was some confusion in that (small) part of the discussion which related the employers' pressure to link wage increases, at least for those earning more than the minimum wage, to productivity. Such a link would not be made on a macro basis, through a national productivity index.

It would only make sense on a micro basis, of the productivity of the firm, open to transparent measurement by the union(s) and the employer. The conference saw a lot of talk on weaknesses in the public sector and about the need for the government to do more to correct rigidities, lack of real competition, market failure and other economic shortcomings.

There was hardly any serious reference to the role of productivity in wage adjustments, a subject which was very well covered around two years ago by Prof. Godfrey Baldacchino.

Most of the unions will not countenance any tampering with Cola. But they might come to see that a broader scope for collective bargaining should be beneficial to them, in that it should increase their presence in the economy.

A correlation between Malta/ EU wages and Malta/EU prices worked out by Prof. Joe Falzon was also too easily dismissed by Minister Fenech.

He said it was not technically correct, but did not explain why. The correlation may not be perfect in terms of inflation.

But there is a lot to it in terms of the standard of living. Wages at under 44 per cent of the EU average have to buy necessities which cost 78 per cent of the EU average.

The implication is clear and it was one of the advantages dangled before the electorate to persuade it to vote in favour of joining the EU.

As reported, the conference did not touch the fact that consumers should shop around to get the best deals available. That is one way to bring about serious competition among suppliers.

The objective tone of the conference was marred by the Finance Ministry's reaction to the proposals made by Opposition Leader Joseph Muscat. Much of what he proposed was all being done, it said. Hardly encouraging. There is nothing new under the sun.

The basic point to emerge was that the pre-euro measures to contain inflation in 2007 worked, at the cost of repressing it and stoking it for the future. Can a leaf be lifted out of 2007 without the same effect? Perhaps another (but shorter) conference is required to discuss that.