Reforms and managing expectations

The tune-in fora where economic problems are discussed, appears to be changing. Up to a few weeks ago, balancing the budget and bringing public finances under control was considered as the solution to all problems and took priority over measures to stimulate economic growth. There has now been the recognition of the International Monetary Fund that the austerity measures that were forced down Greece’s throat could have been partly wrong as they did not allow any room for manoeuvre to the Greek Government to implement growth policies.

The pendulum is swinging to the other side and governments are generally coming round to the idea that as long as countries implement structural reforms that would reduce public expenditure on a permanent basis, balancing the budget can rank after measures to stimulate growth in terms of priorities. The keyword here is reforms, especially when one considers that such reforms are bound to affect certain segments of society negatively, in that they would lose certain benefits that they are enjoying today. This is crucial to appreciate as even measures that stimulate growth are bound to have this cost. Hence there is the need for governments to manage public expectations.

The reforms that analysts, governments and international institutions talk about are varied. For some countries it is a question of simplifying regulations in order to make it easier for businesses to invest. For other countries it is a question of reforming their educational system to strengthen vocational education in order to enhance the level of skills in their respective labour market. For other countries still, it is an issue of privatising state enterprises that have no reason to remain in the public sector.

Other proposed reforms are changes to labour legislation to remove rigidities from the labour market that are hindering investment; or an increase in the retirement age to allow for growth in the labour market; or changing welfare systems so that they become more sustainable in the medium and long term. In certain countries the required reforms have to deal with all these items while in other countries they have to focus on just one or two of them. Even though some governments would look for a postponement of certain reforms, they will not be able to postpone them forever.

The reason why governments would want to postpone certain reforms is not that they would be detrimental to the economy, but rather because there will be segments of society who may not like them. Essentially we have become addicted to certain benefits (such as rigid job security, less competition, unlimited public funds), without realising that such benefits are causing harm to the economy in general. Getting people off these addictions will therefore not be easy. The truth is that public money (in other words taxpayers’ money) has run out and they are no longer affordable.

However, how does one manage public expectations in such a situation? Society has been encouraged to move from an Oliver Twist culture of, “Please, Sir, can I have some more?”, to an empowerment culture of “I will teach you how to fish so you can look after yourself”, to a culture of dependency of “I insist, I am entitled to more”. That more could be a job in the public sector, free housing, subsidised public services, etc, etc. The Oliver Twist culture is wrong, but so is the culture of dependency

Malta is not immune to the need for economic and other reforms; nor is it immune from the culture of dependency as current and former government ministers know too well. So even we have to manage expectations. This can be done by having a proper debate on the nature of the reforms required and by having the will to implement such reforms for the common good. The statement “I insist, I am entitled to more”, needs to be linked to real entitlements and not perceived entitlements.