The Achilles heel of the Maltese economy is the insufficient diversification in the economic activities that help us to create wealth. In the post-independence era, manufacturing and tourism were the two main activities that helped us move away from a predominantly military economy to one that was based on civilian activities through which we sold our goods and services to those who needed them.
Fifty years on I believe that we need to once again transform our economic activities to make us less dependent on the fortunes of the financial services and electronic gaming sector. It may seem ironic that possibly the best way to diversify our economic activities is to once again encourage investment in modern manufacturing.
The onset of globalisation in the last few decades brought about immense benefits to consumers in Western societies. Unfortunately it also meant that millions of jobs in both Europe and the US were lost as multinational companies moved their manufacturing bases to China, India, Vietnam and Brazil and other South American low-cost countries.
Many sociologists and economic historians have likened the massive changes brought about by globalisation to the similarly extensive transformations that characterised the Industrial Revolution.
Arguably, the main driving force behind globalisation was the great labour cost disparity between developed and emerging economies. This disparity is now slowly but surely being eroded. So what will support the logic that Western economies need to look once again at manufacturing to revive their wealth generating potential?
In 2012 the World Economic Forum published a very interesting report on The Future of Manufacturing. In this report the various experts who compiled it came up with a list of critical success factors that will determine which countries will be successful in establishing a viable and modern manufacturing base.
One of the important elements identified in this report is “the infrastructure necessary to enable manufacturing to flourish and contribute to job growth”. In the case of Malta, this is about having good and reliable air links with most of our neighbouring countries and beyond, a reliable and affordable power supply, an efficient civil service that speeds up the bureaucratic processes on which business depend, as well as good roads and a reasonable traffic management system.
In this context, one has to acknowledge the soundness of the present administration’s strategy to provide affordable clean energy to households and businesses through effective energy policies. Equally important is the Prime Minister’s commitment to encourage investment in manufacturing. “Manufacturing is the future, just like financial services and gaming. There is a career in manufacturing.”
The administration’s plan to introduce an employability index that will be linked to the different educational courses is a very positive step in the right direction
It is disappointing that, as the CEO of Playmobil remarked, “the take-up of manufacturing-oriented programmes at educational institutes was not as high as expected”. The administration’s plan to introduce an employability index that will be linked to the different educational courses is a very positive step in the right direction. The skills gap that already exists in the labour market is indeed worrying. Students and their parents, who usually have an important role in the career choices of their children, need to be guided on the employment prospects linked to different career paths.
The World Economic Forum report leaves to the end the two most important factors that will determine whether a particular country will be successful in attracting investment in manufacturing. “Talented human capital will be the most critical resource differentiating the prosperity of countries and companies.” Emerging countries that did so well in the first phase of globalisation cannot fuel further growth without talent.
The report has some very sobering advice: “Companies and countries that can attract, develop and retain the highest skilled talent – from scientists, researchers and engineers to technicians and skilled production workers – will come out on top. In the race for future prosperity, nothing will matter more than talent.” Those that seem happy with mediocrity will continue to struggle to create good employment opportunities for their citizens.
The final element that will determine the future of manufacturing in a particular country is “the strategic use of public policy as an enabler of economic development”. This element will intensify, resulting in competition between nations for policy effectiveness and placing a premium on collaboration between policy-makers and business leaders to create win-win outcomes.
We need to have the right combination of trade, tax, labour, energy, education, sciences, technology and industrial policy levers to generate the best possible future for our people. Manufacturing can, indeed, be an important part of our economic future.
johncassarwhite@yahoo.com