New growth path is needed
The Pre-Budget Document for next year’s Budget outlines the success and challenges of recent years and sets forth the path for further economic growth. The economy is expected to continue growing at rates well above the average of eurozone member states but by a slower rate than in 2016.
This is not surprising considering that the gas-fired power station is nearing completion. In the absence of similar large-scale projects, economic growth will continue to rely on the so-called established sectors such as tourism, where results have exceeded all expectations; the retail sector, the financial services sector and remote gaming.
The economy has also been boosted by increased spending by the public sector though the deficit levels have been reigned in. The construction sector’s ‘real’ contribution to the economy is difficult to gauge but there can be no question about the significant cash injection this sector generates.
These sectors remain critical for the economy but the question remains: can the Maltese economy continue to depend so much on them?
The Pre-Budget Document attempts to identify new sectors that could emerge in the years ahead but what the country needs is a new growth path that relies less on tourism and the construction sectors, which have exceeded capacity and make huge demands on our infrastructure.
We all agree that the economy is growing but we are passing by and ignoring a massive amount of so-called externalities. Example of this are the external effects caused by the transport sector. If we measure economic success by the current economic model with its intensive use of resources, high per capita levels of waste generation, high levels of emissions, high dependence on fossil fuels, then this is the price future generations will have to pay for today’s economic growth.
The current economic model lacks effective checks and balances that are needed to avoid undermining our ecology. And, whereas we can claim that the impressive growth rate in our GDP is evidence of a vibrant economy, the current model is simply not distributing wealth justly and equitably. Recognition of this can found in the Pre-Budget Document and we all expect more targeted measures to reduce inequality in the 2017 Budget. Whether this can achieved is another matter.
The dominant paradigm shows no signs of weakening. The current economic model, fuelled in part by the investment in the new power station and the Individual Investment Programme with its linkages to the property market, remains resilient as ever.
It favours the speculators and property investors often at the expense of sustainability and the ecology.
It is vital, therefore, to consider alternatives to the present economic and business model.
Is this a moral issue? No, it isn’t. It is a survival issue, first and foremost. Secondly, it’s one of well-being and fairer income distribution.
The dominant economic thinking has taken over our lives. This view is predominantly economic (in the narrow sense of the word) and threatens our own survival as a people with a sense of community and shared values.
As a nation and as community we need to be open to more sustainable ways of doing things fully conscious that every activity or transaction has an economic cost (in the wider sense of the word).
The starting point, to make the transition towards a sustainable economy, is to lay bare the facts. Second, we need to question the basic assumptions underlying the dominant economic view.
Some way or other, exponentially growing systems eventually always get reduced. Equally, a growing economy will slow down to more realistic levels. This explains why Malta’s economic growth is projected to be smaller next year.
No matter how much effort and money we throw in to restore what we had and get back to business as usual – we might be able to squeeze out a few more years of growth – time would be better spent if we had to start planning for a more sustainable economy.
The current levels of economic growth may at best persist for a further two or three years but in time will create uneconomic (in the wider sense of the word) growth.
For all the talk of a vibrant Maltese economy this has had a limited impact on poverty and arguably our well-being, if we consider all the negative external effects caused by current economic activity.
This is why we need to explore an alternative economic model, especially one that puts the onus on the government to develop and implement, over the long term, sustainable development strategies that help develop economic activities that stimulate growth without negatively affecting our well-being and with a greater emphasis on social justice.
This is the new economic growth path that would make a real difference in our lives.
Dr Philip von Brockdorff is head, Department of Economics.