Up until shortly before the 2008 Great Recession smashed the US economy and then several European ones, things generally felt and looked good. True, some insiders and experts had their doubts but, as Gillian Tett of The Financial Times has explained, they were nervous about being the ones to break the silence. They kept quiet so as not to be called stupid or politically motivated, let alone be blamed for destroying consumer confidence.
After disaster struck, it became clear that there were several economies that had been wired for rapid growth but with no capacity to handle the stresses of sudden shocks. The economies were not robust or resilient. Pick your metaphor: they were bubbles that burst, houses of cards that collapsed, palaces built on sand.
The Great Recession is behind us but we shouldn’t need reminding that turbulence can be just around the corner. Turbulence that hits, first, our trading partners and important markets, then us.
Over the next five years, we shall see how the UK handles Brexit and the EU handles slow economic growth. Can the Chinese regime manage a gentle economic slowdown or will piling debts and industrial overcapacity make it impossible to avert a sharp downturn? Will Libya sort out its problems?
Can the Saudi monarchy survive five years of the swingeing budgetary cuts necessary in the face of falling oil revenues? Does the growing confrontation between the US and Russia stem from Vladimir Putin’s confidence before the US’s dithering? Or is it recklessness born of the political need to do something to counterbalance the shrinking of the Russian economy (now smaller than Spain’s)?
These are just a few of the international developments that could affect Malta. How we’d be affected is open-ended. It depends on the scenario.
Would a Libyan peace lead to a significant reduction of Libyan residents in Malta and, in that case, how would small Maltese investors in property development be affected?
Would a recession lead the Chinese to use their investment muscle to squeeze us? Would turbulence in the Gulf lead to more passport sales or to less investment? Would capital flight from Russia be good for us – or could it lead to an overheating of sectors of our economy?
Having an exposed economy – as we do – means you can’t prepare for every eventuality. But it doesn’t mean that we should just forget about whether our economy is robust and resilient enough to handle external stresses.
Despite all this, no politician or special interest group has so far discussed the Budget in terms of strategic resilience. Our Finance Minister insists that we evaluate this year’s Budget in terms of the strategy followed over the last three years. Fine. How about discussing it in terms of the next five? If there is one thing about Singapore that is worth emulating by a liberal democracy (which Singapore is not), it’s precisely the strategic readiness to plot the outlines of the next 25 years.
This budget is being discussed in terms of pork-barrel politics: how much meat got thrown this way or that. No one is seriously asking about some key strategic issues
Instead, this Budget is being discussed in terms of pork-barrel politics: how much meat got thrown this way or that. No one is seriously asking about some key strategic issues.
One is that we are increasing welfare benefits at a time of economic growth. It’s this growth, the government tells us (and the Nationalist government before it), that warrants benefit increases and tax cuts. But would the benefits be sustainable during an economic downturn? That’s when they will be needed most and when more people will qualify for them.
True, the current national projections indicate continued growth for our economy. But we already know that we can do everything right and still suffer an unexpected downturn if other countries lose their way. Does the Budget (and the Opposition’s alternative budget) allow for shocks to be absorbed?
Or do we seriously believe that downturns, a cyclical feature of all economies, have no place in ours?
Second, welfare benefits are increased permanently but they are being partly underwritten by one-off sales.
A passport can only be sold once; we can easily be undersold by European competitors since printing passports is like printing money. Property bought by foreigners, if resold, will probably mean that the proceeds will be transferred out of our economy. In both sectors, passports and property, the line between a thriving market and oversupply can be quickly crossed.
How dependent is our welfare largesse on passport and property sales?
Third, there is our bizarre discussion of key strategic sectors like energy and health. How can we have an objective assessment of whether we’re moving in the right or the wrong direction, when key public contracts remain unpublished and the long-term commitments so far are secret?
Maybe the government has struck the right deal for us. Or maybe it has bound us to contracts that will cripple businesses and ordinary consumers in the medium term. How can we tell without seeing the contracts?
The government tells us not to worry. But there is no reason to take it at its word. Everything it assured us about its great power station in 2013 has turned out to be false in 2016. Its critics were right: the power station wasn’t built in two years; the gas supply couldn’t be provided by tanks on the ground; you couldn’t get a 10-year fixed-price deal with the private sector that wouldn’t send prices through the roof (Konrad Mizzi settled for a five-year deal).
Everything was predictable – and indeed predicted. We cannot know if we’re doing well in 2016 if we don’t know what our health and energy bills might be like for the next generation. An ugly surprise could jolt consumer confidence and the economy.
The Finance Minister is right. We shouldn’t discuss this year’s Budget without seeing it in the context of the last three years. That means, however, taking into account not just the government’s largesse but also the key strategic decisions it has taken during the same period.
Otherwise we have no way of knowing whether we’re living in affluence or recklessly.
The alternative is to think that all this talk of strategic issues is just nit-picking nonsense. That the truth is that Malta has found the Holy Grail that has eluded all economists. That we know how to combine Anglo-Saxon levels of taxation with Scandinavian levels of welfare benefits.
That any year soon we shall add to the George Cross, awarded for collective gallantry, the Nobel in economics, awarded for collective cleverness in banishing economic slowdowns and shocks.
If you believe that, then I know of an authentic Mattia Preti I can sell you for a mere €75,000.
Oh, you already own it.
ranierfsadni@europe.com