A local newspaper recently reported on the Global Competitiveness Index and the Business Competitiveness Index drawn up by the World Economic Forum (WEF) and which featured Malta. Being two indices, the report prepared by the WEF presents two league tables where Malta features in the 32nd place, down from the 19th place registered last year, with regard to the Growth Competitive Index and in the 48th place, down from last year's 42nd place, with regard to the Business Competitive Index.
The indices report on a static situation and any change in the economic scenario may change the placing achieved by a country. Moreover, they are based on criteria that are in turn subdivided into a number of variables, which in their totality are seen to contribute to economic growth and to the competitiveness of businesses.
There should be no doubt that, irrespective of what these variables are, the loss in competitiveness and a weakening of the potential for economic growth should be viewed as negative trends. Moreover, when one views the full tables and one notes that it is Finland (an EU member state) that leads them, the logical conclusion is that the reasons for these negative trends are not to be sought in our country's membership of the European Union but rather in other factors that are probably more internal than external.
When speaking of competitiveness it is important to mention two key important issues. The first is who or what are we referring to when we speak of competitiveness.
Although these two indices are country based, it is not a country that is competitive. Eventually it is individual businesses that are competing in the marketplace. As such, it is the individual business that is competitive or not competitive in the market it is operating.
Within the same economy where one has two companies producing the same product or service, one company may be competitive while another is not. This competitiveness arises from a mixture of a company's productivity, efficiency and quality, which in turn translates into a consumer demand for the company's products or services.
A government may adopt fiscal and/or monetary policies that create a specific macroeconomic environment. In particular one may refer to legislation, taxation, incentives for wealth creation. However, these policies on their own do not create competitiveness. They simply provide an opportunity that businesses have to exploit to make their operations more competitive. Therefore, Malta's placing in the Business Competitive Index is essentially a reflection of the present state of competitiveness operating in Malta.
The second key issue is that competitiveness is not gained at the expense of others. It is possible, theoretically, that all businesses gain in competitiveness without anyone losing out.
The league tables drawn up by the World Economic Forum reflects relative positions of countries but not absolute positions. This implies that our target should not be simply moving up the league tables, as this tells us nothing much other than that we are doing better than other countries. Our target should be to work on the variables on which these indices are based, such that the competitiveness of firms operating in Malta improves in absolute terms.
The Business Competitive Index is based on two broad criteria - the microeconomic business environment and the level of sophistication of the operations of the business. On both aspects the small size of the market, coupled with the absence of natural resources and the high degree of dependence on foreign investment in the manufacturing sector, prove to be limiting factors. This has meant that, when companies worldwide were essentially producing for their home markets, local companies did not have the critical mass in terms of demand required for effective research and development or to operate as efficiently as possible.
Moreover, the formation of industrial clusters in Malta has always proved to be very difficult to realise. This, in turn, has hindered both productivity and efficiency in companies operating in Malta. All this highlights the fact that competitiveness is gained at the level of the firm.
The Growth Competitiveness Index is based on three broad criteria - technology, institutions and the macroeconomic environment. The structure of this index supports the view that businesses can only gain in competitiveness if there are public sector policies that act in their support. The feeling in general is that on all three fronts we still need to make some headway. The fiscal deficit, bureaucracy within the public service (where it exists) and the lack of any research and development activities that are worthy of note are the main drags on this index.
This exercise in benchmarking competitiveness continues to highlight one issue. No one can shy away from the responsibility that we need to have the appropriate policies at a national level and at the level of the individual businesses such that firms operating in Malta improve their competitiveness.
These policies can only be arrived at if each of the three social partners recognise their role in the economy and do not seek to usurp the role of the others. This is why the news late last week that the social partners seem to be moving towards an agreement on a number of national issues, that eventually will affect the way firms operate, is good news.