The global financial crisis could lead to a greater investment in real estate in Malta triggering an increase in the value of land, according to Gordon Cordina, a leading economist.
Asked about the impact of the crisis on the Maltese economy, Dr Cordina said: "Expectations of further declines in overseas investment values might possibly trigger a return to real estate investment in Malta, consequently leading to an increase in the value of land."
He added: "The Maltese economy is small and very open to international business. Its very smallness may allow it to avoid the direct impacts through significant exposures to ailing banks, although we have had news of some direct impact in this sense.
However, its openness to international business will imply that recessionary environments in the global economy will impact on local business, particularly in sectors that are not sufficiently competitive."
Dr Cordina also said that we might also witness a declining wealth effect affecting Maltese consumers through reductions in the values of portfolio of investments by Maltese residents overseas.
Regarding what lessons have been learnt from this crisis and whether capitalism has a future, he answered: "This is a question which has indeed been topical for at least the past 70 years, from the time of the Great Depression of the 1930s which was resolved by means of a radical shift in economic thought introduced by Keynes, who advocated government intervention to rectify situations where the free market, left to its own devices, led to bad outcomes.".
Dr Cordina said that we are at present living through another period of a bad outcome produced by financial markets which were not sufficiently aware of the risks of certain financial instruments and hence were not able to price such instruments correctly.
However he added: "But does this mean that the market system is inherently wrong and to be completely done away with? Certainly not, I would think. If my car gets broken, I would not abandon the concept of automobile travel altogether: I would try to find the best way, no matter how costly, to repair my car and take preventive action to reduce the likelihood of such an event happening again."
He said these hard times are also interesting times with Darwinism at its "very best". The economic agents which are most adaptable and which are rapidly responding to and anticipating the changing conditions will thrive and grow, absorbing the weaker elements in the economy and making better operators out of them, he said.
"Indeed, there will be those who will emerge stronger out of the current turmoil."
Dr Cordina said it may well be that the stronger, smarter more adaptable element would be the government, justifying an expanding role of the state in the economy. "But I doubt this. The market, even if more regulated and with a stronger degree of government intervention, will find ways of operating in the pursuit of efficiency and profit. The market also has a way of self-regulation which will preclude it from repeating the same mistake over again," he explained.
"There will, however, be other crises, not quite like this one, but markets, which are after all run by human beings, time and again make mistakes and learn from them. It is the opinion of many that the mistakes made by governments when interfering in the economy are larger and typically more serious."
Dr Cordina said governments should not hinder markets. "They should limit themselves to help clear the problems they create and prevent new ones, without, however, stifling their operation. I nevertheless agree that massive interventions were required to correct the events over the past few months and more may even be required, with government eventually letting the markets to carry on the job of running the economy.
"Let us also remember that much of the growth in the world economy obtained over the past two decades was produced by the growth in financial markets and the ongoing process of globalisation. The recent developments are, perhaps, a small price to pay for obtaining such rich dividends in world growth."
Asked about the impact of the crisis on the Maltese economy, Dr Cordina said: "Expectations of further declines in overseas investment values might possibly trigger a return to real estate investment in Malta, consequently leading to an increase in the value of land."
He added: "The Maltese economy is small and very open to international business. Its very smallness may allow it to avoid the direct impacts through significant exposures to ailing banks, although we have had news of some direct impact in this sense.
However, its openness to international business will imply that recessionary environments in the global economy will impact on local business, particularly in sectors that are not sufficiently competitive."
Dr Cordina also said that we might also witness a declining wealth effect affecting Maltese consumers through reductions in the values of portfolio of investments by Maltese residents overseas.
Regarding what lessons have been learnt from this crisis and whether capitalism has a future, he answered: "This is a question which has indeed been topical for at least the past 70 years, from the time of the Great Depression of the 1930s which was resolved by means of a radical shift in economic thought introduced by Keynes, who advocated government intervention to rectify situations where the free market, left to its own devices, led to bad outcomes.".
Dr Cordina said that we are at present living through another period of a bad outcome produced by financial markets which were not sufficiently aware of the risks of certain financial instruments and hence were not able to price such instruments correctly.
However he added: "But does this mean that the market system is inherently wrong and to be completely done away with? Certainly not, I would think. If my car gets broken, I would not abandon the concept of automobile travel altogether: I would try to find the best way, no matter how costly, to repair my car and take preventive action to reduce the likelihood of such an event happening again."
He said these hard times are also interesting times with Darwinism at its "very best". The economic agents which are most adaptable and which are rapidly responding to and anticipating the changing conditions will thrive and grow, absorbing the weaker elements in the economy and making better operators out of them, he said.
"Indeed, there will be those who will emerge stronger out of the current turmoil."
Dr Cordina said it may well be that the stronger, smarter more adaptable element would be the government, justifying an expanding role of the state in the economy. "But I doubt this. The market, even if more regulated and with a stronger degree of government intervention, will find ways of operating in the pursuit of efficiency and profit. The market also has a way of self-regulation which will preclude it from repeating the same mistake over again," he explained.
"There will, however, be other crises, not quite like this one, but markets, which are after all run by human beings, time and again make mistakes and learn from them. It is the opinion of many that the mistakes made by governments when interfering in the economy are larger and typically more serious."
Dr Cordina said governments should not hinder markets. "They should limit themselves to help clear the problems they create and prevent new ones, without, however, stifling their operation. I nevertheless agree that massive interventions were required to correct the events over the past few months and more may even be required, with government eventually letting the markets to carry on the job of running the economy.
"Let us also remember that much of the growth in the world economy obtained over the past two decades was produced by the growth in financial markets and the ongoing process of globalisation. The recent developments are, perhaps, a small price to pay for obtaining such rich dividends in world growth."