Any operator in tourism or a manufacturer that exports most of what he produces would tell you that gone are the days when he could set his own prices and negotiate worth with customers on the basis of those prices. These firms very often have to accept a "take it or leave it" attitude from their customers. They would tell you that they can no longer be price-setters but have to be price-takers.

This has happened for a number of reasons, such as increased competition, very similar products or services such that there is little that distinguishes competing firms except for prices and more discerning customers.

However, the most important reason is that as the movement of goods and services, the persons that produce these goods and services and the capital that is needed to produce goods and services, has become more free, we have experienced an increasing reduction of the imperfection of markets.

We are nowhere near what the purists of economic theory would term as perfect competition, however, over the last decades, and more noticeably over the last years, we have slowly edged away from monopolistic markets towards more competitive markets. This has brought about a situation where firms are increasingly price-takers and not price-setters, and less so market-makers.

This development has spurred the "anti-global" movement to protest in the way they do. Very often these protesters come from developed countries and their objective is invariably to stop any further development in the freeing up of markets to enhance international trade.

They are more than aware that the opening up of markets would lead to increased competition and therefore a situation where customers, rather than producers, set the price. Their favourite issue is agricultural products, conveniently ignoring that the amount of subsidies that governments in Western Europe and the United States give to the agricultural sector is larger than the gross domestic product of the whole of Africa.

This evolution has turned producers of whatever nature to focus on cost-cutting. Essentially, since they can no longer determine the price for their product or service, the only way they can maintain their profitability is by cutting costs.

This is very evident in the US where in the last months there have been signs of an economic recovery because of increased share prices as well as increased profitability of businesses.

The point is that this increased profitability was achieved through a lowering of labour costs (always a major component of a firm's costs base) and not through higher prices.

This point brings us closer to home. Companies operating locally have felt the pinch just as other companies in the rest of the world. They have been able to continue competing because they have found ways and means of cutting down their costs.

They have generally achieved this by rationalising their operational pro-cesses, thus requiring less labour input in the form of reduced overtime, or more importantly in the form of modified work practices. When they have not managed to do this they have had to close down. In some cases they relocated elsewhere, where costs are lower.

We have examples of countries that, during the current international economic slowdown, have taken a conscious decision to cut costs, since they could no longer be price-setters.

Singapore is a case in point. In this country the slowdown has cut deep into the economy with a reduction of four per cent in the gross domestic product. The answer has been a concerted effort to cut costs, in order to safeguard the competitiveness of firms operating in that country, thereby safeguarding jobs.

However, it is incorrect to state that the only way of cutting costs is through a reduction in labour costs or by making labour markets more flexible than they are at present. Again the example of other countries comes in handy.

In the 1950s, Western Germany had higher growth rates than most of the rest of the western world, including the US, even though, labour markets in the US were far more flexible then than they are now and labour markets in Germany then were far less flexible than they are now.

In effect in Malta, the labour market within the private sector is fairly flexible. Rigidities are rife only in the public sector as trade unions have capitalised on the great political divide in this country.

What we require is an objective approach that helps to identify waste (that is extra labour where there is no need for it; or charges for services that bear no relationship with the costs incurred to produce those services) and to eliminate it.

This might hit some parochial interests negatively. However, if we accept that our firms can no longer be price-setters but have to be cost-cutters, then this is the only way forward.

This has happened for a number of reasons, such as increased competition, very similar products or services such that there is little that distinguishes competing firms except for prices and more discerning customers.

However, the most important reason is that as the movement of goods and services, the persons that produce these goods and services and the capital that is needed to produce goods and services, has become more free, we have experienced an increasing reduction of the imperfection of markets.

We are nowhere near what the purists of economic theory would term as perfect competition, however, over the last decades, and more noticeably over the last years, we have slowly edged away from monopolistic markets towards more competitive markets. This has brought about a situation where firms are increasingly price-takers and not price-setters, and less so market-makers.

This development has spurred the "anti-global" movement to protest in the way they do. Very often these protesters come from developed countries and their objective is invariably to stop any further development in the freeing up of markets to enhance international trade.

They are more than aware that the opening up of markets would lead to increased competition and therefore a situation where customers, rather than producers, set the price. Their favourite issue is agricultural products, conveniently ignoring that the amount of subsidies that governments in Western Europe and the United States give to the agricultural sector is larger than the gross domestic product of the whole of Africa.

This evolution has turned producers of whatever nature to focus on cost-cutting. Essentially, since they can no longer determine the price for their product or service, the only way they can maintain their profitability is by cutting costs.

This is very evident in the US where in the last months there have been signs of an economic recovery because of increased share prices as well as increased profitability of businesses.

The point is that this increased profitability was achieved through a lowering of labour costs (always a major component of a firm's costs base) and not through higher prices.

This point brings us closer to home. Companies operating locally have felt the pinch just as other companies in the rest of the world. They have been able to continue competing because they have found ways and means of cutting down their costs.

They have generally achieved this by rationalising their operational pro-cesses, thus requiring less labour input in the form of reduced overtime, or more importantly in the form of modified work practices. When they have not managed to do this they have had to close down. In some cases they relocated elsewhere, where costs are lower.

We have examples of countries that, during the current international economic slowdown, have taken a conscious decision to cut costs, since they could no longer be price-setters.

Singapore is a case in point. In this country the slowdown has cut deep into the economy with a reduction of four per cent in the gross domestic product. The answer has been a concerted effort to cut costs, in order to safeguard the competitiveness of firms operating in that country, thereby safeguarding jobs.

However, it is incorrect to state that the only way of cutting costs is through a reduction in labour costs or by making labour markets more flexible than they are at present. Again the example of other countries comes in handy.

In the 1950s, Western Germany had higher growth rates than most of the rest of the western world, including the US, even though, labour markets in the US were far more flexible then than they are now and labour markets in Germany then were far less flexible than they are now.

In effect in Malta, the labour market within the private sector is fairly flexible. Rigidities are rife only in the public sector as trade unions have capitalised on the great political divide in this country.

What we require is an objective approach that helps to identify waste (that is extra labour where there is no need for it; or charges for services that bear no relationship with the costs incurred to produce those services) and to eliminate it.

This might hit some parochial interests negatively. However, if we accept that our firms can no longer be price-setters but have to be cost-cutters, then this is the only way forward.