The word "competitiveness" has become something like a buzzword in this country. One of the key messages of the budget speech was that firms operating in Malta must strengthen their competitive edge in the market in which they operate.

The reply of the Leader of the Opposition to the budget speech focussed on competitiveness and the proposal to go for a gradual depreciation of the Maltese lira (like it or not, sensible or otherwise) had the objective of restoring a measure of price competitiveness to firms operating in Malta for the export market, in both the services sector and the manufacturing sector.

The Prime Minister's speech in reply to what the Leader of the Opposition said also tackled the issue of competitiveness.

It, therefore, appears that this issue is now very much part of the national agenda, especially the part that has to do with the economy. It is obviously an issue that the business sector has been seeking to push forward, at times very much alone because discussing it could lead to some uncomfortable situations. Little has it been recognised that a loss of competitiveness would eventually lead to both social and political problems, because of the unemployment it brings.

Tackling the issue wrongly would also bring about social and political problems. It is, therefore, very much a national issue that has an impact on the whole of society, as much as the issue of the fiscal deficit is, as much as the issue of pension reform is, as much as the issue of education is.

It may be an economic issue in its origin but the way in which we address it or do not address it will have consequences on the rest of society. The positive thing about it is that, from what we have heard in the last four weeks, there is general acceptance that this is indeed a real issue that needs to be addressed.

And there is the risk of addressing it wrongly. The proposal of the depreciation of the Maltese lira was judged to be wrong because its positive effects would have been short-lived (we have been through this experience in 1993), we would have experienced a flight of capital from the country given the new regime of free movement of capital, and we would have had an increase inflation given out high level of imports (this increase in inflation would have eaten at the purchasing power of the Maltese consumer and would have caused an increase in production costs). Yet, I repeat, it was still a proposal that did not shy away from the problem.

In effect, when we speak of competitiveness we need to remind ourselves constantly that we are not speaking of the whole economy but of individual firms. Firms operating in Malta must be competitive. It is a microeconomic issue and not a macroeconomic one. It becomes a macroeconomic issue when one assess what it is that gives companies a competitive edge and what makes them lose it.

Moreover, the competitiveness of a firm does not arise only from aspects related to labour costs. If it were to be just that, then the drive for competitiveness would become a drive for the lowering of living standards.

This may have turned out to be so in some countries but it has not occurred in several others. In fact, when we speak of strengthening the competitive edge of an enterprise through increased flexible work practices, what this has turned out to be in several instances, has been work of a temporary nature and lower basic salaries. This has been one prime example of how competitiveness has been tackled wrongly and how it can have negative social and political consequences.

Improved competitiveness does arise from a control of labour costs and other costs but it arises as well from a number of other positive factors. If it were not to be the case then one cannot explain the continued success of countries such as Ireland, Finland, Singapore and Australia or the past economic performance of countries such as Germany and Japan.

Nor would one be able to explain why some of the world leading firms operate from countries whose level of labour costs are among those of the highest in the world, or in any case are considered to be themselves among the best payers.

Labour costs are an input to the business process as much as raw material costs, rent, etc are. It is what gets produced by those inputs that counts and how much what is produced by those inputs is valued by the customer that has to make the purchasing decision.

I do not believe that there exists some magic formula that guarantees compet-itiveness. Moreover, what has worked in other firms, in other countries, does not necessarily work in others, although there would be lessons to be learnt.

However, I am certain that if in the coming 12 months we decide to address the competitiveness issue in concrete and innovative ways (that is through fresh thinking and not through a rehashing of old methods) then we will succeed. It would require a little bit more courage than we had during the discussions on the social pact, which was meant to be this year's Christmas present for the country that never got delivered.