The president of the Malta Employers Association, Dolores Sammut Bonnici, has made the headlines once more. Speaking at last week’s SME conference organised by the Malta Institute of Accountants, she queried whether anyone in charge was thinking strategically as the country heads towards a total population of 700,000 in the imminent future.

Sammut Bonnici described the current everyday tensions within small firms – how the overheating labour market leads to high staff turnover, spiralling wages, and job dissatisfaction because of more work for understaffed companies.

But while she argued for more efficient ways of processing job permits for foreign workers, she also pointed out that the greater influx of foreign labour (and their families) would make it impossible for other foreign workers, already here, to stay. Spiralling rents are already driving some workers to pack up and leave.

And it doesn’t take much to see that the rapidly increasing pressure on the infrastructure and human resources of schools, health and welfare services, and habitable environments, will have a long-term impact on the economy.

The audience was made up largely of financial advisors from small firms, with clients like those Sammut Bonnici described. They were riveted by what she said. Across the room, heads were nodding in agreement or smiling in ironic recognition of the conditions she described. I should know: I chaired that SME panel and had full view of the audience.

Since I was there I also know that Sammut Bonnici’s account is only part of the picture – even though it seems to have attracted all of the media attention. You cannot appreciate the force and the limits of her criticism without looking at the rest of the picture drawn by the other speakers.

It’s a picture magnetised by three paradoxes. The first paradox is that outlined by Sammut Bonnici: economic growth is being accompanied by anxiety, not business confidence.

She wasn’t going out on a limb. The tourism lobby (MHRA) has itself expressed a concern with self-destructive growth. Anecdotal evidence also suggests that while businesses (even certain large firms) are growing, they are making less money, in part because of spiralling wages.

The Central Bank’s Aaron Grech showed just how dramatic the growth is. Since 2010, the net number of firms in Malta has grown by 22,000 – that’s over 10 a day. Almost all (99.9 per cent) this growth came from SMEs, which today generate €1.7 billion more than they did five years ago – a growth of 67 per cent.

Such figures help us understand the truth within Sammut Bonnici’s paradox. We have the growth rate of an emerging economy but the absorptive labour capacity of a developed one. Hence the sense of both immense business opportunities and of more cutthroat competition over labour.

The economy is booming even while Malta scores miserably in the ease-of-doing-business international league tables

You cannot have this degree of business creation, in a profoundly restructured economy, without an accompanying destruction of what will not or cannot adapt. What Sammut Bonnici describes may well be what the initial phase of ‘market corrections’ (growth for some, wipe-out for others) feels from the inside.

If that’s what it is, let’s remember the tourism industry, as a whole, is feeling it, too. We need to keep in mind that entire industries may lose out in the transformation.

That’s not the end of it. There’s a second paradox which offers both nice and cold comfort: the economy is booming even while Malta scores miserably in the ease-of-doing-business international league tables.

Marika Tonna (Business First) showed that the dismal performance is partly a fiction: the inflexible, one-size-fits-all scoring system doesn’t correspond to how business is actually done here. But she did concede that there’s a lot that needs improving in the regulatory framework – from the duration of court cases to bureaucracy.

René Saliba (Malta Development Bank) and Joe Portelli (Malta Stock Exchange) spelled out the room there is for improving SME access to capital – and the steps being taken to ensure this in an environment where retail banks lending so little that, as Grech showed, a surprising proportion of business expansion is currently self-funded.

The nice side to these developments is obvious. The cold comfort is this: correcting the market failures involving capital will very likely exacerbate the problem of the overheating labour and housing markets.

One possible reaction to the unfolding scenario is to say that there is very little the government can do about it. After all, what economic levers does it have to slow growth down gently to minimise shocks? The only realist possibility is to ride out the economic cycle: ride out the boom and manage the inevitable slowdown and slide.

This reaction takes a strictly market-oriented view. But there is another view to take, which is submerged in the concerns voiced by the MEA and the MHRA, and which is worth articulating in a third paradox: government is concerned with underused financial capital while businesses are concerned with depleted environmental and social capital.

It’s usually the other way round. Businesses are the ones usually harping on the bottom line and access to money; governments usually sound the alarm on the degradation of the environment and of the life of communities (not just neighbourhoods, but communities of work, education and voluntary organisations).

Social capital is the network of trust, inclusion and talent that makes it seem worthwhile for people to invest in their education, a stable family and a career. We know enough about SMEs to be able to say their success is linked to high social capital as well as other strictly market factors.

In Malta we have taken social capital for granted for so long that we do not think about it in explicit terms. My hunch is that what the MEA and MHRA are reaching for is a way of talking about the importance of social capital, which they sense is being rapidly depleted and changing the very conditions in which they operate.

For what it’s worth, I think they’re right. Unless we think of our rapidly growing population in holistic terms – a way that covers educational, welfare, health and environmental policies and scenarios – we’re going to find out, the hard way, that we are sawing off the branch on which we’re sitting.

ranierfsadni@europe.com

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