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Understanding the consequences

This week we had the resignation of Nicholas Hulot, the French Environment Minister. It was described as a severe blow to the credibility of President Emmanuel Macron. Hulot stated that he does not want his presence in the French Government to give the illusion that the electoral promises are being maintained. He said that he felt “alone” in a Cabinet that did very little to tackle environment issues.

Hulot’s claim is that if France truly wants to tackle climate change, then it must change its economic model and that nothing is being done in this direction. Probably many of us have not heard about this person prior to his resignation from the post of environment minister. However, his words do present food for thought.

In the general scheme of things, all governments seek to strengthen the economy of their country and to make sure that as many persons as possible enjoy the benefits of economic growth, directly or indirectly. On the other hand, one sincerely doubts whether governments make the effort to recognise, let alone communicate that certain strategic decisions imply significant decisions in other spheres.

In this particular case, we are referring to climate change. Countries have signed up to take action against elements that are harming the environment and that are causing this climate change. We all applauded it. We even got very upset when US President Donald Trump walked away from this agreement. Yet governments did not stop to evaluate how these actions would necessitate a different economic approach, to the one we have all got used to.

To combat climate change means discontinuing some economic activities or disallowing the use of certain raw materials in the production of certain products. This could result in increases in prices, a reduction in economic wealth, more unemployment, and so on.

Admittedly it may also mean the creation of new economic activities, and as such there would not necessarily be a reduction in economic wealth.

The same can be said from the opposite perspective. Governments push forward their economic policies on the strength that people are generally more well off but do not stop to evaluate what the implications of such policies would be on the rest of society.

My objective is not to enter into the merits of one economic policy when compared to another, but rather to make the point that a change of direction in one area could well mean the need for significant changes in other areas. We cannot assume that everything else will remain the same. Governments are duty bound to assess the impact of their decisions. Let us take three practical examples.

Rather than wasting our time discussing silly issues, we could use our time better by having a serious debate on the consequences of our economic decisions on our society and vice versa

Some strong political parties in the eurozone are advocating an exit for their country from the single currency. We had an example of this in Greece and we have one now in Italy. These parties – which eventually entered government – have not explained to anyone what the likely impact of such a decision would be. The issue is that during an election campaign, a sound bite advocating an exit from the euro tends to win votes. The price of such a decision comes later.

Another example is the tariffs being imposed by the US on some goods coming from China, the EU and other countries. Irrespective of whether this is a good decision or not, such a decision will have its consequences. It might help to bring back to the US jobs that were lost to lower cost locations, which is positive in its own way.

However, it is equally true that the products, on which these tariffs were imposed, will become more expensive. An increase in prices will lead to reduced purchasing power and an inability buy as many things as one used to buy before. Are people willing to accept this? Or will they wake up one day and will be surprised to find out that their dollar does not take them as far as it used to?

We have an example that is closer to home. The Maltese public does expect a number of services provided by the State to remain free and for social welfare systems to be improved. All this is fine. To fund such initiatives and introduce new ones, government’s recurrent expenditure is increasing at a very fast pace. This has to be funded from tax revenues. To sustain such expenditure, the economy will need to continue growing at the rate of around four per cent per year.

We are all very happy when we read the news about our economic growth – but we do not stop to think that for this growth rate to be sustained we need to increase the population resident in Malta to around 600,000 to 700,000 people. Can our country and our society absorb such a number of residents, to which we need to add the number of tourists visiting Malta?

I do not wish to pass judgement on such policies. I simply wish to remind everyone that we need to understand the real full consequences of the decisions that are taken, because decisions are not taken in a vacuum. Rather than wasting our time discussing silly issues, we could use our time better by having a serious debate on the consequences of our economic decisions on our society and vice versa.

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