Credibility and trust

▪️ Credibility and trust ▪️ No guardian angel ▪️ Potential growth ▪️ Here comes the Ryder

I feel compelled to say my piece about former Deputy Prime Minister and Deputy Leader of the Labour Party Louis Grech’s address to the PL Conference delegates last Sunday.  It has been some time since we saw him descend into the political arena again.  I must say that he did it with the usual gravitas and authority that has always characterised his speeches.

His words resonated with all the thousands who keep wondering what has happened to the PL.  Mind you, after 11 years in government, it is normal for any governing party anywhere in the world to start losing its plot.  All too often, the protagonists forget their lofty promises, get over-confident, come to believe that they know it all, and become rather arrogant.

We have seen a fair dose of that.  Not that the PL had not been warned.  I quite clearly remember several speeches by Grech   ̶   and this at the peak of the PL’s power  ̶   warning about this danger.  But it seems that the senior statesman’s warnings were not heeded.  He gave the warning again last Sunday. All the good that the Government is doing would hold no sway with the electorate unless it realises that bread-and-butter issues are not always the ones that win you elections.  In fact, a recent piece I wrote in this blog was called ‘It’s not the economy, stupid’.  The economy is doing fine, thank you; it’s the other things that aren’t.

A sitting MP was quoted by the Times of Malta as saying: “I get the sense a growing number are upset about something or other.”  Indeed.  But this implies that the PL does not know what the voters   ̶   most of them PL supporters   ̶   are upset about.  Forget that the party’s surveys would surely point to the issues concerned.  The party officials only need to follow the posts on the social media.

According to the paper’s article last Sunday, the PL is re-assembling the team that won it the 2022 general election.  One should not underestimate the skills of that team, but I suspect that they will have an uphill struggle.  Because it is not about what the Government is doing or what the Opposition is miserably failing to do.  It is about some very fundamental concerns that are on voters’ minds, as it is about the  alienation of as large swathe of others whose indifference is nothing but a proxy for their dissatisfaction with the Government’s performance.

Grech mentioned all that in his usual diplomatic and understated way, but still forcefully.  The governing party needs to listen to him and act if it wants the EP elections to be a springboard for the next general election. 

No guardian angel

Some time ago I wroteabout parents’ complaints regarding certain practices and shortcomings at the Guardian Angel Secondary Education Resource Centre in Ħamrun. The Education Ministry had issued a statement in which it denied that there was a staffing problem at the centre, including LSEs.

Having expressed my misgivings about this, I must now write again to add that the Education Ministry has merely confirmed that it pays more attention to its image than to real issues that crop up from time to time.  I further suggest that this is one of the reasons why the government is finding it difficult to regain the trust of the electorate.  Trust is only gained when the things you do are credible, that is they reflect what you say   ̶   as ex-Deputy Prime Minister Louis Grech said at the recent PL General Conference.

In this case, the parents of children with severe disabilities who attend the state-run resource centre in Hamrun had long been complaning about shortcomings.  The Ministry tried to brush them off and, adding insult to injury, insinuated that the problem was the parents themselves. 

The Guardian Angel Secondary Education Resource Centre, in Ħamrun. Photo: Times of Malta

To be fair, in February the Minister of Education had eventually appointed a fact-finding board, but then promptly lost credibility again when his Ministry insisted that the parents had been left in the dark because the report of the Board and its recommendations were confidential. A request by the Times of Malta for a copy of the report was turned down.

Why? What is it with the government being fixated about confidentiality and not sharing information with those most affected by its decisions?  If there was, indeed, certain confidential information, couldn’t it have redacted the relevant parts?  Mind you, not that I necessarily agree with what is redacted when the government is  eventually forced to divulge information since it always seems to be quite restrictive with its interpretation of what is confidential.

Moreover, as happens more often that it should, the authorities treat every little single bit of information as a state secret.  I often get the short stick when I contact some ministry or other for answers to my questions   ̶  they either don’t reply or make a show of being ‘oh so accommodating’ but take you for a ride.  This particular approach was the case when, in early March, I had requested some information about the staffing situation at the Guardian Angel School.  There was nothing confidential about it, I assure you, and neither did it involve long hours of work by the Ministry’s officials.

For the record, I must salute the parents of the children at this school, who are the real heroes. The ministry has confirmed their claims by deciding to change the school’s management, increase the staff number, improve training for all educators in the centre, including team-building and interventions by other professionals as required; streamline the initial assessment of pupils and the drafting of a holistic profile for each; and adjust of standard operating procedures, policies, and measures.

Potential growth

A friend of mine recently asked meto explain to him the difference betweenpotential growth as opposed to the sort of growth figures that we always see reported in GDP.   “In just a few words,” I said, “potential growth is really sustainable long term output growth, that is the rate of increase of potential output as we define as the level of output if an economy would sustain a full capacity utilisation and full employment.”

Economists usually refer to definitions based, for example, on Okun’s Law and Phillips curves.  Different methodologies sometimes put emphasis on different definitions: for example, the multivariate filter methodology puts emphasis on the inflation pressures, while the production function approach focuses more on the growth of output at full capacity utilisation, where the factors of productions are allocated to their most productive uses.

Since all this would be highly technical for the normal reader, it is enough to say that the higher the potential growth, the higher the increase in wealth in the long term. With this, the government will have more resources to help people, especially poorer and less fortunate people.  It won’t make poor people automatically less poor   ̶   that then depends on whether the government redistributes the national income.

Saying what potential growth can be is difficult. Indicators like inflation, employment, labour force participation rates, unemployment rates, commodity prices, financial variables such as total factor productivity and capital stock. What’s more, every now and then something occurs   ̶   like the Covid pandemic, the global financial crisis of 2021, the Ukraine war   ̶   that may trigger major changes that play havoc with the statistics and their interpretation.

Since I have talked about potential growth, the implication is that this may not be the same as actual growth.  In fact, it may not be, and that is why we also talk about the output gap   ̶   that is the difference between the actual output of an economy and its potential output.

Just as GDP can rise or fall, the output gap can go in two directions: positive and negative. Neither is ideal. A positive output gap occurs when actual output is more than full-capacity output. This happens when demand is very high and, to meet that demand, factories and workers operate far above their most efficient capacity. A negative output gap occurs when actual output is less than what an economy could produce at full capacity. A negative gap means that there is spare capacity, or slack, in the economy due to weak demand. An output gap suggests that an economy is running at an inefficient rate    ̶   either overworking or underworking its resources.

In its latest outlook for the Maltese economy in February, the Central Bank of Malta said that potential output growth is expected to moderate over the next three years to stand at 4.6% in 2024, 4.0% in 2025, and 3.4% in 2026. This mostly reflects decreasing contributions from capital and labour.  The decrease in capital relates to “the lagged impact of the decline in investment in 2023 and muted developments going forward.” Moreover, the decline in the contribution of labour primarily reflects a moderation in net migration flows.

Of course, it is no wonder that the economy’s output gap was relatively high at around 1.5% in 2022, as the economy was still recovering from the effects of Covid and the logistics crisis.

The economy is expected to be operating above potential throughout the projection horizon, though the output surplus is set to shrink to 0.6% by 2026.  An overworking economy means labour shortages, pressure on wage levels, and higher inflation than normal.  So the Central Bank of Malta’s projections are welcome in the sense that by 2026 it anticipates a better balance between potential and actual growth.

Is that a good thing?  In one way, any balance is.  But the question is: how can we grow both potential and actual output?  That is the million euro question.  We seem to have a lot of strategies, but are we geared up to deliver?

Here comes the Ryder

Beppe Grillo did it in Italy.  Volodymyr Zelenskyy did it in Ukraine.  Javier Milei did it in Argentina.  Will James Ryder do it in Malta?  I’m talking about the clowns in politics. Clowns have a tendency to upset the normal state of affairs, creating confusion, even chaos. But that can be precisely what must happen to reveal some underlying truth that needs to emerge into the light of day.

Grillo, Zelenskyy and Milei are different clowns than, say, Trump and Johnson.  The latter are not professional clowns, though they might as well be.  Trump, Johnson, and Milei are populists and, though they are as crazy as they might be, are at their heart neoliberals. They don’t want the system to change; they just want to be on top. They believe they belong there.  In fact, narcissism and entitlement are the signature attributes of Trump and Johnson.

It is risky to obscure the critical distinction between the professional clowns and those who are not.  Professional clowns like Grillo and Zelenskyy want to change the system from the roots.  As such, the system   ̶   including the mass media and the moguls that run it   ̶   will always prefer neoliberalism run by a populist clown than someone in power who might actually challenge this system.

James Ryder.

James Ryder does not officially label himself as a clown, though being a comedian is as close as it can get.  His decision to run in the EP elections was triggered by his belief that he could upturn “the screwed-up system”.   Characteristically, he told Malta Today that he expects people to vote for him to protest against the big parties.  And we all know this time round there’s a large protest vote waiting to be exploited.

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