The Leader of the Opposition is in a frenzy to denigrate the policies announced by the Labour Government and the proposals the PL is making for Malta’s future. Of course, one would not expect Dr Bernard Grech to heap praise on them. Although he accused the Government of having no clear vision, direction or strategy, he has set out a vision for Malta which includes most of the themes being used by the PL for its own future programmes – sustainable economic growth, innovation, technology, social inclusion for a just society, and a renewed emphasis on the environment – all of which have been set out in the Government’s Recovery Plan, the post-COVID Economic Plan, and Budget 2022.
The truth is that both parties, like all parties everywhere, are trying to occupy the middle ground, and therefore what they propose is going to sound much alike. No wonder both parties have already accused each other of copying, forgetting that copying is Malta’s excellence since we rarely produce original ideas here anyway.
To what extent the electorate will be impressed by one or the other will only be known definitively on Election Day. Meanwhile, we have to rely on newspaper polls which are none too favourable to the PN leader, though polls can be notoriously wrong.
The PN Leader accuses the Government of having no clear vision when his alternative includes the same themes put forward by Labour.
Enough said, though. What concerns me here is whether the next few years will see a seismic change in policy, whoever carries it out.
In many countries, there is a widespread sense of social and economic conflict and crisis. In these circumstances it is not surprising that politicians and commentators, from across the political spectrum – not to mention many voters – are questioning whether current and conventional economic policies are sufficient to address the challenges and problems their countries face. I would not say that Malta is experiencing such a crisis, but these challenges and problems are surely permeating the public conscience.
Many of the policies which have been implemented over the last forty years or so, appear no longer able to improve economic and social outcomes in the ways they once promised. In an era in which low interest rates and low growth rates seem entrenched – the phenomenon sometimes described as ‘secular stagnation’ – monetary policy alone, for example, seems unable to respond. It leaves policymakers with particularly few levers to deal with another recession.
Of course, monetary policy has been particularly useful during the crisis, as central banks everywhere adopted accommodating programmes of quantitative easing in an effort to stem the fall-out from the COVID-19 pandemic. But we are already seeing those same central banks now leaning towards containment, or even outright withdrawal, of the programmes as they become increasingly concerned about rising inflation.
A major policy response was the ditching of the infamous austerity policies which brought so much suffering, particularly in certain countries. During the height of the pandemic, governments in most of Europe maxed out on fiscal stimulus, terrified for their lives that the people would rise in revolt and encouraged to do so by none other than the IMF and the European Commission, previously paragons of fiscal rectitude.
Neither accommodating monetary policy, nor loose fiscal policies are here to stay. On the contrary, there is a need for a new framework for long‑term macro stability – ensuring that our economic systems are strong enough to withstand shocks in an uncertain world; and encouraging a harmonious use of resources to generate growth that benefits all.
The 2008 financial crisis exposed serious flaws in the established policy models. Its effects continue to play out, indeed were enlarged by COVID. For most countries, the recovery after the recession was among the slowest on record. Economic growth has been restored in the last few years, but it remains generally fragile, still dependent on the emergency life-support of ultra-low interest rates and hugely expanded central bank balance sheets.
Public and private debt levels as a proportion of national income remains high in many countries. Productivity growth has stalled in some countries and is historically low in many others; innovation at the technological frontier is no longer being diffused to the rest of the economy as it was in the past.
Inequalities have risen in most countries over recent decades, particularly between the incomes of the top 1% of the population and those of the rest of society. Wealth inequality, in particular, has grown, in large part due to the appreciation in the value of assets, itself a cause of financial volatility. In many countries, unemployment remains high, particularly for young people.
Most developed economies have seen an increase in under-employment and insecure and precarious work of different kinds, from self-employment and part-time work to very short-term contracts. In some countries average earnings have stagnated with living standards for many households barely above those of a decade ago, or maintained only via rising household debt.
Malta weathered the 2008 crisis pretty well actually. Labour’s election in 2013 ushered in a period of fast economic growth, rising incomes, lower dependence on loose fiscal stances, lower national debt levels, record employment, and low unemployment. But it hasn’t been all roses. Private debt is high, productivity lags behind, and income and wealth inequality are a problem here too.
Yet, Malta too needs a new strategy on how to address not only the short-term economic challenges but also the economy’s longer-term challenges. These include the transition to a sustainable and inclusive economy, technological progress, sustainable solutions and demographic changes. This agenda of competitive sustainability rests on four dimensions: environmental sustainability, productivity gains, fairness and macroeconomic stability. All four broader strategic objectives are linked to specific policies and goals.
The Government’s strategic vision puts environmental sustainability as a central tenet of its policies, ranging from structural reforms, through innovation, public and private investments in green technologies, industrial production to transport, energy, and housing. Next comes productivity growth, based on investments in fostering research and innovation, the digitisation of all sectors, providing the right skills to our workforce, and a business environment conducive to growth. A third plank is fairness based on equal opportunities, fair working conditions, a decent living, social protection and paying particular attention to workers who will have to make the largest transitions. Finally, there is macroeconomic stability, based on sound and sustainable public finances to ensure that fiscal policy can fulfil all of its functions.
Policymakers seem to be aware that we have a historic opportunity to right some wrongs of the past and build a recovery that is fair to all segments of our society—including women, informal workers and youth. This means focusing on policies that enable greater access to basic public services—healthcare, education and infrastructure—and policies that better protect the vulnerable from income shocks.
It also means policies that enable a transition to a stronger digital economy, which can help boost productivity and financial inclusion. Think e-commerce, e-learning and e-government—but also investing in human capital. Strengthening high-quality education can help spread the benefits of technology more widely, including to the vulnerable segments of our society.
Finally, decarbonising our economy will also require a substantial scaling-up of green investment over the next two decades. The best part is that doing so offers a huge opportunity for growth and jobs. Research by IMF staff shows how deficit-financed green supply policies could raise global GDP by about 2% this decade and create millions of new jobs.
It sure appears that we have a lot of work ahead of us. Our political parties fight tooth and nail over everything, from the lofty ideals of good governance to the pruning of trees, but both seem to be turning into populist parties which pander to every whim of the electors. They have exorcised the threat of real populism by emphasising what was already ingrained in our system anyway ─ village politics, special interests, nepotism, and rewards for the boys. The fight is really over who gets to do them.
Ok, that may be a bit too much of a mockery, for there is no doubt that there are also politicians who know that a new approach is needed. The government and PL thinkers have had a flying start, the PN is keen to join the fray, the smaller parties will also do their bit. That is all to the good, for voters will not want for a choice of solutions to their problems.