In his last annual report, the Governor of the Central Bank made discrete reference to the fact that the Maltese economy has not benefited to the same extent as other economies from the favourable global conditions of the past three years. It indicates, among other things, that there are structural impediments to growth, he added.

This highlights the nature of the challenge, which, like Mount Everest, is there and will not go away.

As an independent State, Malta must somehow earn its keep by its own efforts. It is therefore vital that political and industrial confrontation should be avoided at all costs. This applies to the entire industrial relations scene, where the social partners have the opportunity to evolve a culture of consultation and cooperation through the medium of the Malta Council for Economic and Social Development (MCESD)

Malta’s challenge is to promote and sustain outward-oriented policies with a view to establishing new bridgeheads in markets overseas, and to tap new sources of foreign earnings. Malta has to attract and stimulate more investment, which in turn generates wealth.

It is profit-motivated enterprise that has boosted Maltese standards when the going was good.

Prerequisite for success

The Constitution enshrines the principle that “the State of Malta shall encourage private economic enterprise”. Private economic enterprise cannot flourish unless profits – reasonable profits – are encouraged as a prerequisite for success in competitive commerce and industry, and for the promotion and development of economic progress. Voracious taxation does the very opposite, by killing the goose that lays the golden eggs.

There are many fallacies and misconceptions about the role of profits in a free enterprise economy.

Such misconceptions are to be found at all levels, high and low, in politics, in the administration, and in other sectors.

Profits are to free enterprise what oats are to a racehorse – essential, both as a reward and as fuel for continued competition. Without the opportunity of profits, there would be no incentive to invest.

Without profits there would be a crippling lack of resources to apply either to expand business or to improve the quality of life. Without profits, or the prospect of profits, the free enterprise system would simply cease to exist.

What citizens know as profit goes under various guises: profit means economic growth and improved living standards as a greater output of goods and services becomes available to a greater range of consumers.

Profits means good wages and improved benefit plans for the workers as negotiated by trade unions. Profit means more sales for importers, wholesalers and retailers, more savings for bankers, and more consumer spending. It means more dividends to shareholders.

Profit means contributions by firms and businessmen to help voluntary organisations and educational and other bodies. It means the key to fulfilment of Malta’s national aspirations in terms of enhanced social services, planning an expanding economy, enlarging our export trade – in short, attaining a greater degree of economic independence.

Ambitious agenda

As a young, independent State, Malta set itself an ambitious agenda. We set out to improve our education, health and welfare standards, and embarked on a course predetermined by these national commitments.

This formidable agenda calls for enormous resources. The hard fact is that these resources will simply not be available – not unless our economy continues to generate profits. Not one of these grand goals – not one – can be accomplished, unless our economy is prosperous. Growth depends on profits.

We have to face squarely many challenges. We must achieve a target of full employment and provide jobs for the entire workforce. We have to find new sources of revenue to enhance social service standards. We must be in a position to maintain the government’s ability to keep up with the demands of economic development.

A profit-and-loss system

The above are not ‘pie in the sky’ considerations. Every nation marching along the road of progress aspires to the attainment of these targets. But one thing is certain in this regard: these endeavours leave no room for an anti-growth philosophy. Their achievement will demand all the entrepreneurship, all the risk-taking we can undertake. Their achievement will require profits – profits to plough back into business so it can grow, to attract new risk-takers from wherever they come.

Only profitable business could help accomplish our national goals. It is incumbent on all who have a say in advising on the formulation of national policy to realise that our system is not only a profit system. It is a profit-and-loss system. Businesses fail every day. Every failure eliminates a potential contributor to the growth of our economy and to Malta’s ability to fulfil the ultimate aspiration of its people.

The company that fails hires no employees, develops no new products, pays no taxes, trains no workers, and exports no Maltese products to overseas markets.

Profits are so fundamental to our way of life that it is difficult to see how their necessity can be questioned. Yet, the importance of profit is far too little understood, and a fair margin of reasonable profit is very often challenged. Some call profit a bonanza for businessmen and a windfall for greedy companies.

Unassailable fact

But it is an unassailable fact of economic life that the whole of Malta will benefit from more profits if they fuel the expansion that generates more jobs. They mean more investments and make our goods more competitive locally and in overseas markets.

Without a healthy economy that generates profits, all talk of national goals is only empty rhetoric – including the legitimate goal that ensure that the rewards from profitability should filter down, in just measure, to the workforce.

For a single business or for the national economy to remain healthy, it must have the finance for its planned growth and for meeting unforeseen financial emergencies compounded by inflation. These must be found from resources that are left after the payment of taxes, dividends and the discharge of other obligations.

The need to emphasise the above simple, basic propositions about profits has never been as urgent as today when profits are so low, and public misunderstanding in certain quarters too great.

Anybody who relates the percentage measure of profit to the gross national product; or to the percentage of profit to sales figures and the rate of return on investments, will understand what the problem is all about.

The point will be driven home when one realises to what degree the level of taxation and tariffs has risen in recent years to eat voraciously into the feeble zone of profitability

It is a point that ought to be of practical and absorbing interest to the social partners who are the operators that can stimulate or destroy profits.

The general public is uninitiated in the esoteric laws of primary economics. The media and interested parties, including trade unions, ought to explain the facts of life in simple language.

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