When a market economy begins to lose its rhythm, and more so when there is suspicion that worse is yet to come, public opinion tends to reach out for the steadying hand of the government.

One begins to hear more and more complaints about the inertia of the administration and the shortcomings of the bureaucracy.

The first laments usually come from the labour classes and their trade unions. More convincing evidence that the situation is turning sour is when one hears similar laments from business quarters who, normally, speak the language of laissez-faire and insist on minimum interference.

This is a sobering thought – all the more sober because laments of this nature are being heard in these islands with increasing frequency and

persistence.

This situation has to be considered objectively and with the necessary detachment.

The sheer scale of modern social organisation and the complexities of economic development are such that, if government never existed, it would have to be invented.

Main role of the government

Governments have to legislate to maintain law and order, to protect the weak from the strong, to protect the national interest, and to promote the interests of its citizens.

Size, power and persuasiveness elevate governments everywhere to the status of a leviathan. Their absence is felt when they take a nap, there is concern when they go sick or show signs of paralysis.

Never mind that genuine democracies try to devolve power. When these governments surrender power, they generally hand it over to their substitutes, who are managed by bureaucrats accountable to their bosses, whether elected or nominated, rather than to the citizen.

As the government’s reach extends into more and more of the economic and private life of the citizen, officials invade more and more areas to which they are ill fitted.

Private enterprise strengths

Private enterprise, operating in a competitive environment, rightly claims superior efficiency in the use of resources, in its ability to adapt to variation in local and individual needs, in responsiveness to changed conditions and to make decisions.

Its superiority derives, in part, from its ability to evaluate and react to information, to cater for individual tastes, to take risks, and to seek the lowest cost methods for transforming raw materials into goods, and to render services that consumers want.

Many of today’s problems result from the large and proliferating proportion of economic decisions that must be subordinated to the political rather than to the market process.

High visibility politics, planning and local government considerations have to be weighed and debated before governments give the go-ahead.

The result is that, more often than not, while politicians dilly-dally, the wheels of the government grind at below normal speed. When the government slumbers and the wheels grind no longer, very often because of regulations and the uncertainties associated with their implementation, decisions geared to long-term objectives and long-term capital commitments are inhibited.

At times, governments are further frustrated by criticism based on dramatisation of “horror” scenarios, all of which lead to political reaction.

For these reasons alone, governments ought to concentrate their efforts and spend the taxpayers’ money in areas where they have special capabilities and responsibilities.

Activities that have to do with productivity and growth, with risk-taking and investment, with diversification and technological advance, should be best left to private initiative within a national strategy, developed by the social partners in a spirit of consensus.

Neglected area

On the other hand, governments have a clear comparative advantage in raising and distributing money, particularly with an eye on the infirm and the needy, in constructing a framework of law and security, in the sphere of defence and foreign affairs, and in promoting and protecting the vital interests of the nation.

One area of responsibility, neglected for many years, is that of tax evasion and the diligent collection of revenue due to government. If heavily burdened by taxation, low-income citizens react negatively and predictably everywhere, once they see evaders going scot-free.

Work in the underground economy, where people are paid in cash or kind not reported for tax or gross domestic production, is one way of dodging taxation. Relying illicitly on social assistance, instead of employment, is another way of evading tax.

We do not know the exact size of our underground economy. The bigger it is, the bigger is the distortion or underestimation of the rate of growth of our GDP. Levels of employment are underestimated and a hidden inflationary element lurks in the background of our economic scenario. Classical economic measures – fiscal monetary discipline, control of public expenditure, and an environment conducive to productivity and capital formation – have yielded the desired results in the past and can do so at all times.

The interplay of enterprise and market forces, driven by genuine competition and stimulated by profits as a fair reward for risk-taking, is the way for an efficient economy.

The market system in a competitive environment goes beyond promoting efficiency. It satisfies individual choice as well as collective needs. Above all, a viable system provides job opportunities and creates wealth.

To shift the blame from culprit (big government and an incompetent bureaucracy) to victim (economic efficiency) obscures the overriding objective of government responsibility.

The inability to kick-start the economy since l998, the failure to attract sufficient foreign investment, the burgeoning public debt coupled with predatory taxation, all to be consumed by uncontrolled public expenditure – all of these are symptoms that the Maltese leviathan is chronically sick, and is badly in need of a long period of

convalescence.

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