With the latest round of local elections behind it, the Maltese electorate will now switch its attention from the state of the political parties to the state of the economy.

A range of negative trends that arrested growth has preoccupied electoral opinion for some time. It has come round to agree about the obvious and urgent need to bring public finances under control. The oversized Lm1,400 million public debt, and the real and imagined “holes’, associated with government finance, continue to preoccupy the thinking electorate. This picture is staggering enough to take away the breath of all objective observers of the local scene.

It is just as obvious that, if the government were to drastically suspend the injection of public funds into the economy, the engine would run out of fuel with foreseeable results.

On the one hand, the haemorrhage of public funds in projects like Dar Malta in Brussels had to stop. On the other, immediate decisions have had to be taken to ensure that the economy did not grind to a halt. That is why the government has had to rely on sustained deficit spending for its survival. It is not, as yet, out of the wood by any means. Meanwhile, the show must go on.

If measures are taken to ensure that certain public corporations and, indeed, various government departments are leaner and more efficient, public funds, which would otherwise be “wasted”, would be profitably employed. Although Malta would derive greater value from funds better spent, the problem of reducing public expenditure would not have been solved. The challenge is to reduce the cost of government over time, without causing economic dislocation and instability.

Conundrum

This conundrum calls for concentration of mind by all the social partners. The solution is to find ways and means to increase foreign earnings by way of exports of goods and services. If the economy could earn more from the world’s markets, it would not need the same injection of public funds, as it does today, to keep it afloat.

What then is to be done? Every market begins by giving, and the formula takes the form of supply-side economics, which states that supply creates its own demand.

In this case, supply anticipates a return, even if this is not guaranteed. The first makers of personal computers did not know how successful they were going to be. A great deal of “giving” in the form of money, labour and initiative, long preceded any return.

Enterprise need not be exclusively indigenous. The government could profitably inject energy into the economy by attracting foreign investment with know-how and foreign markets.

Government policy must concentrate on formulas that enable enterprise to bring in more foreign earnings by being more productive, more competitive, more aggressive – not just in foreign markets, but also in Malta when it comes to offering services to tourists and to clients interested in going for offshore business from a Malta base.

This calls for more discipline in the market, more thrift, less restrictive practices and bureaucratic hurdles, and less government-induced costs that erode competitivity. Above all, the government could be less tax-voracious and more forthcoming in providing imaginative incentives.

Central insight

The central insight of supply economics is that supply itself does not derive from “land, labour and capital”, the traditional factors of production in economics, but rather from the talents of entrepreneurship as they are brought to bear on these factors.

To understand the market, one must understand the “business mind”. If enterprise is locked in a cage, it will never fly...

Judicious help to small enterprise is a positive factor in this context. Indeed, many successful enterprises the world over started from small beginnings. But the main thrust of policy must surely focus on possibilities of substantial, potential proceeds, capable of yielding improvements in terms of more employment, enhanced earnings and more government revenue. The government’s proper role is to motivate enterprise, not to restrain or to inhibit it.

Capital is worthless if there are no brains that go with it. It is equally worthless if there are no workers willing to work hard and attain competitive standards of production that make initiatives feasible.

All of this presumes cooperation by all the social partners.

Above all, a workforce that aspires to an improved quality of life based on higher consumption, must come to terms with the requirements of a high-production economy. To “spend and enjoy”, the workforce must be ready to “work and achieve”.

Unearned consumption

Unfortunately, “self-realisation” has become a goal and justification of many individuals in a culture that is increasingly no longer concerned with how to work and achieve, but how to work and consume.

The so-called “free market” that abhors regulation is partly responsible for this development.

An aspect of this development was the accelerating growth since the last world war of hire purchase and credit cards. Previously, one had to save money in order to buy anything. Today, citizens are urged to indulge in instant gratification. This revolution in moral habit has led to a high consumption economy, which is justified when it is earned, and burdened when society lives beyond its means.

The whole object of supply-side economics is to create the right conditions for a high-production economy that will justify higher consumption – and this on the basis of the creation of wealth that would be shared if, and after, it is earned.

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