There should be a Richter scale for recessions, and perhaps there is one. Such a scale would undoubtedly portray the 2008 recession as the worst ever, something like an 8 on the Richter scale. Compared to that, the 1980s recession would be something like a mild tremor.

But, considering the respective impact on the country, it would seem like the other way round: that the 1980s recession was mind-blowing and the 2008 one a mild tremor.

The Economic Survey for 1988, published by the Office of the Prime Minister (*) notes that from 1980 to September 1986, private sector employment declined by 8,202 or 10.8 per cent.

It says: “Since the private sector is the sector largely responsible for Malta’s exports of goods and services, then such a loss in productive capacity reduces the ability to earn foreign currency and therefore reflects a direct threat to the livelihood of Malta.”

The figures are even worse than at first glance: people in private employment were 76,003 in 1980, declined by 8,202 to 67,801 by September 1986, and continued to decline to 65,095 by May 1987.

May 1987 was election month and that was the month when people in public sector employment rose by a huge 8,050 to 46,534, up from 37,506 in 1980.

People in temporary employment rose from 3,189 in 1980 to 8,902 in May 1987. Unemployment had risen from 4,039 in 1980 to 9,343 in September 1986 and was brought down to 4,871 by May 1987.

The number of gainfully occupied had gone down from 116,698 in 1980 to 113,865 by September 1986 and then rose to 120,531 by May 1987. At the same time, the labour supply had risen from 120,737 in 1980 to 125,402 in May 1987. So the upshot was that the participation rate had decreased from 37.13 per cent in 1980 to 35.96 per cent in September 1986 to then edge up slightly to 36.28 per cent (still less than in 1980) by May 1987.

In other words, from 1980 to September 1986 there was a 120 per cent increase in the unemployed. Or to put it simply, the figure more than doubled. In this same period, the response of the government of the time had been to double temporary employment, which increased to 4,391 people, and raised government employment by almost 1,000.

The Economic Survey of 1988 also estimated that the level of hidden unemployment was 10,895 (people who had dropped out of the labour market). Thus the total of unemployed, hidden unemployed and temporary employed was 24,629 or 20 per cent of the labour supply. In other words, 20 per cent of the labour supply was largely idle, leaving a significant gap in human resource utilization.

That was the level reached in Greece or Spain in 2010, the level experienced by many countries during the Great Depression of the 1930s.

Turn now to the National Statistics Office press release issued last week (7 February) referring to the gainfully occupied population as at September 2010, when most countries in Europe were still in recession.

It says: “In September, the number of people working on a full-time basis stood at 147,067, whereas the registered unemployed amounted to 6,655. The labour supply for the period under review registered an increase of 0.7 per cent over September 2009, while registered unemployed declined by 866.”

It adds: “Part-time employment in September last year amounted to 52,136. A total of 22,456 people held a part-time job in addition to their full-time job, whereas a further 29,680 had a part-time job as their main occupation. Between September 2009 and September 2010, part-time employment increased by 6.7 per cent.”

The whole news release is 11 pages long, so most newsrooms just go for the summary at the beginning and do not bother to read the rest. If they do.

Let’s take the labour supply first: this has risen continually from 151,881 in 2008 to 153,722 in September 2010, a modest increase to be sure, but certainly better than the 125,402 of May 1987. Had it been any better, most of our problems would have been solved.

Then the registered unemployed. They were (Part 1 and Part 2 together) 6,208 in 2008 rising to 7,521 in September 2009, dipping to 6,589 in August 2010 rising to 6,655 last September. That is worse than the 4,871 unemployed in May 1987 but better than the 9,343 of September 1986. And we all know this figure was brought down by the people in public sector employment being boosted by 8,050 from September 1986 to May 1987.

This is where it gets interesting. According to Table 2 of the NSO release, full-time employment (including apprentices) in the public sector stood at 41,794 in 2008 but had declined steadily, if slowly, to 40,445 by last September.

Whereas (I wish I could use capitals here but my editor won’t like it) full-time employment in the private sector was 103,659 in 2008 rising to 106,622 last September. Just to save you from looking up to what the corresponding figure was in May 1987, private sector employment then was 65,095. That’s almost 40,000 more jobs created in the private sector over the past years.

So there we have it, in real figures, not ideologically-charged words: the real reason why this time Malta did not suffer from the worst recession in living memory was because in the meantime the private sector had grown stronger and stronger while public employment had at least been kept off the growth path and the gainfully occupied sector of the population continued to increase.

It could have indeed been better: Malta still has the negative European record of having the lowest female participation in the workforce. The gainfully occupied sector of the population has not increased by much since 1987, from 120,531 in May 1987 to 147,067 last September. There is still a bunch of people hooked on to the social security gravy train and while efforts have and are being made to get them to retrain, there are still people for whom living on the dole has become a way of life.

My point is that all this, even if in some aspects modest, growth would not have been possible without a policy context. What followed from 1987 onwards was not, as some mistakenly label it, a liberalisation tout court, because in the meantime the social net has been widened and strengthened. It was liberalization with a social conscience: otherwise we would have felt pain all around.

It is true that the progress registered through these years has sometimes had to slow down, such as over the past two years due to the impellent need to restructure our energy spend, and it is equally true that many sectors of our population have and are feeling the pinch, but it is equally and incontrovertibly true we did not have the Greek problem with the deficit, nor the Irish problem with the banks nor the Spanish problem with unemployment. Let me briefly explain why we would have hit the rocks with the pre-1987 policy context.

Facing the ‘mild’ 1980s recession, the reaction of the government of the time was to pump up public sector employment by 21 per cent (8,050 jobs) and temporary sector employment by 17 per cent (1,322 jobs).

In the process, due both to the economic decline and also in response to the economic distortions caused by the artificial employment opportunities being created in the public sector, private sector employment, as seen, dropped by a further four per cent (2,706 jobs) in the eight months prior to the May 1987 election.

Furthermore, to all those who, rightly, decry today’s public finances deficit, all this public sector employment expansion had an impact on government finances at a time when tax revenue was stagnant due to the reduction in economic activity as measured by the number of productive jobs lost.

Thus too infrastructural investment had to be severely curbed, leading to serious constraints in the production of both water and electricity, so much so that we all experienced regular shortages in the early 1980s, together with a telecommunications system based on outdated technology that could not handle the basic needs of the population.

That was reversed by the incoming administration: while from 1980 to 1986 investment in infrastructure by the government averaged Lm34.5 million, in the seven-year period 1987-1993 it averaged 76 per cent higher at Lm60.8 million and 82 per cent higher (Lm62.8 million) for the period 1987-2003. We all remember where that investment went: appropriate infrastructural facilities such as power generation, water desalination, airport, Freeport, inter-island transportation, telecommunications, education and health.

I get the feeling we now seem to have run out of infrastructural improvement needs and have succumbed to the temptation of glory prestige projects. Maybe a thorough rethinking is needed.

Equally however is the need to follow up on another of that administration’s signal changes – its reform of income tax. The Economic Survey of 1990 provides evidence of the shackles that the pre-1987 income tax system was having on the potential expansion of the economy. At 65 per cent, the top marginal tax rate was higher than say Germany (56 per cent), UK (40 per cent), Greece (50 per cent), Italy (62 per cent) and Portugal (60 per cent). The punitive nature of the income tax regime was also related to the level of income at which it became operational – in Malta’s case it was at approximately five times the per capita GNP of Lm1,677, when by contrast in Italy, for instance, it became operational at 23 times the per capita GDP.

As a result, revenue from income tax on individuals declined from Lm32 million in 1980 to around Lm26 million in 1987, and as a share of GNP it dropped from 6.8 per cent to 4.6 per cent while company tax stabilized at around three per cent of GNP. The records revealed there was widespread tax evasion: only 59 taxpayers declared income higher than Lm15,000 out of a tax paying population of 107,433 at the time.

In contrast, according to a parliamentary reply given on 1 February 2011, 215 individuals declared an income of over €70,000.

The coming months are the absolutely crucial months to take a long cool look at the tax system and to see how further incentives must be found to get more people to work and to make work more attractive than it already is.

[email protected]

(*) I am indebted for most of the 1980s facts reproduced here to Professor Josef Bonnici’s article in Inservi, the book about Eddie Fenech Adami.