Tackling our economic realities - The government's role

There are enough serious flaws in our economy and our society's attitude to money to make me believe that we need some hard talk on how we are going to avoid the worst effects of the recession that could hit most eurozone economies. Our politicians, economists and the business media should indulge in some soul searching by analysing the weaknesses that they see in our economy and the less laudable behaviour of our society when it comes to managing our finances.

It is only when we realise what is wrong with the way we manage our money, at both the macro and the micro levels, that we can prepare ourselves to minimise the negative effects of a prolonged economic downturn.

It is a sign of social maturity when the majority of people in our society start to believe that the government cannot shield them from the adverse economic realities that hit us from time to time. Increasingly those who are capable to fend for themselves need to take responsibility for their own destiny and do their part to fend off the negative effects that may result from an economic downturn.

Of course, in a socially conscious society, government will always have responsibility to defend those who are too weak to take care of themselves. Those living under or near the poverty line cannot do much to improve their condition. These are the people who really deserve special treatment in the form of help to cope with essential basics for survival, including the procurement of food and energy to feed themselves and to have a roof on their head.

Beyond this fundamental social responsibility government should promote good economic policies to ensure that our economic growth is sustainable. Being a very small economy is already a big disadvantage, so we need to avoid complicating matters by putting scarce economic resources to wrong use.

One fundamental mistake the government must avoid in the present circumstances is to cut on investment in the infrastructure. Here I am not referring merely to the physical infrastructure, but more importantly to the educational infrastructure.

Our future economic prosperity will depend increasingly less on our ability to build "luxury three-bedroom apartments with showers en suite", and increasingly more on the ability of our young people to excel in research, and in promoting practices that improve the competitiveness and productivity of our economy. It is these latter abilities that will attract direct foreign investment to Malta and away from our competitors.

We also need to look critically at the components of our economic growth. In the last few years we have become increasingly dependent on economic growth brought about by government and consumer expenditure. While our financial services and gaming industry are valuable contributors to our economic growth, we must ensure that more of our businesses are oriented to exporting our goods and services.

This is not easy. The government is still a major player in our economy and cutting public expenditure is easier said than done. Most of this expenditure goes in the payment of wages and social services, including health and education. But public sector wage moderation, as well as reducing the size of the public service, should be two top priorities for the present administration if we want our public finances to continue to improve and at the same time not consume too many of our limited resources.

If the economies of the eurozone area, of which Malta now forms part, are to come out of this likely long economic downturn that is complicated by spiralling inflation, both the managers of these economies and ordinary citizens need to adapt. We have to take on responsibility to tackle the issues that depend on our own effort to be resolved.

In the process of adjusting our lifestyle there will no doubt be some pain that the younger generation may not have ever experienced so far. But if this effort by individuals in our society is complemented by sound economic policies promoted by the government, we will come out of this phase even stronger than when we entered it.