Before swallowing whole

The general election is little more than a week away, yet important parts of the unfolding background to it remain blurred. For example...

While joining or staying out of the European Union stays high on the electoral agenda the doubts raised by the Labour side over the amount of overtime Maltese workers would be able to put in under the membership scenario still hang in mid-air. No authoritative source has cut objectively through the legal fog raised on this particular EU directive to protect the health and safety of workers. Nor to counter with chapter and verse the corollary rumour that those who voluntarily agreed to work more than eight hours overtime would not be covered by social security provisions in case of injury during that period.

Economic facts also suffer blows to the truth-gland with the sustained Nationalist spin that Labour intends to freeze wages if returned to power. Economic debate ought to be made of more serious stuff than such allegations. No one should miss the chance to stress as bluntly as can be that pay increases can be sustainable only so long as they do not erode competitiveness. Exporters are already being hammered by declining orders and increasing competition from lower-cost suppliers.

This is happening irrespective of Malta's actual or future relationship with the EU. The debate among policymakers ought to be about how to achieve competitiveness. The means have to include enhancing our skills and efficiency profile by focusing education and training resources upon those two objectives, technological innovation through new investment, as well as raising awareness that pay increases and additional input costs that outstrip productivity gains make it much more difficult to compete, particularly in a hostile international scenario replete with soft demand and strong low-cost supply.

Neither joining nor staying out of the EU would automatically ensure such achievement. Restructuring, development and growth are the key possible remedies. In this regard Labour took a bold step to set a target for GDP growth. In its electoral manifesto it put forward a nominal rate of five to six per cent from 2004, "in the foreseeable circumstances" (against an estimated 5.5 per cent in 2003). Later on the Labour leader raised the target to "at least" six per cent in his encounters with the media.

Such flexible expression might fall within the parameters of policy evolution on the hoof. More than the need for higher precision, a growth target, once it is being set, should be expressed in real - rather than nominal - terms.

Nominal growth - the increase in GDP at current market prices - has little significance in economic analysis, other than to relate to it the budget deficit and the public debt, themselves also nominal aggregates. When analysts and commentators say that an economy grew by X per cent, they invariably refer to real growth - the rise in GDP net of price increases.

That simple fact has not prevented the current Nationalist prime minister from peppering various speeches with exuberant references to GDP nominal growth over his years in office. That was a bad example, which one might have presumed the current Labour leader of the opposition and potential prime minister would not follow.

The key yardstick and most important objective remains real growth. It determines the actual or forecast impact on living standards. That is why analysts adjust the rate of nominal growth by deducting from it the rate of inflation. (By way of example, a pay increase of Lm5 in a period during which prices rise by Lm2 adds Lm3 - and not the nominal five liri - to one's purchasing power.)

Perhaps in the last lap of the electoral campaign the political class will find the time to talk about overtime, pay increases, living standards and related matters in terms that can be more meaningful to voters who wish to assess and digest properly the alternative proposals placed before them, rather than swallowing them whole.