Crucial economic decisions needed

Last week Malta celebrated the 41st anniversary of its independence. Full sovereignty entails complete responsibility not only for a country's political future but also the sustainability of its economic viability.

The Prime Minister at the time, Dr George Borg Olivier, assumed all these responsibilities. Despite adverse economic reports, particularly on the presumed very high unemployment following independence, and against the general advice of his close collaborators, he strongly believed that that was Malta's breakthrough even in the economic field.

Primarily, his strategy was twofold. He wanted to accelerate the momentum of expansion in the tourism sector because he firmly believed that our country had a lot to offer besides climate, sun and sea. In addition, he wanted to develop labour-intensive industries to absorb the unemployment created by the UK services rundown.

The ultimate consideration in these two economic activities was that Malta could obtain foreign currency to pay for its import needs. He doggedly went about how to ensure that his plans should be achieved. The practice of relying on economic development plans, the first of which was published in 1959, was continued.

Though Borg Olivier was harshly criticised, everyone has to admit that he laid the foundation for Malta's economic future. In fact, the administrations that followed his continued to expand on these two major activities that he initiated. He did not have enough time to look further into the services sector.

The governments that followed set up two important transport and communication companies to cater for Malta's needs; and in some other cases, existing departments were turned into public companies owned by Government; but the financial services sector came into being decades after Borg Olivier had left office.

Perhaps it is time for Malta to consider that Borg Olivier should be remembered not only for his political achievements but also for his contribution to Malta's economic development.

He single-handedly forged and moulded our future when all around him were scared to face the apparently bleak future that was presumed to be Malta's destiny. His political opponents, though outwardly preferring independence to integration, were not so sure. Reports have since come to light that they had made contacts on a possible political union with Italy as a way of overcoming our economic problems.

Borg Olivier's two economic pillars have not been nurtured as they should have been to ensure consistent development and growth. Tourism is today a problem area. Other countries, like Cyprus, which were lagging far behind Malta's development in tourism in the Eighties, have surpassed our performance and are reaping the benefits.

The reasons for this change in fortunes may be many; but the underlying consideration is certainly that, over the years, the decisions taken by Malta have not been fine-tuned to future development needs. It is Malta's characteristic weakness to give greater attention to short-term situations, thereby not attaching enough importance to the potential way the tourist market environment was changing.

Sandy Pokras, in her book Systematic Problem-solving and Decision-making, states: "The biggest problem-solving mistake is dealing with the symptoms of a problem rather than its root causes. Sometimes even the experts do not find the fundamental reason for the problem right away. When symptoms are treated, first-aid decisions are made. Then symptoms reappear, or new ones emerge, and the same old problem returns."

These same elements of concurrent symptoms of the problem appear also in the manufacturing and industrial sector. Malta has never succeeded in correcting its trade imbalance. Income from exports has never been enough to cover the costs of its imports. Apologists for this prevailing situation refer to Malta's lack of natural resources.

Finding excuses to absolve shortcomings will never solve problems. If other countries, facing nearly the same difficulties and shortcomings, have overcome their obstacles, should not Malta do likewise?

Admittedly, laws were enacted and institutions set up to cater for the island's manufacturing and industrial needs. Clearly, these have not attracted enough foreign direct investment to achieve the semblance of any trade balance. Malta has been plagued with this stigma and has never been able to obliterate it. And there is no light at the end of the tunnel.

The obvious question is: why have we been unable to expand our export potential more than our import needs? The logical conclusion is that this question was never tackled and so it could not have been answered.

Today, problems are compounded because of the intense competition that exists in this global village. China, because of its low labour costs, has been able to undercut all competition since its arrival on the manufacturing and industrial scene.

The US and major EU manufacturing and industrial plants have realised that they cannot compete with this new emerging economic engine. The next best thing they thought of was to relocate their firms in China and then sell their wares worldwide from there. Malta's imports from China are increasing too. A number of government departments are attending to their needs by making low-cost purchases of Chinese imports.

Does that mean that the death knell is tolling for Malta's manufacturing and industry? It all depends on the way we tackle the problems facing this sector. For a long time now Malta has depended on the output of a single firm to achieve a respectable level of exports. It is surprising that our inability to have more firms producing substantial goods for export has been so evident. The reason may be that we have never faced and tackled the real problems and we ended up with a "first-aid decision", to borrow a phrase from Pokras.

We cannot wait for solutions to fall into our lap. Policymakers have to engineer solutions; they have the means at their disposal to discover the appropriate ways, and to formulate new plans and new strategies to tackle this serious problem that threatens the continued decline in our manufacturing and industrial base. The approach has to be multifaceted.

Education is of extreme importance. Malta has to give birth to a greater number of people with entrepreneurial flair and skills, people prepared to risk and discover innovative ways to do things, to find new niches and markets to sell our goods. But these clichés have been heard before.

The underlying difficulty is how we are going to arrive at such an ideal situation. We should produce fewer people depending on what is found in books and more with really developed minds; men and women who are able to think, define problems, point out causes and provide alternative approaches to come up with intelligent solutions. It's the power of mind that helps one reach a safe haven.

Equally important is studying statistical data pertaining to other countries. The objective is to discover other countries' needs and investigate whether Malta can provide them. Many industrialised countries have higher labour costs; in this respect we can compete and be able to provide their needs if we can select the right goods to produce. Our geographical position should help us tackle Southern Europe and North Africa.

It is a pity to have so many advantages ready for the picking and yet we are still unaware of their significance and importance. Instead, we are focusing our attention to locate day-to-day symptoms that arise. Borg Olivier proved that he had imagination, great foresight and perceived that long-term solutions would minimise Malta's economic worries.

May this independence anniversary propel us to make the crucial economic decisions that are sorely needed and serve as solid foundations for future economic growth.

Dr Borda is an economist specialising in the economic development of small states.