Dear Prime Minister: My reflections as an economist and a mother

Dear Prime Minister, You inherit an economy that many countries would envy.

As both an economist and a mother of two young children, I often find myself viewing Malta’s future through two complementary lenses.

One lens focuses on economic indicators, productivity trends, competitiveness and long-term prosperity. The other focuses on a much simpler question: what kind of country are we building for the next generation?

From an economic perspective, Malta has much to celebrate. We enjoy one of the lowest unemployment rates in Europe, strong economic growth, resilient public finances and a reputation for weathering global uncertainty better than many of our peers. These achievements did not happen by accident.

They are the result of deliberate policy choices, entrepreneurial ambition and the hard work of Maltese families and businesses.

Yet as we all know, success creates its own challenges. And as every parent knows, growth alone is never enough. We do not simply want our children to inherit a bigger economy. We want them to inherit a better one, one that offers opportunity without sacrificing quality of life, prosperity without congestion, and progress without compromising the resources that future generations will depend upon.

Prime Minister, you inherit an economy that has proven it can grow. The question now is whether Malta can evolve from an economy focused on expansion to one focused on excellence.

For many years, Malta’s economic model relied heavily on expansion.

Additional labour, increased participation, growing tourism volumes, foreign direct investment and population growth collectively generated higher levels of output.

This strategy delivered impressive results and helped Malta outperform much of Europe.

However, economic theory suggests that economies eventually reach a stage where further prosperity cannot be achieved primarily through adding more inputs.

As economies mature, growth driven by labour accumulation and capital expansion begins to face diminishing returns

As economies mature, growth driven by labour accumulation and capital expansion begins to face diminishing returns.

Prosperity increasingly depends on productivity gains, innovation, technological advancement and the efficient allocation of resources. This insight is particularly relevant for Malta.

As a small island state with finite land, infrastructure and environmental resources, Malta cannot indefinitely rely on increasing labour supply, physical development and consumption as its primary engines of growth.

The constraints are increasingly visible in traffic congestion, infrastructure pressures, housing affordability challenges and environmental stress. These are not isolated policy problems.

They are signals that the economy is approaching a stage where quantity alone can no longer drive prosperity. The next phase must therefore be characterised by economic upgrading rather than economic expansion.

The distinction is crucial. Economic expansion increases activity. Economic upgrading increases value.An economy may become larger without becoming significantly richer.

Prosperity improves when productivity rises faster than resource consumption. In practical terms, this means producing more value with the same labour force, the same land footprint and the same infrastructure base.

This requires a fundamental shift in economic thinking. For decades, economists measured success primarily through GDP growth. While growth remains important, modern economic development increasingly depends on the quality of institutions that support innovation, investment and entrepreneurship.

The most successful economies are characterised by dynamism: the ability to continuously generate new ideas, new enterprises, new technologies and new opportunities for personal and professional development.

Dynamic economies do not simply produce more. They continuously reinvent themselves. This is perhaps Malta’s most important challenge over the next decade.

The country has successfully attracted investment, but future competitiveness will depend increasingly on attracting knowledge-intensive investment. It has successfully expanded employment, but future wage growth will depend increasingly on raising productivity.

It has successfully built sectors that generate economic activity, but future resilience will depend on creating sectors capable of generating innovation. In my opinion, the transition from quantity to quality therefore requires three interconnected transformations.

1.    A transformation of investment.

Not all investment contributes equally to long-term prosperity. Investment directed towards innovation, digitalisation, research capability, advanced infrastructure and human capital generates significantly larger economic multipliers than investment focused purely on short-term activity creation.

For too long, economic debates have focused on the volume of investment entering an economy. The more important question is where that investment is directed.

Capital invested in productive capabilities generates future income streams. Capital invested in innovation generates future industries. Capital invested in skills generates future competitiveness.

Malta should therefore prioritise investments that improve technological capability, accelerate digital transformation, strengthen research-commercialisation links and support the emergence of higher-value industries.

The objective should not be to maximise investment volume but to maximise investment quality. The experience of Europe's most competitive economies illustrates this clearly.

Countries such as Sweden, Denmark and Finland consistently invest between 3% and 4% of GDP in research and development, significantly above the European Union average of approximately 2.2%.

These same countries rank among Europe's leaders in productivity, innovation performance, digital readiness and living standards.

Ireland, meanwhile, has successfully attracted high-value knowledge-intensive industries that generate substantially greater economic output per worker than traditional sectors.

The lesson for Malta is straightforward. Long-term prosperity is rarely built by investing more. It is built by investing better. The countries that lead Europe today are not necessarily those that spend the most, but those that allocate capital towards innovation, talent, technology and future competitiveness.

If Malta wishes to move from growth to greatness, investment policy must become less focused on quantity and increasingly focused on creating the productive capabilities that will drive the next generation of economic prosperity.

2.    A transformation of institutions and governance.

Economic history repeatedly demonstrates that prosperity is ultimately institutional. Countries succeed when they develop institutions capable of adapting to change, protecting property rights, encouraging entrepreneurship and facilitating innovation.

Economic performance is not solely determined by resources; it is determined by how effectively institutions mobilise those resources.

Institutional maturity matters because economic actors make long-term decisions only when they trust the rules governing the economy. Investors commit capital when regulatory systems are predictable. Entrepreneurs take risks when markets reward innovation.

Workers invest in skills when opportunities exist for upward mobility. Strong institutions reduce uncertainty, lower transaction costs and increase productive investment.

Weak institutions create hesitation, inefficiency and economic friction. For Malta, institutional maturity should become a central pillar of economic strategy.

Regulatory effectiveness, planning certainty, public-sector efficiency, judicial effectiveness and policy continuity are no longer secondary governance issues. They are economic competitiveness issues.

However, institutional strength is not simply about having good rules. It is about having the capacity to implement them. Election campaigns often focus on promises. Economic transformation depends on execution.

Malta does not suffer from a shortage of strategies, visions or policy documents. It suffers from a shortage of implementation capacity. Too often, ambitious objectives are announced without the institutional mechanisms required to deliver them.

The challenge is no longer designing policies. It is ensuring that those policies are implemented consistently, measured rigorously and adjusted when circumstances change.

This is where political leadership must be supported by technical excellence. Modern governments operate in increasingly complex environments where decisions involving productivity, migration, housing, infrastructure, artificial intelligence, energy, healthcare and environmental sustainability are deeply interconnected.

The challenge facing policymakers today is not a shortage of information. It is the ability to govern complexity. Malta would therefore benefit from establishing a permanent technocratic capability at the centre of government: a multidisciplinary team of economists, scientists, engineers, policy specialists, data analysts and implementation experts tasked with supporting Cabinet in the design, evaluation and delivery of major reforms.

Such a team would not replace ministers, nor would it diminish democratic accountability. Political leaders must continue to make the final decisions.

Rather, it would strengthen decision-making by providing independent evidence, rigorous analysis, long-term thinking and continuous monitoring of implementation.

The most successful countries are rarely those with the most resources. They are often those with the strongest state capacity.

Their governments possess the ability to translate ambition into execution, strategy into outcomes and vision into measurable results. For Malta, building stronger institutions therefore means more than improving regulation or public administration.

It means creating the governance architecture capable of turning policy ambition into delivery. In an increasingly complex world, institutional excellence and technocratic capability are not luxuries.

They are essential components of long-term economic competitiveness.

This structure is actually stronger because it elevates the technocratic team from being a separate recommendation to being a core component of institutional maturity and state capacity - themes that economists such as Douglass North, Daron Acemoglu and Dani Rodrik would recognise as central to long-run prosperity.

3.    A transformation of human capital.

Economic development and institutional development reinforce one another. Prosperous societies invest more heavily in education, skills and knowledge creation.

Better human capital strengthens economic performance by supporting innovation, improving productivity and facilitating technological adoption. 

The evidence supporting this relationship is overwhelming. OECD research consistently identifies human capital as one of the most important determinants of long-term productivity and living standards.

More recent analysis suggests that almost one-sixth of the productivity slowdown experienced across advanced economies can be attributed to weaker growth in human capital accumulation.

Furthermore, studies show that improvements in the quality of education have a productivity impact that is three to four times greater than simply increasing years of schooling, highlighting that educational excellence matters as much as educational attainment.

Malta’s future comparative advantage will increasingly depend on its ability to attract, develop and retain talent. The global competition for highly skilled workers is intensifying.

Countries capable of building ecosystems that combine quality employment, technological opportunity, efficient public services and high quality of life will possess a significant advantage.

The experience of Europe's most successful economies illustrates this clearly. According to the European Commission, 66.5% of adults in Sweden participate in education and training activities each year, compared with an EU average of 39.5%.

Finland records participation rates exceeding 50%, while Denmark stands at 47.1%, supported by a deeply embedded culture of lifelong learning and continuous skills development.

Not coincidentally, these countries consistently rank among Europe's leaders in productivity, innovation, competitiveness and living standards.

Education policy can therefore no longer be viewed solely through a social lens. It is economic infrastructure.

The same applies to lifelong learning, digital skills, artificial intelligence competencies, research capacity and executive leadership development.

The countries that dominate the next generation of economic growth will not necessarily be those with the largest populations or the lowest costs. They will be those with the most capable people.

Perhaps most importantly, Malta must avoid the trap that many successful economies eventually encounter: complacency.

Periods of economic success often create the illusion that existing models will continue indefinitely. History suggests otherwise. Competitive advantages erode. Technologies evolve. Demographic trends shift. New competitors emerge.

The economies that continue prospering are not those that defend yesterday’s success model. They are those that continually invest in their people and are willing to reinvent themselves before necessity forces them to do so.

Prime Minister, Malta's challenge is not one of crisis management. It is one of strategic evolution.

As an economist, I believe the next phase of Malta’s development must be centred on productivity, innovation, institutional excellence, stronger execution capacity, and sustainable value creation.

Growth will remain important, but future prosperity will increasingly depend on the quality of that growth rather than its pace alone.

As a mother of two, I believe the challenge is even more profound. The decisions taken today will shape the opportunities available to the next generation tomorrow. Our children will not judge us by GDP figures alone.

They will judge us by the quality of the environment they inherit, the opportunities available to them, the strength of our institutions and the resilience of the economy we leave behind.

The next decade offers Malta a unique opportunity: to move from labour-driven growth to productivity-driven prosperity; from attracting workers to attracting ideas; from measuring success through volume to measuring it through value.

The foundations have already been built. Your task now is not simply to manage economic success, but to redefine it. To ensure that Malta’s next chapter is not merely bigger than the last one, but better. More productive. More innovative. More sustainable. More resilient. And supported by the institutional and technocratic capacity required to turn ambition into delivery.