The talk of the moment is about the spending spree of the Malta Film Commission to the tune of €143 million over a five-year period. The film commissioner says it is an investment. Is he right?
Spending €143 million to lure blockbuster movies to Malta is unavoidable in order to sustain the 10-on-10 economic record of the Labour government during this past decade.
The minister of finance did not utter even a whimper in underwriting the commission’s bills, while hitting the headlines for cutting a relatively insignificant one million from the annual budget of the Maltese State-owned seat of learning, causing a widespread expression of mourning and hand-wringing at academic belt-tightening.
For the trained eye, the minister of finance, who stepped into the role vacated by his esteemed professor of economics, is running Malta on a textbook model.
In order to understand how overspending may mean the generation of national wealth instead of risking bankruptcy, it is important to know that economies are measured through ongoing production (not necessarily productivity). Every recorded action carried out by any resident in Malta and Gozo is contributing to the gross domestic product.
Barbers trimming and jelling beards; technicians maintaining perfectly manicured nails every two weeks or so; parents assigning their pre-school children to nurseries for free nanny service; scooter drivers delivering restaurant-cooked meals to hungry homes; rentals of bedsitters and shared rooms; and many more activities have been subtly introduced to transform previously unrecorded home activity into meticulously measured gross domestic product.
The reality is that our economy is based on the concept that tomorrow will be better than today
This strategy quickly pulled in ‘stay-at-home’ mothers who voluntarily left unrecorded work at home towards remunerated jobs. The government even ascertained that the endemic unemployed were pushed into a corps-like structure to change their status from the unemployment register into net contributors.
How is such spending sustained?
National debt in absolute terms has nearly doubled in a decade with no sense of urgency to reverse the trend. No learned economists objected. Those at the European Central Bank and at the European Commission, who focused solely on their tunnel vision of a relative debt ceiling of 60 per cent of GDP as set by the Maastricht Treaty, did not bat an eye lid when presented with national fiscal budgets for approval.
The ministry of finance’s bean counters know that as long as Maltese GDP records a minimum of €15 billion and grows at a rate of €1 for every 60 cents borrowed, they sleep easy. In addition, a growing economy adds to the feel-good hallucination, feeding the consumption frenzy even further and adding momentum to the spinning economy through the multiplier effect. The magic word is confidence.
Once confidence in the economy is sustained, the minister need not worry about ever paying back the national debt in the smug knowledge that there will always be demand for the nation’s sovereign bonds. As the bonds near their maturity date, the government of the day announces a new scheme and simply rolls the debt. Add to the euphoric situation the global, anemic, low interest rates and the Maltese economy is a perfect Keynesian economic model.
The money spent by the Malta Film Commission is the wood in a burning furnace, spaded in to keep the temperature constant. If the economy is to continue to grow to cover the need to borrow to sustain an ageing population living a decent life, then money must be spent where it can result in maximum GDP growth. Love him or hate him, the film commissioner is following the ministry of finance’s manual for economic growth – to the letter. Spend to ascertain the Central Bank of Malta records this spending as GDP growth.
The question that many wish to ask is for how long can Malta sustain such an economic model? Weaning it away from this hedonic addiction is very painful and the more intense the popular addiction to instant gratification, the more intense the pain to change its direction. If life feels good, why change? Change to what? How? When?
The reality is that our economy is based on the concept that tomorrow will be better than today. The government will continue to feed a heated economy to generate growth, even though conservative thinkers believe that, in times of economic growth, the fiscal budget should at least be balanced – surely not in a deficit.
To ween the economy away from this model, an effort must be made to transform ourselves into a truly viable value-added location in the challenging global supply chain. The biggest challenge for the population is how to learn how to earn and generate wealth before spending it. Until then, the Maltese need to ‘buy’ their way to survive.