Who’ll do the deciding?

This blog has followed the transformation of Professor Edward Scicluna from academic economist to Labour politician. Admittedly, I did not see the final outcome coming but — with the wisdom of hindsight — it did explain a few things which I had found perplexing at the time.

Let’s set aside Scicluna’s botched prediction that Malta would not make it into the eurozone. The man has held some strong views on the sustainability of various cases of state generosity. The shipyards? Subsidy of wages and low productivity for two decades. Tertiary education? Provided for free with a small salary for students to boot. Pensions? The most generous in Europe. The public sector? Over-staffed. He even seemed to have had a problem with the health sector being free.

Can’t say I ever found anything strange, in those opinions. Hell, I actually agree with them. What I found strange that Scicluna’s list did not include the complaint that in Malta fuel and energy were some of the most subsidised in Europe. Indeed, Scicluna led the charge against the hiking of tariffs which is what made him a strong contender to secure a place on the ballot paper as a Labour candidate. And that’s the point where the transformation from economist to politician occured.

Fair enough. But someone had to pop the question. MaltaToday’s Raphael Vassallo thankfully did:

Still, while Scicluna is scathing about the Gonzi’s administration’s economic skills, it remains debatable whether a Labour government will heed his own advice, and embark on the necessary reforms: which include a revision of the university stipend system, and also control of expenditure on public health. What does Edward Scicluna recommend for a political hot potato like stipends?

Labour will not heed Scicluna’s advice: the Party leader, as has become habitual before every election, is claiming the Government has the intention to start charging for primary health services once polling is over. But if Scicluna is in the wrong party that can hardly be held against him: he’s not the only one as this campaign has demonstrated. It’s his weasel answer which leaves one feeling shortchanged as he morphs once more, this time from politician back to economist:

“It would be very presumptuous of me to say that we should ‘do away’ with stipends,” he replies cautiously. “But even a recent European Commission document suggests that they are a burden on the system. But these are things the taxpayer has to decide. Does the taxpayer want to keep subsidising university students? If not, there are a number of ways the system can be revised. They could be converted to loans, or grants, or part-loans, part-grants… it’s not up to me to decide how to reform the system.”

“The taxpayer has to decide”? Unless there is a box in the income tax form where one expresses himself and which I have missed, taxpayers express themselves in elections. And they do not get to chose between whether they want tertiary education subsidised but between this party and that and this candidate and that. Once elected and given a mandate it’s the politician that has to take the decision, hopefully based on what he promised during the campaign.

Professor Scicluna, come June, that’ll probably be you.

Choices we make

The Governor of the Central Bank of Malta has commented on kick-starting the economy:

An increase in public investment should be preferred to lower taxation or higher benefits, should the government be considering a new economic stimulus, the Governor of the Central Bank has argued.

“An increased stimulus in the form of lower taxation or higher social benefits is not as cost effective as an increase in public investment expenditure. The latter is to be preferred since it tends to generate a smaller demand for imports, while raising the economy’s potential output,” Michael J. Bonello wrote in the Bank’s annual report.

He also insisted that fiscal prudence remains necessary to safeguard both Malta’s credit rating and investor confidence.

That should have been pretty obvious: political choices are always made at the expense of others. It’s only in Labour’s dream world that a government can, for example, increase benefits, slash energy prices, refund VAT on cars even if the courts deem the practice to have been legal and cut taxes while denigrating the Government because its response to the crisis has been proposing more capital projects and fiscal discipline.

Note also the Governor’s point on the fact that directly splashing out cash generates a greater demand for imports. Put crudely that means that the Maltese Government will be subsidising other countries’ economies. And the issue of safeguarding investor confidence. Can anyone put a price tag on that these days?

Fellow blogger Andrew Sciberras notes that tax cuts versus higher spending may very well be what will set apart the European Socialists and the People’s Party at a European level but then hangs on to little more than hope that Joseph Muscat will be able to defy not economics but simple logic and offer both. And considering that bounties will abound, we’ll probabl also get them on a silver platter.

Muscat has not learnt the lesson from 1996 when Labour offered a populist promise of less tax and — here’s the cliché — “putting money in people’s pockets” and then discovering it could not live up to that when faced with the realities of office. That may have given Labour an unexpected electoral victory and two years of government … followed by fifteen years of opposition. You campaign in poetry, Hilary Clinton is once repurted to have said, but you govern in prose.

Malta’s way to recovery

“Where’s Gonzi’s recovery plan?” James Debono asks. By which he means a plan to splash around some government cash so that the industry which moans loudest gets some dosh. After all, min ma jibkix, ma jerdax.

I hope Gonzi has no such plan and for a very simple reason. Malta’s economic problems are nothing like those of most industrialised nations. Maltese banks may be going through a sluggish phase, representative of the international climate in general. But they certainly have none of the liquidity problems faced by other banks in other countries. The recent decision brokered by the government setting up a moratorium on capital repayments on loans taken out by hotels shows that our banks can shoulder even that cost.

Debono’s suggestions could very well turn out to be at best useless, at worst suicidal. Under “useless” I would include his proposal to “invest” in primary health and child care and in upgrading the road network — not that these are not laudable initiatives to spend money on but they are hardly the kind of “investment” that leads to recovery. Under “suicidal” I’d include the proposal for a windfall tax on banks precisely at a time when the banks’ liquidity has to be safeguarded.

Which is not to say that the government should not be doing anything. At the moment, the greatest economic risk Malta faces could very well be the fall in international demand. Like illegal immigration that’s a cause that’s beyond Malta’s borders but on this one the Maltese government does have some leverage.

What I mean is that now’s the time for the government to come out unequivocally on the side of free trade internationally, the rule of competition in the internal market and fiscal discipline within the eurozone. It is time to stand up to measures attached to “recovery plans”  launched by the larger economies attempting to draw jobs and liquidity to the country of origin.

For protectionism is back from the dead and that’s bad news from a small, export-oriented country like Malta. If we try to play at the same game we’d lose: just remember who came out looking worse for wear when the Labour government in the 1980s tried to “retaliate” against Japanese protectionist policies by some similar policies of its own.

WWMD?

What would Marx do?

I don’t know much about Karm Farrugia except that, along with Edward Scicluna, he’s often the second leg MaltaToday stands on when it decides to talk about economics. Recently, he was involved in an exchange of letters in the Times. It all started off with this letter of his:

Prophetic economists and world leaders

Karm Farrugia, Madliena

Exactly 175 years ago, Thomas Malthus (England) prophesied that since population tended to increase faster than the means of subsistence, its increase should be checked, mainly by moral means. Science and technology proved Malthus wrong, at least in advanced economies.

Nearly 150 years ago, in 1867, Karl Marx (Germany) had this to say: “Owners of capital will stimulate the working class to buy more and more expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the state will have to take the road which will eventually lead to communism.” Even Nostradamus couldn’t have said it better!

Thank heavens the world is led by the likes of Obama and Brown.

How Malthus and Marx could have led Farrugia to thank heavens for Obama and Brown is beyond me but it was easy to see that this was just name-dropping. Until someone asked Farrugia to source the Marx quote. “It featured in one of Marx’ editorials in the Neue Rheinische Zeitung,” the economist replied. In which case it wouldn’t have been 1867, as Farrugia claimed earlier, because that paper was published between 1848 and 1849.

If only that were the only shortcoming. A commenter on the online version version of the Times claims that the quote was fake, a hoax created during the present hunch which is doing the rounds on the internet. Which shouldn’t surprise us: Marx is not exactly well known for making correct predictions.

But Farrugia’s final reaction was hilarious:

Marx or not, bankers should be warned

Karm Farrugia, Madliena

Maybe Joseph A. Debono (February 6) is right in suspecting the Marx quotation to be fake. I did that, too, but decided to consult my student notes on economic theory: the spirit of the quote is indeed there, even if the translation into English is too liberal or even bad.

The lecturer intend to warn capitalists not to exaggerate their economic muscle. This was the 1950s, when the fear of communism was very real, especially in a global scenario exhibiting the “ugly face of capitalism”, an expression then commonly used by writers and politicians. My notes even make reference to a song called Sixteen Tons which ended with

“I owe my soul to the company’s store”.

Rather than wasting time on whether Karl Marx did or did not write in this vein (he inspired it, though), it is much better to employ it as a warning to the so-called “bankers” who have managed to give the profession such a bad name, and invite the genuine ones (the majority) to regulate themselves seriously before harsher impositions from national and/or international authorities become imperative.

There goes all the name-dropping. Marx may not have been big on predictions but a round of applause to Farrugia’s economic theory lecturer who, in the 1950s, predicted an internet hoaxes including its precise wording.

Muscat at the General Conference

“Forget pairing,” Muscat told the government to a round of applause from the Labour delegates, supposedly in reaction to government’s procedural motion limiting votes in the House to one day of the week.

Umm, why the imperative? Who remembers pairing? It was on offer close to a year ago along with the other offer for the post of Speaker. Labour was not interested, Government moved on and Louis Galea will, in all likelihood, be presiding the House until the end of the current legislature. Only two weeks ago, Muscat was saying that there was “no chance of pairing for the time being”. “Forget pairing”? Thanks for reminding us.

That, it seems, was the highlight of Muscat’s speech to the Labour Conference. Or not. The highlight was the electricity tariffs. Well, no: the proposed St John’s museum. Or the road in Ghadira. Or maybe it was the call for Tonio Fenech to resign for having said that the government was not aware of any plans for redundancies at ST.

Maybe it was the banned play Stitching, the reminder that the Nationalist Party is not a liberal party. You’d be forgiven if you thought that, for that matter, neither the Labour Party is a liberal party. After all, during the debate leading to the “seismic changes” to the Party statute the debate was whether it’s a “democratic socialist” or a “social democratic” party. Potato, potatoe, tomato, tomatoe. Anyone spotted the “l” word there?

The transformation might well have taken place yesterday. Muscat said Labour “is the natural choice for progressive and liberals“. Er, whatever happened to the “moderates”? And if you want to hold Tonio Borg as a shining example of what a liberal isn’t it’s helpful to remind that the Foreign Minister’s understanding of “not liberal” is “not governed through a laissez-faire attitude but one where state regulation ensures the protection of those citizens in most need of protection and assistance”. Democratic socialist or social democrat, that would make Muscat even less of a liberal than Borg.

Muscat’s speech then turns to the goodies. There were promises to invest in just about anything that can soak up public money: families, children, women, the self-employed, research, alternative energy. And just in case you were wondering where the money will come from … keep wondering. Because taxes — on labour, on families, on investors — will also go down.

This country is still to learn the difference between policy and a policy objective but this time round Muscat does offer a policy which allows one to dig his teeth in: a mandatory system where those who lose their job benefit from a moratorium on payment lasting a year or two until he finds a new job. Banks often re-negotiate the terms of a loan in the case of people in that situation, after all they’re more interested in collecting their money rather than re-possessing homes. But making it mandatory is sure to raise the risk for a bank lending money to someone from the private sector. And as we know bank will always transfer the risk to the consumer.

Phew. A lengthy post and I’m not sure I’ve covered everything of the “historic” speech. Indeed, in a months time it would be truly historic if anyone managed to rattle off from memory all the points in covered.

Happy birthday and a happy new year

Hope all of you had a great start to the new year. Just like the euro which turned 10 on the first day of the year.

In its first year the euro fell and fell. Derek Bennett of the UK Independence Party would write letters regularly to the Times (of Malta) claiming that whatever was wrong with the UK was because it is a member of the EU, whatever was right with the UK was because it is not a member of the eurozone.

That seems so long ago. Only a few days ago the pound sterling fell to the point that it was only one cent away from parity with the euro; it was only saved from the ultimate humiliation thanks to expectations on the currency markets of a further cut in the ECB’s interest rate.

Meanwhile, Malta is safely within the eurozone. The size of its economy would have, like Iceland, rendered it even more vulnerable to the turbulence. It was a long way. Ten years ago Malta was not even an EU member state. We had just applied to re-activate our application for EU membership, hoping that we’d be still taken seriously in European capitals.

Thankfully, we were.

Is that it?

An “outburst” was how MaltaToday’s “Latest news” section described it some time ago, upping the ante for an interview with Tonio Fenech, in which the Finance Minister supposedly mauled Edward Scicluna.

The interview is now online and it turns out to be as heated as an exchanged you’d expect between an accountant and an economist. The “outburst” turns out to be the following (translation mine):

“Professor Scicluna is one who likes to offer many opinions. He isn’t one I’d consider objective in his opinions. I consider him as one who, considering the kind of declarations he makes, tilts towards Labour.

“Meaning that you quoted not an economist who gives an objective analysis of the economy. The reality is that, in the current global circumstances, not only our country is running a deficit.

“At the same time, Professor Edward Scicluna is saying that we’re giving a too strong a jolt with the energy tariffs and that we should run a higher deficit by postponing bills.

“I think Professor Scicluna should be more consistent. Is running a deficit right or wrong? It couldn’t be that in 2008 it’s wrong because it causes investor uncertainty and in 2009 it is right becuase Labour said we should have postponed everything,” says Fenech.

“Professor Scicluna should make up his mind and be consistent in all that he effectively says because, so far, I can see no objectivity”.

Forget the objectivity bit and which side of the political spectrum Professor Scicluna happens to tilt — someone’s political loyalties are nobody’s business — consistency is the issue here. In a recent interview on MaltaToday, it should be remembered, Scicluna criticised Government’s two decade attempt to keep the shipyards afloat, our pension scheme as “the most generous in Europe”, free health for all, over-staffing in the public service, expensive university education for free and student stipends … and then a rise in the energy tariffs taghtu f’ghajnu.

That, and his Eurozone prediction gone wrong, are what Scicluna should be confronted with. Claims about which political party he favours only serves to give the likes of Illum and MaltaToday the proverbial straw to clutch on to.

Then again, it seems that the Minister is not very far off the mark. Latest edition of MaltaToday (not yet online) reports that Labour has approached Scicluna to stand on its ticket in the EP election in June.

Update: The MaltaToday article reporting that Scicluna is “actively considering” standing as a Labour candidate in June.

Wasn’t one-size-fits-all to be avoided?

Here’s Maltastar:

The European Union said that during the current recession within the Eurozone and across Europe, billions of euros are needed to be pumped into the economies to get them moving again.

Contrasting with these EU statements, the Gonzi administration is pushing for an increase in taxes with huge increases in the water & electricity bills soon to be unveiled. Other increases which the Maltese are facing are the new car license scheme, in which motorists are facing hefty increases in their licenses.

It’s significant that the Labour site can only mention two measures one of which, the rise in electricity bill, is not even a tax but a reduction in subsidy. More importantly, in a joint article appearing in Le Figaro and the Frankfurter Allgemeine Zeitung the French President and the German Chancellor welcome the proposals and, while seeing them as providing necessary elbow-space, appreciate that they offer some restraint on member states who might opportunistically think of spashing around too much cash.

And there is also an important caveat: “there is no single model for recovery that can be applied to the 27 member states with very different budgetary and economic situations”.

Either-or not both-and

Along with the belief that investment in renewable energy sources will reduce consumers’ energy bills, the belief that private investment in these sources can thrive, even with Government help, in an environment where conventional fuels are heavily subsidised is another article of a very mistaken faith.

Here’s Arnold Cassola:

According to the United Nations World Tourism Organization, economic turmoil is a prime cause of concern for European tourism, which was given little hope for growth in the coming months.

The Maltese authorities must keep all this in mind and promote actions that will encourage sustainable, cultural and eco-tourism in our country.

The sharp and backdated rise in electricity tariffs does not help at all in this respect.

Cassola is all good intentions and totally clueless. The price of energy from a renewable souce does not exist in a vacuum. The huge surge of interest in renewables worldwide, even on the part of the most business-minded, was, very simply that the rising price of oil started to make the price of energy from renewables more attractive.

We’re at a time where there is a general agreement on policy objectives. After all, who could be against growth in tourism and sustainable developement? We can also be in agreement on the policy means to get there. What we often fail to notice is that the means very often pull in different, if not opposing, directions.

Energy affordability and energy sustainability may be laudable policy objectives we can agree on. But the policies that get us there push things in different, if not opposite directions. It’s that stark choice that has to be made not whether to promote whatever actions Cassola has in mind.

Ghaziz Joseph …

God exists and answers my prayers. After the report on Labour’s “manifestation” said that Toni Abela’s speech was an imaginary letter from Barack Obama to Joseph Muscat (stating off with “Għażiż Joseph“) I was hoping the text in all its glorious integrity would be published somewhere. It has … on Abela’s website no less. It is a reminder that, while the literary technique of an imaginary interlocutor has history going back at least to Plato, it works when in the right hands. And Abela’s are not exactly “par idejn sodi” in this regard. Unless, that is, he intended to write comedy all along.

Raphael Vassallo recently reminded that Obama has his own advisers and he’s not likely to need the Nationalist Party’s advice proferred in its ridiculous atempt at lecturing the president-elect. Now it is evident that, not only does Obama has advisers, they seem to have a lot of time on their hands to the point that they brief Obama on Malta’s economic situation (which, incidentally, tallies with Labour’s assessment) and they even have views on the raising of Enemalta’s tariffs!

Political prices of economic problems

Malta Today interviews Professor Edward Scicluna. The interviewer did ask about Scicluna’s prediction, made only months before the formal decision was taken, that Malta would not join the Eurozone. Here’s the reaction the interviewer got:

Scicluna was sceptical on whether Malta could pass the euro test, not because of the inflation rate which he expected to go down (as it indeed did), but because he was concerned of the ever increasing ratio of public debt to GDP (how much of our wealth is taken up by debt), which was being paid off by one-off privatisations.

“It appeared clearly to me, at the time, that our economy could not potentially face an external economic shock successfully.”

One would expect that to be followed with “Thankfully, I was wrong and the Maltese economy showed itself capable in handling the new currency”. It wasn’t.

Another deficit to address

Here is one area where Malta is not doing too well:

Malta has been ranked 83rd from 130 countries, from 76 last year when 128 countries were surveyed. Malta is last among EU countries, with Greece and Cyprus at 75 and 76. It is even behind countries such as Armenia, Suriname, Bolivia and Malawi.

A reminder

After Labour “manifestation” it’s now time for the GWU’s “demonstration“. The Malta Union of Teachers (MUT), another union who will be attending, gave as a reason “the threat to democratic processes in the country through a complete disregard of all the Social Partners’ views”.

I find that this is one point unions often tend to forget. The “democratic process in the country” involves the electorate electing the Government. Unions have no such mandate and Governments are under no obligation to take on board the social partners’ views.

No, we can’t

The Indy today publishes an unusual article about predictions, made over the past few year, by economist Edward Scicluna. Now I do not know much about the subject but if you check out what Scicluna was saying a few years ago about the prospects of Malta joining the Eurozone you’d see a reason why his discipline has been traditionally described as “the dismal science”.

In a nutshell (Part I)

Sloth is one of the seven deadly sins. And to open the “discussion” on the 2009 Financial Estimates I’ll have to refer to the Times which helpfully published a list of “winners” and “losers” in the 2009 Financial Estimates. Here it is.