Friday, 30 January 2004

Deliverable No 6 - A freeze on all public sector operating expensiture

The Malta Independent 

This is an extension of deliverable No 5 expounded upon last week where I argued for a freeze in public sector hiring and freeze in public sector employment benefits.  

 Whilst employment costs hold greater scope for delivering economies to address the public fiscal deficit also from the expenditure side, it is essential that economies need also be made in the operating costs of central government and public entities.

I have already conceded here that economies could be largely symbolic given that the discretionary element in such operating expenditure is pretty small in the overall expenditure picture. Further I quite agree that there are areas like Law & Order and Public Health Services where operating expenditure cannot be reduced ( indeed may have to be increased) in order to keep essential services at an acceptable level. It is not therefore to be expected that not much mileage could be gained from this source.

But economy drives in the operating expenditure budget are still needed for two reasons. Firstly because without such drives the crawl in the operating expenditure growth will continue and therefore we would be helping even if we simply manage to stem that crawl. Secondly it is because such operating budgetary control could be highly visible and as the Maltese saying goes,: “l-ezempju jkaxkar”. While in themselves they could make negligible contribution to addressing the public finance deficit from the expenditure side, such economy measure could be highly visible and could send a strong message eradicating the “money no problem” mentality and installing in its stead the “value for money” mentality.

Operating expenditure could therefore be subjected to cash limits with annual increases below the level of inflation thus forcing the managers of public expenditure budgets to think creatively how to get more mileage out of existing resources. The old habit of solving all problems by going for the easiest of solutions, that of writing a cheque from somebody else’s account, must stop. I say somebody else’s account because government is administering public funds, not its own funds, and whenever government pays anything out of public funds it is actually paying from the taxes we pay or from the proceeds of the debt that government incurs in our name, the burden of which will continue to be carried long after the government’s term comes to its democratic end.

The habit of duplicating expenditure through the creation of satellite entities performing a public sector job at private sector pay has also to be re-visited as we cannot load this micro-economy with bureaucratic structures that are designed and suited for much larger outfits.

The drive to outsource routine operations at an economic and controllable cost which can be aborted if circumstances so demand (unlike internalisation of such processes which cannot be easily aborted with the existent job for life mentality in the public sector) and the needs to engage resources on a definite term basis needs accentuation and better implementation. The rush to deliver services on an electronic basis must continue so that we can come to the point where those who insist on physical delivery of such services will then have to pay for the higher processing costs involved in such physical delivery. This must go hand in hand with the creation of technology centres at local government level to help overcome the technology freight of the certain sectors of the population who would otherwise feel the bite of being left out of the digital world as they fall on the wrong side of the digital divide.

But I think we can go further. We have built a society that interacts with government at various levels and this involves a lot of duplicate transfer payments. For example I pay income taxes and other forms of direct taxation but then receive free health, free education and a subsidy on a host of other services from the state. This has been built round a praise-worthy social model but as a bye-product it involves substantial waste as the false perception of such free or subsidised services leads to overuse and abuse.

Given our relatively small size and our ability to be at the cutting edge of IT technology it is possible to eliminate this free lunch mentality whilst protecting the social element of such services by concentrating the interaction between the individual and the government in case of direct taxes (payments) and direct benefits (receipts) at one single point.

I dream of a system where government charges economic recovery rate for all services, even social ones like health and education, and the individual gets the state subsidy at one point in his tax bill which produces a single bottom line figure of amount due to or due by the State.

This will deliver great efficiency gains. Our schools and hospitals will start being run on a commercial basis without losing the social necessity of keeping such services ‘free’ and accessible. It would automatically give the private sector the incentive to compete for the provision of services which are currently largely within the competence of the State. Competition of supply is the most forceful manner to deliver economic efficiencies at the operating level.

Sunday, 25 January 2004

Blame it on

The Malta Independent on Sunday 

Saying that the economy has problems is indeed an understatement. The Italians probably have the right saying to describe the state we are in. After long years of coming up with temporary skin deep solutions to problems that were left to fester underneath, it is now clear that “il nodo é arrivato al pettine”.

As if we needed any confirmation that we are fast losing our global competitiveness, this week we had confirmation of what was clearly in the air for some time but one doesn’t believe it until it happens. Our premier manufacturing concern, ST Microelectronics that provides a living to 2,400 of the most productive employees among us, is demanding remuneration cuts in the 20 per cent region in order to restore competitiveness compared to their Singapore outfit.

Singapore is no Third World country. I can understand that we are more expensive compared to Morocco or Malaysia because we can deliver higher comparative value added. But Singapore is no technology laggard. Yet we have gradually worked ourselves into an untenable situation where something has to give.

The economy is under great stress and there is no comfort that can be had from the influx of new investment. As countries upgrade their economy it is quite normal that some units become uncompetitive, dwindle or close. But normally these would be more than compensated by new openings created through new investment that delivers higher value added through knowledge and technology, making the increased cost of operations sustainable through gains in productivity.

With new investment nowhere in sight we have to do our utmost to preserve what we already have. And the realities of the global economy are putting us between a rock and a hard place. To restore our global competitiveness we have either to see our most productive workers accept lower take-home pay in double digit order, or we have to consider a downward re-adjustment to the value of the rate of exchange.

In layman’s language, we either take unpleasant macro-economic measures so that the stress of adjustment is shared across the board or we allow the burden to be carried entirely by our most productive workers. No easy choice, really! It has to be one of the lesser evils. But if we allow the burden to be carried entirely by those who work hardest and produce most, than we would really be sending the wrong signals as to which way economic re-structuring has to go.

The government’s reaction to this economic morass is one of helplessness. Rather than seek to promote measures which could immediately restore our international competitiveness and then work out painful but unavoidable re-structuring, the government’s reply comes in two strange and probably ineffective streaks.

The first strange reply is that the government is marshalling its main spokesmen and friendly media to acknowledge the problems and, without offering any specific solutions, blame them on Labour.

With what cheek or imagination can a government in office for 16 years that lands the country in this well-baked economic mess blame it on the opposition is really beyond comprehension. Arguing that Labour’s street protest will compound problems and, using ultra-flexible logic to conclude that therefore Labour are to blame for the economic hardship because they are taking to the streets rather than offering solutions, is an insult to our intelligence.

It is not only right but certainly to be expected that unions and the opposition show their disapproval of the government’s lethargic economic management by public peaceful demonstrations. At least hopefully this could serve to shake some life back into the government. Or does the government expect us to suffer in silence?

The other strange streak in the government’s reply to the deepening crisis, is that the main actors are more interested in getting away from the line of fire rather than showing they have what it takes to take the problem in hand and marshal a solution. Persistent and engineered leakages about the Prime Minister’s reported intention to quit shortly cannot but deliver the message that he has no fire left in his belly to captain the team tasked with reversing the dire consequences of easy, consistent, politically-expedient but economically expensive escapism.

The failure of the Minister of Finance and Economic Services to try and seek concessions from all sides to put together an urgent package to stem the economic haemorrhage, indicates more interest to see which ministry best meets his future aspirations rather than to focus energies to address his current prime and direct responsibilities.

The consequences of this economic neglect will mean hardship on the population at large. So the opposition, while fully entitled to organise protests and lay the blame entirely at the government’s door, must neither expect that street protest on their own could lead to any solution nor uphold that it is logical or in anybody’s interest to blame this economic sclerosis on EU membership.

Let there be no doubt. The blame for the sorry state we are in is entirely attributed to the government’s political opportunism over a long number of years in acquiring electoral popularity at the expense of our international competitiveness. Adding two weeks of holidays every year can make you popular but it does not help enhance productivity and attract investment. Giving generous terms and conditions to the least productive in the public service and creating a multitude of authorities and corporations at the fringes of the public service enjoying private sector pay at public sector levels of efficiency, obviously helps garner votes of favouritism but drives gaping holes in public finances which have to be filled with debt or taxation.

Blaming this economic mess on EU membership can only help to absolve or lighten the government’s fault in the public’s view and increase the perceived ambivalence of the opposition regarding this issue.

The truth is that the future is ours and it is up to us what we make of it. We have manufactured this mess on our own and no-one is going to solve it for us, not even the EU. Hopefully the EU could provide the discipline to ensure we abandon the escapism and focus on the real issues, no matter how distasteful they are.

Friday, 23 January 2004

Deliverable No 5 - A freeze on public sector recruitment

The Malta Independent 
“A freeze on public employment recruitment and on public sector payroll costs ensuring that benefits are mostly given in re-training opportunities and in subsidising/promoting transition of excess public sector personnel to productive jobs.

For the social pact to be an effective tool of economic re-structuring, each deliverable has to be consistent with the others so that collectively from the set of deliverables would emerge a clear sense of direction.

Deliverables have to reinforce each other and it is futile to have any deliverable (or the omission thereof) which detracts the value or neutralises the benefits of other deliverables.

In deliverables 1 & 2, I argued for the need to re-balance the rights and obligations of employees across the whole spectrum of public/private sector employment and on the need to re-train employees to give them life-long employability rather than the traditional job for life.

In deliverables 3 & 4 I argued for desisting attempts to solve the public sector financial deficit by excessive reliance on revenue collection and new tax measures. So it is obvious and logical that the next deliverable has to concern the expenditure side of the public sector finances.

Government often argues that the discretionary element in government spending is really quite small, as the great majority of expenditure is reflected in the cost of personnel emoluments and programmes and initiatives (including social expenditure) which is quite inflexible. Efforts to roll back discretionary spending, though highly visible from a perception point of view, will not deliver much lasting cure for the fiscal deficit.

This is true up to a point but not good enough to argue that the expenditure side is beyond government’s control and that solutions have to continue being sought on the revenue side. Efforts to roll back the discretionary spending are needed to reverse the dangerous culture of “money no problem” which the present government has imbued in public administration. The decision to cancel Christmas parties will not make much difference to the size of the public deficit but it does send a strong message for the need of culture change. Alas its effect was totally neutralised by the ill-timed decision to replace the prime minister’s main transport configuration.

Granted that social expenditure is inflexible and that any roll back in that area would have deep social consequences as it would effect persons who have no means to protect themselves and generally do not have the opportunity to make further efforts to make up for their loss in any other way. Consequently the major savings on expenditure have to be searched in the emoluments budget column.

Savings in this area have to come from headcount reductions. Few would argue against the existence of pockets, patches or paddles in the public sector of severe over-manning. For these I had suggested the need to engage such excess resources in a retraining programmes and their re-pricing through subsidies into productive private sector employment. So any benefit to the expenditure bill will not be immediate but will accrue over a period of several years and only if the programme is carefully and diligently implemented.

But to stop the haemorrhage a stark decision has to be taken to freeze all public sector recruitment. Now I can hear all sorts of arguments that there are vacancies that need to be filled and that the skill mismatch that exists in the public sector would not allow the posting of excess resources into these vacancies. These are not frivolous arguments.

But if we have to drive the message that government really means business then it is difficult to justify the allowance of any discretion to public sector hiring. Government must make do with what it has as families have to do with what they have when money runs out and just as private sector organisations have to invent ways how to maximise the use of existent resources before undertaking fresh investments when their bank signifies unwillingness to increase financial exposure no matter how good the proposed investment might be.

This will demand a dose of flexibility from existing employees to which they are not accustomed. It would demand the dismantling of layers of unnecessary bureaucracy which adds process but little value. It could involve the merger or several public authorities that should share common resources rather than continue building up duplicate structures.

This would probably stimulate the unions to demand that existing employees should be rewarded for showing this flexibility and for shouldering more responsibility as one person becomes responsible to do a job from start to finish.

Giving in to such demands to increase emoluments of pubic sector employees would eat away any saving in the reduction of headcount and must be resisted. The only exception could be in the few remaining public sector organisations that deliver profits based on commercial competitiveness and not on the exploitation of any natural monopoly. Basically yes to Go Mobile who earn money on the basis of true competition but no to Enemalta who, if they make money, they make money on exploitation of a captive market.

The country cannot afford to pay more for its public servants to do the job which they should have been doing in the first place. If the unions really mean what they say when they argue for job protection, job creation and social pact then they have to bite the bullet and agree that a freeze in intake of public sector employment can only make sense if accompanied by a freeze in the emoluments of public sector employees.

Friday, 16 January 2004

Deliverables No 3 and No 4 - Reduce tax burden

The Malta Independent  
    No new taxes/tariff deal from the government to ensure that we stop the addiction to tax and spend policies.
  1. A deal whereby additional revenues from better tax enforcement are allocated specifically as to 50% for reduction of the tax burden to the lower and middle sector of society, especially those in employment who never needed any tax enforcement mechanism to pay their tax dues, and 50% to fund re-training schemes.
I take these 2 deliverables together because whilst distinct they both concern a new approach needed for fiscal policy.

Small economies are particularly suitable for docile fiscal policies. In the old times when it was possible to build sharp dividing wall between the domestic economy and the international relations, small economies had the option to create offshore regimes where the docile tax treatment for international business was kept separate from the normal or harsh tax treatment of the domestic economy. This is no longer possible as international obligations for us to open the domestic economy for broadly equal treatment to the international business we seek to attract.

Consequently small economies have the incentive to adopt a docile tax regime where concessions made to their small resident population are more than compensated by the attraction of international business without infringing on international or community obligations. This is the route that Ireland has so successfully adopted.

Unfortunately our fiscal policy stance, conditioned by the past excesses and burgeoning imbalances, is forcing to adopt a restrictive fiscal stance choking our economy and depriving the exploitation of its true potential. This is being done whilst other much stronger economies are adding fiscal oxygen to their domestic economy even though this involves their breaching community-wide obligations as is the case with France and Germany regarding the single currency Stability and Growth Path.

In 2004 it is planned that tax revenue will increase to 41.1% of the GDP from 39.1% in 2003 and 37.8% in 2002. Clearly we are going the wrong way. We are administering on the economy fiscal medicine totally unsuitable for its malady.

Through Deliverable No.3 Government has to acknowledge that it has to change fiscal course and is to commit itself not to introduce new fiscal measures, further choking the economy, in a vain attempt to address the fiscal imbalances without addressing the politically sensitive expenditure side of the equation. If any new tax measures are necessary in the interest of control of tax-loopholes or in the interest of economic efficiency, government has to explain this, estimate the additional revenues so generated, and roll-back some other existent tax measure to compensate. Government must, as its part of putting together a tenable social pact, abandon its addiction to tax and spend policies as the ease with which the government can finance its expenditure by new tax measures on the fiscal sitting ducks of the economy (the middle income employees and the small self-employed) is diluting the national determination to address problems at their expenditure source.

Deliverable No 4 on the other hand addresses the additional tax revenue flows that the government collects through better enforcement of existing tax measures and through the normal increase in the tax take generated by economic growth.

Through this deliverable government is expected to bind itself not to fritter away the increased tax revenue from this source but to apply it for two very specific purposes. Half would be rebated back to the fiscal sitting ducks in order to roll back the tax crawl of the past few years in order to stimulate the initiative to work and produce, with the other half being specifically devoted to fund part of the investment required for the training needs identified in deliverable no. 2

These deliverable would impose upon government a fiscal discipline which can only be abided to if the government no longer has the soft escape from addressing fiscal faults at their source of politically advantageous expenditure. The practice of creating a false sense of feel-good factor in the run-up to elections which gives way to a sense of frustrations as we discover the true hard facts in post-election mode has to stop once and for all.

Political convenience at the expense of fiscal irresponsibility has landed us in the current economic sclerosis. On the political front it has rewarded us with an unimaginative government that has overstayed its term of office and is forced to resort to social pact solutions simply because it has run out of other ideas and needs a medium through which it shares the burden of governing under tight fiscal conditions.

Basically we have no alternative but to bite the fiscal bullet.

Sunday, 11 January 2004

All in a Day

The Malta Independent on Sunday 
It cannot be coincidental that we are getting such a concentration of bad economic news nearly every single day, especially since the new year festivities faded off. Take a typical day last week.

Two hundred and forty of our most productive employees engaged in producing jeans for export have been discharged by a foreign-owned company compelled to down-size and reduce its work-force in Malta by 33 per cent. This cannot be due to market contraction as the major economies of the world are registering growth rates beyond what was imaginable just six months back. It must be that, at least in the manufacturing sector, we are losing out on the globalisation challenges as manufacturing jobs are lost to more competitive producers in the Far East without our succeeding to attract new manufacturing investment geared to our new realities.

What irks me is that these same employers, just 12 months ago, at the height of the EU referendum campaign, welcomed the Prime Minister to tour their factory and denied all allegations that it was facing problems of competitiveness which would force it to down-size.

I would not suggest that the cause of down-sizing is directly related to our decision to become EU members. I do dare suggest, however, that it could have connections with the injudicious decision made by our Central Bank last August to cut by half the US dollar content in our rate of exchange basket formula just as the US dollar was about to start its collapse on the foreign exchange markets. Considering that many Far East operators have a US dollar based exchange regime, and considering that our rate of exchange against the dollar strengthened nearly 30 per cent in less than one year, such an extraordinary rate of exchange movements have an influence on accelerating the relocation of economic units which could have survived here longer under a more docile exchange rate regime.

I also cannot help noticing the very mild approach taken by the GWU when confronted with such private sector redundancies. Clearly, the unions have no tools to protect these private sector employees and can only accept such restructuring and redundancies in the interest of those who remain in their jobs, and cannot go beyond promising to do their best to find the redundant employees new employment. Compare this to public sector re-structuring where the unions demand and get job guarantees, together with redundancies on a voluntary basis accompanied by the award of cash bundles. Indeed our workers are operating in an apartheid regime where the least productive gets the most protection. How can true socialists accept such blatant social discrimination?

In the same day we had the admittance by Maltapost foreign operators that they were caught out over the Christmas mail and that the backlog was finally cleared in the first week of January. This declaration by Maltapost NZ part-owners and managers is an insult to our intelligence. The long list of excuses that mailing patterns have changed this Christmas and that Christmas mail arrived late from overseas are nothing but excuses. If anything Christmas mail is reducing given the electronic means which many are shifting over to express their greetings. How Maltapost could be caught out just shows the incompetence with which Maltapost is being managed by operators who were given the freedom to abuse their monopoly to cut the quality level of their service thus saving on cost and making space for charging their management fees.

Whoever operated the postal service in
Malta had managed to come to terms with all changing client patterns over the years and ensured that Christmas mail was delivered by Christmas, earning the employees a deserved rest between Christmas and the new year. Blaming the leave given to employees in the week after Christmas for the delay in delivery of Christmas mail is really scraping the barrel of excuses. Maltapost’s two-year management agreement was signed in February 2002 and given the general outcry by the public for the deterioration of the postal service, the government would do well to unwind the pitiful deal it made with the NZ operators.

In the same week another hotel has closed down and discharged its employees taking to six the number of hotels which announced closure in recent months. Furthermore, it was announced that Corinthia are on the point of selling
Mistra Village which will be converted by the new owners into a residential complex. Clearly, tourism has not grown and the inefficient operators are being forced out of business with projects having to be re-shaped for the only thing which seems to be going strong – residential property development. With bad news streamed in such quick succession, with unemployment reaching levels not seen since the 1980s recession, it is hardly surprising that people are getting frustrated at the evident inability of our leaders to come up with any solutions for our problems except for the pious hope that magic will somehow strike us on 1 May. The opposition seems intent on raising awareness of our economic state of deprivation by organising street protests. This is all well and good in a democracy but hardly contributes to getting a millimeter nearer to any solution.

I tried to get some consolation from public finance statistics hoping that at least the pain of the citizens is reflecting itself by some improvement in State finances. But no. November 2003 public finance statistics still indicate that failing figure fudging for the month of December 2003 the public deficit for 2003 will be significantly in excess of that predicted in the November budget speech.

But such figure fudging seems to be well on its way. For years since the FSS system was introduced in 1997 I made it a habit to charge all my income at the maximum rate and then await a tax refund in December of the following year, a sort of forced saving which would be released just before Christmas. This year the refund for basic 2002 which normally should have arrived last month has still not turned up.

My enquiring through CIR indicates that the refund due to me has not been issued although interest for the overdue payment has been added to my account. When I asked why it has not been issued I was given that sort of look which said I should not ask such embarrassing questions, leaving me only to conclude that refunds due in 2003 were delayed not to exacerbate the deteriorating budget deficit and will now be issued in 2004 forcing the Exchequer to pay interest for the poor management of public finance. Have you heard the rumour that in
Hungary they are forcing the Budget Minister to resign, to take responsibility for losing control over the public deficit?


Friday, 9 January 2004

Time - my Best Friend

The Times of Malta 

Following my exit from formal politics, I lowered my profile and reduced substantially my media exposure. I had intended to keep it that way but circumstances force me to make an exception. On December18, 2003, Eurostat published revised figures of the GDP per capita of acceding countries to the EU following the uniform introduction in all acceding states of ESA95, being the international standards for compilation of such statistics.

Malta's GDP in Purchasing Power Parity units (PPS), using such ESA95 standard, came out at 71 per cent of EU15 GDP average in 1999, sliding down to 69 per cent in 2002. This compares to 67 per cent of Slovenia in 1999, increasing to 69 per cent in 2002. Cyprus is way ahead of the pack at 74 per cent of the EU GDP average in 1999, increasing to 76 per cent in 2002.

Such cold statistics could be quite meaningless if one does not understand their implications and consequences.

Objective One funding is only available to countries or regions with a GDP measured in PPS using ESA95 standards at less than 75 per cent of the GDP average. This would mean that come next EU budget negotiations for the period 2007-2013, Malta will go over the 75 per cent threshold which will be calculated on the basis of EU 25 and on current arrangements we will not qualify as a country region to Objective One funding.

I had made this argument in a series of contributions I had published in The Times in April/May 2001. What sparked off these contributions was MIC's assertion that on the then available data, Malta's GDP was 52 per cent of the EU 15 average and, therefore, we would qualify for Objective One funding for a long period of time, being well below the 75 per cent threshold. Funding was depicted as the most forceful reason why Malta should join the EU in membership.

In my contributions, I had warned that our statistics were drawn up on outdated methodology and that when we will re-state our statistics using modern standards we will come very close to the EU average.

Quoting specifically from articles titled "MI(C)srepresentation" (April 4 and 5, 2001), I had argued: "What this means in practice is that the figure of 52 per cent of GDP average being widely banded about by EU enthusiasts to support their claim for EU funding upon accession will not stand up when it matters. When, sooner or later, our statistical methods are updated to Eurostat standards for consistent conversion of the nominal GDP in Euro into GDP in PPS units, which is used to establish our GDP as an average of the whole EU, the figure will look very different.

"When Malta will eventually bring its statistical standards in line with Eurostat's standard for PPS measurement, the conversion factor should be more or less that of Slovenia which is on parity with us on nominal GDP/ capita.

"If this conversion factor is applied to Malta's GDP for 1999 our EU average would be 72 per cent, on the same level with Slovenia. And if this measure is extended as a measure of the EU average not purely on the present 15 members but on the average of an enlarged EU, including the 10 east European candidates (Malta and Cyprus are too small to make any statistical difference), our GDP would be 82 per cent of the enlarged EU average.

"This is way out of the 75 per cent criterion for Objective One funding. Furthermore, one has to be realistic and take account of the probability that an enlarged EU which Malta would eventually be offered to join would have much greater demands for regional funding. To fit within budgets the criterion for accessing Objective One funding could well be reduced from the present 75 per cent level when the budget beyond 2006 gets negotiated."

I had strongly criticised MIC for making assertions without making sufficient caution warnings on the inadequacy of our statistical regime - a caution specifically made in the Eurostat publications on which MIC were basing their assertions.

Specifically, Eurostat had warned that: "Malta however is using a dated system established in 1954 with some elements of SNA 1968. The statistics in this publication should therefore be interpreted with an appropriate level of caution - full comparability with EU states cannot yet be guaranteed".

My warnings had given rise to wild reactions from MIC, (then) Minister Josef Bonnici and from the prime minister himself. MIC had accused me of persecution and Prof. Bonnici had argued that I am exposing a wish for Malta to be denied the EU funding due to it (still unanswered -The Times, May 14, 2001).

Both had argued that when our statistical methods are updated, no major changes from the 52 per cent of EU average should be expected. MIC had said specifically (The Times, April 6, 2001): "Once Malta's conversion to ESA is complete, there are no dramatic changes, whether downwards or upwards, that can be expected to its GDP statistics and certainly no changes that will effect Malta's eligibility for EU funding as an Objective One region".

I had retorted that "Perhaps we should let time to unfold and be the best judge. Let's leave the final say to the test of time. Let's become EU members if we so collectively decide. But let's not allow such decision be taken on the basis of half truths and untruths about funding bonanza".

Time has now spoken. It is my best friend. It is an unerring judge as to who makes objective analysis and who just interprets data whichever way it suits him.

And lest I be misunderstood, I repeat what I had written in The Times on May 29, 2001 (What funding?): "For all the reasons that can be brought forward as to why we should join the EU, funding ought not be one of them. Which is not the same as saying that the argument should stop there".

Deliverable No 2 - Massive retraining

The Malta Independent 

“Funding a massive training and re-training mechanism to render our employees multi-skilled and employable as technology continues to kill old jobs and create new ones.“

This is very much linked to deliverable No 1 treated last week which dealt with re-balancing the rights and obligations of employees across the whole public/private employment spectrum.

Inevitably, if this exercise is done properly, indeed if restructuring has to go beyond funding of early retirement schemes, we have to go through a phase where people have to be displaced out of their unproductive jobs. The challenge is to create more job opportunities in the productive sector than the number of jobs that are being displaced.

This is indeed a continuous exercise but having neglected it for so long a new major impetus is needed. Training has to be both technical as well as moral. May be it should start with the moral.

The concept of job for life is out-dated. What counts in today’s fast changing world is life-long employability and this can only come about through continuous training. Learning has to be life-long and skills are the best form of employment potential. Indeed an employee has to be multi-skilled to safeguard against being rendered unemployable through technological obsolescence.

The responsibility of the State towards the individual is not therefore to provide cushy jobs for life in the public sector where tax-payers money is wasted in inefficiency and accommodative bureaucracy. It is to provide effective education in formative stage towards adulthood both in technical and professional competences and to provide a continuous framework were such skills could be added to, enhanced or up-dated throughout the on-going stages of one’s career. This could include obligations on employers to provide minimum training standards for their employees or to fund training programmes for employees when they become redundant.

To make up for the accumulated backlog of such on-going retraining needs we have to fund extensive retraining programmes to be organised in joint-venture with the private sector, to endow surplus labour resources in the public sector with the necessary skills to enable them to find employment in the private sector. But this transition is only possible if the deliverable No.1 , i.e. the re-balancing of the rights and obligations of public/private sector employees is first accomplished. Otherwise exhortation to the several thousand surplus public sector employees to seek private sector employment would be as effective as flogging a dead horse.

Obviously to oil the transition, incentives have to be included. And these incentives have to make it possible to price such surplus employees into market acceptability in private sector productive jobs without causing them undue hardship. On the contrary employees need to be rewarded for taking the plunge.

The public sector should therefore offer to refund 50% of the cost to employers who take on such retrained employees at their current wage level plus 20% on a descending basis until the incentive is phased out over a period of say five years. Under such a system private sector employers would be incentivised to take on such re-trained employees as they cost 60% of the current cost to the public sector; employees would gain 20% premium as a reward for the move, while the public sector would save 40% of the current wage level and phase out the 60% cost over a period of five years. Furthermore the overall economy would benefit from an impetus in production as idle resources are applied productively thus expanding the taxable base and generating sustainable productive economic growth.

This would be a win:win situation. Many who take the plunge will eventually experience their true worth and earning potential is much more developed working in private sector environment than it could ever be within stifling public sector bureaucracy.

Some may argue that I am over-simplifying the issue. May be I am. But complicated things never work out and often crash land before any real take off. Let’s take-off by accepting the principle that we need to invest massively in the re-training of our idle resources and we can solve the detail on the way if we gaint commitment to the principle that the best guarantee of a productive job is a high level of skill base.


Friday, 2 January 2004

Deliverable No 1 - rebalancing rights and obligations between public and private sector workers

The Malta Independent 

In my last contribution for the year 2003 I had given 10 bullet points deliverables which we should as a country aim for through a joint co-ordinated effort, which many may wish to refer to as `social pact`, to redeem the country from the economic stress which it is getting deeper into.

We have made progress in getting consensus on the existence of the problems and on the awareness of the consequences that await us if we continue with our policy of economic neglect, but unfortunately we have made very little progress, if any, in actually devising an action programme with clear deliverables. We seem all waiting for the others to carry the burden of economic redemption or expecting magic solutions which would befall us on 1st May 2004 as we spend the money saved from Xmas parties to mark our accession to EU membership with all the discipline this should theoretically involve.

In suggesting 10 point solutions I risk being branded as armchair critic. Well, there is a role for armchair critics in trying to throw some light in areas of economic darkness and I feel it is the duty or arm-chair critics not only to criticise, which is always easy, but also to point the direction for possible solutions. With this in mind I mean to elaborate on each and every deliverable I identified in a series which starts today with the first bullet point:

`Rebalancing the rights and obligations of workers across the whole economic spectrum facilitating the mobility from public to private sector employment.`

This is my no.1 deliverable with a reason. It is the major source of the economic malaise which has constrained us to content ourselves with anaemic growth based on unsustainable consumption when we should be enjoying galloping growth based on production and investment.

If we continue to avoid addressing this main problem source we can never find a true solution. We should not continue to emulate the fool who lost money in Zachary Street and went to look for it in Republic Street simply because it is lit better. If the problem is excessive unproductive expenditure caused by surplus labour resources within the public sector it is useless seeking solutions based on increased tax impact which suffocates the economy and draws out the blood which is needed to energise it.

For as long as we tolerate an atrocious social injustice, where public sector employees enjoy maximum protection for giving a so and so service free from commercial competitive pressures and enjoying conditions of employment superior to private sector employees who have to earn their living and secure their job day in day out through producing in multiples of what they are paid, then we continue to feed the system to the point of self-destruction. People will continue to abuse the weakness of their vote-sensitive politicians to join the public sector gravy train which is funded by over-taxing the real wealth creators in the private sector, and by amassing more and more public debt.

For as long as we continue to pay bundles of cash for voluntary early retirement schemes in the public sector, whilst allowing practically no protection against redundancy to brethren dependants in the private sector, we continue not only to tolerate a gross social injustice but actually feed it to grow on itself until it finally explodes us into self-destruction.

So deliverable no. 1 of any social pact has to be an agreement to re-balance the rights of workers across the whole employment sector by increasing the security against redundancy of private sector employees and subjecting public sector employees to similar or comparable discipline and conditions of employment.

Unions whose membership base is only in the public sector would obviously object to this, seeking to preserve their jewels and shift onto others the burden of re-structuring. Thankfully however our two major Union groupings represent workers across a wide employment spectrum, in the private sector as much as in the public sector.` They should understand the fairness of such a deal if they really mean to give substance and not just lip service, to the concept of `social pact`.

This re-balancing of workers rights is the best conduit for drawing idle labour resources out of the public sector, where they cost excessive millions in operating expenditure, and channel them to productive jobs where they can probably earn more for producing much much more.` In the process we would solve the public sector deficit without suffocating taxation measures and make the economy grow at sustainable high rates through better utilisation of resources.

Next week I will deal with deliverable No.2 regarding the need to re-train the labour resources which would be released by deliverable No 1. Meanwhile I wish you all Happy New Year.