Thursday, 13 November 2008

Looking into the 50 year future Mirror of Economics

13th November 2008

The Times of Malta
BPC Future Pointers to celebrate their 50th anniversary

Economists are generally better at explaining why yesterday’s prediction about today did not get realized than in making accurate forecasts about tomorrow. That is a health warning readers would do well to bear in mind.

And whilst in the investment world we generally attach a health warning that past performance is no guarantee to future results in futurology past performance is a good guide for indicating at least the extent of changes to be expected.

So let me start by giving a glance back to where we have come from over the last fifty years. Our economy then was totally dependent on the spending of the military base which oscillated according to the needs of a disintegrating British Empire. As the colonial masters were economising on their military spend, economic activity was getting progressively insufficient for offering employment opportunities to the growing population. Emigration was the safety valve to keep economic resources in balance.

If I were writing this piece 50 years ago would I have been able to predict that mass emigration would in fact reverse and nowadays we have generated a high degree of economic activity, totally unrelated to any military spending by a foreign power, to offer not only full employment for all able bodied who wish to work, but also offer employment to foreign nationals who come to work here, some legally and quite a few even illegally? It would have taken a brave man to make such a forecast.

What has contributed to this stratospheric change where more development has occurred in the last 50 years than in all previous millennia of civilisation on this island combined? Without any doubt it is the people’s will to invest in their own country. Their belief that irrespective of doubts that could have emerged from research studies about the sustainability of a micro state in a globalised economy, local investors believed that this is a place where they can do business and where foreign investors would be attracted to do business ranging from manufacturing to tourism, from financial services to real estate development, from logistical distribution to internet gaming, from ICT to back office operations.

So let it be clear that I am positive about Malta’s economic potential for the short and for the long term. We have overcome great challenges over the last 50 years and we will do it again for the future whatever it may bring.

Even on a global basis I am confident that none of the endoftheworld scenarios will materialise. We will not have an ‘end of oil’ disaster or a crippling environmental wreck. Humans have adjusted to all challenges and market forces will ensure that if oil gets short its high price will be the source of innovation for viable alternatives which over fifty years could possibly make fossil fuels irrelevant and in the process addressing the problem of carbon dioxide induced global warming. The only thing which is bigger than man’s ability to invent is Mother Nature’s and market forces’ ability to correct our excesses leading to long term sustainability. Mother Nature and market forces are bigger than us and as in the past they will step in to save us from ourselves by forcing upon us painful but temporary corrective measures along the way.

What will this place look like in the year 2058 depends mostly on us. But who will be the ‘us’ of 2058?

There is every likelihood that we would be a much more mixed population where the traditional Maltese race (there is no pure Maltese race as we are ourselves a result of mix of the various civilisations of our ancestors) will be sprinkled with a high percentage of new Maltese nationals with foreign blood in their veins be they African immigrants or European nationals opting to domicile themselves in what is to me one of the most comfortable places to live on this earth.

This dilution to our traditional composition will be a severe threat to the only factor which has so far distinguished us amongst all people of the world i.e. our language. As we continue to make investments to protect our physical heritage, which is itself a great economic asset that generates substantial economic activity mostly through tourism, we have to be very vigilant to protect the soft heritage of our national language by keeping it a crucial part of our curriculum and by promoting its continued usage in everyday life.

Another probable feature of the ‘us’ of 2058 is that we will be much older on average mostly as a result of extension of life into triple digits years. Aubrey de Grey, a biogerontologist at Cambridge University maintains that the first person who will live forever is probably already alive. Such predictions may be mere fantasy but de Grey firmly asserts that the laws of probabilities indicate that medical breakthroughs in discovering the composition of our genes will in the next decades put humans in an ability to slow, stall or even reverse the aging process of the human body.

Irrespective of whether de Grey is a day dreamer or not, there is no doubt that longevity is an accelerating reality. We have extended average longevity by some twenty years over the last fifty years and probably can do better than that in the next fifty.

This will have grave economic consequences and will change the way we live in a manner that is presently unimaginable. Very probably the present concept of retiring on pension will gradually disappear. Longevity will make current pension arrangements unsustainable or irrelevant in quantum terms thus forcing people to continue working indefinitely for as long as their health permits. As work will be much more brain intensive requiring little or no physical effort and offering flexibility on the location where employee services have to be imparted (most employees will be able to work from their own home without having to attend the office regularly) working until death could well be the norm fifty years down the road. It will not be punitive. It may well be fun and the only way to keep up a comfortable lifestyle for forty or fifty years beyond current retirement age.

An average life in triple digits will bring a metamorphosis of change in the lifestyle of all age groups. Youth will be extended well in the thirties so it is quite probable that ‘youngsters’ will settle into marriage much later in life than is the current practice so that parenthood in the forties could well become the norm.

Enjoying a much longer youth will generate explosive demand for the things that youths normally consume with particular emphasis on entertainment, travel, personal hygiene and fashion clothing. Brand building will continue to be paramount given youth’s preference for recognition through brands.

Reaching parenthood beyond age forty will obviously mean that families will continue to get smaller with one child becoming the rule and two children more and more the exception. This will help to keep population in check at current levels as the extension in longevity will be compensated by slower inputs from reduced births. This will make currently frowned upon immigration an economic necessity in order to have the enough labour resources for the jobs needed to sustain the high economic development necessary to sustain our standard of living aspirations.

What is not clear is from where the immigrants would be coming from. I expect that Africa will undergo a huge economic revolution in the next fifty years. It is ripe for development, rich as it is in natural resources in a world which is continually demanding more and more from nature. If this were to happen the flow of African immigration could stop or indeed reverse as has been the experience with immigration from Eastern European countries since they were integrated into the EU. Could it be that our guest workers of 2058, rather that economic immigrants seeking to avoid war and hunger in their native country, would be lifestyle immigrants who seek a better life in a small Mediterranean island rather than in a sombre and soulless European metropolis?

Smaller families demand smaller homes and the current trend of switching from villas to apartments will continue unabated and the 90 sq metre apartment will become the norm as property prices and environmental need to control urban sprawl will force our successors to continue to develop vertically. So whilst the sector could presently be undergoing a plateau of no growth or outright retraction, caused by overdevelopment leading to temporary oversupply, the long term trend for higher real estate values remains intact.

How would we be earning our living fifty years hence? If we have to remain competitive and sustain an ever improving living standard we have to continue moving up the technology scale performing brain intensive, high value added activities. Consequently I would say that manufacturing would be largely wiped out and instead we would be competitive in research and development activities supporting manufacturing which would be generally executed in Africa which would be the cheapest location and close to availability of raw materials.

Our strategic location will make our logistics services very competitive and very much in demand where our Freeport services will continue to grow with additional services which will encompass most of the southern harbour extending beyond B’Bugia into Marsaxlokk and Marsaskala.

Tourism and leisure services will remain our mainstay. It will be different tourism though. If we invest wisely in the MALTA brand without expecting instant results but consistently building our long term image we could become an all year round location. Cruise tourism will become much more important forcing us to extend the whole Grand and Marsamxett harbours to support cruise liner visits. The development of populous Asia will create a much higher flow of Chinese, Indian, and what have you Asian tourists to visit the old continent and quite a few of them will tour the Mediterranean via a cruise holiday. Our objective should remain that of acting as head station for the cruise line operators making it easier for cruise passengers to extend their stay amongst us before or after the cruise.

To achieve our tourist potential we will need much more quality accommodation which becomes economically feasible given the all year nature of the tourism we will be attracting. I think we will see outer Valletta and Floriana as particularly suitable for the next concentration of quality hotels given the superb scenery they get over our two city harbours. Boutique hotels in Valletta and the three cities will also flourish mainly owner managed by members of the owner family.

ICT and financial services will replace manufacturing and government services as the other two main pillars of our economy. Our ability to tap into niches by adapting flexibly to the needs of international investors will give us the momentum to attract big names in the ICT and financial world to do international business from our island especially as we can act as their base for penetrating the growing African economies.

Education will develop into an important industry on its own even serving international clientele. We will extend our success in the teaching of English to other areas. Lifelong working needs continuous retraining to ensure workers keep abreast of wave after wave of technological development which will continue to hit us more frequently with shorter intervals.

What are the risks to this scenario? Being an optimist I see the risks as unavoidable hiccups to overcome on the 50 year journey but which will not deflect the general trend towards a prosperous destination. Certainly there will be geopolitical problems and threats of terrorism but I fell that economic interdependence will make it unlikely that the world could see major international hostilities as experienced in the troubled first half of the 20th century.

I see that Russia, squeezed as it is by the USA on one side and a more powerful and assertive China on the other side, and extremely dependent as it is on energy exports which render it gravely exposed to technological breakthroughs for energy alternatives, will gradually realize that its future is better served by integration within the European dream which will thus extend to Urals and beyond, integrating all former soviet republics and Balkan countries right up the Turkish borders of Iraq into a much looser EU where members will have flexibility to opt in and out of certain arrangements outside the basic compulsiveness of the single market.

The world will be multipolar with the US , Europe and China sharing world political power and vying for influence in the African continent which will become the basic theme of the 21st century. The time for Africa has come and the impetus will start from the FIFA World Cup in South Africa in 2010 which will be followed up by hosting of other international mass exposure activities in the following decades.

India could also be tempted to export their influence westwards to establish their influence in a Middle East which will however be void of the strategic importance it currently has if it loses its oil export dominance.

So many things could change over 50 years. I would probably not need to tap this onto my PC if I were to live till then. We will probably have computers that can read the mind and robots that can run our households. But one thing will not change. The need to eat drink and enjoy leisure will remain. So let’s take the next fifty years day by day with a good meal, a fine glass of wine and enjoyment all the way.



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