Friday, 27 February 2009

Real Restructuring

27th February 2009

The Malta Independent - Friday Wisdom

President Obama has his new work really cut for him. For some time he can blame the inherited crisis on his predecessor and consequently has no motivation to play down the seriousness of the economic downturn and the herculean task required to turn the economy around both by throwing at it substantial fiscal resources but especially by re-injecting the confidence which evaporated with the collapse of Lehman brothers last September.

At the same time he has to infuse confidence about his ability to keep US budget in reasonable shape, in fact cutting down on the size of the inherited deficit. He must also maintain consumer spending going at a time when in reality addressing past excesses needs higher savings to reduce dangerous reliance on foreigners to finance US consumption.

This seems like a task to square a circle and needs intervention by a miracle worker who can restructure the biggest economy in the world and take it to a higher level. Yes even the largest and most efficient economy in the world needs serious restructuring and in his first “State of the Union” address to a joint session of the Congress this week Obama identified the three main areas which will be the pillars of such restructuring: Energy and Environment, Health Care and Education.

Applying this to our own circumstances, while we are thankfully not suffering the sort of disequilibria which have eroded the strong financial base of the US economy, we also should be galvanised by the challenges of a serious recession in order to restructure. And the same three pillars of Energy and Environment, Health Care and Education should form the main thrust of our restructuring as they are the three areas where we are expending too many resources without gaining a commensurate return.

Let me start with Energy and Environment. Hopefully the saga regarding the utility tariffs will be sorted soon enough and put behind us so that we can focus on a future tariff mechanism flexible enough to reflect with promptness international price fluctuations but with some stabilisers to

cushion out extreme price volatility. What we should try to avoid at all costs is that in an environment of unsustainably low energy prices (which comes after a period of unsustainably high energy prices so underlining the need for a stabilising mechanism to cushion price extremes at both ends) tariffs get cut low enough to stall in their tracks investment initiatives by households and industries for energy conservation and for production from alternative renewable sources.

We must proceed with imposition of standards on new buildings to conserve energy and must widen budget proposals for investments by household and industry to make them widely available without having to queue up in third world country style.

Health Care must be rendered financially sustainable. Presently it is not, and denial can only serve short-term political red faces but will do nothing to ensure that this country can have a universally available health services we can remain proud of. Ageing and exploding health care costs (especially as new remedies become available), will force demand and affordable supply to get seriously out of line, leading to falling standards and longer waiting time for non-life threatening interventions. Many will be forced to expensive private health schemes as they become unwilling to leave their family’s health reliant on progressively inefficient public health services. This will lead to great waste with people paying twice for their health cover, directly for their private schemes, and indirectly through general taxation for the public schemes.

We must gradually move to a system for rendering public health services available on a commercial basis in competition to private health services (competition remains the best source of efficiency). To ensure that no one is denied basic health services a compulsory national health insurance scheme will be introduced with opt-outs for those who prefer paying their own private scheme.

Those, who following well researched means testing, prove as unable to afford the compulsory scheme will be socially assisted to pay the premium. The government will thus save on its exploding recurrent health care costs and channel part of these savings to socially assisted cases on the basis that social services should be available only to those who really need them. Those who need not be socially assisted should be rewarded through tax cuts which government would be able to afford if it saves millions on the waste of recurring health costs.

Finally in Education there must be a shift of emphasis from first line education (being education to children and youth before entering the job market) to continuing education (being educational available to those already in jobs but wishing to enhance their knowledge and employability). We must seriously question whether we are getting real value for the huge recurring expenditure, including stipends to students in the tertiary sector, in the current system of education and whether better value can be extracted from applying the same, and possibly even less resources, to encourage more after-work vocational training.

I much favour the latter for four reasons. Firstly it is more efficient in keep human resources adequately re-trained in a rapidly changing world as against the present system where first degrees are often out-dated by emerging events even before the graduation ceremony. Secondly it gives a fair chance to those who discover their education vocation a bit later in life then the normal progression from secondary to tertiary education. Thirdly it extends education to more mature age where education can be better appreciated and can be reconciled to life experiences that are gained at work and in the family. But more than anything I prefer it because it would permit us to channel education funds to real education rather than mere stipends and we will encourage and reward continuing education through tax breaks rather than outright grants.

Real restructuring must involve our taking a serious fresh look at our policies in Energy, Health Care and Education.


No comments:

Post a Comment