Friday, 14 August 2009

Growth Jobs and Social Cohesion

14th August 2009

The Malta Independent - Friday Wisdom

The Pre-Budget Document 2010 issued with this title makes heavy reading during this August lull. Even in the best of productive times the nature of the document, its content, style and presentation is too technical for wide consumption.

It is clearly meant for background setting for more meaningful discussion among social partners at the MCESD. Its timing was designed to ruin the holidays of the economic consultants of the constituent MCESD organisations who have to digest the extensive content over the summer lull to be able to explain it to key executives of their respective organisations before they start making their case in Pre-Budget consultations between the government and the social partners.

Anybody looking for policy choices or specific measures that will feature in the 2010 Budget should not waste their time reading this document. The document is a technical exposition of the current state of affairs of the Maltese economy, a good attempt to benchmark our performance with five other EU states that are roughly at our level of development (Cyprus, Czech Republic, Portugal, Greece and Slovenia) and an explanation of the policy menu from which choices will eventually have to be made to achieve the set objectives.

However for those patient enough to comb through the document there emerge some clear facts which should spark a more serious attempt to tackle the basic defects of our economy. Put in simple layman’s speak why is it that in spite of our relatively low wages and competitive efficiency rates we are lagging behind the growth record of peer countries like Cyprus? Why should Cyprus with lower relative labour productivity have a per capita GDP 92.5 per cent of the EU average compared to our 76.4 per cent? In basic terms, why is Cyprus’ growth potential better than ours?

Obviously these are complicated issues which do not merit simple answers. But unless we keep it simple we would lose the greater part of the audience. So at the expense of some over-simplification I point to two clear specific reasons why this is happening.

Firstly our activity rate (the ratio of people of working age who are actually working or seeking employment) is 58.8 per cent compared to 73.6 per cent in Cyprus. This low activity rate clearly limits the growth potential of our economy. In spoon feeding terms if more people are engaged in productive work we would produce more on a national basis.

Secondly, while we produce more graduates than Cyprus on a relative basis, when it comes to Educational Attainment (encompassing post secondary education in general and not simply at university level) we are the lowest in EU and a far cry from Cyprus. Our 27 per cent of the population in the 25-64 age group that has upper secondary education or higher, compares poorly to the EU average of 70.8 per cent and Cyprus’s 73.6 per cent.

At the expense of over-simplification I prefer to focus on these two major reasons why our growth potential is being hampered so that rather than moving towards the EU average of GDP per capita we are being overtaken by other countries particularly by Slovenia in the year 2001 and Czech Republic in 2006.

And also at the risk of over-simplification I would conjecture that the major reason why the activity rate has remained low in spite of various attempts to lure females back to work after motherhood, attempts which have recently included fiscal incentives, is largely related to the lack of availability of child care centres with facilities and schedules which would permit minimal inconvenience for the children and offer peace of mind to mothers at work.

Should the government offer child care facilities as a social service or should the government act simply as a facilitator promoting investments in such child care facilities by the private sector through fiscal incentives? Should our schools start offering child minding facilities with extra-curricular activities after normal school hours so that parents can pick their children from school after work rather than having to disrupt their work schedule to be home early afternoon? Should our schools start offering a summer schedule to keep our students engaged in extra-curricular activity in the holiday seasons?

Can we find out what Cyprus are doing to achieve such a high activity rate and why our efforts in this regard have so far failed?

Regarding educational attainment it is an area where I thread to offer any solutions. My knowledge of the sector is superficial. Yet the results are clear. Those who make it to university make us proud. But for the rest, i.e. the large majority, we are losing too many by the wayside. We are simply having too many rejects and failures of students who do not go beyond secondary level of education.

I am a firm believer in vocational training. I am a dedicated disciple of those who feel that they can mix work with vocational study as our banking and insurance sectors have been doing for decades. Those who do not make it to university, or who do not like the university feeling, must be offered full time or part time vocational training. We have started doing something but clearly it is not enough. We have to do more, we have to offer more choices for vocational disciplines and we must somehow make it attractive for students not to give up their formal education at age 16.

If we pick up these two messages from the Pre-Budget Document 2010 we would be going some way towards generating growth, jobs and social cohesion on a sustainable basis for the longer term.

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