Tuesday, 16 October 2012

Where is the strategy?

In the cacophony of the on-going unofficial election campaign everything becomes tactical.


Everything gets measured in terms of the impact on voters' psychology and ultimately how many votes such measures are going to gain or lose. The long term strategy is discarded by the way side and sacrificed to the political necessity of the here and now rather than the strategic gains for a sustainable future.

 This is the frame I put around two measures which government announced this last week. I am referring to the agreement to rent with option to buy St Philip's Hospital and the Collective Agreement signed for public sector employees covering the 6 years from expiry of the last one in 2010 and which government has boasted would cost an additional Euro 190 million to finance.

Tactically these measures may make political sense although in case of the St Philip's issue government has probably under-estimated the grave risk of reputational damage given that this looks very much like a back-scratching arrangement among friends.

But where do such measures fit within the strategy? And ominously I would ask is there a strategy?   Has there ever been one?

There should be a strategy within which both measures should fit. But if the strategy is what I think it should be these measures go diametrically against the strategic objectives we should be aiming for.

In health service we should be aiming for more active private sector participation in provisioning of health services so that the patient will have more competitive choice. We should be moving to launching a national health insurance scheme where everyone has to be covered with at least a minimum basic cover and where the premium is to be paid on a commercial basis,  except that the premium paid should be tax deductible against income and those who do not pay taxes should be fully refunded for the portion for which they do not benefit tax credit.

Mater Dei would then be offering commercial services chargeable to the national insurance company or to private insurance if the client opts for private insurance. But the client would have a real choice between public and private hospitals and Mater Dei will receive an efficiency boost of good management as it will have to operate like a commercial firm safeguarding its cost base and protecting its revenues.

The acquisition by government of St Philip's moves completely in the opposite direction. Rather than creating space for private sector health services we are extending the public sector into operations which were within the private sector domain. In the meantime those who opt for private sector health services are more and more dependent on a single institution as another private supplier gets wiped off the board.

The same applies for public sector collective agreement. This country needs to incentivise public sector employees to seek better and more productive fortunes in the private sector where we can get more value added per employee with which to grow our GDP to support our national debt and our social security systems.

The strategy should therefore be to make public sector employment less attractive compared to private sector employment.

Public sector employees have security of tenure that private sector employees cannot even imagine and this security should be reflected in lower remuneration packages and inferior conditions of employment.

Yet public sector employees are regaled on election eve with a 6 year agreement with guaranteed annual increases over and above the normal increases within their scale, they are awarded more flexibility to work shorter hours, and they are allowed to enjoy their summer half days which are practically unheard of in the private sector. And this in spite of all government offices being air-conditioned.

And most of the public sector continues to operate without any performance metrics where the lazy can take easy cover behind those who perform a full day's work and this without risk of retribution and certainly without risk of job loss or dismissal.

Where is the strategy? As normally happens on election eve it has gone with the wind, if it was ever there.



  1. An Alternative Viewpoint20 October 2012 at 01:36

    As a public officer I will not comment unduly on the remarks or rather cliche' that public sector employees are necessarily lazy, inefficient, an unnecessary drain on scarce resources. I can only say that it hurts hearing such remarks (even if from someone whose views I respect) when I consider the work me and my colleagues do in good faith, to the best of our abilities often at a personal cost for the benefit of this country … most of which goes unnoticed. But probably you'll assume that I am biased anyway.
    But apart from my personal feelings let me comment on the following assertion by Mr Mifsud:
    “This country needs to incentivise public sector employees to seek better and more productive fortunes in the private sector where we can get more value added per employee with which to grow our GDP to support our national debt and our social security systems…. The strategy should therefore be to make public sector employment less attractive compared to private sector employment.”
    I think this false idea that the public sector is less efficient than the private sector is to say the least never been proven, neither empirically nor theoretically! Furthermore as an economist, particularly may I hazard to say a rather "liberal" economist Mr. Mifsud should know better than repeating the false assumption that free markets are always efficient. This is what is implied when it is claimed that the private sector is always necessarily more efficient than the public sector.
    Mr. Mifsud knows as well as I do that efficient markets often require strong governments (I mean government in a general sense). The private sector can hardly be as efficient as the public sector when markets fail... at least that's what economics 101 teaches us! Modern economic growth theories clearly demonstrate that long term economic growth depends on strong institutions to safeguard property rights and the rule of law, provision of essential public goods such as education which free markets will tend to under-provide, infrastructure investment which private sector will never undertake to the optimal level due to the presence of externalities, an effective regulatory framework which ensures that markets really operate freely etc . Just look at what the Scandinavian economies achieved because they recognized this.
    Just look at Malta’s long term economic challenges: ageing, educational develoment, innovation, environment protection, investment, health services, strong judicial system, industrial and economic development. Can anyone sincerely assert that the private sector can provide all these more efficiently and to the desired extent as the public sector can do? Does anyone sicerely think that these challenges can be adressed without a strong public service?
    I think this dangerous notion that efficiency requires a weak government has unfortunately gripped the political divide in Malta and I am surprised that Mr. Mifsud is not realizing the danger of this unfortunate convergence of ideas among Malta’s main political parties. I can understand the reaction against excessive government intervention of the seventies and eighties on a global scale … but the Washington consensus has gone overboard on the other side now . One thing we should learn from this crisis after all is that weak governments are at least as dangerous as excessive government intervention.
    I venture to say, not to veer too much from Mr Mifsud’s article, that an efficient public sector is part of a strong government. The technical complexity of tasks and the responsibilities facing public administration in today’s world (particularly following Malta’s EU/EA membership and the increasing demands such membership imposes on public officials especially following structures erected after the great recession) uncompetitive wages in the public sector can have an un-measurable economic cost in the long term as the sector is drained of competent human resources.

  2. May I say how much I appreciated your comment and how much I find myself substantially in agreement with the principles you make, especially on the need to keep a strong regulatory role for government to ensure that private operators are kept within boundaries that do not harm society at large.

    But there is a difference between having a strong public sector with capable people to discharge the government planning and regulatory duties and other functions that can never be privatised, especially defence and law enforcement, and keeping the present lack of accountability, undue security of tenure, and more favourable conditons of public sector employment when compared to private sector.

    It offends my social conscience when I see private sector employees being made redundant without much protection and public sector employees being offered alternative jobs for which they are unsuited or paid bundles to go on early retirement.

    It hurts my consicence when I see public sector employees, especially the political appointees, enjoying perks and benefits which are even excessive by private sector standards. It hurts my conscience seeing public sector employees work schedule fixed by their wishes or past legacies rather than the needs of the public in the 21st century.

    So yes let's agree we need a strong and well paid public sector for government to perform properly but if we do get that we need much less population of employees in the public sector so that resources can be released for productive private sector employment.

  3. An alternative viewpoint20 October 2012 at 11:56

    I feel this is a more balanced view. Unfortunately it would not be opportune for me to comment further on this for obvious reasons. From a political point of view I think it is our duty to this society to remind the political class that an efficient economy does not come in cheap whilst an inefficient economy undermines fiscal sustainability.

    What I am not sure about is the extent to which we can reduce the scale of government without negatively affecting our development potential. The last thirty years have been under an administration which claims to be in favour of a smaller government, in line with a more conservative ideology. The opposition appears to share this view as well. And indeed the headcount in the public sector did go down. But the size of government in terms of expenditure has not gone down ... at least that is what the statistics indicate. And I don't think this can largely or entirely be attributable to inefficiencies (a study of this phenomenon is probably warranted here). And this is not happening only in Malta.

    The impact of ageing on the welfare state and the cost of the health services is what I have in mind here. The health sector in particular is worth studying on its own with costs of health service provision and medicines clearly rising beyond the potential growth of our economy suggesting another time bomb possibly worse than that of pensions.

    This is what our political class should be debating because the welfare of our society depends crucially on how such challenges are going to be adressed. Economic efficiency is part of the answer but I suspect it will not be enough. Simply look at the rise in international prices of pharmaceuticals and the market dominance and you immediately realise that economic growth may not be enough.