Who Wants to Live Forever

10^th March 2006

The Malta Independent - Friday Wisdom

This is not about Queen or Sarah Brightman. It is about a question which, in the 1994 Miss America competition, was asked to the Miss Alabama contestant who gave a convoluted answer that has become a quotable quote:

“I would not live forever, because we should not live forever, because if we were supposed to live forever, then we would live forever, but we cannot live forever, which is why I would not live forever.”

There are some who firmly believe that one day, science will be able to advance enough to extend human life to infinity and people regularly sign up for the services of an Arizona-based company for their body to be cryonically frozen upon death, so as to preserve it for when the life extension technology becomes available.

Aubrey de Grey, a bio-gerontologist at Cambridge University maintains that the first person who will live forever is probably already alive. Such predictions are dismissed by many scientists as mere fantasy. Yet, our longevity is a reality and that it is accelerating is widely accepted. So much so that retirement age is being extended in most countries and a famous British economist, Samuel Britain, argues that the retirement age should be indexed to longevity to keep our pension system sustainable.

Isn’t it funny? While longevity is putting pension systems, especially those with defined benefits, under severe financial stress, if living forever were to become possible we would solve the pension issue in the simplest of manners. Everlasting life would mean that pensions would become irrelevant as we will never retire. Nobody would need to save for retirement.

Can you imagine the social consequences of substantial life extension, perhaps into infinity? Would humans continue to reproduce if they can live forever? What about marriage? Even the “anti-divorcists” may feel uncomfortable to share an interminable life with the same partner. They had promised till death do us part when they calculated 50 at most 60 years of marriage. Can they be held up to their promise for 500 or 600 years?

And how would eternal life on earth square up with religious beliefs that promise eternal life after death? What would happen to moral and social values if people know that they will only be judged by the Creator if they are involved in a bad traffic accident?

How will our attitude to risk change when human life is extended well beyond present expectations, perhaps to infinity? The cost of loss of life through accident would increase exponentially, as such cost is often calculated on the basis of expected lifetime at the time of the accident. If human lifespan increases exponentially, the cost of human life would rise to the point at which people will become very wary of taking any sort of risks. Driving, flying and even merely stepping outside could be considered too risky. Would we be condemned to eternal life watching TV and communicating electronically?

I am pretty sure that if one were to make a survey today and ask people if they really want to live forever, the great majority would unhesitatingly answer no. But if medicine advances enough for people to have a real choice, not just a hypothetical one, hesitations would creep in.

Maybe living forever is unappetising, but a couple of decades more would be interesting or may be a little bit more to see how the grandchildren develop and see them get married. And once at it, one could take a couple of centuries more to see if the democracy will ever take root in the Middle East and to see of the Israel and Palestine will ever learn to co-exist peacefully. Or may be once at it, one could stay a bit longer to see the millennium out. But forever, surely not.

Can you count how many silent Fridays I would have to deal with writing about matters that do not even remotely touch upon the local political scene?

Mixed feeling on pensions

5^th March 2006

The Malta Independent on Sunday

The announcements made by government this week on pension reform left me with mixed feelings.

I felt good that at least after a lot of talk, studies, white papers and other forms of consultations decisions have been taken to reform the current pension system (generally referred to as a first column PAYG – pay as you go – system). This is the first real comprehensive reform of the pension system since 1979, a well overdue exercise, which attempts to make state pensions more affordable and less inadequate.

I felt bad because the chosen tempo for shifting to the new system is too slow and over-cautious, even slower than that included in the final recommendations of the Pensions Working Group which had suggested a rise to the maximum pension-able salary from the present Lm6750 to Lm9000 in 2007 whereas the government has extended this process to 2014 lest it would suffer any political unpopularity.

Those who go on pension in the meantime are facing the prospect of receiving a state pension which at its maximum is nowhere near sufficient to keep the standard of living achieved during their working career; at a time when it is too late for persons in this category to build sufficient savings to generate additional sources of income to top up the state pension.

I felt even worse as the decisions to introduce state sponsored or fiscally assisted supplementary pension funded schemes (generally referred to as second pillar for occupational funded pension schemes and third pillar for personal funded pension schemes) has again been postponed to the future.

The conclusion is therefore that whilst the announced changes to the pension system are good in so far as they go in making the present first pillar more sustainable and less inadequate, they certainly do not go far enough.

Let me explain what I would have expected to pass my test for a real comprehensive review of the pension system.

In think firstly we need to give attention to those over 55 that will not be affected by the proposed changes. Not being affected does not mean that their prospective pension will be rendered any more adequate. Many of these people are facing the prospect of inadequate state pension and unless they have already built supplementary savings they could even face poverty during retirement.

I would expect that this category be offered the option to continue working beyond 61 years without losing entitlement to their state pension at 61 provided they continue to pay social security contributions till age 65 or till they stop working whatever comes first. In addition I would expect this category to be given the facility to enter into annuity type of contract with licensed institutions to generate tax-free revenue streams by selling equity in their residence while continuing to live there if they so desire.

Then I think we have to be more categorical about the introduction of second pillar – occupational pension schemes. The prospect of introducing such schemes on a compulsory basis could act as a disincentive for attracting foreign investment. The government is right in arguing that present economic conditions are not conducive to the introduction of such schemes on a compulsory basis. I would add that economic conditions will probably never be right as such introduction will inevitably dent the competitiveness of our productive base and therefore I would prefer an outright statement that such second pillar will be on a permanent optional basis. In order to promote their take up on an optional basis, government could then offer fiscal incentives to employers who fund such schemes for which nationally sponsored and protected funding should be considered to give a choice of underlying investments but not such a wide choice (as in Sweden) as to make the selection process too complicated.

Rendering the second pillar permanently optional will also give the opportunity for government to render private sector employment more attractive and thus facilitate the process of slimming down the public sector. With heavy commitments to maintain our health system government should be extremely wary of adding to its own payroll expense particularly as unlike private employers, government will have no tax rebate to gain for contributing to such second pillar schemes.

Lastly I think that government must not delay much further the announcement of fiscal incentives for individuals who take on third pillar privately funded pension schemes. To be fair probably government is leaving this component for incorporation in tax system review that has been promised by next June. It should however not be allowed to drag on as it is clear that state pension, no matter how reformed, will on its own not be sufficient to offer adequate pensions down the line and those who are still in time must start thinking as of now to build alternative savings which can provide supplementary income during retirement.

The announcements of this week can only be considered as a necessary but too small a step in pension reform. Other steps must follow and soon.

Smart and not so Smart

3^rd March 2006
The Malta Independent - Friday Wisdom

The announcement made by Minister Austin Gatt about a foreign investment for the creation of SmartCity@Malta in Ricasoli, modelled on the Dubai Internet City concept and financed by the same state-owned Dubai investment company, is the best news we have had on the economic front for a decade or more.

It is absolutely a dream investment fitting perfectly within our capabilities and avoiding our disadvantage in competing for material-based industries that involve expenses of shipping in raw material and shipping out finished goods. On the foreign investment front, it is comparable to the attraction of ST Micro, but even better in that it avoids concentration on one particular corporation and could roll out much quicker than was the case with ST – which rolled out gradually to its present state over a quarter century.

Anybody who has Malta’s interest at heart cannot but be overjoyed that finally after years of drought in foreign direct investment, we seem to have hit it big in an industry of tomorrow with substantial value added that rewards Malta’s youth and others seeking re-employment.

Such investment makes restructuring that much more manageable. Because restructuring involves the closure of companies that cannot remain competitive in our evolving economic environment and their replacement by new projects based on current technologies, which can deliver value that keeps us competitive in spite of our increasing costs. Projects that are modelled on our brain rather than our brawn power. Well-done Malta Enterprise! Well-done Minister!

So what is not so smart, you are probably asking me?

To start with, I don’t think it is very smart to announce the project when negotiations with the investors are still proceeding. Clearly, the minister felt comfortable enough to present it as a fait accomplit, when in fact it is still not so. Is this not exposing us to the risk of other locations making more advantageous offers to attract the investment to their shores? And it is obvious that by going public rather prematurely, the minister has weakened his position in negotiating the outstanding issues, as the investors know that the minister would lose political capital if he does not accommodate their additional demands.

Just recently, I was involved in negotiations for sale of land in high six-figure digit to a very esteemed and financially solid organisation. The parties had shaken hands over the deal and I attended several meetings with the legal counsels of both sides to agree on the draft of the preliminary agreement and we had basically dotted all the I’s and crossed all the T’s.

Then, a simple email informing us that the organisation was reconsidering the acquisition changed what seemed a done deal into a dead end. And the prospective acquirer was a licensed credit institution (a bank in layman’s terms) where the term my word is my bond used to be sacrosanct.

Even if such suspicions are unfounded and all goes through as planned, there is another “not so smart” aspect to the wider issue of privatisation. With very little dedicated infrastructure, we have managed to attract a US$300 million investment in IT, which should attract the best names in the industry to locate their regional centres in Malta. Now, compare this to the Freeport privatisation where again we have natural advantages of location and natural harbours. There we had excellent infrastructure costing billions of dollars and an operating track record.

How can anyone explain why the privatisation process did not attract interest from the big players in the industry like Hutchinson of Hong Kong, PSA of Singapore and DB World of Dubai and we finished farming out operations to a second rate shipping line rather than a global port operator? In a recent contest to acquire P&O, DB World was forced to pay top dollar to pip out PSA in the acquisition race. Why were we not seen as an attractive prize by the big players in the industry? Could it be that the Freeport, under irresponsible Maltese management that led it to financial distress, had tied itself into unprofitable long-term capacity commitment to the second rate shipping line, which thus secured for itself a one horse race to acquire Freeport on the cheap?

If we are able to secure huge investment to start a virgin operation in IT, why were we not similarly able to secure a better deal for our Freeport where we had already investment billions over the years? The Freeport investment is too big to be brushed away under the carpet without proper explanation as to why we did not achieve anywhere near our full potential.

Not so smart is also the hike of the surcharge to 67 per cent at the same time when fuel prices at the pump have been reduced. The system makes no sense.

The shock absorber of price fluctuation should be fuel at the pump not utility bills, which lack the benefits of immediate impact and discretion of use. For the sake of social correctness, the price adjustment mechanism needs reconsideration.

Totally void of smartness was the shocking news of the passing away of Alfred Mallia, former chairman of the Malta Stock Exchange and a colleague in the profession. Alfred was the first person I had the privilege to work with when as a lad of 17, I joined Barclays Bank nearly 37 years ago. Over the years, when our paths crossed in diverse ways, we always enjoyed reminding ourselves of how different it was back then. We lost a gentleman and a fine banker. God bless his soul and condolences to his family. Till then Alf!