The Blessing of Cycles

The Malta Independent on Sunday



The Bible tells us that beyond this life there are no cycles; just a permanent and eternal state of happiness or despair.

On earth, cycles are a way of life not least in economic terms.` The economy passes through cycles of boom or bust that are often unavoidable. Good economic management is meant to manage the cycle to make downturns shallow and short whilst retaining a consistent upward projection of the growth line.` It is not meant to avoid cycles altogether acknowledging that this is well neigh impossible and indeed unhealthy.

In economic terms downturns are essential to bring operators down to hard reality with feet back on the ground from the risky highs that euphoria often carries the economy and the financial markets.` Human weakness tends to assume that tomorrow is a straight line extension of today and this leads to over-consumption and over-investment at times of boom and contra cycles at times of bust to bring about the necessary equilibrium. `Reality is the PN government has been trying to extend its tenure of power by generating artificial and unsustainable feel-good factor translatable into electoral popularity, but only at the expense of the long term health of the economy and its growth capacity`

Governments use a mixture of fiscal and monetary policy to smoothen the cycle.` In order to ensure that politicians with an eye on the election do not engineer artificial booms to generate false and unsustainable feel-good factor for electoral popularity, governments world-wide have ceded monetary policy operations to autonomous national or supra-national central banks.` These act as a counter-weight on the ability of governments to use fiscal policy in an economically de-stabilising manner for short term political gain.

In Malta following a period of unending strong growth between 1987 and 1994 the economy has been under-performing ever since with low growth rates, an explosion in national debt and structurally obstinate fiscal imbalances.

Why can`t we get ourselves to healthy economy cycles that make a full turn over a period of four or five years and registering high average annual real growth rate of 5% or more when measured from peak to peak`

Reality is the PN government has been trying to extend its tenure of power by generating artificial and unsustainable feel-good factor translatable into electoral popularity, but only at the expense of the long term health of the economy and its growth capacity. `they cannot just realise that they are now dangerously mortgaging our economic future, perilously prejudicing our financial structures through their uncontrolled spending`

In order to avoid the cycle downturn after 1992, the Minister of Finance has exploded the public sector deficit to extend artificially the sensible growth of the first PN legislature of 1987-1992.` This was done at the expense of structural deficit in public finances which has increased the national debt five-fold in the last ten years and doubled it in the last five years.

The absence of timely downturns has negated operators of salutary reminders that nothing is free, that everyday is a new challenge in the fierce competition of the globalised world,` and that there is always someone out there willing to eat our lunch if we remain complacent,` thinking that we can win tomorrow with the same game-plan that brought yesterday`s victory.

Politically the absence of cycles has brought even worse. Fifteen years of nearly uninterrupted power, cosily massaged by friendly media that tries to justify and camouflage all government`s weaknesses rather than expose them for` proper addressing, has blinded those in power so much` that they cannot just realise that they are now dangerously mortgaging our economic future, perilously prejudicing our financial structures through their uncontrolled spending, and gradually reducing the quality of life of the average Maltese back to third world standards.

`The fact that the Labour government of 1996 was eaten for lunch by the same power latitude it allowed in the hands of PN appointed executives, ending its life in the short space of 22 months, made it easy for confidence and complacency to turn into arrogance and abuse.` Fifteen years of nearly uninterrupted power has fossilised cosy power sharing back scratching networks that has reduced` the country into` a continuous game of let`s pretend; pretending that the economy is doing well when in fact it is just under-performing and risking an implosion; pretending that we have a healthy democracy when in fact it is resulting that there is a price for everything, from presidential pardons to lenient court sentences.

When the political cycle turned in 1996 something strange happened to render the change sterile.` Labour kept in position most of the PN appointed executives, from the Permanent Secretary at the OPM to the Commissioner of Police, thus denying the possibility of fresh hands exposing weaknesses and abuses which tend to set in with increased incidence in the second consecutive legislature.

The fact that the Labour government of 1996 was eaten for lunch by the same power latitude it allowed in the hands of PN appointed executives, ending its life in the short space of 22 months, made it easy for confidence and complacency to turn into arrogance and abuse.` The forced resignation of the Commissioner of Police, the Chief Justice and a Judge in the space of 12 months bear witness.

The country badly needs to bring itself in line with normal cycle trends both economically and politically.` Failure to do so will land us with pathetic arguments as that featured editorially by The Times this week.` It argued that Labour should not criticise the complicated intrigues between institutional power bearers and the criminal drug world, as probably it suspects, without any reasonable basis let alone evidence, that some of its predecessors could have been doing something similar between 1971 and 1987. Oh how we need a turn of the cycle!

Alfred Mifsud