UĦM Voice of the Workers eMagazine issue 14

VOICE OF THE

WORKERS ISSUE 14 APRIL 2014

EDITOR’S NOTE JOSEF VELLA

Contents

It’s the economy, stupid!

02

A short timeline of the Maltese Economy

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Some Economic Terms explained

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Driving the Maltese Economy

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Malta’s National Reform Programme A reflection on the state of the economy 08 The Maltese Economy in the EU 09

Humanising the Economy Welcome to issue number 14 of the Voice of the Workers Magazine. This issue deals with an aspect that impacts the lives of everyone: the economy. Although many see it as the realm of the technocrats and politicians, it is in our interest to learn, discuss, question and propose.

There is general agreement that the Maltese economy has generally weathered the global economic and financial crisis well. We are constantly trying to find new ways of building on the strengths of our economy, whilst trying to diversify into potentially advantageous sectors.

Our successes are due, in no small part, to the flexibility and education of our workforce. Crisis tends to bring out the best in us, VOICE OF THE

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and our resilience is the envy of many countries.

However, a lot needs to be done.

Changes in world economic conditions are bringing new challenges. Work relationships are changing, and capital movements are becoming increasingly volatile. Admittedly, economic growth is essential to employment and economic well-being. However, we need to resist the temptation of working towards growth and wealth, without devoting attention to the fair distribution of that growth or wealth. We need to ensure that participation in the economic prosperity in Malta is across board. We need to ensure that every person has a true opportunity at achieving success in life.

There are different ways of achieving this. One important way forward is to help our workers, both existing and potential, to be flexible, skilled and welltrained. We need to make sure that young people are given all that is necessary for them to be successful. All in all, we need to make work pay. This is the fundamental principle behind Jobs+. The UĦM has always believed in providing workers with the necessary tools to help them be proactive to work and market conditions. Moreover, the Union believes that this can only be achieved through effective dialogue between the social partners. We should be investing more in this respect.

Through tripartite dialogue and participation, we can be in a position to arrive at a common 1

EDITORIAL

vision for the future, and agree on specific ways forward.

One of the fundamentals of economics is the reality of scarce resources. Economics deals with the management of those scarce resources. This means that a resource can be used in a way, whilst foregoing an alternative use, commonly known as opportunity cost. This means that our resources have to be used wisely. If not, we risk not having enough for what we really need. We have to move away from the culture of ‘this is not my problem’. Directly or indirectly, decisions taken on

specific resources will impact the lives of all of us, whether we are connected to that resource or not. This holds true to our welfare system as it does to our efforts to enhance business activity. For example, we need to responsibly and openly discuss our pensions our health and education systems, among others, to ensure their sustainability for the future.

Investing in these areas carries an opportunity cost. Using these resources wisely is not just an act of justice to taxpayers in the past and in the present. We need to look at sustainability as an act of justice towards those who will be needing them in

future generations. Same goes for the management of our environmental resources. Even this has an economic dimension, for today and for the future.

The economy has a very visible social dimension, and plays a big part in every individual’s life story. Economic and social issues are very much interdependent.

Economics is a very vast and complicated subject. However, our underlying vision can be direct and simple: let’s work together to give our economy a human face.

This is our best way to achieve the success each and every one of us deserve. Enjoy!

It’s the economy, stupid!

This popular term was first coined by James Carville, Bill Clinton’s campaign strategist as part of the 1992 Presidential Campaign. The economy is an essential aspect of our daily lives. What happens in the economic sphere has profound effects on our standard of living, our welfare system, employment, and a host of other aspects fundamental to the way we live. Economic growth is needed for us not only to keep up with our standard of living, but also to improve on it. As economics has wide-ranging social consequences, it cannot be discussed separately. Moreover, we constantly need to strive for an economy with a human face, with a fairer distribution of wealth, and opportunities for all.

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THE MALTESE ECONOMY

A SHORT TIMELINE OF THE MALTESE ECONOMY

1000BC

1530 – 1598

281BC

1807

Phoenician Times The Phoenicians colonized Malta from about 1000 BC, bringing their Semitic language and culture. They used the islands as an outpost from which they expanded sea explorations and trade in the Mediterranean

Malta is incorporated into the Roman Empire, within the province of Sicily – Beginnings of the Maltese textile industry

870AD

Malta is conquered by Aghlabid Arabs. Improved agriculture and irrigation systems are introduced, including the ‘noria’ or waterwheel; cotton and citrus fruits are introduced to Malta.

1414

King Ferdinand ordered that two or three officials be nominated to examine cotton marked for export

1472

A tax of 2% was raised on exported cotton, the money going towards the upkeep of the walls of Mdina.

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During the rule of the Knights of St. John, Valletta was founded in 1566, and served as a very important port base for ships in the Mediterranean. Corsairing was regulated. The Maltese population was almost totally dependent on imports for its food, namely wheat.

British Governor Sir Alexander ball introduced the Potato crop to Malta

1813-14

Great Plague brought trade with foreign countries to a complete standstill.

1945 – 50

Sir Wilfred Woods Report fixes Malta’s War Damage aid for reconstruction at 31 million pounds sterling. The report suggested the introduction of income tax, a tax on property, as well as an introduction of social services on a contributory level. Other reports in 1950 and 1966 advised the Maltese Government to tackle expenditure, build a new power station, open technical schools, improve on agriculture and fisheries, and establish industrial estates for manufacturing.

1948 – 1975

Sterling becomes the only legal tender in Malta

Mass emigration from Malta.

An average of 5,000 Maltese emigrated to Australia, the USA, Canada and the UK every year.

1869

1957

1856

The opening of the Suez Canal brings about a massive increase in shipping movements in Malta’s ports.

British services rundown, reducing military personnel, as well as spending by half.

1894

The Tourism Development Acty is established to make tourism a pillar for the Maltese economy

Electric light power station inaugurated at Crucifix Hill

1940-42

World War II – Trade and Commerce nearly stopped

1958

1964

Malta gains Independence from Britaln – British Services personnel are further reduced 3

1968

The Central Bank of Malta is established.

1970

Jobs in tourism reach 14,600.

74% of tourist arrivals are from Britain.

1970’s

Founding of operators important for Malta’s economic infrastructure, such as Air Malta, Telemalta, Enemalta, and other corporations. Malta’s main banks are nationalised.

Malta adopts the decimal system and the Maltese Lira.

1980’s

Mainstays are tourism and manufacturing. Economy becomes more centralised and protected. Attempts at increasing local manufacturing for the local market, and exchange control is enforced.

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1990’s

Economy is opened up, and fresh investment is injected in infrastructure, management systems of the Public Service, as well as IT. Malta applies to join the European Union in 1990.

Application is frozen in 1996, and re-activated again in 1998.

The Malta Stock Exchange starts operations in 1992.

2004

Malta joins the European Union

2007

Malta adopts the Euro.

2008

The international financial crisis threatens the world economy. Malta weathers the storm, and its banking system remains generally resilient over successive years.

2010

Present day/ recent history

Malta today is an open economy.

Its manufacturing has declined sharply in traditional industries, such as textiles. Instead, there is a shift towards electronics and pharmaceuticals. Financial services, software and i-gaming have become important contributors towards the economy. There are attempts at cutting on the excessive deficit and government expenditure. Malta has the third largest shipping register in the world, as well as considerable transhipment and maritime services. The aviation and services industries are becoming increasingly important, whilst tourism remains a vital aspect of the economy with more than a 35% share of GDP. are closed down.

Once a mainstay of the Maltese economy, the Malta Shipyards are closed down.

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THE MALTESE ECONOMY

Some Economic Terms explained Adapted from The Economist’s Economics A to Z

Deficit In the red – when more money goes out than comes in. A budget deficit occurs when public pending exceeds government revenue. A current account deficit occurs when exports and inflows from private and official transfers are worth less than imports and transfer outflows National debt The total outstanding borrowing of a country’s government. It is often described as a burden, although public debt may have economic benefits. Certainly, debt incurred by one generation may become a heavy burden for later generations, especially if the money borrowed is not invested wisely. The national debt is a total of all the money ever raised by a government that has yet to be paid off.

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GDP Gross domestic product, a measure of economic activity in a country. It is calculated by adding the total value of a country’s annual output of goods and services. GDP = private consumption + investment + public spending + the change in inventories + (exports -imports). Adding income earned by domestic residents from their investments abroad, and subtracting income paid from the country to investors abroad, gives the country’s gross national product (GNP).

GDP is disliked as an objective of economic policy by some because it is not a perfect measure of welfare. It does not include aspects of the good life such as some leisure activities. Nor does it include economically valuable

activities that are not paid for, such as parents teaching their children to read. But it does include some things that lower the quality of life, such as activities that damage the environment.

Recession Broadly speaking, a period of slow or negative economic growth, usually accompanied by rising unemployment. Economists have two more precise definitions of a recession. The first, which can be hard to prove, is when an economy is growing at less than its long-term trend rate of growth and has spare capacity.

The second is two consecutive quarters of falling GDP. Inflation Rising prices, across the board.

Inflation means less bang for your buck, as it erodes the 5

purchasing power of a unit of currency. Inflation usually refers to consumer prices, but it can also be applied to other prices (wholesale goods, wages, assets, and so on). It is usually expressed as an annual percentage rate of change on an index number. For much of human history inflation has not been an important part of economic life. Before 1930, prices were as likely to fall as rise during any given year, and in the long run these ups and downs usually cancelled each other out. By contrast, by the end of the 20th century, 60-year-old Americans had seen prices rise by over 1,000% during their lifetime. The most spectacular period of inflation in industrialised countries took place during the 1970s, partly as a result of sharp increases in oil prices implemented by the OPEC cartel. Although these countries have mostly regained control over inflation since the 1980s, it continued to be a source of serious problems in many developing countries.

Inflation would not do much damage if it were predictable, as everybody could build into their decision making the prospect of higher prices in future. In practice, it is unpredictable, which means that people are often surprised by price increases. This reduces economic efficiency, not least

because people take fewer risks to minimise the chances of suffering too severely from a price shock. The faster the rate of inflation, the harder it is to predict future inflation. Indeed, this uncertainty can cause people to lose confidence in a currency as a store of value. This is why hyperinflation is so damaging.

Most economists agree that an economy is most likely to function efficiently if inflation is low.

Ideally, macroeconomic policy should aim for stable prices.

Some economists argue that a low level of inflation can be a good thing, however, if it is a result of innovation. To keep inflation low you need to know what causes it. Economists have plenty of theories but no absolutely castiron conclusions.

Central bank A guardian of the monetary system. A central bank sets shortterm interest rates and oversees the health of the financial system, including by acting as lender of last resort to commercial banks that get into financial difficulties.

The Federal Reserve, the central bank of the United States, was founded in 1913. The Bank of England, known affectionately as the ‘Old Lady of Threadneedle Street’, was established in 1694, 26 years after the creation of the world’s first central bank in

Sweden. The Central Bank of Malta was established in 1968.

With the birth of the EURO in 1999, the monetary policy powers of the central banks of 11 European countries were transferred to a new European Central Bank, based in Frankfurt.

Opportunity cost The true cost of something is what you give up to get it. This includes not only the money spent in buying (or doing) the something, but also the economic benefits (utility) that you did without because you bought (or did) that particular something and thus can no longer buy (or do) something else. For example, the opportunity cost of choosing to train as a lawyer is not merely the tuition fees, price of books, and so on, but also the fact that you are no longer able to spend your time holding down a salaried job or developing your skills as a footballer. These lost opportunities may represent a significant loss of utility. Going for a walk may appear to cost nothing, until you consider the opportunity forgone to use that time earning money. Everything you do has an opportunity cost. economics is primarily about the efficient use of scarce resources, and the notion of opportunity cost plays a crucial part in ensuring that resources are indeed being used efficiently.

INFLATION Most economists agree that an economy is most likely to function efficiently if inflation is low. Ideally, macroeconomic policy should aim for stable prices.

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MCESD

Driving the Maltese Economy The Maltese Economy is one which has developed along the years and has proven to be strong and able to weather economic storms. It is currently working within a fragile international economic scenario. Hence our policy makers and economists needs to continuously ensure that our economy is diversified and competitive in the European and international market.

The Maltese Economy is always at the forefront of MCESD’s agenda with meetings being held on issues such as : • National Reform Programme Consultations • Presentations by the Malta Business Bureau • Precarious Employment • Enemalta’s situation • Education Strategy • Individual Investor Programme

Working groups have also been set up to discuss economic matters and put forward proposals to Council and Government. This role is further extended within the Civil Society Committee and the Gozo Regional Committee which together with the Council put forward proposals to Government at pre-budget stage.

Tourism is a positive driver of the Maltese Economy however relatively new industries such as gaming, financial services and aircraft maintenance have ensured our economy is diversified and remains competitive. Education is a key factor in economic terms and this issue has also been extensively discussed both at Council level as well as at Working Group level.

Extensive bureaucracy, the pension and health systems as well as low female participation in the labour market are all factors which may hinder our economy in competitive and productivity terms. These need to be given particular attention and initiatives need to be taken to address these issues so as to ensure that foreign investment is attracted to our islands.

Measures to further increase and incentivise investment need to be at the forefront of the agenda of policymakers and initiatives such as the creation of a Development Bank which will help alleviate the business lending issue will help our economy further.

MCESD 280/3, Republic Street, Valletta, VLT1112 Tel: (+356) 2200 3300 www.mcesd.org.mt VOICE OF THE

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MCESD

MALTA’S NATIONAL REFORM PROGRAMME

Photo: DOI - Clifton Fenech

A reflection on the state of the economy

The European Semester for economic policy coordination was introduced in 2010 to help the EU tackle its major economic challenges, also in light of the ‘Europe 2020’ objectives. As part of the annual procedure incorporated within the Semester, the European Commission issues Country Specific Recommendations for its Member States.

Before publishing these recommendations in May, the Commission requests Member States to present their National Reform Programmes (NRP). In their Programmes, the Member States indicate the means and measures they deem necessary to achieve their objectives, while taking into consideration their respective economic challenges, opportunities and limitations.

Malta’s NRP for 2014-2015 to be submitted to the Commission has been drafted by the Ministry for Finance and presented to stakeholders for consultation. On Friday March 28, the Minister for Finance, Prof. Edward Scicluna met stakeholders of the MaltaEU Steering Action Committee (MEUSAC) and of the Malta Council for Economic and Social Development (MCESD) to discuss the country’s economic situation and the Government’s plan to improve it.

The draft Programme points to the reduction of the deficit level and the expansion of the Maltese workforce as the two main positive strong points of Malta’s economy.

The country has registered a rate of 2.4% of GDP in economic growth for 2013 and the EU has concluded that Malta’s economic challenges

are not considered as imbalances in terms of the Macroeconomic Imbalances Procedure.

Malta enjoys one of the lowest rates of unemployment in the EU, ranking the fifth with a rate of just 6.9%. Despite the relatively low rate of unemployment, the draft Report does put a special emphasis on the employability of potential individuals who may be encouraged to join the workforce.

In its NRP the Government will be committing itself with the EU on the implementation of policies aiming to increase the participation in the local labour market and to reduce the number of individuals who are dependent on the state’s welfare system. Besides, there are plans for further reforms in other areas such as education, energy and the fight against poverty.

MEUSAC 280 Republic Street, Valletta VLT 1112 Tel: +356 2200 3315 • Fax: +356 2200 3329 • Email: info.meusac@gov.mt www.meusac.gov.mt VOICE OF THE

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The Maltese Economy in the EU The Commission publishes macroeconomic forecasts for the EU and the Member States three times a year. These forecasts are produced by the Directorate-General for Economic and Financial Affairs (DG ECFIN) and are available here: http://tinyurl.com/qbm4o23

EU EXPECTS MALTESE ECONOMIC GROWTH, DEFICIT TO STABILISE BELOW 3% The European Commission is expecting a better economic situation in Malta in the coming two years according to the winter economic forecasts published the 25th of February 2014 in Brussels.

Brussels said that the general government deficit is expected to decrease from 3 per cent in 2013 to 2.7 per cent this year.

On 4 April 2014, the members of the Workers’ Group of the EESC took part in a demonstration organised by the European Trade Union Confederation in Brussels. They joined several thousand demonstrators who were calling for a new path for Europe that favours equality and investments aiming at sustainable growth and quality jobs.

Ahead of the upcoming European elections on the 25th of May, they called for citizens to vote for candidates who will change the way the EU is governed and who share the vision of a prosperous and socially inclusive Europe.

The article is available here: http://tinyurl.com/pde5wap

Click to hear video messages from the President and the members of the Workers’ Group of the EESC: http://www.eesc.europa.eu/?i=portal.en.news.31603

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PUBLICATIONS

SOCIAL DIALOGUE, IMPROVED INDUSTRIAL RELATIONS RESULT IN ‘SUSTAINABLE FUTURE’ European Commissioner László Andor in December 2013 was in Malta to launch the programme for combating social exclusion and poverty. http://tinyurl.com/qd7e22s

EXTRA

NEWS

Being a full member of the European Union and within the Eurozone, Malta’s economy is also under scrutiny. This includes reports, forecasts, and events. The information is being gathered by the Brussels Office of the Confederazione Italiana Agricoltori.