The law of diminishing marginal utility

Last Updated on Thursday, 11 July, 2024 at 10:00 am by Andre Camilleri

Last week, I spent some time doing the things I love most, including some gardening. It reminded me of the lovely times I spent with my grandmother in Bormla. We had a house with different split  outdoor roof levels. The boundary wall that divided the adjacent neighbouring garden was quite low along the perimeter up to the fist floor. Occasionally, I used to jump the boundary wall to explore the abandoned garden. The citrus tree produced bountiful tasty oranges. I used to enjoy every minute while my grandparents napped in the afternoon. Clearly, the neighbouring house was abandoned and left in a dilapidated state for many years. This is the reason why I used to sneak out. However, it was later purchased and converted to its glory.

You might ask why I am writing about this topic, today. The idea is to bring to my readers the simple and happy life we spent in Malta when it was calmer. Today, the beauty of the lovely gardens once hosted in our towns and villages are now lost or traded to either a block of concrete apartments or to widened hideous structures. This is what many call progress. Thankfully, Cottonera is all designated under UCA, even though in 2019 they wanted to erect a hideous structure before the entrance of Citta Invicta. Thanks to PM Robert Abela it was redesigned. Needless to say, progress cannot be seen in isolation. Economic growth, and progress must be viewed against the domain of negative economic effects emanating from economic success. Such negative economic growth effects relate to what Schumpeter termed creative destruction, where an old economic model is scrapped for a new one. Notwithstanding that we still need economic growth to keep on providing social welfare, merit goods and services, pensions, as well as providing for the statistics needed within the realm of the six pack and two pack governance of the euro, however, we must use resources efficiently. True, 30 years ago we did crave additional economic growth to increase our standard of living. And each additional increase in GDP yielded greater enjoyment by all.

However, when a country starts experiencing social tensions, increased pollution, the acceleration of depletion in natural capital, as well as healthcare challenges, the signals are clear. Policy makers or perhaps economists must readjust the way resources are allocated. They must consider in their equation, the law of diminishing marginal utility. What does the law of diminishing marginal utility, say? It is rudimentary microeconomics. It holds, that the more we consume of a product, the enjoyment produced out of each additional amount or unit consumed, declines. What does this mean? It means that we reached a point, where each unit of economic growth, relative to the resources that are needed and mixed into the system, is clearly producing less satisfaction by those receiving it. The majority seem to be reason, that for an additional unit of economic growth, we have to give up the some of our quality of life. It includes, inter alia, healthcare waiting time at our state hospitals, increased pollution due to increased flow of purchased vehicles, more concrete and less old houses, as well as additional loss of natural capital due to a surge in infrastructure projects. Therefore, we must rethink the way we do and design things.

In August last year, I wrote an article named Avoiding Skinny Doughnuts. I suggested to start including compulsory healthcare insurance coverage for third country nationals to use private healthcare services to ease the pressure on the state hospitals. The government can opt to readjust the national insurance to shift the risk, as well as the costs, and create a new insurance market. Going forward, the government can also use the private sector to reduce the waiting lists at the state hospital. We all know that in some areas medical professionals want to earn money in the private sector. So be it. However, I would do what other countries did. I would include a price transparency register, and the costs associated with medical care. The concept of caveat emptor must be included in the healthcare sector system for costs containment. If we leave it under a free system, then the only option is to go for more tax collection within this area. 

Besides the healthcare, we should start thinking of building huge public underground carparks akin to those found in Valletta, to house additional vehicles off our streets underground, and provide urban greening. We must think differently. We require a culture shift. Else, we are going to aggravate the situation if we keep on growing economically without readjusting and utilise economic resources efficiently. Or else, the only viable option left is to build an offshore island off the coast of Malta to host the dirtiest industries there and fee some prime sites. Surely, land reclamation mustn’t be used for speculation and the building of other hotels. If we do so, we won’t resolve the problems coming out of the economic success.

If we take the PL’s European Parliament election campaign it is evident that the result reflects what I am saying. Let’s have a look where the votes shifted. The electorate voted for either Dr. Conrad Borg Manché or Professor Arnold Cassola. What do they represent? Conrad Borg Manché represents the opposition to overdevelopment and construction magnates, as well as the preservation of the environment including the garden in Gżira. On the other hand, those who are my contemporary, recall the debates and what Professor Cassola represents in terms of his environmental political stances. Let’s leave aside for a while his frequent visits to the Commissioner for Standards in Public Life. When I was young, I remember him campaigning with the Greens. When we analyse the votes that they both managed to obtain the writing is on the wall.  People are sending a clear message to the government. They want the PL government to primarily readjust the economic resources and redirect economic growth towards the enjoyment of additional units consumed. It means the provision of a better quality of life.

The electorate did not signal their intention to vote for the Nationalist Party. However, they did want to send an important message. Frankly, 3 years are an eternity in politics up to the next general election. Personally, I believe that the message was taken seriously by the labour party insiders, and I am sure that they will be readjusting the economic resources to reflect the wishes of the electorate and the Maltese people in general. The PL must work towards attaining such results up to 2027.

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