The true value of economic growth

Last Updated on Thursday, 22 June, 2023 at 9:00 am by Andre Camilleri

During the past two months, I had the opportunity to observe the hype of a narrative that prompted a misleading analysis of which type of economic model we must pursue as a country. Surely, reading the opinion pieces of non-economists, at times, left me cringing in my seat. Ironically, those who campaigned for Malta to join the EU went on to propose policies that are reminiscent of an autocratic government. There was even a suggestion to cap tourist arrivals and to close the three-star hotels and the other Airbnb. Actually, what was proposed is a tyrant economic model. True, free speech is free speech. However, when you think about it, the Austrian school of economic thought was left orphan to promote such economic policies. Some authors might wish to read some excerpts from the book The Road to Serfdom.

Unquestionably, the narrative about economic growth is being used and abused to the point of absurdity. We need to bear in mind that this standard metric was established decades ago. It is used by the EU before it approves our national budgets, by credit rating agencies and other international institutions worldwide. Plainly, over the years, it turned out to be a common language and a standard metric. What we need to understand now is that the increase in GDP requires additional factors of production. Over the past decade Malta’s economy doubled in its size. Obviously, certain sectors require more labour-intensive factors of production than others. And once this is accelerated, it is obvious that demand for these factors of production increases. As I had the opportunity to write in my preceding opinion pieces, what we need to focus on is the way resources are being allocated. It is all about optimising planning efficiency when allocating capital, labour and the management of our natural capital. And to accommodate additional higher value-added sectors we need to provide them with proper spaces from where to operate.

At times we get to simplify reality. We tend to enter into a phase where we start suggesting policies that not even in theory work. You start seeing prospective politicians appearing for ghost writers. What they normally propose is not economically rational unless we change the international rules. The analysis is projected under a ceteris paribus scenario. Indeed, when they spoke of having additional higher value-added sectors, they missed the point that we require additional demand for labour, to build new offices and commercial buildings. Somewhere, we need to house such companies. Certainly, when you are leading a country or an institution it is not easy to implement economic policies inter alia in a highly responsive market.

A few weeks back, I wrote an opinion piece about energy diplomacy and touched upon North Africa including the importance of stabilising Tunisia. However, I was cautious in my narrative. The Arab Spring knows its origins from Tunisia and this is why it needs support. The EU stepped in to rescue the Tunisian economy by proposing a package of macro-economic financial assistance worth billions of euros. Indeed, I was glad to see that the EU shifted its focus also to the south. Surely, the EU must keep the IMF at an arm’s length at this stage. President Von der Lyen, along with prime ministers Rutte and Meloni, were in Tunisia to host talks with President Saied primarily on energy and other economic opportunities. Needless to say, the topic of migration was also on the agenda.

Also, our prime minister travelled to Italy for an official visit to host talks about the energy and economic sectors, including the longstanding problem of irregular migration. Undoubtedly, Malta always upheld its responsibilities under international law. The problem of human trafficking, and the scale of organised crime, at times stronger than the state, cannot perpetuate indefinitely. The EU had the opportunity to study this problem through its various missions. As reaffirmed by both prime ministers, Malta and Italy foster a strong relationship. We are geographically neighbours and share many commonalities. Unless the EU steps in and the bigger countries work together to counter the problem and break the smugglers models it is difficult to achieve results.

As stated by our prime minister a country cannot do anything by itself, not just when it comes to irregular migration but also on energy security, as well as to decarbonise the continent. Evidently, fostering diplomatic relations is the way forward to tackle and solve problems. And this comes as part of a holistic economic vision. Presently, the only party that can guarantee a prosperous economic vision, is the current party in government. Surely, I was glad to see that Malta is advancing when it comes to waste management. Waste exerts severe pressure on the environment and its management has a direct impact on the UNSDGs.

The EU Commissioner for the Environment, Virginijus Sinkevičius was in Malta and commended the work that is being executed in the sphere of waste management. The EU Commissioner referred to Wied Fulija as the restoration of nature that can be carried out through an economic vision. Clearly, some zones that were left in a dilapidated state or else used in the past as landfills are important to be restored. Unquestionably, restoring and embellishing areas that were left in a dilapidated state is part of the government’s economic vision, which tallies with that of the EU.

As you may all acknowledge, we do not have a perfect economic model. No country does. Nevertheless, the economic vision penned by our prime minister in the past week surely countered the ineffectual narratives that engulfed the country in the past months. Notwithstanding that our prime minister is a lawyer, certainly, he passed his economics exams with distinction since January 2020. We must acknowledge that Prime Minister Robert Abela entered office in times of a political crisis, which was followed by a consecutive global pandemic, grey-listing, as well as a war in Europe. Surely, they were not his doings. However, he managed to provide political and economic stability in times of abnormal global crises. Indeed, he earned the respect of many foreign dignitaries, even at EU level.

Nonetheless, if we want a different economic model, that is, a model with less economic growth, including a capping on the number of tourists, then we must be cognisant of the fact that we all have to pay higher electricity bills, higher fuel prices when we go to the fuel station, less increments in pensions, including less employment opportunities and additional instability. Hence, before jumping to the conclusion that growth is bad, please dissect the benefits of economic growth as opposed to the mistaken narrative of neo-liberal economics. As an economist, I prefer the problems that come with economic success rather than having no opportunities. They are easily solved by adjusting efficiency and the reallocation of resources while correcting any market failures with proper planning.

In conclusion, the Maltese economy is today integrated with that of the EU. And the current government has carefully designed economic policies to transit to the next phase of economic prosperity by leveraging on the EU’s ability to create a greener and a socially just system. The way forward is sustainability and prosperity.

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