ADDRESS BY THE HON. DR. LAWRENCE GONZI, DEPUTY PRIME MINISTER AND MINISTER FOR SOCIAL POLICY AT THE CONFERENCE "NATIONAL COMPETITIVENESS: THE WAY TO PROSPERITY" ORGANISED BY THE MALTA CHAMBER OF COMMERCE – QAWRA

Mr Chairman, Excellencies, Ladies and Gentlemen.

BOOSTING COMPETITIVENESS AND SOCIAL COHESION

A SHARED RESPONSIBILITY

EUROPE

As the world’s largest single market, Europe presents us with an opportunity. An opportunity for business to prosper and to pitch our competitiveness with that of some of the most dynamic economies in the world. But to do so successfully, we must prepare now. We must respond to the challenges and adjust to them now. This means taking critically important decisions and implementing the appropriate policy responses now. This means embracing rather than resisting the restructuring process, owning it and taking it along to our respective boardrooms. This means taking painful decisions and, as you all know, really important decisions are very often the most painful. This is a fact of life…for all of us.

THE APPROPRIATE POLICY RESPONSES…THE GOVERNMENT’S ROLE

The key question for policy makers nowadays is: what should and could be the contribution of public policies to create an environment that stimulates innovation, competitiveness and growth?

The difficulty lies in the fact that there are at once many different components to a good business environment, such as legal framework, economic regulation, infrastructures, level of education, and many different levels of policy-making - local, national, European, and international. The challenge is to succeed in articulating these different levels in the most efficient way.

So although the EU-factor has been and will continue to be a major stimulus to enhancing competitiveness in Malta, it cannot be a substitute for good internal policies. It is these which will always be the key condition to build strong comparative advantages. And here it is governments, which must deliver the goods.

My Government has long recognised its central role in this process. It cannot expect to micro-manage you or your businesses; it cannot decide on your behalf what strategic business decisions you take in your boardrooms. Yet it is government’s primary responsibility to create the right conditions for your business to prosper, and this, like justice, must be seen to be done, and in an effective and timely manner.

My Government has not taken this task lightly. Since the advent of trade liberalisation in the late eighties, it has embarked on a series of measures, including policies and institution-building, with the combined objectives - crucial at that time - of reinforcing democracy and freedom and putting paid to corruption - as well as to enhance competitiveness and economic growth. This is where we came from.

Today, less than fifteen years down memory lane, it would be useful to take stock of where we are, what has been done in this period to improve our country’s competitiveness and what continues to hinder us in this process to achieve prosperity. Like any other firm assessing its competitive position on the market, Enterprise Malta must objectively recognise its strengths as well as its weaknesses…not as ends in themselves but to serve as springboards for further reform.

Let us take some specific areas and benchmark our performance.

1. Trade Liberalisation: I have already fleetingly referred to this. Let me just say at this juncture that the decision back in 1987 to shed Malta’s protectionist cloak and liberalise trade was as essential and fundamental then as it appears tame today, even if this constituted only a first step to stimulate competitiveness and growth. Opening our markets contributed to the enhancement of competition that our industries faced. We now move on to the second phase in this exercise - that of ensuring the unqualified opening of third countries’ markets to our exports thus providing them with global markets and outlets to benefit from better economies of scale and to make innovation and research profitable. The opportunity EU membership provides in this respect remains unparalleled …as long as we too keep our part of the bargain, and continue with the gradual removal of various forms of overt and covert protectionism, like levies and unnecessary government bureaucracy.
   
2. The sooner we are prepared to let go of shackles of the "old economy", the sooner we learn the new rules of the game, and the greater are the chances of success.
   
3. Competition and Consumer policy: In a free market economy, the competitive process must be safeguarded and the level playing field for all players, actual or potential, big or small, must be ensured. Laws to curtail and punish abuses by dominant firms and to detect and prohibit restrictive trade agreements have been put into place. Consumer legislation complemented this regime to ensure that the benefits of more competitive market conditions actually reached the ultimate beneficiary. Today businesses are more aware of their obligations mandated by the competitive regime although much more has to be done and visibly so, to move competition and consumer issues to the forefront of economic competitiveness. A merger regime to prevent market concentrations which erode rather than enrich the competitive structure of our market should be installed. By virtue of the recent amendments to the Competition law, which has just been brought into force, Government rules and regulations as well as the practices of government or parastatal enterprises will also be reviewable for anti-competitiveness. The sooner this is done the better, as it will settle one of the major concerns worrying the business community right from the inception of the competition regime: namely that there was no level playing field here.
   
4. Legal certainty: Business must operate within a predictable regulatory environment if it is to flourish. My government firmly believes that entrepreneurship and innovation will benefit from a consistent and transparent policy framework enshrined in legally binding rules. Hence the broad spectrum of legislation regulating various aspects of our economic and social life. The liberalisation of certain sectors, like telecommunications, broadcasting and financial services have been accompanied by detailed regulation to ensure that the benefits of the competitive scenario are reaped by all in real terms.
   

Two points are relevant here: first, we are often criticised that despite all the legal rhetoric, enforcement and implementation are weak or non-existent. Let me reassure you that this is only the symptom of an evolving economy which is still coming to terms with the rules of a new game. It is certainly not the sign of waning political will. Government is determined to deliver on this front, but this necessarily depends on the co-operation of all actors involved.

Secondly, government realises that entrepreneurship and innovation can quickly be stifled by heavy-handed regulation.

Once there are sure signs of effective competition in the liberalised sectors- and indeed these may show themselves sooner than we think- we have to be more creative in the way we regulate - perhaps by allowing the competitive forces to do their work and reserving regulatory interventions when there is evidence of persistent market failure stultifying the competitive forces themselves.

1. Privatisation: My government’s decision to push ahead with a privatisation programme is another clear message of confidence in our ability to compete. Withdrawing from some of our country’s key economic activities, albeit in a diligent and calculated manner particularly on the social front, government is creating a valuable opportunity to strengthen competitiveness through enhanced efficiency in the relevant sectors.Í
   
2. Education and Continuing Training: Competitiveness and prosperity should not be at the expense of people, but based on our core strength - human resources. My government’s vast investment in educational, vocational and training policies and programmes have over the years developed a well-educated workforce. But we cannot afford to be complacent. We must intensify our efforts to develop and implement a coherent strategy for life-long learning, with a key role for the social partners. Together we must strive to train and retrain our workforce, giving them new skills for the new economy and the digital age, tackle illiteracy, reduce the number of early school leavers and equip young people and adults with basic computing and IT skills, adapt curricula to teach managerial skills and to strengthen entrepreneurial attitudes, with special attention to youngsters and women whose participation in the labour market is far too low.
   
3. SME’s: These are a key source of jobs and a breeding ground for business ideas. Our role is to promote a business environment in which SME’s can fully realise their potential as an engine of economic growth and job creation. Valuable and efficient support services as well as incentive schemes are being provided through the joint effort of IPSE and MDC. But more has to be done to lower the cost of doing business and cutting unnecessary red tape for SME’s. Similarly, SME’s themselves must learn to achieve competitiveness through partnership and synergies that exist in their own business sector.
   
4. Ageing population: Do we want our country to remain a fair and caring society? Do we want our children and grandchildren to enjoy the kind of social security we have come to expect?

We are all after devising a strategy for consolidating our long-term competitiveness, but, as I pointed out earlier on, without giving up the social inclusiveness that characterises our society, and to which my government remains strongly committed.

Yet we must take account of stark statistical facts which show that a rapidly shrinking working force will have to support a rapidly growing non-working population. If we want to preserve our caring and cohesive values as much as our competitiveness, we have to modernise our welfare and pension systems. We have to make them sustainable. My government is tackling this problem with an open-mind, but with the firm resolve that the reforms to be carried out will continue to be inspired by our traditions, our culture and the will of the Maltese people.

1. Correcting macro-economic indicators: Out of all the domestic factors which must be kept constantly in focus if competitiveness is to be nurtured, macroeconomic stability is probably the most important. My government has been thoroughly vigilant in keeping inflation low, in reducing the budget deficit substantially and in inducing a high growth rate in the past two years. These are important achievements. But there is still a long way to go. My government is convinced that we can do and must do better…and as such it remains firmly engaged in its commitment to build the stable macroeconomic framework this country deserves - in the shorter rather than longer term.

THE NEXT STEPS…

Where do we go from here? The formula is far from perfect. It needs constant refining and updating to address the new realities of our young and evolving economy. Much more needs to be done

2. in encouraging research and innovation,
3. in giving more importance to environmental issues in the building of a sustainable competitive economy,
4. in encouraging risk-taking and the spirit of enterprise
5. in cutting down on government bureaucracy
6. in exploiting the full potential of e-commerce
7. in reducing the costs for industry
8. in encouraging a culture of entrepreneurship through the education system
9. to identify and pursue strong offensive interests in a wider range of services
10. in continuing to ensure that our firms have effective access to markets in which to sell their products and services.

…to which I am sure you would like to add your own priorities. We should not, not even for one moment, lose sight of our main task- that of collectively ensuring the right framework conditions for competitive enterprises to grow.

CONCLUSION

Thank you for your attention!