‘We need to reassess our economic ecosystem’

The 2020 National Employment Policy (which you co-authored) states that: “Both the Government and the opposition currently oppose [an EU directive to raise minimum wage]… This is noteworthy given the fact that Malta’s economic growth and performance over the last five years has exceeded that of most of the other [EU] countries.” Am I right in understanding, then, that there are no real economic impediments to increasing wages in this country?

Let’s start with this: when we discuss ‘economic growth’, we tend to talk about it mostly as an indicator of economic well-being. Basically, it’s a case of: “so long as the economy is growing, it means that everything is doing just fine.” But I always bring up the argument that we need to look at two elements, at a national level. Yes, there is economic growth; but then, there is also the element of inequality, and social growth.

This is something that also emerges from the National Employment Policy, as well as other research on the subject: despite all the economic growth we have experienced, inequality has increased throughout all these years. Now: why did this happen? Mainly, because wage increases for highly skilled people have increased at a much faster rate, than wage increases for people with relatively low skills. And why, in turn, did that happen? Because today’s economy demands more highly-skilled, than lower-skilled jobs. This might not seem fair, but it’s a reality; a fact that we need to get accustomed to.

Now, you might ask: does that mean we no longer need lower-skilled jobs? No, of course not. The reality is that all jobs are still needed, across the entire spectrum. But in terms of proportionality, the fact remains that there are fewer people with high skills; and the demand for those skills is higher, in today’s job market. On top of that, there is also a correlation with productivity. Higher-skilled people tend to be more productive, vis-a-vis lower-skilled people; therefore, their salaries are higher. It is how economic forces work.

So the question becomes: what can we actually do, to address the issue of inequality?

This is what I meant, when I said [in another interview] that: ‘education is the key to better wages, and better quality of life’. Yes, we can always discuss ways to further improve the distribution of income – even though we still have to be careful, there. Because while there are sectors with relatively high productivity, which today already provide higher wages… there are also sectors, like agriculture, where productivity is relatively low. So how can you have better distribution of income, in those sectors which are already under such high pressure? That’s another issue, right there…

But still, the key to addressing this inequality remains education. Now: when I talk about education – and I am very passionate about this subject – I don’t mean that ‘everyone should get a degree, or a diploma’. But ideally – wherever possible, of course – everyone should at least have some sort of skill. This is because education leads to a better quality of life, by providing the individual with more autonomy, to think and to take everyday decisions.

When we look at Malta’s statistics, vis-à-vis the EU, we see that our levels of people with lower skills are higher than the European average; and at the same time, we have lower levels of people with moderate skills. Now, when you look at job openings in Malta – and especially, the job openings that are expected to arise in future – ‘medium’ and ‘higher-skilled’ jobs, represent a higher proportion than ‘low-skilled’. This could imply that at some point we might even have a low supply of medium to high skills; and a high supply of low skills in relation to demand.

So the first step there, is to try to get as many of those lower-skilled people as possible, to acquire intermediate, or technical, skills…

Is that always possible, though? You mentioned agriculture, for example. What would ‘acquiring intermediate skills’ really mean, in practice, to farmers? That they should learn a different trade, to command a better salary? And if so: wouldn’t that also spell out the end of agriculture, sooner or later?

No, I didn’t mean that they should ‘learn a different trade’. Skills give you the possibility to be more flexible in terms of your job and thus adapt to changes in the economic environment more easily.

Let me put it this way: all along, over the years, we have talking about the importance of building up a ‘knowledge-based economy’. We have been stressing the need to invest more in R&I (Research and Innovation), and so on. What we are fundamentally talking about here is that we need to transform our current economic model, in order to future-proof it by integrating technology and innovation.

Applied to agriculture, that could also mean creating new opportunities in ‘vertical farming’, for instance. That would be one way – involving R&I – to increase productivity, as well as overcome the problem of limited space, etc. And there are others, such as the need to climb up the value chain of agricultural produce through processing facilities: which still are lacking locally.

In Aquaculture and Fisheries, too, there has been a lot of investment in R&I to see how they can improve their productivity: new hatcheries, different technologies, and so on. So the demand for ‘medium-to-high’ skills exists, even in primary industries. The potential and possibilities are there right in front of us.

Yet there is still a perception that local wages have not really increased, in step with qualifications. University graduates often complain that their degrees do not, in fact, translate into the higher salaries they might have expected: or that they might actually receive, for the same work, in other countries. Don’t they have a point?

Wages are set on the basis of various factors, such as: the rate of unemployment; the quality of supply and demand of the workforce; the country’s economic, political, social, and environmental situation; the industries we are attracting, the type of companies investing locally. It also depends on the local standard of living… like everything else, however, it ultimately depends on demand and supply, in line with the overall productivity and our national competitiveness.

In terms of wages in Malta, the reality is that we’ve actually come quite a long way. Wages have certainly increased, over the years. This needed to take place also because our labour market is in competition with that of other EU countries.

If we remain with the sort of economic diversification that we have today, without attracting any new value-added industries… then the likelihood is that we will stall, in terms of wage-increases. But if, on the other hand, we enhance better industry-linkages – like I said earlier: by investing more in R&I, in industries such as agriculture and fisheries, and so on – and if we look at how each individual sector can grow, within the economic ecosystem… then better job opportunities will be created; productivity will be increased; and as a result, we will see better wages in future.

But doesn’t the wage discrepancy, between Malta and the EU, create the risk of a brain-drain?

Yes, it does. But I also believe that the risk of a brain-drain is not only related to wages. Here, we are talking about the aspect of ‘talent-attraction’, and ‘talent-retention’. And this is an issue that I believe needs to be properly investigated; because while it is important to look at wages, it is also important to look at what can elevate those wages and thus the determinants of talent attraction and retention which also include the state of the environment around us.

Why are people leaving Malta, for instance? We know of certain industries which successfully attract foreigners to Malta… but then, many end up leaving after a short while (the average is around three years). Why is this happening? This is something we need to look into: because talent retention is just as important, as talent attraction.

Meanwhile, there are many young Maltese students, or graduates, who leave to gain experience abroad. Don’t get me wrong: that is something positive, in itself; but… what are we going to do, to attract them back?

Again, this is why it is so important that we attract new industries. Just yesterday, for instance, Energy Minister Dalli announced that government is investing in a new research and innovation hub in Birzebbuga. Now: I haven’t had time to look into the details yet, so I can’t comment about this particular project in detail. What I can say, however, is that this is the kind of investment we need; the kind that has the potential to create exciting new job opportunities to attract, and retain, young people. Other investment that we need is, for example, in the 10 sectors mentioned by the Nationalist Party.

So I think that both parties are realizing that it is important to start thinking about how to attract, and retain, talent, if we want to remain competitive and productive in future.

This is important, also because Malta is still considered as a ‘moderate’ innovator by European standards. If we compare our R&I expenditure to the rest of the EU, we are still at a very low level. So these are the kind of opportunities that will help in retaining talent: because we need to create jobs that are interesting enough, for young people to choose to remain in Malta.

I always say that: OK, it’s good that we talk about the I-gaming and Financial Services sectors so much… but the rest of the world is not ‘waiting for us to catch up’. The global economy is changing, as we speak; there is a lot of investment already happening, out there; and locally, there is a lot of potential, and a lot of things we can do…

This brings us to another issue: competitiveness. It is an open secret that Malta’s preferential taxation system – which has been instrumental in attracting new economic sectors, in the past – is now under threat by the global drive towards ‘tax harmonisation’. If we lose that competitive advantage… how are we going to keep attracting new industries?

Well, this is why I think that we need to reassess our economic ecosystem. We need to have a proper rethink, about what makes Malta attractive and competitive in the first place.

Let’s face it: if you look at Malta only at a national level… our economy is small. Our land is limited; we have no natural resources, to speak of; we are exposed to competition… so our only resource, really, is our people; our human resources.

So if we want to remain attractive, we need to invest in our main resource – our people. We need to invest in building up our human resources, from the ground up: which implies revisiting our education system, and asking ourselves how it can be enhanced to meet the current and future depends of the economy. We need to constantly invest in building, and re-building, the skills of our workforce… and above all, the flexibility of those skills: because they have to be flexible enough, to adjust to the environment out there.

Let’s not forget that the economy is constantly changing: people’s demands change all the time; and so do the types of investment we make. In the recent years there has been a lot of debate revolving around the construction industry: the way we build, the materials we use, etc. So even people employed in the construction industry need to reskill themselves, and to be flexible in terms of the skills other employees in this industry (architects, surveyors, builders, draughtsmen, etc.) have.

So basically, we need to focus more on our human resources. We need to market our human resources: to advertise ourselves, as a workforce that is capable of being productive and agile, and integrating into the new economic reality: digitalisation, the ‘green economy’, and so on.

We also need to start seeing the economy more as ecosystem whereby fragmentation causes sub optimal results. Therefore the whole supporting infrastructure becomes critical such as banking facilities, physical infrastructure, entertainment facilities, quality of life and regulatory quality.

When looking at Malta’s economic development over the years, regulatory and jurisdictional innovation were key to our performance. The maritime and aviation registers, the generic pharmaceutical industry and the financial services and insurance sectors were all based on innovative laws. Malta used its jurisdictional power innovatively and effectively. I believe that we need to refocus on rebuilding this capacity to not only design, but more importantly, implement such innovative developments in a holistic manner.

And this is why I keep stressing on the need for skills. It’s not just about having degrees, or diplomas; it’s also about understanding that we really have to adapt to the new economic realities of today’s – and even more so, tomorrow’s – world.