Knocking Down Muscat’s Post-Fordist Equilibrium
Joseph Muscat’s economic strategy pulled Malta out of recession, yet Muscat’s post-Fordist model has also brought new economic and social problems which will intensify in a short and long-term horizon if they are not addressed. In order to address these new economic and social problems a new economic strategy is needed especially in the context of an international economic and political landscape which is changing very rapidly and becoming increasingly volatile.
As explained in my previous article, Malta’s economy and its underlying problems from a fundamental viewpoint, the rapidly rising value of property has excessively outrun the rise of wages. As wages in 2018 have grown at an estimated of 20% from their 2013 levels, the value of property and rent has grown by up to more than 100% in the same time-frame. Speculation on property has not abated and building regulations including enforcement of the same regulations have been kept unchanged, allowing for the unperturbed and chaotic frenzy of construction to go on. During the last couple of weeks, several incidents took place where building contractors literally knocked down neighbouring dwellings sending their dwellers out into the streets. Government has reacted by halting all excavation works until new regulations are drawn up, yet new regulations are being drawn by the same people who lead us into this dire mess in the first place.
Robert Musumeci is government’s prime consultant on building and development regulations and reportedly made a killing from the same ODZ policy he helped design. Musumeci is an ex-Nationalist Party mayor who broke ranks from his party and today, in showing gratitude to the government which helped him become richer by providing him with the best possible conflict of interest in recent Maltese planning and development history, is often seen on television parroting propaganda for the government. Meanwhile, government still keeps on its payroll as a consultant, Sandro Chetcuti, a construction developer who represents the Malta Developers Association. One of the members of the MDA is Michael Falzon, a previous Nationalist minister who as minister had concealed his money from the public’s view in a bank account of a Swiss bank.
As also explained in my previously article cited above, the GDP component for the construction industry is by far much less significant compared to the GDP component for services such as igaming and tourism. Yet, government does not seem to intend to reduce the attention and importance it is giving to the local construction-lobby. Clearly, Muscat’s post-Fordist method with regards to the construction industry is failing ordinary people in every aspect, but this should have been obvious from the start. Finding a compromise between the social and economic interests of the community and the highly speculative local-construction industry is impossible when developers have free rein in their operations, dictate government policy and can effectively ruin people’s lives with impunity. As of now there is no balance, and the least government could do is to reformulate its policy and laws with experts who are not conflicted and have the interests of the community at heart, however this may be too late as we reach a near-crisis point on social and economic levels. Instead, a much more rigorous approach may now be needed, preferably a new economic model which would address the construction industry as part of larger and systematic framework based on a long-term time horizon in order to provide stability in the market.
Malta, like the rest of the Western world will be facing challenging times as the world heads to a recession, and the once the recession starts, the mostly affected industries will be those which are most highly speculative and most at risk. Malta’s construction industry will be the first to be bitten when the international economic scenario begins to get rougher, however this does not mean that property prices will tumble to pre-2013 levels. History can help us get an idea of what could happen. Every time Malta entered a recessionary period, such as in 1969, 1980 and 2008, property prices never tumbled, but real-wages did receive significant pressures downward with precarious work and underemployment increasing rapidly especially in 1969 and 2008. This means that there may be no light at the end of the tunnel for average-wage earning individuals when it comes to future property prices. The key to the issue may lie in supply and demand, unless direct controls on speculation are put in place.
Muscat’s economic policies may have been excellent at getting Malta out of its stagnant recessionary state, but times have already changed significantly since 2013 and Muscat’s post-Fordist model is becoming increasingly outdated in today’s economic and social challenges. As always, Malta needs to adapt to its economic surroundings and in doing so it needs to be innovative to get an edge over other countries. As of now, Malta’s tax laws have helped it earn its income by attracting foreign direct investment – this is what has always been the main key for Malta’s economic development. Malta does not have an industrial bourgeoisie and neither does it have an entrepreneurial class which invests its capital in long-term productive investments. Speculation in real estate remains king for local capital with the industrious entrepreneur being the exception rather than the rule. If all our economic sectors have as of now thrived and prospered with foreign capital, why not consider adding the foreign capital-investment factor in local real-estate as well? This should come with a new regulated framework as part of a holistic economic model.
One economic sector Malta has never been part of is investment banking. Government has as of now done the right thing by increasing its stake in local banks, but to what end? We should now take the opportunity to begin considering the creation of a Maltese investment bank by partnering with a foreign investment bank which would bring much needed capital to our economy for investment projects and additionally, affordable housing. A large affordable housing project backed by an investment bank with combined local and foreign capital can break the back the of the local construction-lobby regime. After all, this government has sold cheap land to several local magnates to build luxury-apartments. Instead, government could sell its land at even higher prices for large affordable housing projects. The projects would keep the construction industry going while at the same providing an amount of property stock to the extent of stabilising property prices on a long-term basis while allowing wages and salaries to grow.
Obviously, we have to get rid of the Musumecis and the Chetcutis and all the incompetent and greedy Nationalists who have jumped on Labour’s bandwagon simply for their own personal gain. We need to step up our game and realise that our future does not depend on the corrupt, toxic and the dumb-cowboy capital of the local property speculators. We have to overhaul our planning and building laws and have them written by independent experts, step-up enforcement and purge our planning institutions from incompetent and insalubrious directors and CEOs who have nothing to offer but their stupidity and their moral corruption. Meanwhile, we have to draw up a new economic plan and begin exploring the possibility of building our own investment bank which may be used as an economic power-house and a strategic asset for our social and economic development. The days of dumb-cowboy capital should end once for all.