Monthly Archives: April 2021

Some notes on the impending housing crisis.

Some notes on the impending housing crisis.

This series about rent-seeking is just a collection of notes for the compilation of a much larger work. Footnotes and research for this piece are missing.

Smoke weed and live with your parents. There is one big elephant in the room that has been consistently ignored by Government and the political class. As Deoborah Schembri, the Labour MP, takes on her role as representative of the construction industry, Government expects you to believe that this revolving door is a normal occurrence. There is little excitement by the youths over the decriminalisation of cannabis as they struggle with the very serious social problem of today. After all, there is no amount of weed that is going to console a young couple who can’t afford to buy their first home. As a politician who supposedly is working to solve this kind of problems, Deborah Schembri is not ashamed to show you whose interests she is fighting for. Jungle rules.

The socio-economic impacts of rent-seeking are quite apparent. Sure, we have a serious geographic problem of land scarcity and a growing population and this is not of the Government’s making, but as the political-class has been interwoven with the rent-seekers for many years, they have only made it worse. Given that we have no natural resources, the economy is strictly labour-intensive meaning that economic growth can only be achieved by increasing the productivity of labour. If we don’t innovate and the value of production doesn’t increase, the only way to increase the productivity of labour is by increasing labourers. Throughout the last seven years, the Government has raked in more taxes with the expansion of the labour force, foreign workers were brought in, and more women entered the workforce.

As the population keeps growing, and property prices increase by far much more than wages do (see article on economy 2019) and property keeps getting bought at a steady pace the inevitable housing shortage emerges. Smoke weed and live with your parents.

The structural policies which should address this issue are missing because it is not in the interest of the political party-donors for Government to find a solution to this problem. If Government would increase the supply of housing and address market imbalances in terms of demand, profit margins in the construction industry will be cut and property prices may correct substantially.

A recent article in The Times quoted a study that 55-cars are added to our streets every day. Instead of addressing the problem right away with an underground metro, we have sloshed away our national funds into more roads reducing potential building space. Quality of life deteriorates with increased traffic congestion but an erosion of the quality and affordability of homes is exacerbating the erosion of the quality of life. The answer to your problems? Pay for a gym membership. 

A brief-history of Maltese rent-seeking

A brief history of Maltese rent-seeking

During Nerik Mizzi’s funeral in 1950 two lines were formed: one before his family to give condolences and another one before Ġorġ Borg Olivier which included the top merchants and businessmen of the Islands. Naturally, they were asking for favours, most of which were acceded to up until the Nationalists controlled the government in 1971. Some of the families who own the biggest retail chains of today got land from the requests made during Mizzi’s funeral. Others, in the 1960s, got much, much more.

National Bank of Malta Logo

The history of rent-seeking in Malta has never been researched. What I know is from many years of research, and oral testimony of many people who preferred to share their information with me before leaving this world. When, as an undergraduate, I began studying Maltese economic history, rent-seeking and corruption came up inadvertently, but most of it in sporadic forms of data and information. My focus was elsewhere and I never took it seriously. Also, today, I am working on a series of unfinished papers and books, so there won’t be any time soon when I will take up this subject and study it rigorously. These blog posts may serve me as a dump for the crude data that I have on this subject if I would be tempted, many years on in the future, to re-open this subject more rigorously.

Rent-seeking was not only a hindrance to the economic development of the Islands, but it was also a hindrance to the intellectual and educational growth of society. Given that we never had any incentives to study this subject, we will always have problems in understanding the deep-rooted problems of our society which as of consequence hampers our ability to develop even further as a society.

We barely have critical work on the Maltese economy let alone critical work which addresses the history of corruption and rent-seeking in the Islands. The academics at the University of Malta aren’t incentivised to write and study critically on these subjects – they are only incentivised to write simplistic and acquiescent reports which serve their paymasters – mostly the government. Gordon Cordina, who today is Chairman of Bank of Valletta is an excellent example of this. An academic who made a career writing reports and papers which tell and say what the paymaster wants to hear eventually landed himself a top job. Today, in Malta, no economist is talking about the impending risk of the abolishment of tax-havens around the world, even though, the Democrats have since Obama, made it clear to be their long-term mission. No one wants to hear about risks.

But this is not the topic of today. Today, we speak briefly about how rent-seeking flourished ever since Borg-Oliver took the reigns of government in the 1960s. Not to say that Borg-Olivier introduced rent-seeking in the Islands – on the contrary. Rent-seeking has been in Malta for many years, but my knowledge goes so far. And for a very particular reason as well. The 1960s was the great rent-seeking boom.

With the excuse that Malta needed to develop itself quickly to create thousands of jobs, the Nationalist governments of the 1960s gave away a lot of public land to some of Malta’s top 40-elite families including the land where today sits the Dragonara Hotel owned by the Bianchi family and the land in Attard where Corinthia Hotel was formed owned by today’s hotel magnate Alfred Pisani. Many other lands were given away practically for free to many other families who built hotels, factories, and in one case even a shipyard, and the list is rather substantial. Many of these businesses are today still operational, but some of them have leases (99-year) that are closing soon and the government will have the possibility to renegotiate these deals. Of course, most of these negotiations are made behind closed doors.

The big land grab of the 1960s which also came with a myriad of tax incentives, left the elite with plenty of capital to slosh around. But most of this capital wasn’t invested in productive businesses, it was invested in the construction industry to build high-priced villas aimed for the British clientele, and a wide range of apartments which catered for all type of spenders such as high-priced apartments in Sliema to cheaper options in Buġibba. The Islands were flush with new construction projects and property prices were rising so fast as to create a serious affordable housing shortage which lead to streets-protests by young people.

Then the bubble popped. At the turn of the decade, the speculative bonanza in land and construction dried up. The economic development plans of the Nationalists failed to bring about a substantial change to the economy as immigration increased. The lessening of trade barriers in textile industries posed a risk to one of Malta’s emerging niches and Europe was also entering into severe economic difficulties. Bottom-line the property buyers dried up, and as high-priced properties could not be matched with the purchasing power of the locals, the property market got busted and the construction industry practically halved. In the early 1970s you would drive through streets looking at many abandoned construction projects still under construction.

Then came the crisis in Maltese banks which were overly leveraged in the property market. But maybe overly-leveraged would be a too diplomatic description since most of the investments of the local banks were actually in the property and constructions businesses, many of them in projects owned by the same bank-shareholders. There were significant economic risks to the run-down in the National Bank which as of today have not been properly studied. And few, today, are ready to admit that the National Bank failed because of the bust in the property market, and for obvious reasons. One of the biggest risks to local banks today is that they are heavily dependent on the local property market, but of course, it’s a very different market from that of the 1960s and 1970s. When faced with the National Bank crisis, Mintoff had very different ideas to today’s central banks and economists. Instead of bailing out shareholders and providing the bank with extra liquidity, Mintoff simply forced shareholders to hand over their shares to the government on the pretext that the bank was bankrupt and depositors interests needed to be protected. Mintoff punished share-holders and defended depositors.

The problem with Mintoff, however, was that he did not end rent-seeking. He merely changed it. And with Malta’s economy booming to previously unimaginable highs, Mintoff had ample room to allow and manage rent-seeking as he deemed fit. Enter, the low-life rent-seeker. See, Mintoff, despite his genius had some very weird ideas. He reasoned that given Malta’s resources were throughout history mostly appropriated by the same 40-families, it was only fair to suddenly allow poor people to get a piece of the cake for free. This is not to say that people like Albert Mizzi didn’t do some rent-seeking under Mintoff’s time, Mizzi was after all Mintoff’s confidant. What Mintoff did was to merely transfer the rent-seeking regime to the working classes away from the grip of the 40-family elite. The result was a disaster and produced monsters like Tumas Fenech whose only claim to riches was his fraudulent and corrupt dealings in public government lands in the 1970s and the 1980s. Some could get away with a boathouse in Marsascala while others could do with large parcels of land for more effective business interests. The field was free for crooked low-lifes who supported Mintoff and his henchmen. One can not fail to mention Lorry Sant in this story. Sant was a long-time socialist militant and Labour Party activist who had honest and principled political ambitions. But when Sant was rejected by his party-comrades in 1977 in the leadership race, his self-pity and sense of rejection turned him into a vindictive and corrupt monster.

When the Nationalists came to power in 1987, the rent-seeking regime changed again. It was once again the turn of the rich and powerful to gobble up some pie. Eddie Fenech Adami, an incompetent village lawyer whose only name to fame is leading Malta into the EU, was surrounded by proposals of all sorts. The Gasan family had wanted the power station ever since Fenech Adami took power – only Joseph Muscat made their dream come true. Fenech Adami was also aware of most of the corruption happening around him especially Ninu Falzon’s, John Dalli’s Austin Gatt’s. Most of the corruption was covered up for the Party’s interests and the press back then was very docile to the Nationalists, even despite several smoking guns staring right through the corrupt. For example, we have known that John Dalli owned secret off-shore accounts in the British Virgin Islands, ever since he was involved in selling Mid-Med Bank to HSBC. The intelligent and smart minds around PN closed an eye to all these shenanigans, and life moved on because turning Malta into a modern country in the European Union was all that mattered. Under Gonzi, this rampant rent-seeking continued to large excesses until MaltaToday finally uncovered the oil scandal which happened under Austin Gatt’s own eyes. His undeclared bank account in Switzerland was never investigated either.

So what about Police Commissioner Rizzo? See, John Rizzo, although he would like us to believe that he is a very upright man, never intended to alienate his political superiors. The judges who were charged for bribery under his tenure were not a political liability to PN. Rizzo moved mostly when his masters moved him, and even when Rizzo moved against crime, it was only against that kind of crime that did not delve into the interests of powerful people. Who is Rizzo? Rizzo was a Labourite who changed his political allegiance on the day of the 1987 election result and commemorated his change of heart by beating up rowdy Labourites in the Cospicua police station.

One stark contrast in the way Rizzo operated was his war on drugs. Tonio Borg, the zealous Christian conservative had in anticipation of Malta’s membership with the EU started pressuring Rizzo to rile up the war against drugs. Throughout Rizzo’s war, the big boys in the drug trade were never arrested – it was only the street hustlers and the middle-guys who got busted. Some of the top criminal elements in the smuggling trade which were related to PN ministers made the intelligent move to take a step back and for some years, Malta had a severe shortage of drugs but especially of marijuana and high-quality heroin. The cocaine kept pouring in because the demand came from more established quarters. This situation kept going on until some of the street-hustlers linked to notable, corrupt, PN ministers complained to them their business had dried up. The pressure was made and in the Summer of 2012, a network of smugglers in the Freeport that were connected to the same PN ministers started bringing in a massive bonanza of new supply. Naturally, some of this money flowed into political donations to the PN – unofficially of course.

And this is also why it should be no surprise to anyone that even Joseph Muscat had a conscious and close proximity to criminals like Yorgen Fenech. The criminal underworld is by far more connected to our politicians than what we are allowed to believe. After all, one should also not be surprised why none of the alleged corrupt cases of the Nationalist governments was thoroughly investigated by the police commissioners which were appointed by Muscat. Police Commissioners under Muscat served as his lapdogs and Muscat’s policy on corruption was that of total tolerance. Remember that Mark Gaffarena, a rent-seeker par excellence who (diplomatically speaking) garnered his wealth in very dubious ways, was allowed to take a property in Valletta for free because, under Muscat, criminal and illegal activity by the government ministers was permitted and normalised. In fact, Michael Falzon, the Minister who signed away the property to Gaffarena is still a minister today as if what he did wasn’t a corrupt act.

And today? Well, there is no reflective thinking about these matters by the Government of today. We are being fed the lie that we should bury the sins of the past and move on. History shouldn’t serve its purpose and academics are too busy licking boots and being complacent to act as independent and free-thinking individuals. The only problem with this attitude is that you are burying the problem instead of addressing it.

ONE and the Rent-Seeking Apparatus

One of my major arguments in my historiographic work is that Malta’s economic development was strictly and solely due to foreign direct investment. This means that the local elites, who traditionally where in cotton, imported most of the food and served the occupiers with services, had a very little role to play in the economic development of the islands. Practically, since the island had no resources at all other than limestone, lacked water and land, the only economic activity it could generate was by direct investment coming from abroad. The mono-crop economy by itself did not survive the test of time either. On the other hand, local elites were not entrepreneurial and as they ended up investing most of their capital in property and foreign stocks, as reported consistently with British Commission Reports in the late 19th century and early 20th century, the local elite never generated any productive value in the economy which created enough jobs and economic development. Ironically, and many miss the point in basic Maltese history, this is why the Mintoffian years were crucially significant in the history of economic development, first and foremost not for its socialism but the inflow of foreign capital.

Now, such historical work, which I haven’t practiced for some years, is rather laborious to produce (right now, I’m working on different material). So, I’m going to stick to the present rather than get all convoluted with the past. The point here is that some things haven’t changed. Rent-seeking is still the rule of the game for local business and this hurts honest businesses and entrepreneurs who compete fairly. We are lead to believe that these rent-seekers are important, when in fact they aren’t, as most of the economic activity generated today is generated by foreign companies while the local rent-seeking apparatus bleeds the economy of its resources. Albert Mizzi made a killing off Tigne Point because he got it practically for free not because he paid a fair price for the real state. Similarly to Silvio Deobono who got the ITS property for a discounted price. This practice has been replicated in history many times over leaving the rest of the people without jobs and housing. No wonder the British Admiral had god-status in Malta, and was by far, much bigger in the imagery of the people than any other well-dressed Maltese. Today, the end result of this long-historical process of rent-seeking is visually apparent to everyone. The country is flush with horrible over-priced buildings and an infrastructure which is continually clogging the country with cars and traffic jams. Some contractors could even get away with knocking down the homes of people in the course of their works until the practice ended with the death of a woman in Hamrun. No wonder many members of parliament want to send their kids abroad, but they will not tell you this, of course.

The Labour Party was supposed to turn the tide on Malta’s rent-seeking apparatus but Joseph Muscat ended up being a fraud, after all because that’s what you would call a politician who would dupe his party and most of the country with his pseudo-benign intentions. Rent-seeking didn’t end under Muscat – it exploded literally with a dead journalist. And we, who supported him, are all to blame for this in many ways, but being self-pitiful has never been my way of life (despite my rare and sporadic, emotional outbursts which I may have had like any other human being), so I agree in trying to look forward and try and build a better country. Not many would agree with me, however, especially the Labour Party which is currently in denial over its responsibility for Malta’s state of affairs.

See, the rent-seeking economy is all about the greed and selfishness of a very small number of people who are abetted and aided by a bunch of political morons whose only talent in life is to scam their way into a political career. That’s right. There is no incentive to get into politics so most who do, do so because they are incompetent to provide a valuable service to anyone in real life. There are exceptions of course. Chris Fearne, for example, was a very successful surgeon before he entered politics. Others are or were criminal lawyers who legislate on laws that may often directly benefit their clients. Same with architects. This is why you don’t see engineers, scientists, historians, or mathematicians in politics – these kinds of people would not bother and they don’t need to get a €40,000 kickback from Yorgen Fenech covered as a property-deal commission to get by in life. Politics is an open outlet for corruption.

How about Keith Schembri going to prison? Isn’t that a good sign? Here’s the thing, however. Keith Schembri is the first high-profile figure in Maltese history to be investigated over corruption and thrown to prison and was only sent to prison thanks to Daphne Caruana Galizia’s work who had collected enough information about him that could potentially send him to many years in jail. It was unusual that for the first time one single journalist had made such a rupture in local journalism, so much so, that it lead to her assassination. The reality is that everything that is being unraveled today is owed to Daphne Caruana Galizia while the Labour Party refuses to acknowledge its part in setting up the stage for this macabre situation.

The political parties’ TV stations hold a very important key to the answers we seek from the rent-seeking apparatus, mainly because they are the front of this apparatus itself. Let’s start with the most important conditions. ONE TV is not the Labour Party – it is the OPM. Jason Micallef is simply the person who signs the cheques and cheerleads the gross maleficence of the station’s editorial line. Joseph Muscat created a system whereby the political propaganda is dictated by OPM which is then handed over to the parliamentary group the Party and its media. Everyone toes the line on the reply given which supposedly would be universal. Now, who dictates this line?

It is the people who would go to the Party Headquarters and donate substantial sums of money to the Party with the promise that they would be supported in their projects, government tenders and land deals. Look, this is not just with Labour. It’s the same with PN. What Joseph Muscat did was simply to copy PN’s playbook and adapting it to the extreme. Previously, PN had Żaren Vassallo. Labour has Joseph Portelli and the Zammit-Tabonas who all of them gave donations to the Party which exceed the legal-capping. Sandro Chetcuti was another donor. These people give money to the Party intending to get something back from the government with the Party fully aware of the intentions behind their gifts. Permits are mostly sought, but so is government-land and contracts. It is also why James Caterers and Silvio Debono got a 274-million Euro surprise contract from the government to expand its old people’s home.

And guess where this money goes? It doesn’t go to the Party either. It goes to ONE. Similar to how Silvio Debono used to subsidise the Stamperija. Why? Because party TV stations are not economically feasible. Who gets the top seat at Malta’s economic policy kitchen cabinet? It’s the guys who slosh their money away to the Parties and that is why we hear politicians speaking mostly of construction and tourism projects. It’s a very simple game if one gets it. But I’m not saying anything new, ain’t I, we all know the game is rigged and that’s how it rolls. But guess, what? This whole primitive operation is illegal from top-to-bottom and it only takes enough resources allocated meticulously to bring it all down by independent authorities. It is not only illegal due to corruption, bribery laws and political financing, but it also illegal because it often contributes to cutting some of that tax bill of the donor. What not to like? A political donation can cut down tax if booked creatively in the accounts with the potential reward of getting a nicely signed government permit for another project. Bargain.

And what does ONE do with this money? It propagates the OPM’s propaganda which is entangled in this spiral of rent-seeking. Again, this is why one of the most popular figures on ONE is Robert Musumeci. Given that the construction industry, despite being one of the smallest industries in size amongst most other industries, is perceived to be so important. So, it is no coincidence that the guy who prostrates at his masters and showers praise over the dictator even when the crowd is knocking the door over the dictators-head is the same guy who designed Malta’s development regulations – Robert Musumeci. So, it’s one big racket, you say? And one big scam? Yes. The donors donate their money to the party and they have their economic policies shoved down the people’s throat with a televised broadcast. That’s how the game goes. The cheerleading presenter to all of this, is, of course, another fraud.

Indeed, if you corroborate the money trail of a political party TV station and corroborate it with official government land deals, permits and tenders, you may get surprisingly very interesting results. Naturally, that of a tangled web of illegal behaviour and corruption. And this shouldn’t only apply to ONE, but also Net TV. This is not about a bunch of individuals who made a couple of mistakes, but rather a self-perpetuating system where the sharks keep preying with impunity. Empty the water of the aquarium and let the sharks die. Start with the political-party TV stations because that’s where most of the answers lie. Better and healthier fish will come along later.

Words have little meaning when they come without any action. Failing to realise the real state of affairs of the country is the biggest relapse the Labour Party is making into old habits. We are being fed the lie that if we pass the Moneyval test and make some Venice Commission reforms, everything will be all right and business will be fine. The reality is that the historical problems of our society will remain. Unless rent-seeking is addressed structurally we will preserve our economic, social and civil problems.