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.

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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.

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