It is also well to remember that some of the losses resulting from closer trade arrangements with the EU would be incurred in any case since Malta would have to give up trade protection measures by virtue of its existing and impending WTO obligations. As I mentioned earlier on, isolationism is counter productive in the presence of the growing wave of globalization and regional integration. As for seeking profitable market niches, this task is best left to the private sector itself provided that it is allowed to operate in a congenial business environment, unfettered by excessive costs or bureaucratic red tape, and where resources can find their most productive use through a properly operating price mechanism. Apart from promoting such an environment, the State can assist through the provision of information and assistance in the taking and sharing of business risks. This would involve the undertaking of appropriate restructuring and business promotion measures by State agencies in collaboration with the private sector, as is being done by the MDC, METCO and IPSE among others. Gone, however, are the days when policy-makers would make the decisions that should rightfully be made by the private sector based on efficiency, productivity and profit considerations. Excessive interference by the State has bred inefficiency and a string of unsustainable corporations. Indeed,  BIS Review 83/2001  3  State intervention aimed at rectifying some kind of market failure has often resulted in welfare losses that are greater than those associated with the failure it was meant to correct.

In this respect, there are significant synergies that are potentially exploitable through better co-operation generally between Government, employers and unions, and specifically between the new MCAST and the private sector. In Malta’s case particularly, being competitive means above all ensuring that production costs do not exceed those of our competitors. And because the cost of labour represents a major proportion of total costs, it is important that increases in its cost are matched by improvements in productivity. Moody’s latest report on Malta observes that “Productivity gains (in Malta) are lagging behind (those) in Malta’s trading partners, partly because a backward-looking wage adjustment system puts a floor under inflation”. Automatic wage increases across the board awarded through indexation and not matched by productivity gains can be very harmful because, by tending to reduce cost competitiveness, they put existing jobs at risk and also weaken Malta’s attractiveness as a location for investment. Labour market behaviour can also be distorted by over-generous social security systems that may encourage a culture of dependence rather than one of self-help. Unemployment schemes, for instance, could benefit from less emphasis on cash handouts and an increased focus on retraining and on improving employability. Loose contributory rules may entice workers to seek underground employment to avoid making contributions without necessarily having to renounce to pension and other entitlements. In the area of social security especially, the country is faced with hard choices. The resources devoted to this area have a high opportunity cost in terms of foregone spending on, say, education and health.