This may encourage an excessive demand which, in turn, can only be accommodated through higher expenditure, which then absorbs resources that could otherwise be productively used by the private sector. I think it should by now be clear that enhancing the economy’s competitiveness is in everybody’s interest. As I have suggested, securing this objective requires a number of wide-ranging reforms to the  4  BIS Review 83/2001  labour market, the wage indexing mechanism, the educational system, the social security system, public sector employment levels and bureaucratic procedures, the provision by the State of free goods and services and monopoly practices. These involve making difficult choices between, on the one hand, a status quo that shelters categories of individuals to the detriment of the growth, and indeed the sustainability and livelihood, of the rest of the economy and ultimately even of the sheltered individuals themselves; and, on the other, reforms that may cause pain in the short run, but which could secure the entire community’s livelihood by ensuring the economy’s competitiveness. A shortterm oriented approach would likely lead to bad choices which we and future generations would come to regret. And this brings me to my concluding point, which is in the form of two questions. If there seems to be such a wide consensus regarding the presence of inefficiencies in our economy and about the need to eliminate them, why has Maltese society been so lethargic in undertaking this vital task?

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.