##gone spending on, say, education and health. i believe the time has come to redefine the concept of need and reschedule our social priorities because it is clear that we can no longer afford to provide such a wide range of services for free to all irrespective of income levels. moreover, we must ensure that whatever programmes are implemented, these are done in the most efficient and cost - effective manner possible. which brings us to another important labour market issue that needs to be tackled, namely employment in the public sector, where the extent of human capital absorbed is excessive and where, consequently, productivity is on average lower than in other sectors. apart from imposing a tax burden on the rest of the economy, this is effectively reducing the supply of potential skills to the private sector, thereby not only limiting its growth but also increasing the cost of its labour input. turning next to the product markets, competitiveness can only be hurt if goods and services are not properly priced to reflect the demand for them and the use of resources in providing their supply. this may take place, for instance, through excessively high prices engendered by monopoly situations and cartel pricing. high inland freight costs, for instance, are contributing to erode the competitiveness of our exporters as well as to inflate domestic price levels. another example is the provision of free goods and services by the state. 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 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

in europe, asia and the americas and, as a result, the region rather than the nation state is gaining pre - eminence as the locus for policy - making in the political sphere and for investment in the economic sphere. regional integration is, therefore, rapidly becoming a key vehicle for gaining access to world markets and for attracting foreign investment. there is a growing realization that countries which remain outside of regional alliances are likely to become increasingly marginalized. the external dimension of the economic imperative is further reinforced by domestic considerations. these arise mainly out of the small size of the economy and its lack of natural resources, which translate into a high degree of openness. malta depends heavily on imports for its consumption and investment needs, and equally critically on exports to generate the foreign exchange required to service its import bill. imports and exports each account for around 100 % of gdp. such dependence on international trade is clearly a source of vulnerability. most business activities in malta are thus inevitably exposed to the full force of international competition. producers for the domestic market face import competition while export - oriented firms face an ever - tougher competitive environment as new countries enter the global market - place. in the export - oriented sector, there is a predominance of foreign direct investment that often provides the technical and marketing expertise which is a prerequisite for success. a loss of competitiveness would thus be doubly damaging. in the first instance, there would be a drop in domestic output in favour of imports and a contraction in export revenues. in the longer term, as malta became a less profitable location, there would be a decline in new foreign investment and a consequently negative impact on growth prospects. apart from these structural factors, the need for competitiveness is accentuated by the current phase of the economic cycle. for most of this year the world economy has been on the brink of a recession. following the recent tragic events in the united states, recessionary pressures are likely to intensify. some analysts are predicting that growth this year may be as low as 2. 2 %, with recovery likely to take over a year. against this backdrop of slowing global demand growth, competition will become even more intense, as buyers will be better able to pass the burden of cost reductions on to sellers, while investors will be ever more cautious about the risks they face and about securing reasonable rates of return. indeed, there have already been widespread job losses in many countries as companies retrench and economise on costs.