Fabian Demicoli

The Competitive Strategies for Small States

GRTU – Association
of General Retailers and Traders is Malta's largest private sector organisation.
We represent owner-managed enterprises operating in various economic sectors:
retailers, importers, traders of all genre, distributors, service providers,
fuel distributors, petrol station owners, gas distributors, construction
contractors, self-employed, service suppliers, repairers of all genre, VRT
stations, catering establishments, night clubs, bars, restaurant, places of
entertainment, cargo hauliers, craft shops, garages and various independent
tourism handlers. We also represent fish resellers and vegetable and fruit
importers and resellers. Effectively we represent the people whose living depend
on their own ability to produce a good or a service, sell or resell, and make
profit. More than a third of Malta's gainfully occupied population is engaged in
the sector represented by GRTU. GRTU represents this sector at the highest level
of the consultative process. We are members of the Malta Council for Economic
and Social Development and GRTU is also represented on a wide cross section of
consultative Boards at sectoral level. At European level we participate in
EuroCommerce, the European Federation of National Traders and Retailers
Association, in EUAPME, the European Union Federation of National Organisations
representing small enterprises, and Confiad, the International Federation of
Customs Agents and Hauliers.

 

The Director General of GRTU is member of
the Malta Employment Relations Board and is also a Board of Director of Malta
Enterprise Corporation, Malta Development Corporation, the Institute for the
Promotion of Small Enterprises and the Malta Export Trade Corporation. As you
can easily see GRTU's responsibilities are great. As the economy of Malta
continues to liberalise, more and more emphasis is being placed on the private
sector.

Small businesses, traditionally at the bottom of the nation's
agenda are now recognised for their important economic contribution. The private
sector is divided roughly into two blocks: those who are direct foreign exchange
earners and who therefore need to compete consistently on an increasingly
competitive global market and those who operate on the local economy, selling
directly within the confines of the Maltese economy. The exporters from the
manufacturing sector, those in financial services, international import –
export, Freeport operations, airlines and in the travel and accommodation
trades, are directly affected by the goings in international markets. Other
operators, among them the vast majority of those represented by GRTU, are
affected by international Competitiveness directly as most of the equipment,
supplies and inventories are bought externally and the cost of importation
greatly affect the costing of their economic service. International
competitiveness affects much of their sourcing and supply. They are also
affected by local conditions as they purchase many services locally. In the
services sector, especially, where the ratios of labour costs to other inputs is
high, the cost of labour is an important determining factor and the cost of
labour is not only the direct costs of wages and salaries but also the added
social costs like direct social contributions to the state welfare systems, the
cost of leave, holidays, sick leave and work disruption. Internal operations in
the Maltese economy are also grossly affected. The cost of land, which in a
small territory as the Maltese Islands is permanently on the increase and the
cost of bureaucracy – that is red tape and taxation especially, greatly affect
the operations and costing of enterprises the burden is greater for small
enterprises as they cannot easily spread overhead costs and they act in a very
competitive sector. Many accuse small enterprises of profiteering. They are
often pictured as the promoters of inflationary pressures. This is a gross
exaggeration. There are always situations where super normal profits can be
made, but in highly competitive markets, as is the situation in a liberalised
trade environment as exists in Malta, super normal profits are rarely of
duration more than the very short term. We do have monopolies, mainly in the
utility provision and in certain particular supplies. However the advent of the
Fair Competition Office and the establishment of the many Competition Regulators
in fields like telecommunications, energy and other resources, financial
services, and broadcasting to give a few examples, have made the life of the
monopolist much more difficult.

GRTU as representative of operators who
compete strongly, one against the other and all depending on a derived demand as
generated by the other economic operators who bring to Malta the foreign
earnings that keep our GNP growing, cannot but be in favour of competition. GRTU
leaders have been among the earliest advocates for the establishment of
competition legislation and for the establishment of competition regulators.
Indeed GRTU is probably the most active client of the Fair Competition Office.
We persistently strive for more transparent and effective competition
safeguards.

This may sound contradictory, given that an organisation
like ours strives for the maximisation of profits by our members, but infact it
is not, as GRTU, as a national organisation, knows that free trade is the best
policy for economic growth. This is exactly the strength of GRTU in comparison
to the many sectoral organisations, co-operatives and organised groups that
exist within the economic filament of Malta. GRTU looks at the economy as a
whole. We direct our members away from restrictive practices in trade. Providing
protection for an investment to operate profitably is not the same as the
imposition of restrictive practices. We do insist on the limitation of entry to
trade in certain areas, but this is acceptable only when the number of operators
in a particular area are many and no form of cartel or price fixing exist. It is
also acceptable only when in the absence on control on entry to the trade for
transparent clearly defined economic, social, geographic, demographic,
environmental reason, the likelihood will be a lessening of efficiency and
quality of service and a discouragement to re-investment and technological
advance. There are a number of areas where capital outlays for enterprise are
high in order to operate at acceptable quality standards, and the market is too
small to gain a spread of costs without excessive pricing. In these
circumstances competition gains by ensuring a return to investors while
accepting price controls. Even in these very special circumstances however,
entry remains open to all under specific conditions as the economic or other
basic controlling criteria change. Overall, however, GRTU is against
restrictions on the supply side of goods and services as we believe that
controlling the supply side is not only restrictive of trade but also because it
inhibits economic growth and leads to stagnation and lowering of standards and
increased inefficiencies.

Similarly GRTU is against market intervention
by the authorities that distorts demand, except in those cases where an
autonomous regulation regime recommends changes to safeguard and improve
competition as for example what has happened recently in the telecom field
through the Malta Communication Authority.

The reason for this logic is
obvious. Restriction of supply, entry to trade and market intervention have a
direct determining impact on costs and lead to profiteering. Our operators
suffer from these practices as they pay more for inputs and make others suffer
as they over-charge if lucky enough to enjoy advantages and protective
privileges. We believe that free trade is the best policy. Our members are used
to competitive pressures on a day to day basis and competition does not frighten
them.

What really frightens them is bureaucracy. What frightens them is
the excessive power of the labour unions. In Malta these have such a dominant
effect on the labour market. The labour market in an economy the size of Malta
and Gozo where labour supply is so tight and where labour flexibility is nothing
but flexible cannot tolerate the price fixing of labour as is effectively done
by trade unions when they are as well organised and as politically powerful as
they are in Malta.

Bureaucracy keeps growing. Malta is a signatory of
the Charter for Small Enterprises. We are supposed to be reducing red tape.
Nobody believes that this is happening however. For the little reduced at
Customs or at Trade Licensing or at the Malta Financial Services Authority,
hundred others are imposed by the Malta Environment and Planning Authority and
by the Malta Standard Authority. The bureaucratic structure is too big and it
keeps growing. The public sector is too large for Malta's size. It eats too much
of our national economic resources and the cost on the private economic
operators is too large. The problem is endemic and competitiveness will not be
served if this situation persists.

GRTU strives at MCESD level, at Malta
Enterprise level and elsewhere, through its submissions, for a leaner and more
cost effective public sector. Things are changing. There is a greater awareness
that costs must be related to efficient use of resources but the road ahead is
very long and tortuous. The mentality in the public sector remains one that is
far removed from an enterprise-driven stature. New schemes are being developed
by IPSE as assistance to small enterprise to counteract for the increasing costs
of administrating businesses. Fiscal incentives are hopefully on the way too.
GRTU has been submitting one proposal after another to cause the fiscal
authorities to change their negative attitude towards small enterprises. What's
the use of giving assistance to enterprise when the funds generated by them are
taken away by stifling taxation. Recognition of what are the real problems faced
by enterprise remains limited.

In the absence of an approved index that
measures what the costs for enterprise are, including both direct costs and
government induced costs, and how these costs vary over time so that remedial
action can be taken, Competitiveness cannot have a chance. We cannot have a
competitiveness strategy unless costs are measured and compared and policies are
addressed to resolve uncompetitive pressures. The monitoring of Competitiveness
remains difficult. Insuring that the competitive structure of the market works
and is effective is one thing. Monitoring Competitiveness and devising policies
that encourage Competitiveness and foster improved Competitiveness is another.

MCESD must resolve this issue. A Competitiveness Council within MCESD
has now been established and hopefully work will start soon. GRTU intends to
make this Council work. GRTU intends to ensure a unified national approach to
resolve competitiveness issues. The devising of policies appropriate to the
emerging situation should follow. But action today is on a slow coach. Sometimes
we feel like giving up. But we won't. GRTU is determined to push forward for the
emergence of a Social Contract that binds all parties – labour, enterprise, the
state and civil society in one big effort to keep Malta competitive.

We
must succeed. If we fail we face a difficult future. Membership of the European
Union with diminishing Competitiveness will eventually annihilate us. With
increased Competitiveness Malta could be the success story of the EU in the next
two decades.

 

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