Society does not exist to boost private profitability

The Malta Employers’ Association this week published its recommendations to government ahead of Budget 2019. Several of the MEA’s proposals are noteworthy and commendable; the need to develop a sustainable blue economy, for instance, or to phase-out of diesel and petrol vehicles in favour of electric vehicles.

There are, however, some questionable proposals, particularly involving three of the association’s main concerns: wage inflation, collective bargaining, and the housing sector.

Regarding Malta’s wage structure, it has long been argued that wage increases achieved over the years – either through the COLA mechanism, or negotiated privately between employer and employees – have not been enough to keep up with the rising cost of living. The MEA is right to individually identify a number of the inflationary pressures resulting in demands for higher wages: the skyrocketing cost of renting property in Malta, for instance.

Its reasons for resisting such demands, however, are harder to justify.

The MEA argues that “low value-added sectors which employ thousands of employees are prone to lower profitability margins in order to retain employees.” But even if ‘profitability margins’ are indeed lower for some sectors than others, the fact remains that overall profitability across the board in on the increase.

The argument would hold a lot more for times of economic recession, when any change to the profit margin could indeed wipe out entire sectors. But businesses today are booming, and it is absurd to argue that – in all but a few sectors – paring down profit-scales by a small margin would result in any form of economic catastrophe. In most cases it would merely result in a slightly lower annual profit, and a considerably better quality of life for employees.

Moreover, the same reasoning also seems to be contradicted by some of the MEA’s other proposals. While fighting to keep national wages as low as possible, the association also seems to ask for protection from competition by the public sector. This concern led the MEA to argue that: “Collective bargaining in the public sector is having an impact in the private sector, as evidenced in the drain of employees who have migrated to the public sector – at times at lower wage rates – over the past eighteen months.”

On that basis, the MEA proposes that “representatives from the private sector [should be] involved in collective bargaining in the private sector. Alternatively, any package negotiated in the public sector should be discussed with private sector representatives before given the green light.”

This argument overlooks the fact that government is also an employer, placing it in direct competition with the private sector in this regard. The MEA cannot defend the principle of competition – the fulcrum of the so-called ‘free-market’ model – when applied to its own members, and yet undermine the same principle when applied to the public sector. Put simply, the MEA’s request is tantamount to that of a union, representing an unrelated class of worker, insisting on being represented in negotiations between private employers, and employees who are not represented by that union. It is an absurd thing to even suggest.

More worrying, however, is the declared aim of this proposal. The MEA seems to want to curb public salaries so as to minimise demands by private sector employees for higher wages. This would only limit wage increases in both private and public sectors: making Malta a place where an increasingly underpaid population must struggle with exponentially rising costs… at a time when the private sector is riding the crest of an economic wave.

A similar mentality underpins some of its other suggestions: for instance, the argument that ‘smaller social housing units’ would encourage people to move out of social housing, where they can be preyed upon by today’s forbidding rental market. Inherent in both these proposals is the view that ‘employees’ in general – and by extension, society as a whole – exist merely to provide a source of revenue for private businesses.

Nor is this mentality limited only to private employers. Government, too, occasionally gives that impression with its ‘business-friendly’ mantra. A recent example was the White Paper on rent reform.

Here government has focused more on proposals designed to give more stability to tenants and landlords registering contracts. But – and this argument is excluding social housing per se – government cannot forget that it too can play a rather large part in the domestic housing sector, by slowing down the inflationary values of housing. The big issue here is not about social housing tenements, but whether the Maltese government is ready to offer good quality accommodation for people who are being priced out of the market – not because of their salaries or inability to get on the property ladder, but simply because the market is getting too expensive and outstripping salary increases.

It is unconscionable to respond to this reality by simply pushing more people into the private rental market. Only a player like the Maltese government is capable of providing good quality housing, without any profit motives. That is where its true responsibility lies. It is also the heart of a debate where the government can take on a private sector that is only motivated by profit, not people.