[ANALYSIS] Has Malta’s coronavirus disaster turned capitalists into socialists?

On Wednesday Prime Minister Robert Abela, flanked by his Finance and Economy Ministers, boldly presented an unprecedented ‘mini budget’ which includes €200 million in direct operational aid to businesses, more than twice the promised €100 million in EU funds promised to the Maltese before the 2003 referendum.

This was accompanied by €700 million in tax deferrals and bank loan guarantees aimed at ensuring liquidity to the tune of €900 million.

But in a clear indication of the government’s social priorities, the package also includes an €800 a month unemployment benefit for Maltese and EU workers made redundant by the crisis, and a crucial €35 million more invested in health care.

The package goes half-way in socialising the risks faced by businesses but not at the cost of bankrupting the country’s finances or undermining public expenditure on health, education and welfare.

The question now is whether this Keynesian package goes far enough in avoiding a complete collapse of economic activity which risks having even bigger repercussions on the country’s finances than over spending. Is the government being too fiscally conservative even in times of crisis? Ironically, up until yesterday it was business groups which advised against government spending.

Not enough to save us

Despite this unprecedented aid package, the reaction of business organisations has been a unanimous chant of “this is not enough”. Travel group ROCS chief executive Colin Aquilina took to Facebook to express his outrage at the package, calling it a “joke” and claiming that it is “bound to fail”.

The argument is that the government should have spent more on directly subsidising wages and not just ensuring liquidity through guarantees.

Just a week ago, the reclusive Mizzi Group director Alec Mizzi took the unusual step of penning his opinion on social media. In a short paragraph, he managed to sequentially mention three anathemas for neoliberal doctrinaires: state aid, taxes and social solidarity.

“Yes, the country may need to dip into its reserves and suffer deficits once more, but this is a matter of survival. Certainly, the EU will allow state aid, and all taxpayers will accept eventual new taxes to help us get out of this nightmare with as little social and financial fallout as possible. This is social solidarity in practice,” he opined.

But when it comes to immediate solutions Mizzi also put most of the burden on the government, suggesting that all businesses forced to shut down should continue paying their employees “say 75% of their salary”, with 50% being funded by the government, and 25% by the employer.

Other business organisations were more prudent, with the Malta Chamber of Commerce expecting bolder decisions from the government to “indicate clearly when it is going to dig into the country’s reserves to make good for the hardships companies are currently facing and enduring through no fault of their own”.

Disaster capitalism under the lens

The underlying lesson is that when disaster strikes, governments are increasingly expected to intervene to socialise the risks faced by business, whose exponents are normally averse to intervention. Even when reacting to the latest package, the Malta Employers Association complained about government failing to cut down on its own expenditure.

The risk of this approach is that to avoid economic collapse, governments end up spending taxpayers’ money to bail out business instead of allocating funds to healthcare, and ensuring that the most vulnerable and exposed have some kind of safety net.

The renowned writer and social activist Naomi Klein, author of The Shock Doctrine: The Rise of Disaster Capitalism, in fact noted how various governments around the world are “exploiting” the coronavirus outbreak “to push for no-strings-attached corporate bailouts and regulatory rollbacks”.

Still, unlike other economies impoverished by a decade of austerity policies, which crippled the health sector among others, Malta starts with the advantage of being cushioned by an economic surplus and the blessing of a robust national health system.

Ironically, Malta’s ability to dodge a wedge in the world economy by exploiting citizenship and fiscal loopholes also endows it with a stash of cash, which can be used to make up for this emergency. While the morality of these schemes remains questionable, putting these funds to good use now is imperative.

However, one should still be wary of using such an emergency to endow legitimacy to these schemes. While these may serve as a buffer for a small island deprived of other resources, this sort of dependency may also have given us a false sense of security, of being insulated from the vagaries of the world economy.

Saving the good businesses

While bailing out businesses may be problematic, one cannot ignore the reality faced by small and medium sized firms which all of a sudden have had either to close shop or scale down operations.

For even though Malta is home to predatory capitalism, exploiting cheap and disposable foreign labour (particularly in construction and tourism) or favourable tax rates, most jobs in Malta are created by honest and hard-working small and medium-sized enterprises (SMEs) and small businesses who are now most exposed to the crisis.

Faced with the prospect of mass layoffs as a result of a drop in economic activity, their demands carry urgency and legitimacy.

For if a business suddenly has to cease (or downscale) its operations, it cannot be expected to operate and pay the wage bill of its staff.

Even the left-wing group Moviment Graffitti has recognised this reality while coming up with a very interesting set of proposals aimed at both businesses and workers. Crucially, the NGO suggested that a government fund should be created to offer interest-free loans to private companies, “especially so that these will be able to pay their employees”.

But the NGO also made one important consideration, noting that while it is commendable for the government to help businesses during this difficult moment, it is hardly right that the same companies which up until a few days ago could boast of massive gains, suddenly expect the people to bear the brunt of a harsher economic climate simply because their massive profits will be experiencing a dip.

“It is not fair that their profits remain private, while their losses become shared by the public,” Moviment Graffitti said.

What about the working class?

Even Prime Minister Robert Abela has made it clear that those who would be hardest hit by a spread of the epidemic were workers in the lower economic brackets.

While the business community would also be negatively impacted, he urged it to be considerate of families living on blue-collar wages. The government, he said, would step in where it could, but it could not shoulder all the burden either.

Once again Graffitti has come up with a set of concrete and measured proposals like temporary unemployment benefits for workers on contracts, which do not guarantee fixed hours of work, and self-employed persons who live from hand to mouth. This demand was partly granted through the introduction of €800 monthly benefit, but workers on zero-hour contracts may still end up with their hours drastically reduced without receiving any compensatory income.

The crisis of neoliberalism

So far there has been no hint of any long-term change in the economic model which Abela promises to restore after the crisis is over, ignoring the exposure of the Maltese economy to the vagaries of an international economy which is so exposed to both financial, biological and eventually to the greatest threat of all: global warming.

Not accounting for disasters in economic planning would be a fundamental mistake.

While the post-2013 Labour government should be credited for cushioning the impact of the crisis, with a surplus accumulated in past years, a prolonged crisis may see all this eaten away while other weaknesses are exposed.

For there are two major shortfalls resulting from Muscat’s partly neoliberal model, which have been made glaringly clear by the current crisis. The most obvious is the loss of valuable hospital infrastructure at St Lukes and Gozo hospital which may come handy if the situation escalates as has happened in Spain, where the government has now nationalised private hospitals.

The other shortfall is the growth of a large reserve army of labour – mainly composed of foreign workers but also of Maltese workers working on zero-hour contracts – which is exploited in times of plenty but dumped when things get rougher.

Economy Minister Silvio Schembri’s declaration (for which he later apologised) that foreign workers axed from the labour force will be deported, jarred with his own government’s past platitudes for the contribution of these workers, credited for rejuvenating the labour force, strengthening the pension system and creating a multiplier effect.

Yet even the measures announced by the government on Wednesday are discriminatory against third-country nationals who are not eligible for the unemployment benefit applicable to Maltese and EU workers, and who are expected to apply for work with local companies who may require their services in a scenario where this is extremely unlikely. The question is: how will these be expected to survive if they do not find a job?

With other disasters that may have even more far-reaching consequences looming on the horizon, the government may well start its transition to a more sustainable ‘Green New Deal’, based on a new social contract where government ultimately insures against risk while business accepts greater obligations to workers and the community.

But it may well be tempted to go in the opposite direction, to kick-start the economy again after the virus recedes. The risk would be a repetition of the mistakes made after 2013, which saw increased deregulation in the planning sector, ultimately resulting in a series of dramatic housing disasters over the past year, one of which ended in tragedy.

What’s worse, such an attitude would simply leave us with nowhere left to run when disaster inevitably strikes once again.