Let’s be aware of Malta’s limits
No country has unlimited land, labor, capital and entrepreneurship. Therefore their economic goals need to be designed to take into account the limitations of these resources. To achieve sustainable economic growth, national economic planning needs to involve the management of limited resources.
Tiny Malta faces some of the most severe challenges to economic growth because its land and human resources are both in short supply and both are being pushed to the limit.
In the last twenty years, two of the main factors behind Malta’s strong growth were the large-scale exploitation of the land and the mass importation of labour, whether low-cost workers mainly from abroad -EU or high quality employees mainly from within. But with available resources shrinking and becoming more expensive, the country faces a worst-case scenario that policymakers may be ignoring.
Times of Malta earlier this week reported Eurostat figures showing that, between 2000 and 2021, construction activity in Malta increased by an astronomical 330 percent, surpassing Estonia, which tripled its construction output. Malta’s was the highest growth rate in Europe, where the average was a decrease of two percent.
The background of this phenomenon needs to be updated by noting that, now, one in five people living in Malta is foreign born and that Malta has the highest population density in the EU.
It is dangerous to underestimate the consequences of overdevelopment. The rapid increase in population has led the construction industry to impressive growth, while there seems to be no end to the increase in property prices. However, the prestigious magazine The Economist recently argued that high property prices can harm the economy.
Rising property prices can discourage productive lending, leading to capital misallocation. For example, today local banks are more interested in increasing their mortgage portfolio than lending to commercial enterprises. During the pandemic, if it were not for generous government guarantees securing bank loans, many companies would have found it impossible to receive bank support.
Rising property prices encourage entrepreneurs and retail investors to focus on property development rather than investing more in, for example, research and development and economic activities of higher level. This is a wasteful misallocation of capital and drag on productivity growth.
The current dependence of the construction industry on rising property prices should remind us of the interconnectedness and interdependence between the economy and a number of other areas, such as health care and ecology. Demographics have largely driven the rampant growth in residential land use in the last two decades. Thousands of expatriate workers compete for scarce family-friendly housing while low-paid workers often live in substandard housing, creating social ghettos in parts of the country.
Overdevelopment has also created a vicious circle: more traffic promotes fuel consumption and increases noise and exhaust emissions, resulting in more traffic congestion and the need to build more roads.
It also encouraged greater use of materials for maintaining the growing number of buildings and infrastructural elements.
It makes much better economic sense to do everything possible to conserve, improve and care for existing structures rather than demolishing buildings to replace them with ugly ones.
The economic well-being of the country will be much better served by a business model that gives more importance to the reform of the educational system and that promotes better use of limited resources, especially land.
Curbing urban sprawl is a complex issue that affects different actors, sectors and social groups. The need to redefine our economic and social priorities has never been more urgent.
Independent journalism costs money. Support Times of Malta for price of a coffee.
Support us