Not so very long ago, Minister Gatt irked many when he said he would be prepared to bet that all textile industry in Malta would eventually close down. It was his style of statement rather than the meaning of what he said that was considered offensive. In reality, when an industry in any location ceases to be competitive, it moves elsewhere. At the time of Minister Gatt’s statement, hi-tech business was considered the niche Malta should aim for. Today, we are discovering there are no safe niches. The global recession is hitting hi-tech hard. Sony is laying off 16,000 people, Sun Microsystems 6,000, HP 24,600 over three years, Microsoft 5,000, Ericson 5,000 plus a long list of others.
Basically, as a result of the global financial crisis, people in areas considered as good markets are suffering from lower job security and many employees are being laid off. Those without a job cannot afford to buy anything beyond the basic essentials and those who still have a job are watching their expenditure as they do not know how long they have a job for. The former gadget hungry market has been decimated! Manufacturers need to cut costs to try and survive until the recession blows over. Cutting costs means laying people off and closing down the less competitive plants. The writing first appeared on ST’s wall when the US Dollar crashed and their Euro costs made the Malta plant expensive. Goodwill on all sides managed to get a stay of execution but now the situation is bleaker.
Let us look at matters from the manufacturers’ point of view. Plant closure means not merely a reduction in cost but the loss of trained people and of a working organisation and hence of potential future profits. In theory, plant and equipment can be salvaged and reset up elsewhere, but at a cost. A manufacturer only closes down when the costs of remaining in operation exceed those of closure. Nobody, not ST, not Gonzi, nor Obama can say how long the recession will last. It could take months; it could take years. If it is short lived, those directors who have decided to close a plant down will kick themselves. If the recession takes years to blow over, then keeping an uncompetitive plant open means unnecessary losses. The decision is not easy and the decision to decide which plants to close and which to retain is based on many factors but ultimately this will depend on actual cost experience and expected future changes. The effect on production costs of the soaring electricity rates and expectations of resulting general wage increase demands cannot have helped ST Malta gain many points in its favour!
The closure or downsizing of ST in Malta will be a tragedy for the workers involved, for their families, for the banks supporting their home loans, car hire purchase and many other items, for the shopkeepers that sell to them and for almost every service and business sector in Malta. In particular, it will be an unprecedented disaster for Malta’s balance of payments. The perceived wisdom is that a small country like Malta should not have put so many eggs in one basket. The reality is that if you are the affected egg, it matters little if there are a couple of thousand or only half a dozen in your basket. It does not matter very much for the country either. If ST is suffering as a result of market forces, practically all our export industry is equally vulnerable – size is not an issue. Then if we need to employ people, big factories benefit from economies of scale that make them feasible and a dozen small factories employing the same number would never have passed the feasibility test for the initial investment. If the affluence of our traditional customers is in doubt, then ST is only one of our problems. We are already seeing a serious downturn in our tourism. Today, we cannot even emigrate. Everybody else is in the soup!
The big question is what are we going to do about this situation? In Malta we tend to hover between extremes – in this case between panic and sticking our heads in the sand. We are currently wasting our energies on futile arguments on whether we should move parliament or rebuild the old opera house. This is very dangerous. At no other time since the crises of the 50s did Malta need unity, solidarity and a single purpose as today. Ignoring the problem will not make it go away, neither will wringing our hair out. We need to forget our petty squabbles, self interests and ivory towers and see how we are going to row the boat together to weather this storm. Let us be honest, admit that there is a common problem, bury partisan hatchets and try to survive until the dark clouds on our horizon are again replaced by clear skies.
Now is the time for true leadership. These who cannot lead – or those who will not follow – should make way for those who can.