GUEST POST/The bottom line is that we (the European Union) are better than China

Written by Matthew S:

Back in 2008, the year in which Joseph Muscat became leader of the Malta Labour Party, the European Union and the United States, which were going through multiple crises, looked jealously at China and other emerging countries as their economies grew at breakneck speed and kept the world economy afloat.

Joseph Muscat duly lapped it up and went off to China in 2010 to have those now infamous meetings with Communist Party leaders accompanied by Alex Sceberras Trigona. The result of those meetings and subsequent meetings which Joseph Muscat had with Chinese leaders and other assorted dictators has been the China-fication (as much as European Union laws would allow) of the Maltese economy.

Gifting of huge tracts of land to Shanghai Electric and now Hani Hasan Naji al Salah of Jordan, the Maltese government acting as guarantor for the truly massive bank loans of a private company, the government promising that company that it will buy all the electricity it generates, the government leaning on banks and state entities to help out a cabal of Jordanian/Chinese/Azerbaijani businessmen it likes: it’s all so very top-down, disciplinarian and Chinese.

The Chinese economic model is a peculiarly authoritarian way of doing capitalism in which nothing is left to chance.

Businesses are pushed according to the bribes they can afford to pay and their loyalty to the Communist Party. Everything follows a top-down structure in which the government has its fingers in every pie.

Not that this was seen as a problem back in those dark days of economic depression. Some brave economists even started to argue that the Communists know how to do capitalism better than the capitalists do.

Alas, the Chinese party was bound to end badly. So will the Malta/China-fication one. Here are the three main problems.

First of all, the model discourages innovation. As anyone who has lost his shirt trying to get a business off the ground or anyone who has been able to buy several wardrobes full of shirts following successful ventures will tell you, business involves (calculated) risk.

The higher the reward, the higher the risk that has to be taken and the more innovative you have to be.

When the government is giving you free land, promising to buy all the electricity you produce or acting as a guarantor on your debt, the incentive to take any risk is very low. There is barely an incentive to bother giving a good service let alone innovate.

The burdensome price of that lack of innovation, especially in the power station case, will be paid by its customers – that is each and every one of us living and working in Malta.

Secondly, the model kills off competition and distorts the market. Imagine being a private college with a stellar reputation which has spent years building up its brand and liaising with British universities, to bring innovative courses to Malta and attract foreign students, only to have the rug pulled right out from under your feet by a Jordanian bully and a Maltese leader who acts more like a second-hand car salesman than a prime minister.

And it’s not only that particular sector which is harmed. The government’s largesse is a sucker-punch to every other company which works hard to be the best in its sector and spends years trying to find the best location to build its premises or to expand into, taking loans to buy the land.

I’m sure that every factory proprietor from Bulebel to Ħal Far and every hotel owner from Sliema to Mellieħa would love to get his hands on such pristine land as that in Żonqor and Cospicua but they’re going to have to live with what they’ve got because, in this progressive, liberal and meritocratic land, you have to be a Gabrielle de Polignac (although not necessarily as pretty or glamorous) to have the master’s ear and the government’s purse-strings.

Thirdly, a top-down model means that the government gets to choose who is going to be the market leader. This is very wrong, not only because it goes against the spirit of the free market but also because governments are notoriously bad at choosing corporate champions or getting involved in business in any way.

In the 1980s (1990s in Malta), Western countries realised that they are awful at running businesses and started selling their companies to the private sector.

When it came to sectors which governments felt could not be sold off, they opted for public/private partnerships, the point being that private companies always run businesses better and more efficiently than governments do.

The Chinese/Muscat model turns private/public partnerships on their head. Instead of using the private sector to provide public services, it uses public money to meddle in the private sector.

This, as the Chinese know from experience, is a disaster waiting to happen.

In those heady days in which Joseph Muscat started visiting China, the Chinese government was banking on solar power (incidentally, what happened to the plan to turn Malta into a solar power hub?).

Following much largesse and glad-handing with Chinese officials, Suntech became the biggest solar energy firm in the world, and its leader, Shi Zhengrong, the wealthiest man in China. Then it all went spectacularly wrong when, in 2012, the company failed to pay up debts of 541 million dollars. Its creditors sued it and a court declared it bankrupt.

Hanergy Thin Film Power Group and others followed in this ignominious path.

Now the Chinese economy is (maybe) big enough to withstand such shocks but can you imagine the catastrophe our tiny and fragile economy would endure if Electrogas Malta Ltd defaulted on the loans which the government is guaranteeing to the tune of 360 million euros?

As much as I disliked Simon Busuttil’s pre-electoral go-to-phrase because of its linguistically mangled etymology, he was bloody right: “Sejrin gass down ġol-ħajt.”

That brick wall needs to be avoided at all costs, so let’s stop it with this emerging-economic-model nonsense. The BRICs (Brazil, Russia, India and China) only looked appealing in 2008 to 2013 because the United States and the European Union were in such a mess. Since then, they have been found seriously wanting.

Brazil is mired in corruption scandals with its national oil companies.Russia has become distracted with war and geopolitical games.India, as ever, remains full of unfulfilled potential.

As for China, well, you’ve all just read the news.

Here’s the thing about China. Its much touted ‘economic miracle’ of the last 20 years was no miracle at all. Although it is true that millions have been lifted out of abject poverty in the last two decades, you have to keep in mind that China started from a very low base.

Mao Zedong had, quite literally, destroyed everything, leaving immense famine and suffering behind him. Vast millions of people literally starved to death and others resorted to cannibalism to survive a few weeks longer. Yes, it happened.

The only way for Deng Xiaoping was up. Kudos to him for abandoning the destructive Mao policies, of course, but that was more a bit of common sense than the work of a diviner.

So how do we get ourselves out of this sticky Chinese mess? The way forward is twofold.

First, we need a government which gets back to governing and regulating the market instead of interfering with it, manipulating it or trying to make money off it.

Secondly, we need to get back to our natural allies, the European Union, the United States and its friends. It’s tragically funny that we spent decades trying to join the European Union (no thanks to Joseph Muscat) only to vote ourselves back into the hands of China at the first opportunity.

The Transatlantic Trade and Investment Partnership (TTIP), an agreement between the European Union and the United States, and the Comprehensive Economic and Trade Agreement (CETA), an agreement between the Euopean Union and Canada, are the best things to happen to the European Union in years and the only people talking about them in Malta are the bleeding hippies with their silly Trojan Horse wooden sculpture.

Why isn’t our government leading discussions about this? Because it’s too busy cavorting with Azerbaijani, Chinese and Qatari dictators, that’s why.

The bottom line is that we (the European Union) are better than China and we (Malta) can do better than China.

China is free to join us in the free world, of course, but there is no reason why we should be joining it in its despotic and criminally irresponsible one.

The grounds for the next general election campaign should be (re)joining the European Union in spirit as well as in law, or frittering away our European credibility and potential while fooling around with dangerous and unstable countries which, as the Middle East and North Africa have taught us, could blow up in our faces any time.