Malta in the era of liquid modernity: ‘We can’t retreat into nostalgic denial’
Central Bank governor Mario Vella has warned that Malta’s domestic labour gap can only be addressed by increasing female participation in the workforce, or else face increased reliance on automated workers and Artificial Intelligence.
In a speech that captured Vella’s introspective assessment of the far-reaching changes taking place in Malta, the CBM governor said Malta’s rising population and foreign worker influx was clearly leaving its effect.
“One has to acknowledge that the national working age population is what it is. With the male participation rate already around the euro-area average, a better utilisation of the domestic component of the labour supply can only be achieved if more women take up employment or if the labour force works longer. Alternatively, production processes would need to rely on upgraded technology, such as automation and artificial intelligence,” Vella told the Institute of Financial Services Practitioners.
But this change will only happen gradually as more younger women join the workforce, and said that automation and AI could resolve the problem of longer hours being incompatible with a better quality of life for parents and caregivers.
Vella warned that Malta’s high dependence on short-term foreign workers could also backfire on firms’ competitiveness as wages rise faster than productivity.
“There is an urgent need to understand the factors behind the relatively short stay of foreign workers in Malta and devise solutions to this problem,” Vella said, citing as one reason the rapid increase in rent in the private market. But he said that the CBM’s own foreign staff has also reported other unhelpful matters, ranging from the difficulty of finding school places, opening a bank account and the time-consuming effort to get an ID card.
Vella admitted that fast economic growth had “shaken” Malta economically, socially and culturally, as well as politically – warning how continued increases in house prices risked rendering house ownership unaffordable for a wider segment of the population.
“This is not a moral judgement; it is a statement of what I believe is a sober understanding of the state of affairs,” he said, likening Malta’s experience to what philosopher Zygmunt Bauman calls ‘liquid modernity’ and – quoting Bauman himself – “the growing conviction that change is the only permanence, and uncertainty the only certainty. A hundred years ago ‘to be modern’ meant to chase ‘the final state of perfection’ – now it means an infinity of improvement, with no ‘final state’ in sight and none desired.”
But Vella said that such an “admittedly disquieting and unsettling” state of affairs could not be answered by retreating into nostalgic denial.
“The only reasonable approach is to endeavour tirelessly and to the best of our technical ability to navigate a reality that is complex, characterised by change and prone to crises. If there is no going back, then going forward we can only go forward.
“Navigating this reality requires us to be constantly vigilant to the risks involved… Of course, the financial system, like any other, cannot reduce risk to zero. We will always face inappropriate behaviour, but we are confident that Malta’s financial system can withstand the shocks generated by such behaviour, given constant vigilance.”
Vella defended the Maltese financial jurisdiction by highlighting its competence at supervising its licensees. “Two banks [Nemea and Pilatus] had their licence withdrawn, while another [Satabank] was put under the administration of a competent person. Despite the negativity of such developments, these are in themselves indicative of the fact that Maltese authorities are actively taking the right measures to protect the sector from inappropriate behaviour.
“We must constantly bear in mind that from a reputational point of view we are only as strong as our weakest link and that the externalities that each institution transmits to the system, be it big or small, in the periphery or at the core, is always material in a small financial centre such as Malta.”
Vella said the temptation to deregulate during the ‘good times’ had to be resisted. “We need a balanced view that is stable and fair, but also sufficiently rigorous and intrusive irrespective of economic cycles. Otherwise regulators will keep being found wanting when the bad times come, adversely affecting many ordinary people and feeding mistrust in authorities… Supervision must remain on-going to safeguard the system from moral hazard, while keeping the bar sufficiently high to minimise adverse selection at entry point. Practitioners also have a duty of care to their clients and the financial system as a whole. They play a critical role in safeguarding its integrity.”