The discouraging investment argument

The discouraging investment argument

For a so called democracy we sure have plenty of sacred cows we are warned not to step on. Today we’re reminded of that cow named “discouraging investment”.

This is the mortal sin the opposition was accused of today for daring to remind the government that Vitals Health Group had made a pile of commitments they did not deliver upon. The Opposition, in a protest in court signed by all its members following their leader Adrian Delia, pointed out Vitals had committed not to transfer the concession of the hospitals to someone else before 3 years into their concession are up. They have and no one seems to have the authority to permit this, except parliament which is of course being ignored.

The opposition has the right, nay the constitutional responsibility, to protect the rights of parliament when the government ignores it. Government MPsĀ  care nothing for the rights of Parliament, so someone has to do it.

I’m told the intricacies of privatisation are too esoteric to be of interest to most people.

I’m stubborn so I’m going to try to break it down.

The doctrine of privatisation says that governments are bad at running businesses. Managers employed by the state are safe in their monthly salaries and end of year profits or losses do not effect them. So they do nothing to reduce inefficiency because after all someone else has to pay the bill.

Since the 1980s governments have sought to get out of business activities and sold them to private owners whose drive to seek profit was expected, in theory, to get better results than government would. Typically this happened in transport areas (governments sold trains, planes and buses), banking, and post and telecommunications. It also was typically coupled with the introduction of competition in these areas because competition, like privatisation, was and is still largely believed to help drive efficiency, savings for the consumer, increased availability of funds for reinvestment in improvements and a generally better service.

We have had a lot of experience in this. Mid-Med Bank was sold to HSBC. BOV, having been nationalised in socialist times, was sold in small chunks to small stock-holders. Telemalta was sold as other players competed with it. And so on.

Beyond privatisations, governments have also sought to introduce the efficiencies of private enterprise by outsourcing to it the management of government activities even as they remain in public ownership. We have had experience of this as well. The Malta Freeport for example remains in public ownership but for several years its management (and the profits derived from it) has been transferred to a private operator in a concession.

Throughout the world, and in Malta, these initiatives have had mixed successes to the extent that a dogmatic view that privatisation is always better than state ownership is as unjustified as the opposite view. In Malta’s experience the concessions of the airport , the freeport and the legacy telecommunications company can so far be judged positive experiences.

I think I am sufficiently qualified to say that though public transport in Malta was never really state owned the bus concessions of the last 7 years have not been altogether happy experiences. These disappointments are by no means unique to Malta. Those who argue for the reversal of public transport privatisations in the UK, for example, are no longer on the political fringe.

Even the most aggressive programs of privatisation frequently focused on business activities where profit is a reasonable objective.

When Malta’s government decided to give out in concession three public hospitals, it crossed a line the PN — the much derided champion of privatisation in decades past — never even considered. When the PN wanted to modernise health-care in Malta they dug into public funding and built Mater Dei. Their policies on building new schools was the same.

Health and education were considered by the PN as core public services they would not take any risks with.

Labour did. Judging by the continued secrecy of ownership of Vitals, the fact that a written agreement with them was sealed by the government months before it pretended to invite others to make offers for the concession, and the fact VGH never ran a hospital before, it is reasonable to suspect that Labour did not take these decisions out of some desire for efficiency and improved services. They were motivated by whatever backhanders, bribes and incentives they were being paid to take these decisions.

As Adrian Delia rightly put it, the Vitals operation looks from the outside like it was designed to fail. Why would anyone want failure? If there was no collusion with government, failure for VGH would be a disaster. They’d incur ruinous fines, would have their reputation such as it is crushed to the point of being unable to work elsewhere ever again, and they’d end up with all their rights on the hospitals taken away from them whatever they would have paid into it before.

Since none of this is happening, collusion must be suspected. VGH failed and hospital patients suffer. How? At least two more years of the promised improvements to health care have been lost and it is impossible to figure out when these long made promises will ever materialise. VGH failed and VGH profit. Because they were given the right to re-sell the concession even though contractually they simply did not have it.

This is the swindle they are committing and they are managing to do it only because Joseph Muscat and his government is rewarding Vitals for their complete failure by letting them make a profit from selling the concession to someone else when they contractually are not allowed to do so. They can only be doing this because someone somewhere in the decision making process is making money from this deal.

Investors understand what is going on. They see it all elsewhere. They see it in the corrupt jurisdictions that they used to avoid when they chose Malta instead. Investors dislike corruption. It makes their investments unsafe and subject to the changing whims of corrupt officials that get greedy and look to extort more and more. It also harms their own reputation in their countries that invariably forbid them from participating in corruption anywhere in the world.

The Labour Party is right. All this harms our chances of attracting future investment. But they can stop the rot quicker and more effectively than the PN can from the opposition benches. They can start by firing Joseph Muscat and replacing him with a prime minister that applies the contract with VGH, throw VGH out and stop this madness of paying others to run our hospitals.