MONEY MAGAZINE: Designing fairness

2019-03-14T15:30:21+01:00Thu, 14th Mar '19, 15:30|0 Comments

Here’s my article in this month’s Money Magazine:

Business does not ask much from politics. That is a space where less is indeed more. Too much politics and it becomes harder to take decisions as goal posts shift and it becomes harder to predict what laws the business will need to be obeying a year from now.

Ask UK-based businesses or those that trade with the UK on its supply chain or as a market and investment destination. It’s bad enough that in almost any commercial perspective, Brexit is regressive and disadvantageous. Not actually knowing the details of what the bad news will look like in the end makes things much harder.

But there are basic requirements, dead certainties, that business expects from the political framework in order to thrive.

Firstly, legal certainty. The rules need to be known and even as they change and evolve with time they must follow a logic that ensures consistency among multiple rules. You would want to be able to check the rules before acting rather than expect to be corrected after the fact. That means that you would expect everyone else to be governed by the same rules you are.

Secondly, the rule of law. That means a number of things in this context. Among them, and this is not an exhaustive list, it means that decisions are taken on the basis of rules, not on the basis of the whims and interests of those taking the decision. It also means that when someone breaks the rules they ought to reasonably expect to face consequences. And it means that the same behaviour by different people would lead to the same result in legal terms. If you cheat and I cheat, we’ll both be punished in accordance with the scale of our crimes and misdemeanours.

If you don’t have those two very basic pillars, everything else you hope for from your political leadership is uncertain, if not pointless. Advantageous fiscal policy is unhelpful if it is temporary, volatile and implemented haphazardly and unfairly. Political stability is not as attractive as it sounds if it consolidates error.

Ultimately, whatever else you might add to it, business sustainability and the attractiveness to give life to new ideas requires one underlying quality: fairness. If one loses confidence their efforts have a fair chance of reward without the need of favouritism or corruption, then people will stay away from taking risks. And risks are the basic energy of entrepreneurship.

It is in this context that though intuitively suspicious of too much politics, the Maltese business community should be absorbing the observations about Malta’s state of democratic life from various bodies such as the Venice Commission.

Some details may look esoteric at first and matters for the narrow concern of specialists. Why should business concern itself with the manner of choice of judges, say? And why is it more important to concern oneself about limits to the power of the Prime Minister, when it is easier to befriend the incumbent while he is at his most effective?

It may sound callous but, why should business even care when the community is warned its democracy is dysfunctional? Does business even need democracy to thrive? Aren’t authoritarian regimes, like China for example, successful and profitable environments for aggressive commercial growth?

A normative argument for democracy, ranking it above other political systems, is relevant in other contexts. But in the commercial context, like every other thing, democracy too must pass the test of any other commercial decision: does it make business sense?

The case I make here is that the concentration of power in the hands of a Prime Minister, even within the limits of existing rules, is a real threat to business viability. That may not be immediately obvious, particularly when prime ministers exercise restraint and govern as enlightened despots.

But when an individual’s success becomes dependent on proximity to people in political power, corruption is soon to follow.

Corruption is not the monopoly of failed democracies. No polity is immune from favouritism, nepotism, and the subservience of objective priorities to a ranking of individual or group interests.

Democratic design does not inoculate democracies from corruption. It gives them the cells it needs to fight it, contain it and defeat it when it arises.

If corruption is not checked, that level playing field of fairness that business needs to succeed is vitiated to the point where in place of legal certainty, businesses are at the mercy of the whims and fancies of hidden or complex interests.

The short term solution is the classic ‘can’t-beat-them-so-join-them’ philosophy. But the continuous auction for political favour artificially inflates costs, and the uncertainty of winning that auction and beating others to the sympathy of people in political power, transforms a commercial risk into a senseless gamble.

Maltese businesses are experiencing this in a profound manner.

For some time everyone has understood that the warm glow of the Prime Minister’s circle is an uncompromising necessity for business prosperity. They are the only party in town. Whether  with outward sympathy and support or with conspicuous neutrality, the business community understands that the hurdles of bureaucracy and access are only overcome if you’re not dragged down by the antipathy of those in power.

But things are becoming even more dramatic. The local business community remains reliant on government procurement. The public sector remains a massive consumer and its expenditure an almost inevitable driver for much business growth. Fairness in public procurement is desirable under any circumstances, to ensure a proper return of value on the public’s expense, say.

But in an economy where access to public procurement is the difference between commercial sustainability and bankruptcy, fairness in public procurement is needed for businesses to have a chance of success that is directly proportionate to the quality of their offer and the effort they put into it.

Anecdotally confidence in public procurement is at its lowest in living memory.

Couple that with the acquisition of the most valuable asset one can have in our specific economic context: land. In this case ‘procurement’ is not the most accurate term: ‘disposal’ is closer to the mark.

The disposal of public land is in theory governed by strict use of public utility. This has been diluted to a wide extent equating commercial profit with public utility by the stretched notion that commercial enterprise has a wide community benefit. Even allowing for this post-welfare idea, the argument would apply if everyone gets a fair chance to pitch for that commercial profit.

This has not been the case at all. Disposal has not been granted under fair, equitable, transparent and open processes. The opposite is true. But here the consequence is not merely an unfair advantage to the awardees.

Those who are not allowed to build their business on cheaply parceled public land, start at a net disadvantage which, in a small island, is the difference between a shot at commercial success or an impossible shortfall in a commercial sense.

Demanding changes in these rules and the way they are implemented is demanding an interest in political design. It is stepping outside the glow of personal favour and into the realm of campaigning for Constitutional reform.

It is high time for the local business community to have a hard think about what it really needs from its politics.