Malta’s next economic reform is governance

Malta’s economic performance remains remarkably strong. Growth has outpaced much of Europe, employment is high, new sectors have been created and the country has repeatedly shown an ability to adapt to changing global conditions. The danger is not economic decline but something subtler—the risk that institutional renewal lags behind economic transformation.

Malta’s new challenges require the country to become more productive, more innovative, more competitive and more capable of converting growth into better wages, better infrastructure and higher-quality public services. These are not challenges that can be solved simply by adding more labour, attracting another sector or building more capacity. They require a state that can think long term, regulate intelligently, allocate resources well and act with credibility. In that sense, governance is no longer a parallel debate to the economy. It is becoming one of the central economic questions of our time.

Governance is often discussed in moral, legal or political terms. Those dimensions are obviously important, but there is also a more practical economic dimension that receives far less attention. Institutions shape incentives. Incentives shape behaviour. Behaviour shapes productivity. If appointments are perceived to reward loyalty more reliably than competence, talented people respond to that signal. If access appears more important than evidence in influencing decisions, businesses and investors adapt accordingly. If procurement rewards the wrong things, public spending becomes less productive. If planning decisions generate private gains while transferring infrastructure costs to society, capital is allocated inefficiently. If courts take too long to resolve disputes, uncertainty becomes a cost of doing business. Governance therefore enters the economy through thousands of small decisions long before it appears in a GDP statistic.

This is why Malta now needs to think not only about governance but about governability. The two concepts are related but different. Governance concerns the institutions, rules, checks and accountability mechanisms through which power is exercised. Governability concerns whether the system is actually capable of making decisions, implementing them effectively and solving complex problems. A country can possess extensive formal safeguards and still govern badly. Equally, a government can be highly effective in acting quickly while concentrating too much power in too few hands. The challenge is to construct a system that is both capable and constrained; strong enough to act, but sufficiently accountable to prevent arbitrariness.

That balance becomes especially important as Malta’s economy becomes more sophisticated. Managing a small, rapidly growing services economy was already complex. Managing the transition towards higher productivity, artificial intelligence, digital finance, climate adaptation, ageing, infrastructure pressure, housing constraints and an increasingly diverse population is considerably harder. These are interconnected problems that require institutions capable of joining up policy rather than treating each challenge as a separate file. A transport decision affects labour mobility. Housing affects migration. Migration affects wages and productivity. Education affects competitiveness. Planning affects infrastructure. Capital allocation affects innovation. Governance determines whether these interdependencies are understood and acted upon coherently.

Constitutional renewal

This is where constitutional renewal should enter the discussion. Malta’s Constitution has provided stability through independence, republicanism, European integration and enormous social and economic change. But a constitution should not be treated as a historical artefact. It is the operating system of the state. When the society and economy it governs change profoundly, it is legitimate to ask whether the architecture of power, accountability and participation remains fit for purpose.

The core issue is not simply whether individual provisions should be amended. It is whether the balance between executive authority, Parliament, the judiciary, regulators, the public administration, local government and citizens still reflects the needs of a modern European republic. The present debate should therefore move beyond piecemeal institutional fixes and ask whether Malta requires a deeper constitutional settlement capable of strengthening checks and balances, institutional independence and democratic legitimacy while simultaneously improving state capacity. 

Parliament is an obvious place to start. In a modern economy, legislation increasingly deals with highly technical areas such as financial regulation, artificial intelligence, competition, pensions, demographics, climate transition and digital markets. Meaningful scrutiny therefore requires expertise, time and resources. A legislature that is structurally weaker than the executive will struggle to fulfil its role regardless of the quality of individual parliamentarians. Strengthening parliament should mean improving research capability, increasing access to specialist expertise, empowering committees and creating a more serious deliberative function. A stronger parliament does not make government weaker. It can make policy better before mistakes become expensive.

Merit and institutional memory

The same argument applies to public administration. Malta needs a stronger commitment to professional autonomy, merit and institutional memory. Political leaders are democratically entitled to set direction, but institutions must be capable of providing continuity, expertise and challenge. When too much knowledge disappears with changes in leadership, when appointments become overly politicised or when professional advancement is perceived to depend on allegiance rather than capability, the state loses something economically valuable—competence.

This is also where the principle of meritocracy becomes important. Meritocracy is sometimes caricatured as elitism. In reality, the alternative is often not equality but patronage. In a small country, this is especially costly because the talent pool is finite. Malta cannot afford systems that leave capable people outside positions where they could contribute because they lack the right political, social or professional connections. Nor can an economy that wants to move towards higher-value activity tolerate institutions where competence is secondary. As economies become more knowledge intensive, the ability to identify, develop and reward talent becomes increasingly central to national competitiveness.

The economic relevance of all this becomes clearest when we look at productivity. We regularly speak about Malta’s productivity challenge as though it belongs mainly to businesses. Firms clearly need to invest more in technology, management, skills and innovation, but national productivity is also shaped by the quality of the environment in which those firms operate. Every unnecessary administrative procedure absorbs productive time. Every delayed decision, ties up capital. Every unpredictable regulatory interpretation increases risk. Every weakly designed public project can create costs elsewhere. Conversely, efficient institutions lower transaction costs across the entire economy.

Good governance is therefore a form of productivity infrastructure.

The same is true of innovation. Malta wants more start-ups, scale-ups, research, intellectual property and technologically sophisticated firms. But innovation does not flourish simply because grants are available or because a strategy declares it a priority. It requires institutions capable of rewarding experimentation, competition and competence. It requires finance that can distinguish between productive risk and speculation. It requires regulators willing to understand new business models without either suffocating them or abandoning standards. It requires universities, government and industry capable of working together with credibility. Above all, it requires a culture in which access is less important than ability.

Underlying political culture

There is also a deeper cultural challenge that cannot be solved through constitutional drafting alone. Institutions ultimately reflect the behaviour of the people who inhabit them. We can improve procedures, create oversight bodies and modify appointment systems, but if the underlying political culture treats criticism as disloyalty, scrutiny as obstruction and public institutions as extensions of whichever party happens to govern, formal reform will eventually be absorbed by old habits.

A more mature system requires something different: an ethic of restraint. Power should be exercised with the understanding that institutions do not belong to the government of the day. Independent bodies should not be regarded as adversaries when they disagree. Public servants should feel able to provide unwelcome advice. Criticism should be treated as part of democratic life rather than as an attack on legitimacy. The quality of governance ultimately depends not only on the rules governing power, but on the culture governing those who wield it. 

This should also extend beyond central government. Malta remains highly centralised despite the fact that many of the issues citizens experience most directly are intensely local. Transport, development, public spaces, waste and community cohesion often manifest themselves at neighbourhood level long before they are understood nationally. Stronger local government, more meaningful consultation and structured citizen participation can improve both legitimacy and policy design. A deeper constitutional renewal could therefore examine not only how power is constrained at the centre, but how responsibility is distributed across the state.

Crucially, such renewal should not belong exclusively to political parties. If constitutional reform is to rebuild legitimacy, citizens need to feel that the process belongs to them too. A serious process could combine expert constitutional drafting, civil society and social partner participation, citizen assemblies, parliamentary debate and democratic ratification. The objective should not be to produce another patchwork of amendments but a settlement capable of commanding broad ownership for a generation. 

There is always a temptation when governance returns to the national agenda to respond through a sequence of visible fixes. Amend a law, create another authority, change an appointment mechanism, introduce another code. Some of these may be necessary, but Malta should resist confusing reform with accumulation. More rules do not automatically produce better governance. Sometimes they simply produce more bureaucracy. The objective must instead be to design institutions that are clearer, more independent, more competent and more accountable.

That is where governability becomes essential. Malta needs a system capable of long-term decisions even when those decisions are politically difficult. Productivity reform, infrastructure investment, education reform, pensions, planning, energy and transport all extend far beyond a single electoral cycle. Yet political incentives naturally favour visible interventions with immediate returns. Strong institutions should help compensate for that bias by protecting long-term thinking from short-term political pressure.

Renewal from a position of economic strength

This is also why governance reform should not be framed as a response to failure. Malta is in the fortunate position of being able to undertake institutional renewal from a position of economic strength. That should be treated as an advantage. Countries often wait until stagnation, fiscal pressure or crisis forces them to reform. Malta does not have to.

The economic model itself is already telling us that the next stage will require deeper capability and this places the focus on the quality of the state.

Malta has spent decades successfully renewing its economic model. Perhaps the next great renewal must therefore be institutional since development will increasingly depend on how well we govern ourselve