[ANALYSIS] Abela’s trickle-down magic: does it really go down to the have-nots?

On Reno Bugeja’s Dissett on TVM this week, Robert Abela described himself as “pro-market” and endorsed Joseph Muscat’s economic model, but insisted that wealth at the top must now trickle down in people’s wages. Yet how will he manage to do it without introducing a living wage?

In his inaugural speech on Sunday, Abela spelled out his economic vision, promising to help businesses to “make more profits, invest and succeed” but asking them not to “forget workers”. It sounded more like an imploration for capitalist generosity, than real socialist redistribution. New Labour, sure enough...

Surely, he has fully endorsed Muscat’s economic model. “We have a good economic model which I do not want to change,” he told Bugeja on Dissett on Wednesday when asked about his views on his predecessor’s neoliberal mould.

This suggests a continuation with Muscat’s economic model, which relied on wealth generation by the private sector to improve living standards and welfare, limiting state action to increased government spending on pensions, childcare, education and benefits sustained from the tax revenue generated by this economic growth.

Anti-poverty campaigner Matthew Borg

But does it really trickle down?

Trickle-down economics is a term used to describe the belief that if more wealth is generated at the very top, then everyone in the economy will benefit as their increased income and wealth filter through to all sections in society. It has been a mantra which Joseph Muscat has espoused well before his election as prime minister, gleaned not just from the new tradition centrist politics of European social democracy and the Blairist wave, but also in his own studies of the history of Maltese economic development: Muscat knew the key to economic success was based less on class consciousness, and more on industriousness and wealth redistribution.

But critics like anti-poverty campaigner Matthew Borg, from Alleanza Kontra l-Faqar (AKF), argues that this approach actually disempowers the working class and low-income earners.

“Arguing for trickle-down economics to increase the standard of living of workers and low-earning people subjugates their living condition to the needs of who employs them. In this way low-income earners are treated as simple recipients of benevolent employers who pass on some of the ever-increasing profits, and not as active agents contributing to the growth of the economy,” Borg says.

His appeal to Abela is to “do away with the idea that in order to improve the situation of workers we need to first and exclusively think of how to increase the employers’ profits. This is what we mean when workers and low-income earners are a priority.”

Critics point out the reliance on trickle-down economics fosters inequality, something which is even recognised by Joe Farrugia, director-general of the Malta Employers Association.

“Over the past few years it has been felt that the divide between haves and have-nots has widened, and that there are many people who feel materially worse-off in spite of the robust economic growth experienced over the past years.”

But Farrugia also insists that the “distribution of income and wealth” should largely remain the responsibility of government with the employers’ role being mostly that of creating wealth, and to ensure that employees are employed under fair and decent conditions.

Where new Labour leader Robert Abela departs from Muscat, at least in his rhetoric, is through his greater insistence that he wants the wealth to seep through in a way which is reflected in higher wages and incomes.

Mathew Borg insists that addressing wages is priority. “There are currently 80,000 people at risk of poverty and other hundreds in poverty: if all of these experienced a sufficient increase in income to live decently they would be able to contribute to the economic wheel.”

But any hint of government intervention on wages remains anathema for employers.

For Farrugia it should be market forces, together with collective bargaining, which should establish wage levels. Moreover, he refers to research conducted by MEA according to which “overall, wages have increased substantially over the past four years”.

Borg himself acknowledges that most businesses already pay their employees enough for them to live decently, even if this is not always the case. Official statistics also show that Malta had the fourth lowest minimum wage increase this year in the EU, a nominal increase of 1.9% in 2018.

It is here that Abela makes an interesting pitch: that of “of ensuring that wealth seeps down and does not get stuck at the top.”

The problem, as Reno Bugeja repeatedly asked, is how to accomplish this.

Malta Employers Association director Joe Farrugia, admits that the divide between the haves and have-notes has widened

The living wage

One solution proposed by social justice activists worldwide to address widening inequalities, is that of introducing a living wage, defined by advocates as the minimum income necessary for a worker to meet their personal and family needs, and not one limited to biological needs.

The goal of a living wage is to allow the worker to afford a basic but decent standard of living through employment without government subsidies.

The concept was first touted in Malta by Joseph Muscat in opposition, but was abandoned with government limiting itself to a meagre increase in the minimum wage over three years.

But asked by Reno Bugeja on whether a ‘living wage’ should be introduced to ensure that wages do increase, Abela insists that taking this step in present circumstances is “not realistic” and would not be “sustainable”.

It is on this point where Abela is more in synch with employers than with anti-poverty activists.

Borg defends the economic rationality of introducing a living wage and disagrees that this is not sustainable, pointing out that introducing a living wage is an inclusive policy, “and the economy thrives on inclusivity”.

“More agents in the economy means more consumption, which means more demand and more revenue to businesses, which in turn leads to less unemployment. Living Income can be calculated scientifically and can be implemented through policies that benefit the employee and, by definition, the employer.”

And while Abela hints that while the measure may be considered at a later stage, Borg thinks that there could never have been a better time for this than now.

“If now is not the time to discuss how to introduce a Living Income then when is the time, when we have a deficit?”

But Farrugia agrees with Abela’s caution on the issue of the living wage, warning this concept will “disrupt wage relativities”.

“The emphasis should be on generating work of a higher value added through which better conditions of employment may be afforded, and that employees are paid fairly for what they produce.”

Farrugia admits that this is not an easy topic, acknowledging that adequate remuneration, whatever its definition, is a positive concept in itself as people’s purchasing power is an essential contributor to a vibrant economy.

But he also points out that raising wages may not even be the best way of addressing poverty because “emerging major pocket of people at risk of poverty are not employees, but pensioners and single parents. Merely adjusting wage levels will not necessarily address the situation faced by these segments.”

Minimum wage was finally increased, gradually over a three-year period, under Joseph Muscat and in agreement with unions and employers organisations

Equal pay for equal work

Instead of introducing a living wage, Abela promises that he will focus on honouring his campaign pledge to ensuring equal pay for equal work, denouncing situations where employees employed by sub-contractors are paid less than workers doing the same work in the same workplace.   

And while reiterating that “foreign workers are crucial for economic growth”, he also insists “these should not be used to lower the wages of Maltese workers.”

Farrugia is more open to discuss these reforms, even if he points at problems at implementation stage.

He reminds Abela that this matter has already been discussed at length between the social partners at the Employment Relations Board, and while there is a general consensus that it is unfair to have two persons doing the same work in the same company and being paid at different rates, even if they have different employers (i.e. the sub-contractor and the buying company) there is one major stumbling block.

“The major issue is that the same principle will have to apply with the employees working for the same sub-contractor and doing equal work. Therefore one cannot have employees with the same employer – i.e. the sub-contractor – being paid different rates because they are sent to different sites, as it will contradict the scope of the equal pay principle.”

Don’t shut down the debate

What is sure is that Abela presently can drink from a well of good will, across the board. “Abela has numerous challenges ahead of him, but some of the points mentioned, together with the major reshuffle in Cabinet, do point towards a general strategy on the part of the new administration,” says Farrugia.

Anti-poverty activists also invite Abela to engage with their arguments, warning against shutting down debate on the living wage.  “Shutting down debate is damaging to the poor, some of whom prefer death than living in constant fear,” says Borg, who invites Robert Abela to do away with the bygone idea that the low-income earner betters his economic position only and exclusively when his employer makes more profit.

“The trickle-down did not bring a real improvement in the situation of the vulnerable, neither in Malta nor anywhere. He should look up ‘trickle up economics’: giving more to those at the bottom by direct governmental action.”