NEWS | Wednesday, 10 September 2008

The rise and fall of the shipyards

By a special correspondent

The Government’s stated reason for the failure of Malta Shipyards Ltd to meet targets is low productivity, laying the blame firmly on the workers with the implication that they are a lazy, skiving bunch.
Given the choice between taking life easy or working hard, few of us would opt for the latter option. After all we are human and this is a very human reaction. Therefore management must ensure that employees are not given this choice. Good management does not act merely as a slave driver but also motivates productivity intelligently and effectively.
Shipyards are no place for weaklings. The work is tough, dirty and frequently dangerous. Shipyard workers have to be tough. This working environment creates extensive camaraderie in shipyards worldwide. Moreover, shipyard work is carried out by teams of workers working in co-ordination with other teams. Collective, co-ordinated action becomes second nature. Unlike work in a factory, shipyard work is non repetitive and, especially in the case of ship repair, the work site will change every few days. Non-routine work requires adaptability, imagination and creativity. Therefore management has the difficult task to lead a large, tough bunch of guys who stick up for each other, know how to use their brains and are accustomed to situations that would deter most of us.
If Government is right that the desired levels of productivity were not achieved, then the fault lies with management’s inability to rise to the required level of proficiency to meet the admittedly difficult challenge. It is the task of the Board of Directors to lay down policies and to ensure that the management team that is willing and able to implement policy exists. Therefore if management fails, it is the responsibility of the direction for having failed to select the right management team or for not succeeding in improving management standards when desired results are not met. After all, the shipyards troubles are not exactly a novelty. We must not forget that directors are legally personally responsible when things go wrong because of negligence or incompetence. In turn, the direction is appointed by the ownership, in this case Government. If shareholders elect incompetent directors, they only have themselves to blame. Therefore at least political responsibility must rest with the Government and specifically with the responsible minister.
It can be argued that it is not fair to blame the incumbent minister who happens to be the last in a line of ministers who have failed. Therefore let us do a bit of history.
In 1959, the then HM Malta Dockyards was privatised by the Colonial Government as Bailey (Malta) Ltd. Bailey and the British Government soon fell foul of each other over the use of development funds and the eventual court case was only settled in the 1980s. Swan Hunter and Wigham Richardson were appointed Managing Agents and the Malta Drydocks became the property of the Maltese Government by means of the Independence Treaty of 1964. For various reasons, the shipyard was registering an abysmal performance and Swan Hunter and the PN Government had frequent differences of opinion. In 1968 Government enacted the Drydocks Act and appointed a supervisory board with Swan Hunter retained on an annually renewable contract. Swan Hunter claimed that this annual renewal clause prevented them from making long term plans. The 1971 Mintoff Government fired Swan Hunter. With Suez closed, making the Mediterranean a shipping backwater, and with a poor industrial relations reputation, the shipyard was doing badly. Mintoff addressed the management with the threat that unless there was an immediate improvement, he would address the work force. Six months later, in 1973 he held the now legendary Pjazza Gavino Gulia “Bocci” meeting where he gave all and sundry a harsh bollocking.
This action seemed to work because in 1974 Malta Drydocks made its first ever profit. Mintoff realised the difficulty of managing and directing the shipyard and the Drydocks Act was amended to allow the workers to elect their own Board of Directors – the Council. This move had three justifications. Tough direction and management that could command authority were needed to lead a tough workforce. These people were most readily available from the sector itself. Secondly, Workers’ Participation was intended as the means of pushing responsibility as far down as possible and this additional responsibility would motivate productivity. Clearly, this worked. Third, self management meant that the workers would only have themselves to blame if results were not achieved and unless they rose to the occasion, it was their funeral. During the Mintoff years the shipyard continued making increasing profits to reach a record Lm8 million in 1981.
As Mintoff started passing authority to the meeker Karmenu Mifsud Bonnici, the shipyard again made a loss in 1982. While market reversals in late 1981 had a very adverse, long term effect on all European ship repair yards, the fact that shipyard direction and management were now facing a more reasonable KMB instead of the intransigent Mintoff was also a deciding factor. However reasonable KMB was, by 1983 the writing was on the wall for the shipyard. The workers accepted to take flat rate time off in lieu instead of overtime payment and management accepted a 15 per cent pay cut. The shipyard fought tooth and nail for the massive refurbishment contract of the cruise ship Cunard Countess that was returning to its original service after having served as a hospital ship during the Falklands War. This work was a huge success and helped Malta Drydocks established itself as the premier cruise ship yard worldwide. Later years saw the award of many more major contracts on cruise ship refurbishment and upgrades and while these were not enough to totally counter the adverse market conditions, losses were reduced to tolerable levels.
Soon after the PN Government was elected, Eddie Fenech Adami appeared on state television saying that he would be crazy to give a single penny to the Drydocks. Not much later, the same TV station showed him celebrating with the shipyard Council over a ten year agreement under which Government was to hand over Lm24 million to the shipyard. The PN Government had established itself as a pushover that was prepared to throw money at problems. This fact helped to destroy most of the results gained in the Labour era. Fenech Adami, despite the agreement, allowed losses and ensuing Government guaranteed bank overdrafts to accumulate.
The 1996 Sant Government realised that the situation was untenable. Despite the electoral promise that Workers’ Participation would be strengthened, Sant reformulated the Council to four elected members and four Government appointed members plus a Government appointed Chairman. Unlike Mintoff, Sant had failed to diagnose the problems correctly and his remedy simply destroyed any shop floor motivation that was left.
Within a few months, Fenech Adami re-inherited the shipyard predicaments and again resorted to throw money at the problem. Without local top people, top management was entrusted to expatriate management with huge remuneration packages. It appears that the beneficiaries were not held immediately accountable for the lack of results and there was no evident pressure on the directors to see to it that results were forthcoming. Eventual measures included downsizing with many highly skilled workers being given attractive severance terms and transfer to Government sinecures or early retirement. The Malta Drydocks Corporation and Malta Shipbuilding Company Ltd were combined in one entity under the name of Malta Shipyards Ltd.
The payroll reduction helped the shipyard achieve loss reduction targets in the first couple of years. Both PM Gonzi and Minister Gatt were making the right noises indicating that things were on track. The ultimate target was to remove all subsidies by 2008 – a target set in the 2004 EU accession treaty. Later the noises changed to accusations of low productivity. The GWU countered this claim and on Bondi+, Tony Zarb attributed the huge losses to a single massive contract, the “Fairmount” conversion that had displaced the ship repair core business and where the contractual price did not cover even materials, let alone labour and overheads – forget profits. Next day’s L-Orizzont on its front page said that the appointed foreign expert – Crouser – either ran away or was made to leave before completion of the project.
Tony Zarb is asking for a full, fair and independent investigation. Of course he is dreaming. It is much easier to blame the workforce and to imply they are lazy (echoes of the “Bocci” meeting of 1973) than to face up to the responsibility of inept Government policy since 1987.
Even if Tony Zarb gets his wish, the shipyard workers will not be the first or the last to pay for errors or incompetence by management, direction or government.
But as Finance Minister Tonio Fenech (also appearing on Bondi+) stated, the accumulated cost to Malta is just short of a billion Euros, almost one third of the accumulated Government deficit. Tonio Fenech is right in saying that Government should leave the management of complicated business to experts in the sector, but he is saying it a billion Euros too late. Even if such solutions were not possible to implement by the PN twenty years ago, surely the situation ten years ago, after the outgoing Labour Government had destroyed the shipyard’s soul, was very different. Timely action would have meant a massive reduction in the cost you and I as tax payers have to bear.
One has to ask who lacks “bocci”, the shipyard people or the PN Government? Who in Government is going to take responsibility? Nobody can be made to resign over Mistra, but a billion Euros is a lot of responsibility. In the previous administration, Health Minister Deguara was removed from all decision making roles over Mater Dei and subsequently he was left without a portfolio and was accused by Social Policy Minister Dalli of shortcomings. The only withdrawal of ministerial powers was the case of PN leadership contender John Dalli and he was eventually pardoned and rehabilitated.
Which brings us back to the original question over Minister Gatt’s own responsibility before we started our history lesson. Gatt basks in his self made image of tough talking, tough acting achiever. He has fallen out with a record number of people normally considered competent who apparently had differences of opinion with him, could bear him no longer or for unknown reasons resigned. Particularly in the IT sector his achievements have been notable and praiseworthy. He is generally regarded as having more “bocci” than the rest of Cabinet put together. This fact makes his failure to take appropriate and timely action over the shipyard – which were part of his responsibilities for many years – unexplainable. If Gatt was prevented from taking appropriate action by Cabinet or the PM, he should say so. Alternatively, he should bear the responsibility.
After all a billion Euros is a billion Euros.
And what of the future? Government is right to retain ownership of the docks and other ‘real estate’ assets and rent them out. The dry docks and wharves have a strategic value and while Government can privatise their use, it would be short sighted to privatise their ownership. Interestingly, a statement by Minister Gatt says that foreign experts have concluded that it is impossible for the shipyard to return a profit even if it were 100 per cent full of work at current market prices. What does this mean? It does not mean that there is low productivity. Time and time again, the shipyard has shown that productivity increases with increasing work load. The statement means that the basic cost of labour is too high.
Most European shipyards have only permanent labour simply to dock vessels. Most other work is provided by subcontractors. Malta Shipyards lacks the industrial hinterland that guarantees an adequate supply of competitive subcontract labour. When the Naval Dockyard turned to commercial practice, it inherited the workforce to comply with the instant readiness policy required by the Royal Navy and over the years, the shipyard performed all services in-house thus removing any possible motivation for the growth of subcontract services at the required scale. With the phenomenon of immigration into Europe, subcontractors found that immigrants were a cheap source of labour. This phenomenon is identical to that ruling in Malta’s construction industry. These people are willing to work for a quarter to a third of local pay rates. The only realistic way Gonzi could privatise the shipyard is to allow international subcontract companies to set up in Malta and to offer their services to a shipyard management company that operates the basic facilities of docks and wharves. These subcontract companies have to use cheap labour or else they will close down. Malta has no shortage of immigrant labour and as we have seen in the construction industry nobody gets too worried that we use them as a new form of slave labour. As the Italians say, Lavoro Nero, or Black Labour is taking on a new significance.
Clearly, Government must know this but is politically prevented from making it public. The GWU would be up in arms. The racists would see this as a new route of accommodating illegal immigrants while the purists see this as slavery. Government knows that shipyard workers are even less visible than construction workers and that it has an increasing irregular immigrant population problem to contend with. It will stop paying subsidies to the shipyard and social assistance to the immigrants and even make some money off the rental of the facilities. Cleverly, Austin Gatt has started to give out snippets of information to build the eventual case.
Should he resign because of this? No, he should resign because his action came too late and because his timely action could have saved 60 to 80 per cent of a billion Euros. This is too much money for an economy the size of Malta’s and it cannot be written off in the same way that a housewife disposes of leftovers.