America could learn a lot from this tiny nation

September 2, 2011

I’ve just finished up a whirlwind week here in Malta meeting up with old contacts and making new ones. This place has a really incredible history dating back over 7,000 years, and the island played a pivotal role in civilizations from the ancient Greeks to the British Empire.

Today, Malta is something like a cross between Italy, Britain, and Arabia; it’s a unique melting pot where history and culture collide with modern globalism in a beautiful, sun-drenched setting.

As part of the EU and eurozone, Malta has managed to carve out a niche for itself as a second-generation international business hub. Years ago, like many small countries, it was a tax haven, plain and simple. Malta was one of the places where you would go to hide money.

Fast-forward a few decades and that model has become defunct. Tax havens are a relic of the past thanks to the OECD’s continued witch-hunts, and Malta was forced to reboot its economy.

Instead of being a center of money laundering and tax evasion, the country transformed itself into a place that makes it -very easy- to do business internationally. I’ll give you a few examples:

Online gaming has truly become a pariah industry. Nobody wants to touch it with a ten-foot pole. Even popular international gambling jurisdictions like Macau refuse to license and regulate online gaming companies. The options are truly limited.

In Malta, however, online gaming companies are welcomed with open arms. They don’t have to operate from the shadows layered under dozens of dummy holding companies to mask their affairs, either; gaming firms enjoy total legitimacy backed by the Maltese government and courts. No more running and hiding.

The effect on the local economy has been significant. Many of the world’s largest online gaming companies have relocated to Malta, and this has boosted the local labor market and banking system.

Another industry that’s thriving in Malta is generic pharmaceuticals. The country has an extremely broad interpretation of something that’s known in pharmaceutical patent law as the ‘Bolar Exemption’, essentially giving safe harbor treatment to drug companies who begin research and testing of a generic drug before the end of a patent term.

In other words, let’s say Pfizer comes out with some miracle drug tomorrow and has its patent approved concurrently. Rather than waiting 17-years for the patent to expire before they even begin development on a generic, smaller pharma companies can begin research and testing in Malta almost immediately.

This way, the moment the patent expires, generics can hit the market the very next day.

A lot of countries have exemptions for generic drug development; Malta’s is, by far, one of the most liberal in the developed world. Coupled with its English speaking, educated, cost effective labor market, this policy has spawned a bustling industry that has attracted international businesses and investment.

The net result for Malta has been stable, consistent growth, with unemployment and inflation far below the EU and eurozone averages. And all the government had to do was step out of the way and let businesses thrive on their own… no special programs or spending initiatives required.

In the rest of Europe and the United States, politicians are toiling away trying to create more laws and more regulations. They’ve never understood that, instead of helping businesses and protecting consumers, more regulations only serve to impede productivity and screw the consumer.

The Dodd-Frank bill that was signed into law about 6-weeks ago is a classic example; the legislation is full of mandatory programs that cost a lot of time and money, yet yield little (or negative) value for the economy.

One provision, for instance, requires that businesses dealing in certain commodities or whose products contain certain commodities, must now file an annual report certifying that their raw materials are 100% free of ‘conflict minerals’ that may have originated in the Democratic Republic of Congo.

Given DR Congo’s massive gold and copper reserves, this is going to affect a lot of people. And how is it even realistic? It’s like requiring someone to file a report stating where the last drop of gasoline they put in their car came from. Any ideas? Saudi Arabia? Brazil? Canada? And why is DR Congo singled out over, say, Sierra Leone?

This is exactly the sort of thinking that only makes sense in Washington. It puts completely unnecessary and unrealistic obligations onto American firms, forcing them to deal with administrative nonsense instead of what actually matters in business: making money.

The concept isn’t hard– when companies can focus on their core business and grow, they’re more likely to hire. For all the talk that politicians want to reduce the unemployment rate, everything they’re doing is making it more difficult for businesses to prosper… and hire.

They could definitely learn by watching what Malta has been doing.

I was recently passed an email that sums this all up quite nicely–

The English language has some wonderful collective nouns for the various groups of animals. For example, we are all familiar with a herd of cows, a flock of chickens, a school of fish, and a gaggle of geese.

Lesser known words are a pride of lions, a murder of crows, an exaltation of larks, and a muster of storks.

Now consider a group of baboons. They are the loudest, most dangerous, destructive, obnoxious, viciously aggressive and unintelligent of all primates. And what is the appropriate noun for a group of baboons? Believe it or not… a Congress!

Have a great weekend.