Survey suggests Bermuda is emerging from economic crisis

By added on 06/05/2014

Bermuda is heading out of a period of crisis into one of reinventing itself, according to a new survey, reports Royal Gazette.

The Island Monitor Report — which looks at smaller economies — put the Island at the end of a “stress/crisis” cycle, ahead of competitors like the Bahamas and Caribbean nations like Barbados and Jamaica.

But Bermuda is lagging behind the Caymans, Turks & Caicos and Antigua & Barbuda, which are already well into a period of reinventing their economies.

The view of the Guernsey-based survey organisation was backed by Bermuda College economics lecturer Craig Simmons.

“As a country, we’re heading in the right direction,” Mr Simmons said. “Unfortunately, the most effective policies for improving the well-being of our people won’t be felt for many years to come.

“Our Government’s deficit reduction policy is following best practices. Many island governments have reacted shortsightedly to unexpected budget deficits. They have increased tax rates and cut spending.

“The historical record shows that over the short term, tax increases prolong the road to recovery and inhibit growth prospects over the medium term.

“Since the recession our Governments have concentrated on cutting Government spending.

“This will go a long way toward laying a foundation for growth over the medium term.”

Mr Simmons was speaking after the latest Island Monitor report said that a period of stress and crisis followed “fine tuning of the status quo” which resulted in “a failure to move with the times.”

The report added: “The lack of adequate recent innovation and diversification results in stress to, or a crisis of, island economic performance and wealth.”

But it said: “Reinvention — where the earlier stress/crisis has forced radical action to create a new economy, with old sacred cows and reluctance to change being swept away as a matter of economic necessity.”

The report added that reinvention lead into “building” — when industry GDP and wealth per head grows as economies build expertise and attractiveness in “relatively new areas of specialisation.”

And the survey said: “Economic diversification is an important factor in reducing the risk of future economic and social stress and crisis in island communities.”

The survey also listed “fine tuning” — where countries which have achieved success downplay innovation in favour of resting on their laurels and rely on the benefits of past decisions rather than investing in the future.

Jurisdictions in that category include Singapore, Jersey, Gibraltar and Guernsey.

Mr Simmons added that good access to education was the most important factor in boosting the overall standard of living in Bermuda.

“One reason for rising inequality is the existence of an achievement gap between rich and poor households,” he said. “Children from rich households start school with bigger vocabularies than children from poor households.”

And he explained that research had shown that improvements in the linguistic abilities of toddlers meant that the gap between rich and poor would narrow.

“Similarly, improved access to postsecondary education can go a long way to giving Bermudians the ability to create their own opportunities in the business world as well as pursue high-paying jobs,” Mr Simmons said.

He added that other research carried out at Harvard University suggested that inequality increased when technology gets ahead of countries’ ability to produce an educated workforce.

“There is little doubt that in Bermuda, a largely knowledge-based economy, the demand for talent has got way ahead of supply,” he said. “This helps explain the calls for importing more labour to fuel the international business sector.”

Mr Simmons said that Bermuda spending on education lagged behind similar countries — while spending on healthcare was among the highest.

He added that the biggest threat Bermuda faced was a brain drain of young talent moving overseas.

Mr Simmons said that youth unemployment was three to four times the adult rate during the recession — and that older people had failed to convince the young they had a future in Bermuda.

“The older generation’s willingness to celebrate property prices 20 times the median income has a subtext — ‘I’m going to get mine while the going is good, no matter what the consequences; greed is noble and short term thinking is preferable to long term thinking’,” he said.