Our three big problems - and how to fix them

WEDNESDAY, OCT. 17: Bermuda has three primary problems. If each is understood, each is fixable. However, if not understood, not accepted as a problem, or deliberately ignored, each problem will grow larger.

Left unfixed, any one primary problem can so unbalance us that our Bermudian community collapses socially or economically. If all three are left unfixed, the Bermudian society that we know today will, absolutely and soon, disappear into the morass of a failed state with a broken community.

Problem 1: Resident population

The fact: Bermudian birthrates are so low that ‘born’ Bermudians are actually disappearing. This creates a ticking demographic time-bomb which will result in a Bermuda economy that will decline anyhow because of a drying-up of internal demand.

Since 2008, there has been a decline in the number of non-Bermudian persons who were living in Bermuda and using Bermuda as a working base for their global businesses.

As a consequence, since 2008, there has been a significant decline in Bermuda’s residential population [ResPop]. This ResPop decline has resulted in a decline in jobs as well as job opportunities for Bermudians. This ResPop decline underpins the shrinkage in Bermuda’s overall economy.

First fix: Encourage in-migration so that Bermuda’s ResPop stops declining, levels off, and begins growing again. Since the Bermudian birthrate shows definitively and clearly that Bermudians are not replacing themselves and are not increasing in numbers; the only solution is to import non-Bermudians who will take up some form of semi-permanent or permanent residency.

Problem 2. Dollars and sense

The fact: The combining of Government’s Revenue profile with its Debt Service Cost [DSC] and its habit of overspending results in a decline in net Government spending in Bermuda on Bermudians and Bermuda infrastructure.

This net spending, in Bermuda, has been declining since 2010. This pattern of declining net spending will continue as long as Government spends more than it takes in and is forced to borrow. Until it is reversed, this particular pattern of overspending will continue to act as an economic drag and will continue to suck down Bermuda’s economy.

All by itself, this pattern supports, maintains, and prolongs Bermuda’s recession. This Government supported and Government maintained recession causes a decline in jobs and job opportunities for all Bermudians.

Second fix: In the short-term, re-balance Government’s spending pattern. Typically, make this kind of quantitative change in Government’s internal spending pattern [Using a realistic $885m revenue for FY 2012/13 and note that DSC cannot change but in future must be made to reduce]. See table below.

This particular budgetary action cuts spending on Government Personnel and Personnel Costs, but leaves Government’s Operational Costs untouched — for the moment. This cut also materially reduces – but doesn’t immediately eliminate - the need to borrow.

Eliminating the need to borrow must happen in the following year. Thereafter, total Government spending must not exceed revenue, until regularly generated tax revenue has risen to over $1,200m – or 36 per cent higher than the $885m of real revenue anticipated in 2012/13. [This means that GDP will need to rise to about $7.5 billion, which is around 23 percent higher than peak GDP of $6.1 billion of 2008.]

In the short-term this kind of monetary action will exacerbate Bermuda’s recession.

However, during this phase, Government must throw maximum effort and energy into growing the private sector and increasing Bermuda’s ResPop of ‘business residents’ – that is people who come to Bermuda to reside in Bermuda, set up their businesses in Bermuda, and operate their global businesses from Bermuda.

The three to five years between a further deepening of the current recession and eventual economic regeneration will prove to be extremely difficult years. The Government-of-the-day will need to work very closely with all Bermudians so that Bermuda’s social fabric is not ripped apart by rapidly heightened social tensions that will be exacerbated by a further and steeper economic decline.

The Government-of-the-day will need to be a Government that is or that can be trusted by the majority of all residents.

In the long-term, Government’s net spending in Bermuda must rise. Government net spending must return to a pattern of continual rising as happened in the forty years between 1968 and 2008.

However, Government net spending cannot rise until there has been a significant and permanent re-balancing of the current relationship between DSC and Revenue.

This re-balancing will only happen when DSC begins to be a decreasing percentage of Revenue – going from the 13 per cent of 2012 back to the 2 per cent of 2004 — and this decrease becomes a PATTERN of decrease, not a one-off one-year aberration, or an accountant’s sleight-of-hand.

Problem 3. Who?

The facts: [a] Since April 1st 2004, one small group of key Government decision-makers (Seventh Minister for Finance, the Ministry team of economic advisors, the Ministry financial management and financial accounting team) has made all the key national financial policy decisions.

In 2012, at the top, this small group is relatively unchanged. Advice given and action taken by this group has resulted in the growth of DSC from 2004’s $11.4m and 2 percent of annual revenue to 2012/13’s $115m and 13 percent of annual revenue [at my realistic $885m for 2012/13].

The Government’s priority siphoning off of a large amount of foreign exchange [currently 13 percent of Government’s revenue] reduces the amount of foreign exchange that actually flows into and through Bermuda’s economy.

This results in a Government-initiated suck-down on Bermuda’s economy, with consequential job reductions and a decline in job opportunities for Bermudians.

[b] This decision-making group made all the key decisions to allow Government employment to grow counter-cyclically to private sector employment shrinkage [the private sector began shrinking in 2007 while Government kept growing].

[c] This decision-making group does not best use existing and available data, is under-supplied with good data, does not itself have or collect sufficient data, and has data that frequently arrives too late to be useful except by historians. Three typical examples of typical data problems are:

(i) in October 2012, Bermuda’s real unemployment is still an unknown and ‘guessed at’ figure — no data

(ii) with only 13,000 acres, one port of entry, and a population between 62,000 (in 2012) and 68,000 (maximum in 2008); month-by-month or even quarter-by-quarter, Government cannot monitor and record changes in Bermuda’s ResPop – inadequate data

(iii) GDP figures are two years old when finally publicized and are therefore useful only to economic historians; not current managers or forward planners – late data.

Third Fix: The same people left or kept in the same positions with the same responsibilities and the same duties and the same decision-making powers and still using the same bad, inadequate, non-existent, or late data will make the same flawed decisions as they have been making since April 1st 2004.

The only possible and workable solution is the standard real world fix of changing all the decision-making people. Simultaneously, fix the data supply system, and seriously review – changing where necessary — the decision-making process.  

Summing up

If you are honest, you cannot deny any of these connected primary problems. Each problem is real. Each is quantified. Separately and together, they are slamming us now by damaging our economy, and consequentially causing job losses and reducing job opportunities for all Bermudians.

These losses of jobs and job opportunities have negative social consequences.

You may disagree with the fix. That’s fine, but now you must find another workable and real-time solution.

Three linked problems. Three linked fixes.

For the moment, you can argue, fuss or fume. Ultimately, though, your real concentration must go to the FIX.