Politicians should keep their hands off business

One of the many differences between the Bermuda of today and that of the 1980s and the 1990s are the current frequent references to government leading the economy into a promised land of economic growth, full employment and new jobs. 

Members of the public and politicians now speak glibly about government providing the required leadership and policies and, hey presto, everything will be peaches and cream.   

Typical of such attitudes was The Royal Gazette column by Al Seymour of May 13 in which he said: “What matters now is that the new Government is at the controls and indications are that the new crew are extremely busy keeping the island craft on course toward a more productive path, not just for the first class passengers but for all on board”. 

The metaphor clearly means Government is in control of the economy and by pursuing the right policies, prosperity and jobs will return quickly.

Alas, Mr Seymour (normally a most sensible and reasoned commentator), and those who agree with him, are badly mistaken. Government, whilst the most essential institution to keep the peace and preserve law and order, is one of the most useless and incompetent in managing the economy, as the experiences of elsewhere so clearly demonstrates.  

Let’s step back a few years. In the late 17th Century, the French finance Minister of Louis XIV (a pretentious mediocrity with grandiose ambitions — just like some of our politicians) asked a group of businessmen what he could do to help them create more jobs and greater prosperity. One of them, called Legendre, answered “Laissez-nous faire” – which means “Leave us alone”. The main reason for his response was that the French government micro-managed the French economy. It determined, for example, the number of threads in a cloak, and it taxed so heavily that the French people eventually revolted with adverse consequences to the rest of the world. 

Unfortunately, in 21st Century Bermuda, there are few businessmen with the sagacity of Legendre.   He knew that direct government help to business was as disastrous as persecution. He also understood that the only way government can be of service to national prosperity is by keeping its hands off, and by keeping taxes low and maintaining law and order. 

Industrial revolution

In 1776, a maverick Scotsman called Adam Smith wrote a best-selling book entitled ‘The Wealth of Nations’ which destroyed the intellectual foundations of the self-destructive economic policies, called mercantilism, pursued by most governments of the time. He provided the intellectual (and revolutionary) justification for the amazing economic transformation that occurred between 1760 and 1830, which is loosely described as the industrial revolution. It was no coincidence that George Washington and the American colonists were big fans of auld Adam.

Unfortunately, from the late 20th Century to the present, Adam Smith has been regarded as a quaint  reactionary by American and European governments — one consequence of which is the dreadful economies of Europe and North America.  

Bermuda achieved its prosperity — and the status of being one of the wealthiest countries in the world — by having Government play a relatively minor role in the economy and by following the wisdom of this eccentric Scotsman. It created conditions which allowed business to flourish by, for example, creating a special corporate vehicle called an Exempt Company which could trade from Bermuda but not within Bermuda and gave such companies an exemption from taxes on income and capital gains for many years. In Bermuda, in those days, we enjoyed low taxes and minimal crime.     

The general public and those who exercised political power also understood and believed in four fundamental truths:

• Prosperity and jobs are the product of intelligent business people — not pompous politicians;

• Government power is compulsion, and intelligent people shy away from that and move elsewhere — as we have seen over the past few years; 

• Minimal taxation leads to prosperity and job creation;

• Debt is to be avoided at all costs.

Entrepreneurs (or business people) were then free to enjoy a benign business environment which led to the establishment of international business (IB).  Many non-Bermudians were involved with the creation of IB such as Ernie Stempel, Don Kramer and Robert Clements who collaborated with leading Bermudians such as Sir Henry Tucker. Similar cooperation also took place in the tourism industry. The result was a Rolls Royce economy where ordinary people led a life which would have astounded their ancestors.    

Bermuda prospered mightily until financially illiterate politicians, in the first years of the 21st century, fooled the public into believing that our prosperity arose because of their wisdom and far-seeing policies. The public fell for this chop-suey and, as a consequence, we suffered unemployment and reduced incomes for the first time since World War Two. 

Economic freedom, or laissez-faire, is not an old fashioned or dogmatic ideology. It is, in fact, revolutionary both in intent and result. It empowers ordinary Bermudians with more opportunities and more choices. Elsewhere in the world, one can see the contrast between North and South Korea; 20 years ago the difference between East and West Germany; and between Hong Kong and communist China.  These experiences should teach us that the best efforts of political central planners and bureaucrats lead to poverty, and, not coincidentally, the loss of freedom.     

Adam Smith said it in only a few words: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”  

The best path to jobs and rising living standards is not active politicians (whom we should always distrust) but economic freedom — which means laissez-nous faire — leave us alone. n