If we continue borrow, the cash-eating elephant will grow bigger and bigger

Like, hate, understand, not understand; Bermuda’s economy is still created or driven by several thousand 365-day-a-year business residents working in what is loosely described as international business. These 365-dayers replaced tourism which was dependent on a through-flow of over 400,000 five-day-a-year air 

arriving tourists. At Tourism’s pinnacle in 1980, some 609,556 tourists created over 50 per cent of GDP. At economic peak in 2008, some 550,021 tourists created only 5.1 per cent. 

In 2008, some 12,619 business residents and associated support persons created over 80 per cent of GDP. This 12,619 was almost twice the 6,741 people employed in tourism at tourism’s 1987 employment peak.

Tourist Playground Bermuda changed into Business Park Bermuda. The absolute shift from Tourist Playground to Business Park happened in 1994. Since 1994, Bermuda’s national economy has been driven by business residents who live in and work from Business Park Bermuda. 

Like, hate, understand, not understand; that is what happened. This distils to a simple reality. 

Business residents now more important than tourists

Just as Playground Bermuda’s economic vitality was measured by the number of five-day-a-year tourists, Business Park Bermuda’s economic vitality is measured by the number of 365-day-a-year Business Residents. Essentially, Bermuda once depended on the passing through of up to 491,000 air arriving tourists. From 1994, Bermuda has depended on the ‘stay-put’ of about 5,000 key business residents.

Losing business residents

From peak in 2008, Bermuda has lost hundreds of these key business residents. Consequentially, these hundreds have reduced the demand for services that directly supported their on-island business activities. This overall loss of business residents plus the consequential loss of service and support infrastructure workers has resulted in an overall decline in that portion of the population that creates and drives Business Park
Bermuda’s economy.

In turn, that segmental decline has meant an overall decline in Bermuda’s overall residential population [ResPop]. Since 2009, as a primary consequence of this ResPop decline, Bermuda’s economy has been in decline. By January 2014, Bermuda’s economic decline had lasted fifteen consecutive quarters. Anywhere else, it might be called a depression.

So what’s the fix?

Every Bermudian understands the economics of the Playground. Income down? Attract more five-day-a-year tourists. We all understand that.

Business Park economics are not different. Income down? Attract more 365-day-a-year business residents.  Exactly the same as the Playground solution.

Bermuda needs a minimum size economy. However in 2014, the critical difference is that in order to restore Bermuda’s economy to the state where Bermuda ‘breaks even’ and can afford to feed the elephant, Bermuda needs to re-attract enough business residents to restore ResPop to the level necessary to create a minimum right size economy. For Bermuda, this is a national economy that generates a minimum of $1.2bn in Government tax revenues. 

Not enough sex?

Between 2009 and 2013, ResPop declined by about 12 per cent, dropping from a 2008 peak of 67,000/68,000 to 2013’s level of about 60,000/61,000.

In 2012, the total national sexual activity of all Bermudians resulted in only 501 Bermudian babies being born in Bermuda in 2012. That’s down from the 512 born in 2011, which was down from the 582 born in 2010. So Bermudians are procreating in numbers that are far too low. The population of Bermudians who are resident in Bermuda is not growing. In fact, it is in such decline that if there had been no Bermuda Status grants between 2000 and 2010, there would have been no increase in the number of Bermudians resident in Bermuda.

What’s the fix?  In the plainest language, Bermuda’s ResPop must rise. It must get back up to and then above that 68,000 ResPop level of 2008. After re-attaining 68,000, ResPop must rise still further until GDP reaches at least $7,200,000,000[$7.2bn]. Presently, GDP is at $5,400,000,000[$5.4bn]. So we’re about $1,800,000,000 [$1.8bn] short on GDP; and now at least 12,000 people short on ResPop.

Why $7.2bn GDP?  Because at $7.2bn GDP, Government’s regular tax extraction should be about $1.2bn which is about 16.7 per cent of GDP. This will allow the Elephant to be fed at the required annual $149m; plus allow total annual government personnel costs to rest around $550m; plus allow total operations/services to be funded at $500m. But do note that the $149m Elephant gobbles up the first $900m of GDP.

With GDP staying under that $7.2bn level, the Elephant will still devour its full $149m. However, the other costs will have to be cut. Not only cut, but those other costs will have to stay down below their current $550m + $500m levels. They will have to stay down until GDP surpasses $7.2bn and regular tax uptake exceeds $1.2bn.

Restoring ResPop is the answer.  Restoring ResPop means going out past North Rock and Argus and getting thousands of 365-day-a-year Business Residents – Bermudians or non-Bermudians - and their Businesses to come to Bermuda, live in and work from Bermuda, and raise Bermuda’s overall economy to that $7.2bn GDP level. If not, GDP will continue floating along under $6.0bn with a regular tax extraction [16.7 per cent of GDP] under $1.0bn. However, the Elephant will first and always get its $149m a year. Therefore government personnel/operations will have to settle at $450 + $400 OR Government must keep borrowing, borrowing, borrowing…. And if Government borrows, that cash-eating Elephant will simply get bigger and Bigger and BIGGER.