Bermuda must examine and understand what caused the Island’s economic collapse
May 9, 2014
For several years the PLP, and recently economist Craig Simmons (for whom I have much respect), have stated that Bermuda’s recession was caused by the global financial crisis. From that supposition, they have then suggested remedies to cure Bermuda’s “globally inflicted recession.”
Indeed, even the Consulting Editor of The Royal Gazette, in his 8 May editorial, “Bermuda’s Two Stages of Loss” states that “ … Bermuda has struggled to cope with the ongoing consequences of the 2008 global economic downturn.”
Unfortunately, the facts make clear that the 2008 global financial crisis and ensuing global economic downturn had very little to do with Bermuda’s present recession/depression.
But does it really matter? Shouldn’t Bermuda simply focus on the problems and forget about the past causes of those problems? No.
Identifying the cause of Bermuda’s economic collapse is extremely important. In fact, it’s arguably the most important issue of the decade.
That’s because, if you misidentify the cause of the problem, you will have little chance of developing an effective and unified plan to solve the problem. And since the economic future of Bermuda depends on getting that right, it is critically important to examine the facts to determine exactly what caused Bermuda economic collapse.
So let’s examine the facts.
During the last five years there has been a large number of job losses in Bermuda, at first in the International Business sector (e.g., reinsurance companies, captive management companies, fund administration, mutual funds), then in the local companies that directly serve that sector (e.g., law firms, accounting firms, computer companies, office supply companies) and in the local companies that indirectly serve that sector (e.g., restaurants, retail stores, construction) and finally in the charities that received funding from that sector (basically all charities in Bermuda).
As we can see, and as all parties including the PLP have acknowledged, it was the loss of jobs in the International Business sector that principally caused the job losses in the other sectors of the Bermuda economy. In other words, if IB were still booming as it was six years ago, Bermuda would be just fine.
So if we can identify what caused the job losses in Bermuda’s International Business sector, we will know the principal cause of the job losses in substantially all sectors of the Bermuda economy. That may sound difficult to do, but in fact it is not.
The key is to look at what happened to those lost jobs in International Business.
If international companies eliminated those jobs because of the global recession — that is, the companies were simply cutting costs by downsizing — then those jobs would have been eliminated. But for the most part, they weren’t.
An overwhelming number of the “job losses” in Bermuda’s international companies over the last five years were not job losses at all. They were job transfers.
The companies simply decided that their interests were better served by moving specific jobs and sometimes whole departments out of Bermuda to other jurisdictions.
Finance jobs were moved to the US; captive management jobs were moved to Canada; insurance claims jobs were moved to the US; entire fund administration operations were moved to the US and Canada; accounting functions were moved to Canada; investment research jobs were moved to Canada, the US and Switzerland, marketing jobs were moved to the US — the list goes on.
To make matters worse, CEOs and senior vice presidents of some of Bermuda’s biggest international companies decided to leave Bermuda (and their large rental houses) to move back to the US, and now they only come to Bermuda a few days a month.
As those IB jobs and top officers started leaving Bermuda, the real carnage began.
Local companies that depended directly and indirectly on International Business (e.g., law firms, computer companies, accounting firms, retailers, restaurants, etc) suffered losses of revenue and were forced to lay off employees.
Landlords lost tenants, demand for housing fell, rents fell, mortgages fell into arrears, and many Bermudians now face the threat of losing their homes.
So, contrary to the claims of the PLP, an overwhelming majority of the job losses in Bermuda were not the result of the global recession. They were, in fact, the direct and indirect result of international companies deciding that their interests were better served by moving jobs out of Bermuda to other countries.
That means not only was the global recession not the principal cause of the massive job losses in Bermuda, but there is no reason to believe that when the global recession ends, the jobs in Bermuda will come back.
That’s the bad news.
The good news is that Bermuda may be able to recover (at least in part) from its present recession/depression even if the global recession continues or worsens.
But to do that Bermuda must fully understand why IB moved jobs out of Bermuda to other jurisdictions.
Only with that understanding can Bermuda develop an effective and unified plan to bring IB jobs back to Bermuda.
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