Economist Craig Simmons believes that relying exclusively on foreign investment to boost Bermuda’s finances is a “grossly unbalanced” strategy and wants more encouragement to be given to smaller, local investors. In a detailed Q&A with The Royal Gazette, he addresses some key topics on the shape of the economy.

• How do you assess the current state of Bermuda’s economy?

The economic cycle, unlike the lunar or seasonal cycles, is far from predictable: it doesn’t move in any pattern that one can detect. My sense is that the economic pendulum has changed direction and is now firmly heading in the direction of recovery, albeit an anaemic one. But this is to be expected given that the boom that gave way to the recession was debt-fuelled. Historically, recoveries that follow a credit crunch are long, slow and have a higher-than-normal probability of bumps along the way.

Most of the main indicators — retail sales, gross domestic product, planning and work-permit approvals, visitor spending — are improving and the Government’s debt reduction plan is proceeding, more or less, on schedule. The financial services sector, however, is failing to help in the recovery effort: non-performing loans as percentage of capital remains stubbornly high (40 per cent); the money supply continues to shrink (-2 per cent), along with bank lending (-6 per cent) and bank deposits (-2 per cent). Lack of lending, whether in the form of debt or equity, to small and medium-sized businesses is arguably the largest single barrier to sustaining a meaningful recovery.

The Government’s approach to stimulating the economy through private spending is grossly unbalanced in favour of foreign direct investment. There is no doubt that, to quote the Finance Minister, we need “to restore investor confidence to attract foreign dollars back to our shores”. But it is difficult to get shovels in the ground for large projects — whether private or public. The small projects listed in the Budget Statement 2015/16 are either completed or well under way.

Five small projects of, say, $30 million each are likely to have a greater impact on the recovery effort than reliance on one $150 million project because all one’s eggs aren’t in one basket — it’s a sensible way to manage uncertainty.

Why can’t we walk and chew gum at the same time. The overreliance on foreign direct investment diminishes the potential impact of small-scale local investment spending — fast nickels are better than slow dollars. The same reduction in red tape afforded foreign investors should be extended to local entrepreneurs. At the very least, a concierge service that makes it easier to get a local business up and running is needed for local entrepreneurs.

• Do you have hope that things are getting better or will get better soon?

There are tremendous opportunities available to Bermudians who are willing to wade into the asset market in general and the real estate and equity markets in particular. Pessimism is pervasive, just as optimism was excessive in the run-up to the recession.

At the psychological level, humans are awfully similar to cattle: they blindly follow what everyone else is doing. How else can you explain pre-recession property and equity prices, on the one hand, and recession prices, on the other — we’re essentially talking about the same assets in the same country.

Excessive exuberance during a boom sows the seeds for a bust. We’re presently in a vicious cycle: people from all walks of life feel that things will only get worse. Asset prices have never been so depressed as now. That’s why now is the time to buy: there are condominiums on the market for $150,000 and equities trading at a fraction of pre-recession valuations. It’s a contrarian view, but this is a strategy that distinguishes successful market players from the crowd.

In ten years or so, many will look back and wonder why they didn’t seize the opportunity to buy assets at today’s prices. This recession has been highly disruptive to the existing distribution of wealth. The recession has opened up economic gaps that will be filled by the business leaders of tomorrow.

• To what extent are you seeing an inequality gap at the moment? Has it changed since you last aired concerns in our newspaper a year ago?

Ordinarily, inequality changes very slowly. In democratic societies, one cannot expect to see change in the distribution of income or wealth in anything less than a decade. Further, history suggests that revolutions are no more successful at dismantling oligarchies and oligopolies. New leaders with promises of radical change tend to bring nothing but more of the same.

Based on the sample of countries in the World Top Incomes Database, perhaps the lesson we need to learn is that the distribution of income and wealth in Anglo-Saxon-type economies — UK, USA, Canada, Australia, Bermuda — will remain very unequal for the foreseeable future. Typically, in Anglo-Saxon economies the top 10 per cent earn 50 per cent of all income. And not surprisingly, over 50 per cent of income from capital goes to this group.

Since the recession, capital income has decreased the most. It may seem counter-intuitive, but the rich have seen their income decrease more than any other group. And, if you accept that losses loom larger than gains, then the rich have “suffered” the most.

The middle 40 per cent of the population, which represents the middle class, earn 30 per cent of all income and the bottom 50 per cent or working class earn a paltry 20 per cent of all income and less than 10 per cent of capital income. For working class people, capital income is synonymous with income from one’s pension.

Traditional means of dealing with inequality include a minimum or a living wage; financial assistance — conditional assistance has proven particularly effective in Brazil; food and housing subsidies; and private school vouchers.

• Why is this situation significant and what can be done about it?

People on low incomes have fewer options in terms of healthcare, education, leisure, etc than middle-or-upper class people. Those limited options translate into limited freedoms to, say, live a long life. Black Americans, for example, live shorter lives than the average Chinese person does. And, urban black American men have shorter lives than the average Bangladeshi man. Thus despite living in one of the richest countries, it can be argued that urban black American men have a Third World standard of living.

Low income is often a case of limited capability to earn higher income. Recognition of an individual’s (in)capabilities allows a society to focus on the factors that limit an individual from earning a higher income.

For example, improving a student’s literacy and numeracy will increase the probability that an individual will be able to thrive in modern-day Bermuda. Improving literacy and numeracy are therefore indispensable to raising an individual’s quality of life. We observe lower GCSE pass rates among public school students. There is little doubt that lower GCSE pass rates will limit public school graduates’ capability of achieving basic goals like securing work that will pay a livable income, of participating in political processes or of having access to healthcare.

Location is another factor that limits an individual’s capabilities. For a young man, living in Middletown can severely limit his ability to move freely around the Island to work or chill. As a community, we are unable to provide many boys and young men with the protective security they need to be free citizens. What this suggests is that the economic data on income, unemployment, etc understates actual inequality.

It is not enough to say that working-class Bermudians should be grateful for the standard of living they are privileged to enjoy. They earn relatively and absolutely more income than most working-class people elsewhere do. And, on the face of it, they appear as well-fed, well-clothed and well-entertained vassals, to use a term coined by Amartya Sen. This argument fails to acknowledge the fact that being a part of the Bermudian community requires an individual to take part in the life of the community. That may require one to own a smart phone or to take an annual overseas vacation. The latter activity will appear luxurious to most living outside of Bermuda.

Much of the frustration of working-class people stems from a conflict between traditional ways of living and ways that people have reason to believe are just, on the one hand, and the demands of a global economy, on the other. The global economy is largely corporate: it is not rooted in a system of natural ethics but instead follows the logic of a balance sheet.

Managing the local economy’s interface with the global economy is fraught with difficulties largely because of the disruptive effects of creative destruction.

The changes associated with creative destruction are imposed not negotiated. Book-keepers were summarily displaced by electronic spreadsheets; backyard mechanics need the latest computer software and equipment to make simple repairs; and high-speed data is making the outsourcing of accounting, customer service, information technology and other business functions a serious option for both international and local businesses.

The next wave of disruption will likely come from corporations like Uber and Airbnb. Uber, a transportation company, could make traditional ways — taxi — of moving visitors and locals around the Island redundant. Similarly, Airbnb poses a serious threat to traditional ways — hotels and guesthouses — of accommodating visitors.

The way in which workers organise themselves through unions and the power they are used to wielding will change dramatically. Similarly, owners will view the challengers’ new business model as grossly unfair.

• In a recent Royal Gazette survey, more than half of Bermuda residents said they were against Government’s proposal to increase the Island’s population to try to improve the economy. Do you think such a policy would work? And why do you think so many people are against such a policy?

When looking at economic performance over a decade or more, three factors drive growth: more capital — plant and equipment, better technology, and a growing and better-trained workforce. International growth data suggest that these factors are of equal importance.

Increasing the size of the workforce is not necessarily synonymous with more foreign workers. There are hundreds of highly qualified Bermudians working in academic, business, medical and technical fields around the world, who could be persuaded to contribute to our development effort. And, given the state of information technology, it isn’t necessary for all of them to have a full- or part-time physical presence.

If the Government could demonstrate its commitment to economic development without exclusive reliance on outsiders, then perhaps the scepticism over Government’s population growth policy could be abated. In the present climate, it is assumed that more foreigners will make it harder for Bermudians to earn a living.

• In a recent Royal Gazette survey, 52 per cent of people said they supported Government’s financial support of the America’s Cup. Given Government’s frequent comments that the America’s Cup will produce a very significant boost to the economy, why do you think almost half the population is not behind the move to provide financial support for it?

The America’s Cup (AC) will not produce “a very significant boost to the economy”. If this is what is being promised, then AC is being oversold. AC will help boost the economy by way of a temporary increase in construction and food service jobs — these were the main types of jobs created in San Francisco and New Zealand.

We must also make it clear that there are short-term benefits, in terms of temporary blue-collar job creation, and the less quantifiable long-term benefits associated with hosting the third largest sporting event on the planet.