Making best use of our intellectual resources

  • The second coming: the PLP, when it first assumed political power in 1998, stood accused of ignoring the advice of local economists on the topic of expansion. Arthur Hodgson hopes, in the wake of the global economic downturn, lessons have been learnt that growth should be intensive rather than extensive (File photograph by Akil Simmons)

    The second coming: the PLP, when it first assumed political power in 1998, stood accused of ignoring the advice of local economists on the topic of expansion. Arthur Hodgson hopes, in the wake of the global economic downturn, lessons have been learnt that growth should be intensive rather than extensive (File photograph by Akil Simmons)

  • Flags of inconvenience: Bermuda may have dodged a bullet by being removed from the EU blacklist of noncooperative jurisdictions, but what exactly are we getting from the powers that be in Brussels, asks Arthur Hodgson

    Flags of inconvenience: Bermuda may have dodged a bullet by being removed from the EU blacklist of noncooperative jurisdictions, but what exactly are we getting from the powers that be in Brussels, asks Arthur Hodgson

  • Arthur Hodgson is a former Cabinet minister, Rhodes Scholar and graduate of Oxford University in England, where he studied philosophy, politics and economics

    Arthur Hodgson is a former Cabinet minister, Rhodes Scholar and graduate of Oxford University in England, where he studied philosophy, politics and economics


This is the last in an eight-part series that takes an incisive look at the Bermuda economy, historically from our humble beginnings to the 21st century and the challenges faced by the Progressive Labour Party government

Of the 65,000 people living in Bermuda, only approximately 45,000 were born here. This is a very small pool from which to draw our thinkers. The 20,000 who were not born here are able to return to their homes at any time and cannot be relied upon to have any particular allegiance to the island.

In addition to this division, Bermudians have decided to divide themselves yet again — by race. These social divisions constitute a luxury that Bermuda cannot afford.

In larger societies where economies of scale allow for the existence of universities and other research facilities, there is an ebb and flow of ideas and experiences that determines its development. Of course, the 20,000 foreign-born residents are not idle, and no doubt make a great contribution to the pool of problem-solvers on the island. However, size itself is frequently the factor in determining solutions to particular social and cultural problems.

Unfortunately, too frequently Bermuda has looked to larger countries for advice and too frequently we have trained our young students, our greatest thinkers, in the two giants of North America — the United States and Canada — where they obtain reference models that they then try to apply in Bermuda. This happens despite Bermuda’s past experience and our survival based on indigenous thinking within a small environment. Alien thought patterns were particularly evident during the Progressive Labour Party’s first term in office beginning in 1998.

Under the old Front Street oligarchy, the Government knew Bermuda had to survive in a hostile world. While they were not prepared to share its wealth equitably, they did consider it essential that Bermuda as a whole should prosper.

In the 1600s, Bermuda produced agricultural crops for the Bermuda Company, but it was more profitable for the inhabitants to engage in shipping, so they moved to have the Crown take over the colony from the company. In the 1700s, Bermuda wanted to remain a British colony but did not hesitate to provide ammunition to the rebellious American colonies. Black Bermudians resented their inferior status and therefore hated the establishment that imposed that status, but they recognised such privileges as Bermuda offered, so they were prepared to ignore their status.

It is therefore not surprising that we often seem to have split personalities.

The question now arises as to how we can make Bermuda another world, given both our size in a hostile world and given the special problems with which we are confronted.

The answer is simple: use what we have to maximum advantage, even our size. Bermuda has very limited land space, making it one of the most densely populated countries in the world. From its earliest settlement in the 1600s, Bermudians were conscious of the island’s limited resources and took steps to protect the environment. By the 1930s, when the population was less than 30,000, the Bermuda Government took steps to limit its growth. During the next 90 years, the natural increase was only about 13,000. From the Bermudian standpoint, the Government’s population-control campaign was a success.

Unfortunately, there were many other factors at work. The most obvious factor was an immigration policy that sought to balance the racial components in the population by importing white folks, but there were other factors much less obvious.

To justify the importation of white immigrants, the spokesmen for government insisted that Bermudians were not capable and could not be trained to perform the skills to man the sophisticated Bermuda economy. Unfortunately, Bermudians bought into this philosophy. During the PLP’s first term in office, between 1998 and 2012, it ignored Bermudian economists and chose to take advice from an American who promoted expansion. Coming from such a large country whose history was based on immigration, population expansion was an assumption that he never questioned.

During the same period, the native-based development organisation Bermuda Environmental Sustainability Taskforce was ignored. The mission statement of BEST stated:

“To preserve and enhance the quality of life in Bermuda for present and future generations by engaging with the community to advocate for sustainable management and development of the physical, social and economic environments.”

The policy adviser made no distinction between quality of life and quantity of life.

It is therefore not surprising that the effect of the worldwide recession beginning in 2007 was exacerbated by Bermuda’s own local policies of having created a bubble that burst. Not only were we affected more than was necessary, but the Government took little to no steps to soften the impact of the recession simply because it was taking advice based on the experience of a much larger country.

Given Bermuda’s small landmass and our history, the lesson to have been learnt is that growth should always be intensive rather than extensive. For example, where there is a need for increased skills, we should be thinking in terms of training our population rather than importing additional personnel that have the skills. This requires investment in education. At present, for example, we import accountants and pay them more than local accountants; the same is true of lawyers, bankers and managers. The training of Bermudians who command higher salaries is a solution or partial solution to both our recession and our debt problem.

Given Bermuda’s history as seamen, it is indeed surprising that we have not invested in our own cruise ships as we have done in cargo ships. Again this would be a partial solution to both our recession and our debt problem.

Despite nations around the world labouring under a debt burden that has become a significant international issue, we in Bermuda are claiming to be one of the richest countries in the world, while sinking farther and farther into debt. If a rich country such as Bermuda cannot save enough for our capital needs, then where are the capital needs of the poor countries going to come from? In fact, because of technology, we are told that we are better off today than we were a generation ago when we did not need to borrow!

Within these various economic models we can identify one or two other factors that have always been important. They are the same factors that most Bermudians will identify as being important without going through any historical analysis.

In any system of productivity today, it is important to have access to capital. This is so whether you are living in Judaic times or feudal times, but it is far more important today when there is greater reliance on machines in our productive processes.

It is also necessary to have the guarantee of land. This, too, has always been important, although its importance has varied in time.

Equally important is the right to engage in trade. This right is exemplified by the European Union’s determination to dictate company policy in Bermuda. Economic substance could be something that works to our advantage if we possessed the mental agility that we displayed in earlier centuries.

In dealing with the EU, one must not immediately assume that it is a bad thing to be on the blacklist. We must ask the question: what is the consequence of being blacklisted? A second question is: what is the cost of compliance with the demands of the EU for economic substance? But, above all, one must ascertain the reaction of companies that have been incorporated in Bermuda. Being blacklisted may result in more companies coming to Bermuda if they are convinced that defying the EU’s demands results in their company having greater privacy and greater protection.

The EU is threatening to link funding to those nations that have been blacklisted. The funds to which these new provisions will apply are the European Fund for Sustainable Development, the European Fund for Strategic Investment and the External Lending Mandate. Funds from these instruments cannot be channelled through entities in the blacklisted countries. In addition, tax schemes routed through blacklisted countries are reportable and the EU is looking for other means by which they can introduce sanctions against the blacklisted countries.

To all of this we ask the question: so what? How does this affect Bermuda? What is Bermuda getting from the EU?

As a marketing tool, we can ask companies to carry out some of their economic activities in Bermuda — not because we want it but because the EU demands that it takes place.

In any event, if Bermudians are good at what they do, international companies will come to us because we are good at what we do. This depends on education, training and hard work.

Socialist systems tried to guarantee a supply of goods by government being in charge of ownership. Difficulties arise because the interest in freedom and the interest in security compete with each other, and market forces work when individual ownership can respond to demand.

The question with which each system was obliged to deal was the extent to which a person was free to deal with the use of labour, land or capital. Under the Judaic system, land could be alienated from the family for a period of 50 years and then came the year of jubilee. One of the failings of the system in feudal times was the inability of the serfs to leave or sell their land. Adam Smith’s criticism of the mercantile system was the inability of those without a licence to trade. The problem with socialist systems is that while governments claimed to hold property on behalf of the people, government officials were the effective owners.

This raises a question that is relevant and important: what is the role of government, not only in making the rules, but in its ongoing administrative functions?

The ability to tax or borrow? Issuing contracts? Planning decisions? Again, we don’t need a historical analysis to tell Bermudians about the importance of government decisions and the denial of opportunities to those not favoured.

It is in the nature of democratic governments for politicians to cast their eyes on the next election and make decisions based on what they think will get them re-elected in the short run. This is one of the problems in dealing with issues such as climate change or other issues dealing with sustainability over periods of decades.

It is suggested that it really does not matter what politicians do, so long as they appear to be doing something to get themselves re-elected in five years. This is not a criticism of the individuals but a realisation of the nature of government. Any agenda for long-term government policy would need to come from outside of government as a result of education within the entire population.

All of which brings us to the question: what do Bermudians think are the ideas that should be incorporated in what could be sound economic policy for a new Bermuda for the long run?

It is suggested that most Bermudians believe that Bermuda is another world and thereby in a position to become an example to the rest of the world.

Those who already enjoy the best of what Bermuda has to offer need not fear change if we don’t think of getting a bigger piece of the pie, but rather focus on making a bigger pie.

What then are some of the directions in which we can move?

Every family in Bermuda should be encouraged to enter a savings programme so that they can become the owners of capital. They should have the freedom to use this capital as they choose, but there should be limits on their choices.

Every family should have an investment in their dwelling. This is particularly important in Bermuda where there has already been so much saving in the form of second apartments on the homes. Unfortunately, there is no vehicle by which this capital can be mobilised without putting the entire family dwelling at risk.

There is a dire need for a sovereign fund that serves the needs of the community instead of the narrow economic and social interest of the established financial institutions.

The Government already provides sources of capital, both for secure or “heritage” projects as well as venture projects. For the most part, the only persons able to take advantage of such government sources of capital are those who already have capital. For example, the Government has invested approximately $100 million in Bermuda properties for the redevelopment of Tucker’s Point. There is no business reason why this $100 million could not represent equity held in some form by Bermuda families.

The gap in wealth and income between black families and white families in Bermuda remains persistently large. This is especially true in the wake of the recession. Intentional economic interventions are required to make any significant progress in closing this gap. Maintaining the status quo translates into another 200 years before black Bermudians have the same level of wealth as their white counterparts.

The black-white wealth gap is a product of intentional, systematic policy choices. The only way to correct this wrong is to make intentional, systematic changes in response. Choosing a particular political party to govern while overseeing this paradigm shift has shown itself to be ineffective. It must therefore be a bipartisan approach.

Arthur Hodgson is a former Cabinet minister, Rhodes scholar and graduate of Oxford University in England, where he studied philosophy, politics and economics

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Published May 21, 2019 at 8:00 am (Updated May 21, 2019 at 7:19 am)

Making best use of our intellectual resources

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