The greatest threat to Bermuda's prosperity is lack of profitability among its major hotels, the author of "Bermuda An Economy Which Works'', said yesterday.

"I am surprised that they (one or more of the Island's big eight hotels) have not left the Island,'' Robert Stewart, chief executive of the $3 billion Royal Dutch/Shell Group of Companies in Bermuda, said.

"The failure by another one or two major hotels would be a major disaster for Bermuda.'' Hotel closures will lead to unemployment and a disparity of wealth. These conditions would have huge economic and social ramifications, he said.

"Displaced persons will be excluded from Bermuda's mainstream economy (the thriving international business sector). Bermuda has yet to face the (extreme) costs of social distress. We're quite a long way from that.'' Hotel owners require financial soundness. Failure to perform means rejection of renewed investment leading to business decline, closure or sale, he said.

These big eight hotels are still taking in cash so owners are willing to keep them open but there is a "slow decline'' which portents closings, he said.

Mr. Stewart also said that: "International investors have yet to establish a reputation for investing shareholder funds in assets which consistently fail to produce an adequate return on investment, or giving priority to investment in Bermuda simply because Bermudians are nice people.'' Mr. Stewart's comments are drawn not only from discussion with The Royal Gazette but also from his 350-page book.

Mr. Stewart said he was partly motivated to write "Bermuda An Economy Which Works'' because there was no similar book available. The result is a collection of 80 essays each presented in question and answer format.

In the book, he said solutions to the hotel industry's problems include reducing labour costs, better labour relations and productivity, higher occupancy, better marketing, and the need for Bermudians to understand the importance of a healthy hotel industry.

Over the last ten years, Bermuda's big eight hotels have had total losses of $39.6 million. The $5.8 million profit in 1994, thought to herald a trend of profitability, was erased by 1995 and 1996 when the big eight went in the red $309,000 and $5.6 million respectively.

"It cannot be stressed too often that if firms in a critical industry fail to earn adequate profits that industry will decline and job opportunities and employment will shrink.'' There is ample time to turn the situation around though, he added, but the amount of time is apt to be "much less'' than Bermuda thinks.

"Major changes which once took 20 years now take five, what used to happen in five years now happens in one year. Collapsing time does not work in Bermuda's favour.'' Also in "Bermuda An Economy Which Works'', he suggests protectionism -- like the 60/40 requirement and immigration policies -- are ludicrous.

A policy which prevents foreign ownership may ultimately work against Bermuda.

Companies that base their business on intellectual capital, like insurance, can relocate very fast, he said.

"Protectionism is an illusion. The whole concept is wrong. There is no way to protect an economy, if there ever was.'' He also refutes the myth that 40 wealthy individuals still run Bermuda. That was true 20 years ago, but no more, he said.

He said keeping foreign retailers out of Bermuda is also wrong.

On the positive side, Bermuda has largely stayed away from state-owned entities, a move which failed in the 1950s and 1960s in many other countries.

But Bermuda Government spending continues to increase from about 16 percent of Gross Domestic Product a decade ago to almost 25 percent in 1996, he said.