Bermuda is in danger of losing its middle class
This is the text of a speech delivered by former Premier Sir John Swan to the Real Estate Division of the Chamber of Commerce last week. Parts of the speech have been edited for length.
I would like to acknowledge the presence of Ministers of the Government here today and other members of Parliament and also I would like to say one thing to one person, Buddy Rego. ... when I returned home in 1960, it was a different Bermuda and a different place, and his father gave me my first job when I returned home and I guess in some ways I developed a lot of his style, because he always believed that anything was possible, all you had to do was do it, that's all, and take the consequences of whatever you did. That was his philosophy and he kept smiling whether he was right or wrong. If it didn't work out he moved on to the next thing and that was Benny Rego's style and I am sure that Buddy is no different than Benny just that he is a little more sophisticated and so I think I also developed a style that helped me through the years.
That's why I picked the topic that I picked today when I was asked to speak to you on short notice.
Let's not beat around the bush all of you are in this business to make a living; you want to make some money; you want to look after your families like anybody else in business. In the 1980s, we saw the tourism business in freefall and there has been talk, more talk and more talk after that but in reality, nothing substantive has really happened; in fact we have less hotel rooms, less people coming to Bermuda except by cruise ships that have gotten bigger and that really is not what our tourism business is supposed to be about.
Bermuda is in danger of losing its middle class. That statement might be a shock and is not meant to be negative but rather meant to put things into perspective. Middle class Bermuda has traditionally made its living out of renting properties. You may think it was salaries, but when you really check your parents and so forth, it was really building an apartment onto their house and or building a second home and in some cases more to rent. That was the serious contributor to increased income and the catalyst of social mobility. The business opportunities as a result of tourism have diminished and now the renting opportunities in both the commercial and residential sector have started to diminish. Rents won't come back if we have the same approach as we have had with tourism; trust me they will not come back. Our ode to tourism was to talk the talk but never walk the walk because whatever we have done was not practical in the eyes of the people that had the money banks, hotel developers, public and private investment companies.
To succeed in any business venture, first and foremost you need capital; the capital that we need to sustain the Bermuda success story is not going to be found on our shores. To attract this vital capital it is essential that foreign people and institutions have confidence in Bermuda and her people.
Bermuda has very little capital inflows right now because capital inflows are related to real estate development that international business rents either commercially or residentially. ... We don't produce oil, we don't have exportable farming or a fishing industry that would allow us to export goods and import the capital needed for our continued growth and prosperity. So our only real role that we play is earning capital from people and institutions who use us to service their businesses and pay our rents. Rents are down and business is flat, if not declining.
So we need something to stimulate Bermuda's future if you are going to pass onto your children (I have two of my kids in my business with me) and the next generation of Bermuda as a whole something worth having. This means the fact that we must think, I hate to use the cliche, but we have to think outside the box. We have to get away from what we do normally and our past failings.
We have to get away from thinking that we know the best way and the best way is the only way and I am not saying that I have the only answer. It's a dialogue that needs to take place with the members of the Real Estate section of the Chamber of Commerce. That dialogue then should filter up to Government. We have a new administration, I think the programmes and the structure of the new administration of the day is going to be far more receptive to ideas than the last. I think they have already put some key people in places that are going to be prepared to listen. We are already hearing that people are having meetings with Government members and Ministers. I am already hearing people from all quarters of the community saying that they want to participate with this new administration. I have met with some of the key international business people in the last couple of weeks and they have expressed that they are now talking directly and unselfconsciously with the new administration and that there is a hope on the horizon. But let's not let that hope turn into vinegar because there was no response to that hope. So I will lay out what I see, not necessarily what you see, not necessarily what the Government will see, what I see as some of the issues that we need to address if we are going to get this economy going. You can't earn capital or, to be more direct, you cannot make money unless you have growth, you can't build, you can't rent, you therefore cannot prosper. The new policies and structures that we put in place must be attractive and enduring so they last.
The world has gone through probably the greatest shock since the Great Depression, we all know that. We can read in the paper what is happening to Ireland, we can read in the paper what is happening to other places. In fact people are reading in the paper what's beginning to happen to Bermuda or what has already happened.
We have to pull ourselves out of this thing and I think there is a great opportunity in many ways to reform Bermuda so we come back even stronger. We have lived in a false world of thinking that the 60/40 ownership arrangement in local Bermuda companies protects Bermudians. We are retarding capital inflows by not allowing product, minds and management to stream together. A lesson that I have taken to heart is to be a good landlord. Bermudians should own the land but allow foreign capital to come to Bermuda and own and manage their businesses. I have gotten out of all the businesses I was in and I owned a number of companies around Bermuda over the years. Got out of all of them to become a landlord. My profession now is that of landlord, not a real estate person but a landlord and why? If you get people who pay the rent and you look after your properties, you get your income 24/7. You go off on vacation, the money is still coming in. What we have tried to do, we tried to hold on to everything and when you try to hold on to everything you end up with nothing. Local businesses need a steady stream of capital in order to thrive.
We simply cannot source that capital domestically, especially when demand slackens due to the vagaries of the economy and foreign competition. We have tried to hold on to businesses when history will prove that Bermudians have had limited success as business people and it's only going to get worse because all of our best talent is being drawn away to international business. My parents were grocery people. They ran a restaurant, Victoria Diner and then they ran a grocery store, Maxi Mart. They worked long hard hours and for what? I learned one thing because I used to go there and work with them. When you sell your last can of peas of a case, that's your profit. Well, how many cases of peas do you have to sell to turn a real profit when you cannot maximise economies of scale and business growth is limited by scale and population?
The Market Place is a fine example of what you can do in Bermuda when you employ foreign know how and Bermudian guts and determination. No one in Bermuda could really run the MarketPlace like John Carr. Where did he come from? He came from overseas. And what happened? The activity of the MarketPlace was going down the tubes. John came in and put the right ingredients in and the MarketPlace went up and is now a great Bermuda success story. Why? Because he had learned marketing and how to manage people in what were at the time more sophisticated economies. The Bermuda brand could grow exponentially and be far more successful if we allowed foreigners with their money and their know-how proper access to our economy. But you need to incentivise people and institutions; they are just not going to come out of goodwill. We need to stop our protectionism and maybe what we want to do is reverse the 60/40 to 40/60. It doesn't mean that we Bermudians cannot participate we can do so through shared ownership and by holding onto our real estate.
As we produce very little in Bermuda, the inflow of foreign capital is essential to the survival of our economy because we need foreign exchange in dollars in order to buy things from abroad. We are not (US) dollar earners.
If we keep going the way we are going, Government is going to find its revenue, I am sure it has already started to happen, seriously deteriorating. The end result will be that we will get either more taxes or else the services that Government provides will be cut, neither outcome is desirable. What we are living off of now is borrowed money and everybody knows when you live too long off borrowed money the end result is a disaster. So you are going to have to have some growth and how do we get growth? We know that real estate is a masterful growth model and we can say Bermuda is crowded, but I see tremendous room for expansion without turning us into a concrete jungle. Bermuda is a small country very much like Monte Carlo or Singapore, both of which are currently thriving by prudently utilising foreign know-how and capital and local land ownership.
One of the things we have to do differently is to recognise that the international business world, the global business world, is a world that is changing resulting in taxation imposed on people and institutions by governments like you have never seen and it is going to get worse. It's not going to get better because the western world that we knew and that we know, has gone through an almost tectonic change and we should not sit around waiting for events to shape us. We must shape events. As the chairman said earlier, when America sneezes, we catch a cold and he is absolutely right. If we sit and wait until things happen in America now, we are going to be in trouble because their process is going to be very slow.
l Read part two of the speech in tomorrow's Royal Gazette