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Power cut

If any more signs of the times were needed, Belco’s announcement that it is freezing wages and postponing a rate increase certainly was one.The justification for the freeze was that demand has fallen as a result of the recession, and this is important symbolically, because cuts in electricity usage show that the Island’s economic decline is biting, and biting hard.It’s likely that most people are being more careful about electricity usage these days; turning off lights, appliances and water heaters when they are not in use and so on. Indeed, Belco has traditionally recommended that people do that.And it’s possible that the increase in the number of people using solar power and wind turbines has made a small difference as well.But the real reductions will have been in, quite simply, empty homes and offices. As has been noted previously, there are 1,000 fewer work permits issued now than there were a year ago. That alone will have led to a reduction in energy use; the fewer the people, the less power required.So this is not a great surprise. On the face of it, Belco’s decision to freeze wages, and the rate increase that would presumably have funded it, is sensible for two reasons. The first is that this will enhance the company’s financial position to survive what increasingly looks like a long recession. The second is affordability. Holding back prices now will help customers and will also make Bermuda more competitive. This is however dependent on the price of oil, because if it rises, the fuel adjustment charge will too. But the basic cost of electricity won’t.That’s not to say that this isn’t painful. Belco workers, in common with many others in the private sector, will not receive a cost of living increase, and the rate of inflation is now rising faster than it is in the US or Canada.This raises the same contradiction that has been afflicting the Bermuda economy for some time. For individuals or businesses, it makes sense on an individual level to cut costs as much as possible and, if possible, to hoard cash to meet obligations in the event that the economy worsens.But doing so collectively has exactly that effect; if the community as a whole reduces costs and spending, then the economy will inevitably worsen, barring an improvement in the international company sector or tourism which will increase the amount of money in circulation.This situation will continue until confidence is restored, and businesses and consumers are willing to start spending again, or until there is a sufficient increase in international business or tourism to get the economy moving again.This may happen naturally; eventually the economy will bottom out, and those businesses that survive will be in a position to start hiring and investing again. But waiting that out is not necessarily advisable, and politically, it could be disastrous.This is where Government comes in. Premier Paula Cox’s dialing down of the political rhetoric has already calmed some nervous businesses who disliked the divisive rhetoric and the perception that international companies were tolerated rather than welcomed of former Premier Dr Ewart Brown.But more needs to be done to show that Bermuda is back in business. It’s fairly clear that the term limit policy on work permits is not going to change, but the release of statistics on this helps to show it is not the hindrance some believe. At the same time, the uncertainty created continues to hurt international companies in particular.Increased growth in those tourism and international business remain the best means of restoring confidence to the economy.