Bermuda is commonly referred to as being in a recession. But at this stage it is probably more accurate to describe it as a depression.
The technical definition of a recession is two consecutive quarters of reduction of gross domestic product. Bermuda has done that about eight times over now.
There is no technical definition of a depression. But there is a consensus that a depression must see a contraction of more than ten percent of GDP or three years of consecutive reductions in GDP.
Bermuda has seen three years of contraction in GDP since 2008 and in that time GDP has contracted by 9.7 percent in constant prices (after inflation). So Bermuda qualifies for a depression by one measure and very nearly by the other.
Does this matter? After all, it is no secret that people are hurting, that unemployment is at the highest levels in living memory, and that redundancies and business closures are continuing. It matters because many people argue that a recession is a normal part of the economic cycle.
A depression, by contrast, is an abnormal event, signalling a major change in an economy and only repaired by structural changes in the economy.
So what is Bermuda's problem?
First there is, or was, the global recession, which reduced demand for Bermuda's services, especially in tourism. North America is now in recovery, albeit a very sluggish one, while Europe has seen some patchy growth, punctuated by shocks. Asia is growing, as is Latin America, although less vigorously than they were. Most Caribbean countries are enjoying some recovery.
But Bermuda continues to struggle. Why? First, the tourism product remains overpriced for what it offers. Plans to get more hotels built still falter because the cost of construction and doing business make the Island uncompetitive compared to other destinations.
For international companies, some of the same problems arise. Companies can deliver the same services for less cost elsewhere and increasingly are doing so. The result in Bermuda is fewer jobs, both at the entry level, but increasingly in the CEO suite as well.
But it is not solely driven by cost, since Bermuda was always expensive. Part of the change has been technological, as the ease of doing business anywhere has increased. Part too has been driven by external factors, including tax changes and regulatory changes, especially in Europe.
But Bermuda also rolled up the red carpet for international business. From term limits to increasing payroll tax without notice, Bermuda stopped treating international businesses like honoured guests and started treating them like unwelcome intruders.
The result was that they started reducing their presence or leaving altogether. None of this is a secret, even though the Progressive Labour Party continues to deny much of it and would like Bermuda to believe that none of this was self-inflicted. Fixing the problem requires the kind of structural changes that depressions bring about. One answer is to reduce the burden on businesses in order to encourage employment.
To this end, the PLP's rejection of the One Bermuda Alliance plan for giving a payroll tax holiday to employers who put Bermudians in new jobs on the grounds that it is unfair to the employee is bizarre. At a time when many Bermudians are losing their jobs, being made redundant or facing pay cuts, paying a five percent deduction is a small price to pay for a job. On this, the PLP is trying to have it both ways.
Bermuda needs to find new ways of becoming competitive, including breaks on Customs duty to lower the cost of goods and services.
Both political parties need to tell Bermuda what they plan to do to get Bermuda working again.