On borrowed time ...
David Burt, the Premier, has acted again with some speed to try to close off criticism of the loss of $800,000 of taxpayers' money after it was lent to a business to establish a recording studio in Dockyard.
As is often the case, Mr Burt's apology ended up being partial. He took the opportunity to jab at the One Bermuda Alliance for the America's Cup, technical officers who reviewed the loan and this newspaper for reviving this scandal after it was first reported on a year ago.
But he does accept responsibility for the decision to lend the money, admitting he supported the idea and drove it forward.
Earlier this year, this newspaper criticised former finance minister Bob Richards for the decision of the Government to guarantee loans made to the Caroline Bay construction project, which later failed, leaving the Government and the public indebted to the tune of $200 million.
At the time, it was noted that Mr Richards had no doubt made the decision to guarantee the loans for the best of reasons and having considered all of the available facts. But in the end, it was clear Mr Richards was wrong. He had taken a risk and it had backfired at vast expense to the taxpayer.
This newspaper noted that among the critics of the decision to give the guarantee was Mr Burt, the shadow finance minister at the time, who had rightly questioned the wisdom of providing guarantees to private businesses.
It's a shame Mr Burt did not heed his own advice when it came to the ineptly named Savvy Entertainment.
To be sure, there is a vast difference between $800,000 and $200?million. Mr Burt no doubt felt the need to ensure Moresby House at Dockyard was put to good use after its expensive restoration by the previous government for the America's Cup. He has been on the record since about how Bermuda should diversify the economy by taking a larger part in the global arts and entertainment industry.
So he no doubt did this with the best of intentions. He may also have felt that by having civil servants do their due diligence that this would be sufficient to ensure the loan was secure and would be repaid.
So there is no reason to doubt his good intentions. But the principle remains the same — giving government support to private enterprise should be in the overwhelming public interest. And some thought should be given to the notion that if larger-scale projects are not considered to be creditworthy by the banks, that should be a warning sign for other investors.
But just as Mr Burt warned in 2015, so he should have remembered in 2018 that governments are usually poor at choosing winners and losers among private businesses. Indeed, there are worrying signs from the Progressive Labour Party's platform that, far from learning this lesson, Mr Burt has thrown it out of a window, since the platform promotes any number of private-business schemes.
That's not to say that governments do not routinely support, either through loans or guarantees, small businesses and start-ups, especially where they may not have a credit history or track record to justify a bank or other lending institution putting up the money. That is the essence of the mission of the Bermuda Economic Development Corporation. But the amounts involved are relatively small and there is an understanding that some will be successful while others will not.
It is also fair to say that for many years now Bermuda has lacked a means of funding small and medium-sized businesses where banks are unwilling to take the chance. In other larger countries, this vacuum is filled by venture capitalists and private- equity investors but little has been done in this area, although the Ignition business incubator and the Bermuda infrastructure funds are both recent examples.
Private investors expect that some of the businesses they invest in will fail or fall short of expectations, and include this in their business models. That is the meaning of risk and their investors are aware of the potential for losses when they put their money in a private fund. But taxpayers' money is a different matter. Indeed, there is a decent argument to be made that taxpayers should not be expected to fund a fellow taxpayer's success. Individuals who have spare money to invest should be allowed to do so, rather than see their money lost on risky private-sector ventures such as Caroline Bay or Savvy.
Similarly, governments are usually more successful when they create the conditions in which economic growth is possible rather than having a direct part in investments. Such a role should also include ensuring that opportunities are fair and equal, that anticompetitive, monopolist practices are discouraged and that no section of the community has an unfair advantage.
There is a greater problem when such investments are tied to other forms of social engineering. While this newspaper recognises and supports efforts to narrow the wealth gap between white and black Bermudians because of the inequity that has resulted from centuries of white privilege, providing taxpayer-funded loans to companies that appear to be solely owned by foreigners surely isn't the way to right that wrong. And if public funds are to be lent to anyone, for goodness sake, let's do our homework on them and pay the funds incrementally as they achieve a carefully drafted list of goals.
It is also worth noting that the one question that has not been answered in all of this is the ownership of Savvy Entertainment. Mr Burt has stated that the company was jointly owned by a Bermudian and a non-Bermudian. Yet the documentation identifies the company as an exempted company, 100 per cent owned by a non-Bermudian. By definition, such a company is prohibited from selling services in Bermuda. And yet not only was it doing that, it was being lent money by the Bermuda Government.
Mr Burt needs to be forthcoming on this point. If the company was granted a waiver, what were the grounds?
He said on Thursday that the Ministry of Finance had now “directed that any future loan agreements that may be considered must have an escrow agreement attached to ensure that loan proceeds are used for their intended purpose”. So does that mean that until the Savvy fiasco, that wasn't the case? Are those who hold the public purse strings only now recognising the need for those who receive our taxpayer dollars to prove their capability?
It feels like we have been in this movie before — where financial rules that already exist haven't been followed, money has gone into a black hole and then, after that fact, we are told it will not happen again.
The PLP platform suggests that government funds will be used to assist the disadvantaged, specifically those of African descent, women and the differently abled. We applaud this goal. But what is even more important is stringent checks and balances on how public funds are spent. At the very least, the credibility of such programmes would be damaged, perhaps permanently, if such investments turned out to be as unsuccessful as the Savvy loan has proved to be.
So Mr Burt and his government, with the evidence of the Savvy debacle laid bare, should take great care to be sure that taxpayer money is not recklessly lost on business ventures.
As the adage goes, the road to Hell is paved with good intentions. To ensure taxpayers' money is safeguarded, it would make sense to have a panel or commission of veteran investors established who could advise on the feasibility of such investments or loans as well as on their social worth.