Economist: we need to address our ‘aversion to immigration’
Bermuda has to “address its aversion to immigration” and also find ways to encourage highly educated Bermudians who have emigrated to return, according to economist Craig Simmons.
That’s because it has an ageing population which is failing produce enough young people to replace those who are going into retirement, the Bermuda College lecturer told The Royal Gazette.
He said Bermuda’s economy was like a bucket which was leaking money faster than it could be refilled as baby boomers heading into retirement spent their savings faster than they could be replaced.
Bermuda’s declining birth rate is a part of this “demographic deficit” which is causing the economy to contract and is very difficult to counter, he said.
Mr Simmons was commenting on statistics which show that the number of annual births in Bermuda had dropped from around 800 in the early 2000s to just 525 in 2019 and 540 last year.
In addition, for the last three years, there have been more deaths than births in Bermuda.
Mr Simmons said this was the reverse of the economic boom in the 1990s, “when Bermudian baby boomers were in their 40s and they reached their peak earnings and savings potential”.
He said: “Those were the days when our economy reaped its greatest demographic dividend, the benefits of having more young than older people earning income and contributing to national savings.
“There is little doubt that now we have passed an inflection point,” he said. “Today, the trend is reversed: baby boomers are drawing on their savings at a rate that today’s peak earners can’t match. More technically, the ratio of today’s peak saving to baby boomer saving is declining.”
Mr Simmons admitted that some might question this when Bermuda dollar was at an all-time high in 2020, but he said this was probably caused by the Covid-19 pandemic which saw spending on business and leisure travel curtailed.
But he added: “Whilst Bermuda dollar savings are high, they aren’t enough to compensate for the rate at which seniors are drawing on those savings. Think of it this way: the savings bucket is full, but it’s leaking faster than we can refill it.
“And because future growth depends on the amount of savings, the long-term growth outlook isn’t good. As peak earner savings decline relative to baby boomer saving, there is less available for capital spending, the fuel of economic growth.”
Mr Simmons said that most policy prescriptions could “at best, make the situation less bad”, rather than reverse the situation.
“It’s hard to see how we can return to the heyday of increasing household wealth, saving and long-term growth,” he said. “For one, we’re going to have to deal with our aversion to immigration. Like the Japanese, our aversion is more cultural than racial. I think it’s fair to say that Bermudians are equally averse to East Africans as they are to white North Americans.
“On a related note, a serious effort is needed to attract the hundreds of talented Bermudians who emigrated to the US, UK and Canada this century. To be clear, even if all the lost talent was to return, it wouldn’t be enough to counter the demographic deficit we are facing.
“But by addressing the repatriation piece, we will, in part, deal with the reasons why local talent is leaving the island. According to the Department of Statistics Emigration Brief, the majority of emigrants had degrees and the primary reason for leaving was lack of employment opportunities.”
With regard to the declining birth rate, Mr Simmons said mothers were having fewer children because of the perceived cost of raising children - but this does not mean people have more children as their incomes grow. In fact, the opposite happens.
“But there is also the fact that children are, in econ-speak, inferior goods,” he said. “Inferior goods“ in economics terms, items for which demand falls as incomes rise.
“There is a negative relationship between income and the demand for children,” he said. “Other examples include no-name grocery and clothing brands and class A cars, as well as, public transportation and visits to government health clinics.”
He added: “The reasons why women have few children as their incomes grow isn’t clear. What is clear is that women have greater control over their reproductive rights and they exercise the option by pursuing time-consuming and demanding careers or not having children at all.”
If the trend of declining births is unlikely to reverse in the near future, Mr Simmons said other policies that could reverse the demographic deficit included using immigration policy to attract and retain peak earners specifically people whose earnings would be in the top 40 per cent of incomes.
He said: “The introduction of foreign peak earners will quickly add to the flow of saving and address the intergenerational saving imbalance.”
Another “easy to implement policy” was the gradual raising of the retirement age to 75 years, he added.
Mr Simmons said tax increases as a means of reducing the government’s budget deficits could backfire if they reduced savings rates.
“The more likely policy option is cutting government spending or more specifically, ensuring that the growth in spending is less than that of taxes,” he said, adding that economic growth was the real answer to deficit cutting as tax revenue would grow with the economy.