Uncle Bob’s parting shot is value for money
To someone who has written about the Bermuda economy for many years, Bermuda — Back from the Brink, by Bob Richards, the former finance minister, is like a breath of fresh air. It is clear, succinct to the point and written in a take-no-prisoners style — very much a characteristic of the man himself.
In his words, “how did Bermuda's economic miracle which had been built over half a century almost disappear beneath the waves?”
Many Bermudians do not appreciate the remarkable achievement of our recent leaders — Sir John Swan, Sir David Gibbons, David Saul PhD — in establishing one of the richest, sophisticated and pleasant societies in the world, one with one of the highest per-capita incomes in the world, cleanest environment, and the most gracious of living styles.
Why had this been achieved in Bermuda, but not, say, in Jamaica or the Falklands or Sri Lanka? How did it all go wrong?
First, Richards explains, using a bathtub analogy that we are wholly dependent on two industries — tourism and international business — and monetary flows that arise from related spending. Reduce those flows and we are in financial trouble. Big-time.
That is exactly what was done by the previous government under the Progressive Labour Party, which simply took for granted that the good times of the 1980s and 1990s would continue ad infinitum. This led to the overheating of the Bermuda economy and the belief that money grew on trees.
The Civil Service was increased by 600, jobs were easy to come by and government expenditure exploded. Property prices and rents skyrocketed with an increased labour force. The good times were rolling, but most politicians failed to see that there were menacing clouds on the horizon.
In his maiden speech as the Opposition spokesman for finance, Richards records on page 29, that the PLP government had made no provision for an economic downturn and when that arrived in the United States in 2008, Bermuda was caught flat-footed.
Additionally, tourism lacked capital to modernise, and there was severe competition from newer and cheaper competitors — literally all over the world. Having a wonderful climate, great beaches and a modern airport was commonplace in countries such as Mexico, Costa Rica or Brazil, who were now Bermuda's low-cost competitors.
Simultaneously, government expenditure soared, mainly through the creation of new and artificial jobs in the Civil Service. This meant that expenses increased while revenues fell. Bermuda started on the slippery path of borrowing to maintain existing government services.
In 2009, Richards lambasted the loss of confidence in the Bermuda Government. He also drew attention to unapproved government expenditures and the “creative accounting” of the Minister of Finance, Paula Cox. In particular, he warned on page 37 that “it is debt that has debilitated many economies around the world and debt is debilitating Bermuda”. He was simply echoing the Book of Proverbs: “The borrower becomes the lender's slave.”
By 2012, the PLP government had lost all credibility with regard to its management of the Bermuda economy. Debt was skyrocketing, financial shenanigans were exposed by the Auditor-General, cost overruns were experienced on many projects, and there was a mass exodus of non-Bermudian workers.
The bathtub was losing water. Many Bermudians saw property values decline and rents dry up, and retail sales declined, construction slowed — and loans for such things as cars became delinquent.
For the first time in more than 60 years, there was unemployment, save for those fortunate enough to work in the Civil Service.
As Richards explains on page 41, “many Bermudians went from blind complacency directly to despair without passing through any of the intermediate phases”.
In 2012, the PLP was defeated at the polls and the One Bermuda Alliance formed a new government, with Richards as Minister of Finance. The plumber was now in charge of the bathtub. His job was now to put the financial ship of state on a proper, sustainable course.
As he explains on page 44, the challenges were immense, and of the ten he mentions, three deserve highlighting:
• Government finances were a mess — debt was huge at about $2 billion and government unions were non-cooperative
• Jobs were scarce thanks largely to questionable immigration policies, and tourism was in decline
• There was a significant exodus of residents from Bermuda
He provides a lucid explanation of how the new OBA government tackled the economic problems and the significant successes it had in getting the economy back on course.
There is no doubt Bermuda owes Richards a huge debt of gratitude for the forthright way in which he dealt with the immense problems Bermuda faced. Without his steely resolve, I have no doubt Bermuda and Bermudians would have been in a highly uncomfortable position.
In the foreground was the great curse of government debt, and important details of this are given on pages 56 to 59. The horror story was that even more borrowing was necessary just to keep the Government functioning on a day-to-day basis — one reason why government debt continued to rise during the tenure of the OBA.
That government did not collapse from years of financial mismanagement was largely because of his perspicacity and accurate diagnosis of the precarious financial position of Bermuda.
Mention is made of the successes the OBA government enjoyed:
• New investments in tourism
• The America's Cup
• The Bermuda Casino Gaming Commission
In 2013, the House approved the appointment of the Sage Commission headed by the well-known and respected business leader Brian Duperreault. The commission's report was a damning indictment of government management and the poor accountability of senior levels of the Civil Service. Indeed, one of the more startling conclusions on page 14 of the Sage Commission was “the stark reality is that promises made regarding pensions will have to be broken”.
Public servants were alarmed at proposals to outsource or privatise tasks.
Richards mentions on page 77 a presentation he made at Pier 6, at which I was present, where he gave a clear and rational account of how things had to improve. Many civil servants acted like hoodlums, threatening the public who attended and jeering the presentation of the finance minister. He stood his ground but clearly no one wanted to listen to financial truths, and to the necessity for significant reforms.
Debt, the technicalities of government borrowing, Civil Service reform, underfunded pension plans and reduced government activities are clearly unpopular topics, and it becomes clear that Richards was on his own by seeking to bring financial reality to the attention of his party, the Civil Service and the general public.
As he mentions on page 109, “good politics and good economics didn't mix” — indeed they proved to be a political disaster for the OBA.
The vexed issue of the airport redevelopment project is covered in exhaustive detail from page 96. This was the subject on which Richards was most unjustly criticised by the Opposition. The airport building is a disgrace and has been for a number of years, and it is vulnerable to major damage from violent storms or hurricanes.
Airport redevelopment is a hugely expensive proposition. If you have no money because you are up to your eyes in debt — and Bermuda is in that position — it is difficult, if not impossible, to borrow even more money for a major construction project. The contract with the Canadian Commercial Corporation was a sensible decision and it was a huge injustice to accuse Richards of selling Bermuda short on this project. Twelve pages are devoted to this subject alone, and in these pages he demolishes the arguments of his opponents and destroys their credibility.
The issue of the Paradise Papers and tax havens is sensibly discussed from page 118 and there is no doubt that he was an able advocate for Bermuda's international business. This is important as attacks on international business continue to increase from abroad and Bermuda needs someone of the stature of Richards to argue its case.
One of the more interesting comments was the observation, on page 126, that “there was a profound ignorance in Britain and Whitehall about what Bermuda actually did for a living”. He has few good words for Government House, and indeed if there ever was a case for independence, it would be on the basis that the British Government is no supporter of the Bermuda economy.
In the concluding pages, Richards tackles the critical issue of overseas confidence in the way Bermuda conducts its finances. The confidence of foreign investors is critical to our continued success.
Why was he, and the OBA government, so unpopular with the public? The answer lies in politicians having little incentive to resolve long-term issues such as debt or Civil Service reform. What concerns politicians is the present and immediate future, and this means providing immediate benefits to powerful constituencies — such as the Bermuda Public Services Union and the People's Campaign.
It follows that politicians have powerful incentives to spend wastefully now and pay for it with funds borrowed from future generations — or those who do not vote. The more politicians provide immediate benefits to voters, the greater are the chances they will survive the next election. That is why politicians love to spend borrowed money.
Politicians are rewarded for behaving as if there's no tomorrow. Richards understood the long-term challenges to the economic survival of Bermuda and argued strenuously for sound financial management. That argument was deeply unpopular with the short-term horizons of the electorate, including his party, the PLP and the BPSU — and his party went down to defeat.
The 19th-century British politician Benjamin Disraeli is reputed to have said that all political careers end up as failures. Time will tell if that could be said about E.T. “Bob” Richards.
I would urge members of the public to read, or at least sample, the pages of this important book. Richards did an outstanding job as Minister of Finance during the most difficult period that Bermuda has experienced since the Second World War.
He deserves our unreserved thanks for having done an outstanding job. I hope his successor continues, for all our sakes, to bring rigorous financial management to the affairs of government.
Robert Stewart is the author of two books on the Bermuda economy