Economist suggests competition watchdog
Bermuda could address part of the problem of its high cost of living by creating a new watchdog to identify and clamp down on anti-competitive behaviour.
That is the view of economist Robert Stubbs, whose latest research suggests that “uncompetitive practices may well be widespread in Bermuda today”.
Mr Stubbs believes that a competition authority — with powers to impose fines on offending businesses — could help to bring down costs that make Bermuda one of the world's most expensive places to live.
He cites evidence that Bermuda has suffered from a longstanding issue of uncompetitive pricing, which in turn has an outsize impact on lower earners, in a 20-page article, entitled Toward an understanding of competitive markets: just why is Bermuda the most expensive place on Earth?
The full document appears on this webpage, under the heading of “Related Media”.
He points to the UK's Competition and Markets Authority as an example of an active body that investigates a wide variety of industries for evidence of collusion.
Mr Stubbs also highlights Jersey, which as had a competition authority since 2005 and now runs it in conjunction with Guernsey, as a small jurisdiction with a similar watchdog.
“The harm inflicted by anti-competitive practices is substantial,” Mr Stubbs wrote. “Estimates of price increases due to collusion typically fall between 20 per cent and 30 per cent.
“Not only does this have negative consequences for efficiency in harming productivity and growth in the economy as a whole, but income inequality is exacerbated as well as income is unjustly redistributed upwards.
“This occurs not only as the undue gains from collusion are usurped by owners of capital, but the industries most commonly afflicted by cartels are typically supplying the very goods occupying greater allocations of low-income household budgets.”
His research points to four particular sectors — electricity and water, motor vehicles sales and maintenance, retail and transport (including the growing storage industry) — where competition does not appear to be working as it should.
In these sectors, he noted that total employment income had fallen between 2009 and 2016, while profits climbed sharply.
He suggests that the Bermuda Monetary Authority, the financial-services regulator, has staff with the right skills and qualifications to run a competition watchdog. The benefits of such a body would come not only through enforcement action, but also through deterrence, he argues.
However, Mr Stubbs cautions that the island's pricing problems are structural and go beyond what a competitive markets authority could resolve.
He compares household spending data from 1974 to that of 2013, an exercise that shows how life has changed as much as it illustrates what has become more expensive.
Housing, healthcare, education have all increased their shares of Bermuda's household expenditure over that four-decade period, as has entertainment and recreation.
Mr Stubbs, who used to work as head of research at Bank of Bermuda, has produced several insights into the local economy in recent months.
Among his conclusions are that 23 per cent of the island's population live in poverty and that Bermuda has suffered from an overemphasis on financial services in recent decades.
The Progressive Labour Party government, which has changed the name of the Price Commission to the Cost of Living Commission, has declared its intention to reduce living costs.
Mr Stubbs said he had shared his findings with senior government figures.
“The work contains a lot of data and is a little longer than I would like as I thought it important to introduce people to the general methodology used in a competitive markets analysis and provide them with enough data from Bermuda's markets for people to be able to make an independent assessment of my conclusions,” Mr Stubbs said.
“I didn't want to present the tentative conclusions reached in my work without the reader being able to make an independent assessment of their validity.”