changing needs of their people, Premier the Hon. Sir John Swan told members of the Bohemian Club in San Fransisco yesterday.

In a lengthy treatise, he warned of the need for national agendas that answered the fundamental challenges of the changing world. "Should we fail in this, we risk rejection and a decline in the quality of life in all our countries,'' he said.

The following is the first part of the Premier's speech. We will publish it in its entirety over the next three days.

I stand before you today in the hope that by sharing a little of the Bermudian experience, I may stimulate some thoughts. Any forum such as this one presents significant opportunities. Opportunities to share, to participate and to learn. After over a decade as leader of my small country, I am aware that I have a great deal to learn and time, such as this, presents a personal opportunity to grow both as a human being and as leader.

We are all leaders. We have been handed the responsibility of shaping the destiny of others. We may be accountable to different entities and our objectives may vary in detail. But I submit that we all share a similar motivation. We all want to make a difference. We want to leave this world a better place for us having been here.

We have been challenged in the last decade, and in particular in the last few years, in ways we would never have dreamed possible. The world is changing dramatically and we, as leaders, are in danger of losing our leadership role.

The people we serve are threatened. They are less confident of the future than at any time in the last century. They have lost faith in the leadership process and feel adrift. They know something real and meaningful must be done and they are aware that change is underway, yet they are frustrated by a perceived lack of leadership.

In many ways, leaders have ignored the aspirations of the people we serve. In Bermuda, my government is determined to actively seek input from the people and a reading of how the people perceive quality of life on our Island. In 1984, and again in 1990, we undertook national reviews to gauge just what the people felt, what the people considered were the major issues facing Bermuda and what the people saw as the future. This was an extraordinary exercise in a number of ways. Firstly, the reports were publicly disseminated; secondly, the sample size was almost two percent of the population; and, thirdly, the reports delved deeply into the very thinking process of the Bermudian community. While the results were very important to our future planning, it is the comparative results which provided a clear insight into how our Island, and, I suggest, the world, was changing.

Bermuda has long been considered an Island where most of the western world's problems are clearly demonstrated in a tiny area.

In 1984, there was a feeling of tremendous optimism for the future. By 1992, optimism had been replaced by caution and concern. While economic concerns prevailed in 1984, there was a much higher degree of concern for community issues and national direction by 1990 and there was also specific expression of concern over our national direction and our ability to compete. This process has taught us one very important lesson.

We need to analyse just what has been happening in our countries. We need to delve deeply into causes and we need to come forward with a new order capable of serving our countries today and tomorrow. Should we fail in this, we risk rejection and a decline in the quality of life in all of our countries.

A decade ago, the world had set boundaries and criteria by which everything could be measured. We had the United States and the USSR and we tended to measure the global status of our success in relative terms to these two super powers. In the west, we affiliated and associated with the United States. We compared the US to the USSR and we felt comfortable. Unfortunately, I believe it was the use of comparative measurement that resulted in the state we find ourselves in today.

Since the end of the Second World War, the strength of a country has been measured in military terms. Who had the most nuclear weapons, who had the most tanks, the most battleships or submarines, who had the greatest first or second strike capabilities and who could put the greatest number of troops in the field at any one time.

This constant military comparison gave us confidence and a feeling of superiority. Taking it further, we were very comfortable on the odd occasion we did compare our financial systems. The free market system was developing rapidly. Money was being made, our per capita incomes were far in excess of the USSR and its clones. The free world was okay.

This attitude was directly reflected in Bermuda. For decades, we have been a world leader in tourism. We have also established Bermuda as a leader in international business, and in particular, in reinsurance. We grew arrogant in our success and came to believe that this success would never be challenged.

But while we were resting on our laurels and letting our economies grow without much direction or analysis, there were others who were analysing the future and making quantitative decisions, decisions that were long-term and went beyond the short-term profit motive.

It is my submission that for too long we failed to recognise the change taking place in the world and that unless we now recognise change for what it is and react accordingly, we face being passed over. Traditional western dominance may be at an end. If that is true then we, as leaders, must bear the guilt and the responsibility for our failure to recognise the change. For too long, we reacted to today's problems with solutions designed to extricate our companies and our countries from immediate challenges. Our global role is being eclipsed and we may have resisted change for too long. Now it is time for us to accept change and become leaders of the future.

Nowhere is this more evident than in Bermuda. Perceiving ourselves to be protected from the forces of global change, we tended to sit back and wait for the world to come to us. We have grown complacent. I submit that we merely manifest a western disease.

I wonder if we all have truly appreciated just what has been happening in the last decade. I submit that national security can no longer be measured by our missile counts or by the number of warheads we can throw in any given direction. I suggest that the true measure of national security should, instead, be measured by our ability to successfully educate our young people for the challenges of the future, by our ability to utilise the human resources at our disposal in a real and meaningful way, by the way we are able to clothe and feed our people, by the way we house them and by our ability to instil in them a belief not only in the future but in their essential participation in the shaping of that future. We must convince our work forces and our populations that their lives have real value. We must build trust and confidence in ourselves and in our neighbours.

In 1980, Bermuda was superficially in excellent condition. But as we examined our industry we discovered that much of our physical plant was in poor condition, was failing to meet the demands of the present, let alone the expectations of the future. Our housing stock, for example, was inferior and not meeting the needs of our people. By 1991, we had replaced much of the public physical infrastructure and housing had ceased to be a concern due to significant levels of investment both by my Government and through joint public/private sector initiatives.

The United States has been the great driving force for many of us smaller countries. It has taken on the role of example setter, of teacher and guide.

Many of us look to America for inspiration. Indeed, many of us were educated in America. Thus, while we may be critical of certain aspects of the American way, we do so because we recognise that our futures are entwined and because we seek guidance and leadership.

There have been changes in America that cause us worry. Changes that we, as leaders, must recognise and must react to.

In the last two decades there has been a serious decline in productivity and competitiveness. Our two societies have changed our value structure and have moved from an economy and a society based on hard equity to one more directed towards volume and cash turnover. The emergence of the "junk bond'', for instance, is a manifestation of how we have turned away from the equity structures of the past. They are based on very little other than high volume sales and have little substance.

In Bermuda, we are totally service oriented. We earn our foreign exchange by providing service to our international clients, visitors and companies. We have few intermediaries, consultants for instance, and have an extremely high proportion of our population devoted, in some way or other, to directly contributing to our GDP.

The western world has seen a decline in quality and a dedication to the principle of obsolescence. Many corporate bodies have survived based on the principle that their products will need replacement. Products were made in great quantity and at cheap prices. I suggest those times are over. The market, worldwide, has now spurned the principle of cheap products in quantity and is looking for quality. Bermuda has survived and succeeded because it has offered quality while spurning quantity.

In the mid 1980s, we began to receive complaints that we were overtaxing our ability to service our clients effectively. We developed a principle of maximum carrying capacity for the Island as a whole. This determined a maximum number of guests that our physical resources could handle with care at any given time. Once this was established, we took definitive steps to ensure we would never exceed that maximum carrying capacity. Bermuda is, for example, the only jurisdiction in the world that I know of which now restricts the number of cruise ships allowed in our waters. We also have a fixed upper limit on the number of hotel rooms allowed. We made a conscious decision to ignore the short-term potential profit of large numbers in favour of the long-term preservation of our reputation as a quality destination.

We must examine the very base that our societies are built on. We must reinforce our value system and we must re-establish our commitment to genuine equity.

Too much of our economic base is without real support. We face disaster as a result of perceptual change. Every one of us knows how fickle our stock markets are and yet a huge percentage of national wealth rests in the various global markets. These markets are extremely volatile and will react dramatically to events over which we have little control. Our equity base can vary by huge percentages in just a day's trading. It is the lack of substance, of hard empirical value, that creates this lack of faith and lack of continued security.

But as much as business has changed. As much as business leaders have failed to recognise the fundamental changes that are taking place, it is the political leaders who must receive the prize for the greatest failure to understand the need for real change.

The 1980s were a decade of unbelievable growth.

We dealt in conspicuous consumption. We created volume. We spent like there was no tomorrow. We incurred debt and cast the worry of repayment aside. We took on a philosophy of spending ourselves out of any problem. In the eight years of his administration, President Ronald Reagan took the annual deficit from 78.9 billion to 221 billion and all this on a promise of reducing the deficit. The United States, the powerhouse of the world, has now become the largest debtor nation. This decade of unprecedented growth has left a legacy that must be acknowledged and responded to.

We also managed to deliver a powerful message to our former competitors. We preached the success of freedom, of democracy, of the free market system and we hinted that all one had to do was grasp these principles to reach nirvana.

It was a powerful massage and it was delivered successfully. Eastern Europe heard and responded. We failed however, to provide the instructions to the package. We made it seem easy and, as we know, it is anything but.

The 1980s created huge expectations. Expectations that simply could not be met. In the USSR, Gorbachev became a hero for both espousing and delivering a level of change that was quite unprecedented in modern history. He ripped the old barriers aside and introduced a whole new order. He brought an end to the colonial, rigid and secretive methods of the past. He was a hero, but he failed to grasp that today's people have no tolerance for patience.

As a political leader, I went through two of my three national elections creating expectations, building dreams and encouraging my people to reach for the stars. I was convincing and they reacted. Now I must acknowledge my accountability and provide the route map for this new understanding.

The advent of instant communications will probably be seen to have had the most profound effect of any change this century. We are only now beginning to comprehend just what the advent of global communication will mean. Wile we felt its impact in the Panama conflict, in the Gulf War, in the collapse of the Berlin Wall, at Tiananmen Square and in the USSR, I suspect we did not truly comprehend just what it meant to us as leaders.

We have discovered in Bermuda that this process of instantaneous communication is impacting on our own tiny community. Bermudians have seen the protests, have witnessed the evolution of political systems and they have seen these changes take place instantly. This has resulted in a national need for change.

While our people may not be able to specify what change they want they do know that what they have is not meeting the challenges of today. While, comparatively, Bermuda may have the highest standard of living in the world, while the material rewards of life may be superior to any other country, the people want more. We have raised their expectation levels and we must now deliver or be changed ourselves.

It is the combination of high expectations and the advent of instant communications that pose the most serious threat to the world order and the greatest challenge to the combined leadership of our planet.

It was this combination that, in the end, doomed Mr. Gorbachev. It is this combination that threatens the current administrations of the US and Canada and nearly unseated that of the UK. It even threatens us in tiny Bermuda. Our challenge in Bermuda is to become the authors of acceptable change rather than the victims of change itself.

Our people have now been trained to expect answers to any problems in the time it takes to deliver the message. A problem in Los Angeles is a world problem in seconds. Riots in Atlanta or in Seattle are seen by all of the world seconds later, thanks largely to CNN. Responses from the leadership are expected to be just as instantaneous and, as we all know, this just is not possible. Our people now expect us to provide solutions just as fast as television commentators speak. Television commentators do not bear the burden of implementation.

The syndrome can be seen around the world. The solidarity movement in Poland would have failed had it not been for the prominence given it by the world media. Indeed solidarity leaders reacted extremely well to sudden prominence and used the media skillfully to deliver their message. This instant delivery system gave prominence of their issues but, at the same time, created an expectation level that could never be satisfied.

Gorbachev used the world media extremely skillfully and managed to effect changes in his country that are truly magnificent.

But at the same time he raised the expectation level beyond any reasonable hope of delivery.

The Gulf War brought George Bush to the electorate in a way he had never been seen before. The world saw a leader capable of negotiating an international coalition and marshalling combined forces into a weapon that could not be stopped. All of us marvelled at the objectives achieved with an incredibly low loss of life. Here was true leadership. And we saw all of it on a minute by minute basis. We could see the pain and the agony. We could see the management style and the determination. We admired and respected but we also had our expectations raised, for if George Bush could defeat an enemy 6,000 miles away, we were convinced there was no problem he could not face, no challenge he could not meet. We were confident and proud. To be continued tomorrow.

Premier, the Hon. Sir John Swan.