Was Economy Overheated Or Not Understood?

April 26, 2016

[Opinion column written by Larry Burchall]

In 2008, with minimal unemployment, GDP hit $6.11bn. There were 27,180 Bermudians plus 13,033 non-Bermudians filling 40,213 jobs in Bermuda. In 2015, with what is said to be as many as 3,500 Bermudians unemployed, there were only 33,177 filled jobs with Bermudians filling 23,513 and non-Bermudians filling 9,664.

Many voices say that in 2008 and just before, Bermuda’s economy was ‘overheated’.  I challenge that. I disagree with the concept that Bermuda’s pre-2008 economy was overheating.

Following the 1994 switchover from Tourist Playground [1922 – 1993] to Business Park [1994 – now], Bermuda’s new and different economy was undergoing rapid expansion – as a Business Park.

Bermuda’s post 1994 economic expansion was stifled by overcrowding in Bermuda’s residential accommodation and the parallel and consequential birth of a period of parochial nationalistic reaction when, in theory, any foreign worker here for more than seven years had to ‘pack-n-go’.  In the midst of that, the Great Global Recession came along and side-swiped us.

Residential overcrowding happened because there was no national over-watching policy and decision-making unit that was well-supplied with current and relevant data about Bermuda’s radically economy; and who could strongly influence the private sector.

That same lack of data had the outgoing UBP of 1998 believing they were handing-on a Tourist Playground and the incoming PLP of 1998 believing that they were taking over a Tourist Playground.

Both were wrong.

Data shows that Bermuda began shifting out of Tourism in 1987.  By 1997, Bermuda was no longer a Tourist Playground. Bermuda had become a Business Park. The switchover year was 1994. From 1994 on, Bermuda has been a Business Park. Bermuda cannot revert to a Tourist Playground – without suffering severe social and economic consequences. Accumulated data shows all of that.

For 95 years, Bermuda has had a unique but little studied economy. What some characterize as the 1921 Tucker’s Town ‘land grab’, was the genesis for Bermuda’s unique ‘oversize economy’. Since 1922, Bermuda’s economy has been an oversize economy. It was oversize when it was a Tourist Playground. The oversize grew larger and altered in makeup when Bermuda became a Business Park.

Only a few other countries – Saudi Arabia, Qatar, Cayman’s – have economies with rough similarities.

Oversize means that Bermuda’s ‘normal’ economy cannot function successfully without the on-Island presence of a substantial layer of foreign workers. Get rid of all or most of the foreign workers and Bermuda’s presently bad economy will degrade to a ‘basket case economy’.

The data tells you that. In fact, the data shouts it.

In 2015, there were 33,177 filled jobs in Bermuda. 23,513 Bermudian [71%] + 9,664 foreign [29%]. There were also said to be as many as 3,500 unemployed Bermudians [13% of all 27,000 Bermudians available to work]. So even after a seven year recession and even with unemployment, Bermuda still has an oversize economy.

An obvious and immediate solution to existing Bermudian unemployment? Withdraw 3,500 existing Work Permits and force 3,500 foreign workers to pack-n-go thus opening those jobs to Bermudians. That creates these new figures:  23,513 currently employed Bermudians + 3,500 re-employed Bermudians + 6,164 foreign workers still here = 33,177 people filling jobs.

That ‘solution’ would employ every Bermudian. The filled jobs total would still be 33,177; but now with 3,500 fewer foreign workers.

However, Bermuda will also have lost 3,500 job fillers – plus their dependents – from Bermuda’s ResPop. So instead of ResPop hovering around the Government reported 61,777 for 2014; ResPop would dive below 58,000. That’s about where Bermuda’s ResPop was in 1990 – over 25 years ago.

But every Bermudian would be ‘employed’! And the economy would – ordinarily – be ‘successful’.

However, with ResPop dropping under 58,000, Bermuda would have a ‘basket-case’ economy. From ResPop peak of 68,000+ in 2008, Bermuda will have lost at least 15% of its ResPop. Our ‘oversize’ would have shrunk.

With that reduced ResPop, Nanci, would still require $187.4 million a year [over $513,356 a day]. With that reduced ResPop, Bermuda’s consequentially shrunken economy would be struggling to achieve nominal GDP around $5.0 billion. GDP that low would see Government struggling even harder to feed Government’s $513,356 a day Nanci habit.

Why? Because Government’s total revenue package will have dived below $900 million a year [$2,465,000 a day]. And, conceivably, Government’s Personnel Cost might still be hovering around 2016/17’s too-high $474 million [$1,298,600 a day].

Were we ‘overheating’ in 2008? No, we were not.

From all that I know and have learned from the data that I have mined, verified, and collated; in 2008, Bermuda’s economy was not ‘overheating’ – in the normal textbook sense.

The truth is that Government policy-makers, business groups, Real Estate agents, banking entities, etc… – did not know what was actually happening within Bermuda’s unique economy. And what had happened to get Bermuda to where Bermuda was in 2008.

Overheated? Only if you consider Bermuda’s economy to be a Tourist Playground conventional – textbook – economy.

‘Overheaters’ contend that Bermuda has a textbook economy that was chugging along like a 1920’s twenty-two horsepower Ford Model T struggling to do its maximum speed of 45 mph [75 kph]. They are wrong. From 1994, Bermuda has had a unique – but unacknowledged and little understood – Business Park economy. An economy like a modern four hundred horsepower Ford Mustang, with a maximum speed over 120mph [200kph] but, in 2008, an economy cruising at 65 mph [100 kph].

Succinctly? In 1994, Bermuda switched from being a slow and quaint Model-T Tourist Playground economy to become a new and fast Business Park Mustang economy.

Unplanned? Unwatched? Unstudied? Unaware? Yes, to all four. But not overheated. Instead, Bermuda policy-makers didn’t realize that Bermuda had left the driver’s seat of a Model T and had settled into the cockpit of a faster and more powerful Mustang.

All of us Bermudians have to understand and acknowledge all of that if we are going to fix this near-broken economy. Fail to understand?   Collectively Bermuda fails.

Bermudians must replace strongly held, fiercely defended, but predominantly textbook and conventional economic and demographic dogmas and theories with data-driven data-supported analyses that will lead us – collectively – on to the right roads going in the right direction. Then let’s ‘hit the pedal and get going’!

We must stop believing that we’re still driving a Model-T economy and that we’ll blow our gaskets if we go faster by growing ResPop. We must start realizing that we’re now in the cockpit of a Mustang that can cruise at 65mph, but that has slowed down. With ResPop shrinking, Bermuda’s Mustang economy is dawdling at 45mph and having difficulty feeding a $513,356 a day National Debt habit.

Hard data, not feelings, not short-sighted political opinion, must rule and guide.

- Larry Burchall

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Comments (9)

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  1. San George says:

    Not understood then, not understood now – Quo Fata Ferunt. We have been lucky – better lucky than smart. House prices at 10x annual salaries is dangerous anywhere in the world. Thirty year mortgages on homes in an economy that is at the mercy of foreign capital is dangerous. Bloated civil service adds to the dilemma. Hindsight is not even 20/20 for this economy. The Lord will provide.

  2. hmmm says:

    Larry please.

    Overheating of the economy was done by scurrilous spending, borrowing to spend on infrastructure. Infrastructure that did not and does not create income.

    The construction industry was being propped up by a false economy of unsustainable government spending . The construction industry expanded and boomed and it sure as hell busted from direct overheating.

    Similarly the growth rate in Government workers was and is unsustainable.

    I could go on …. but it is obvious to anyone that the actions of the PLP lead to our economy overheating and us suffering a boom and bust because of unsustainability.

    Slow and steady sustainable growth was what was needed. The PLP ignored slow, they ignored steady and they sure as hell stuck their head in the sand, put their fingers in their ears to completely ignore sustainability.

    • Accurate says:

      How many of those tower cranes dotting the skyline in 05-08 were on a Government project? Slow and steady? How about rocket pace doubling of the available office space and the flood of ‘foreign’ accents working on them as being the prime over-heater. Yes plenty of Government waste as the revenue projections beat the forecast every year but add to that rampant private development by every one able to add a room/apt/residence and the delusion that the gravy train never stops. Own it Bermuda – we all bought it.

  3. Curious says:

    Most importantly we failed to change our education system to parallel the economy. The education needed for a tourist playground is VERY different from the education needed for a business park.
    Until there is a committed push to change the public education system and equip kids with the tools needed to find employment in the business park there will always be a class divide. We will always need to import foreigners to make up the skills that we lack if we can’t provide them ourselves.

  4. Swing Voter says:

    Larry, is there any hope financially for the island or should I start to plan my exit strategy now. Will the BD be worth anything in 2020?

  5. The private schools knew what was going on . Why are the white children not at least experiencing their 40 % unemployment? Somebody had a plan , that did not include us .

  6. Zina says:

    Thanks for this analysis. Im not very savvy with the world of economics and mister google hasnt helped. So hopefully you can answer a quick question for me: what is “nanci”?

    • Larry Burchall says:

      Hi Zina,

      NANCI is a word/description that I coined and have been using for some time now.

      NANCI = NNC = Non Negotiable Costs = Annual Debt Service Cost = Annual interest costs PLUS Sinking Fund pay-in [mandatory 2.5% of loans outstanding].

      Once Government has borrowed money, the interest rate and mandatory Sinking Fund contributions become NNC’s = Nanci.

      Hope that solves the mystery.

      Larry