Monday, September 24, 2012

Accuracy in Polling

When I first started doing political polling in 1998 I knew that whatever the results were they would be controversial: one party, one leader would fare better than the other and in a charged political climate the messenger would be attacked.  My company was the lone (and much maligned) voice predicting a PLP victory in 1998 solely due to polling data but our methods were vindicated when the results came in. I knew then that  an important part of my focus was necessarily to ensure international best practices were followed at all levels and there was integrity in the results I published.

It is unfortunate that the MindMaps political survey falls short of this mark, rendering many of its findings inaccurate. The international standard question on “approval ratings” is based on a simple construct: “do you approve or disapprove”. The answer is either “yes”, “no” or “not sure”. This is the format used by CNN, IPSOS, Gallup, Pew, Zogby and every other reputable polling company world-wide. There are two reasons for this: (1) it allows comparisons of polls by different companies and it allows comparisons of leaders, for example and (2) it allows for clarity of a response, with little interpretation.

Comparison of polls is critical in a democracy since they effectively act as informal policing of quality control. If different companies ask the same questions yet get widely different answers the public will want to know why and questions of competence and manipulation will arise.  Further, by asking the same question worldwide we can compare approval ratings for Bermuda’s leaders with other leaders and gain greater insight into the drivers of public sentiment.

In contrast, the MindMaps survey, by using a scale of 1 to 5 (in industry speak it is called a Likert scale) asks respondents about the intensity of their approval, not simply whether or not they approve or disapprove. Why they would violate such a fundamental tenet of political polling is disconcerting since it raises questions about both their competence and motives.  With this approach, there are two positive and two negative responses and a mid-point of uncertainty, producing exactly the ambiguity the international standard question format was designed to prevent.  More importantly, those who have opted for the mid-point have their views discounted altogether , being placed in neither the positive nor negative category.  But what can you say about these respondents’ approval or disapproval of a leader? In fact, the MindMaps survey is not an assessment of approval ratings of leaders and should not be published as such – it simply tells us how strongly people approve or disapprove their leadership. And these are two quite distinct issues.

A different example may help illustrate the point. If I were to ask how strongly do you approve an amendment to the Human Rights Act to include sexual orientation I am certain I would get quite a different answer than if I simply asked if you approve its inclusion or not.

An equally important issue is the integrity in data collection. Any company which allows its staff to hand out forms to friends and colleagues to complete violates the central tenet of polling—randomness in data collection—and thus renders the data useless. As a result, any findings published or presented to clients will have no validity. For companies and political parties making decisions on bad data, they may well be in for some costly surprises.

Political polling is an important part of informing public opinion and giving the public a voice on many things political. Good polling provides reliable actionable data that can both inform strategies and help mobilize support. Bad polling, no matter how well it is packaged, provides no insight and will inevitably lead to flawed strategies because of its flawed premise. We need to move to a higher standard.

Note: This was first published as a Facebook Note December 2011.

Thursday, September 20, 2012

Debunking the myths

We are truly immersed in the silly season. No doubt inspired by the tremendously creative political tactics permeating the American political landscape, Bermuda will clearly see more hyperbole coming from competing political forces. Alongside this, there is a sort of petulant propaganda masquerading as an economic recovery strategy. We see this in the series of arguments made recently by former Premier John Swan and Larry Burchall.

At last week’s public forum, Mr Burchall opined that, “Bermuda is undergoing an absolute decline in its residential population. This residential population decline underpins and affects everything else in Bermuda’s national economy.”

Based on this opinion Messrs Swan and Burchall proceeded to argue, in reverse Malthusian theory, that Bermuda needs to bring more people to the Island in order for economic growth to take place. And so we have a new economic growth theory advanced by non-economists and accepted nowhere in the world that some of us are actually taking seriously. Increased number of foreign workers may well be a consequence of various economic growth strategies but increased numbers alone will not stimulate growth. Mr Burchall has even gone so far as to identify the precise size our workforce should be: 40,000.

The reality is that our residential population has increased, not decreased, over a ten year period based on the only accurate count of Bermuda’s population — the census. Between 2000 and 2010 the total population increased from 62,059 to 64,237, or four percent, the residential workforce population increased during this same period from 29,970 to 30,729; and the total workforce grew from 36,878 to 37,197. These facts alone undermine the entirety of their argument.

A national census is a counting of numbers to allow for proper planning; it is undertaken at regular intervals to allow for trend analysis and to smooth out distortions created by sharp upward or downward movements — such as one would chart business sales and revenue.

The Swan — Burchall ‘theory’ is based on using figures that came from the height of our economic bubble, from 2007-2009, our own period of irrational exuberance, and taking that as the new norm — in direct contradiction to the most basic principle of statistical analysis. Adopting that technique is to descend into the realm of propaganda, to distort and misrepresent figures to meet the objective you seek.

The remedies proposed by Swan and Burchall are perhaps more important than the intellectual foundation of their argument. We do have to re-examine term limits, but not for the reasons they identify: my views on this issue were outlined a year ago in this column (September 21, 2011). And we do need to extend greater rights to PRC holders — ideally all rights as a Bermudian save for a Bermuda passport and the right to vote.

An increased residential population is not necessarily the outcome of increased foreign currency earnings for Bermuda. And it is earning more national income that is key. We have already seen from ABIR’s figures that they injected more money into the economy last year while experiencing a 1.7 percent decline in people employed.

I am also told by friends in the reinsurance arena that new companies coming to market are driven more by technology and thus require smaller staff than would otherwise have been the case ten years ago. Further, outsourcing will continue as cheaper technology is applied to sound business decision making — hence the HSBC call centre in the Philippines.

Beyond reinsurance, a successful regeneration of tourism will generate greater foreign earnings without the same considerations prevalent in discussion with the international business community.

Increasing the number of people today will certainly help in the rental of the many vacant properties and save commercial property developers who took a gamble during the bubble. And ideally, with an economic turnaround there will be modest increases in the population which will in turn provide a measure of relief in these areas. But no sound economic growth strategy will have such growth as part of its underpinning.

Wednesday, September 12, 2012

Insurance Fact and Fiction

I recently had the opportunity to review the 2011 Economic Impact Study put out by the Association of Bermuda Insurers and Reinsurers a few months ago. There is something rather odd going on: their narrative is at odds with their own data. 

In commenting on the study, ABIR chairman Constantine Iordanou cites as a key finding the continuing downward trend in jobs since “it means fewer jobs in Bermuda; lower payroll tax revenues; less compounding economic activity from these highly compensated executives; and fewer meetings filling up hotels and restaurants”. The organisation’s executive director Bradley Kading attributes the 2011 results to “the continued impacts of a global economy in recovery mode and a soft insurance market” but also “$105 billion in global natural disaster catastrophe losses”.

When the data are examined in aggregate we see that during this difficult economic period job reduction of the ABIR members was a negligible 1.7 percent in 2011 over 2010 (1,696 employees) and down 6.5 percent from the 2007 peak year. The number of Bermudian jobs is down by 13 from 2010, or 1.1 percent. It may well be that “the five ABIR members with historically the largest number of employees in Bermuda have reduced their employment during that time by an average of 23 percent” as Mr Iordanou asserts, but it also necessarily means there has been growth among other ABIR companies. Further, the data seem not to suggest there is “a direct correlation between these senior executives being in Bermuda and employment opportunities for Bermudians”.

By praising Government for passing the Job Creator’s Act, ABIR — and no doubt Government — believes there is a strong causality between encouraging more senior executives to the Island along with giving them security of tenure and the creation of more jobs for Bermudians. That remains to be seen but available data do not support this contention. This legislation is a consequence of international business lobbying and its origins seem to stem more from personal motivations than business logic and a focus on strengthening the Island’s economy. Perhaps it is a nod to fragility of our economy and that we rest on a single pillar. 

In contrast with the comment that job losses automatically lead to less injection of money into Bermuda we see that these declines in employment notwithstanding, ABIR’s 22 members had a greater economic impact in 2011 than during the previous year in critical areas: travel and entertainment expenses are up seven percent; business services expenses in Bermuda are up by about six percent; charitable donations up by 13 percent; and construction and housing costs up by 4.3 percent. That that increased revenue was derived with a slightly smaller workforce is instructive and there may well be some merit in probing deeper to better understand this. 

These findings should give us all pause. There is no doubt that international business — and insurance and reinsurance in particular — is the core of our economy today. 

We should all value it and work to ensure that it remains strong; and appropriate policies and strategies from both the government and private sector are important to achieve this goal. Decisions, though, should be rooted in fact, not anecdote, and careful assessment of available data. Our dependence on international business should not blind us to our responsibility to critically assess any and all assessments and proposals regarding improving our economy. A failure to do so may well mean we fail Bermuda.

Friday, September 7, 2012

OBA Bereft of Economic Plan

At Wednesday’s OBA press conference on the economy Shadow Finance Minister Bob Richards and candidate Sylvan Richards detailed the impact the global recession has had on Bermuda. They went on to posit that our current circumstances have a clear “Made in Bermuda” stamp on them and that the PLP government is to blame. Not a surprising position given the current climate. But what is surprising is that the OBA is bereft of any ideas of how to get out of this so-called made in Bermuda recession.

They do provide the text book economic viewpoint on the relationship between the state and the private sector: the role of government is to create the environment for growth and investment. But other than arguing that there is waste in government and abuse of GP cars (which I agree with) what would the OBA do if elected? The PLP has already put a freeze on new Government positions and plans to reduce the size of the civil service through attrition rather than massive redundancies but we know not what the OBA would do. While they said they will not lay off civil servants and in the past they also said they would reduce the size through attrition, they have equally called for dramatic action to decrease civil service numbers.

I agree with the OBA that “It is critical that this deficit trend is reversed” and that we get to a point “where government is able to pay its current expenses, just like we would expect any household to do.” But as every economist knows, during a period of global recession the challenge of meeting this goal rises exponentially. It is also during such tough times that we see the difference between a government that cares about the most vulnerable compared to a party that focuses on a balance sheet more than human misery. Financial Assistance and Legal Aid have both gone way beyond their budgets in the last few years, and yes, they no doubt need to be reformed.

But which senior or struggling family meeting the criteria for assistance should be denied? What defendant should go with legal counsel? Conservative political parties, like the OBA, say people need to plan better. Can we really argue this with straight faces while knowing we have a regressive employment tax giving the wealthy an important benefit over workers who in some cases do not even take home a living wage? 

Messrs Richards and Richards dismiss the important investments in infrastructure as “reckless and desperate” but would they not have built Berkeley, Heritage Wharf or affordable homes? Which project do they think should not have been on the drawing board? And to make the point that our infrastructure is “crumbling”, “rusting” and “broken” is to make reference to a reality that is not Bermuda. Drive around, have a look and you will see a country with a well-developed, well-maintained infrastructure; but my colleagues already know this and they are well travelled so they further know Bermuda is among the best in this respect.

This government has embarked upon a bold new tourism initiative to rebrand, rebuild and reinvigorate our tourism product in an effort to recapture the grandeur that tourism once was. Success would put more money directly into the hands of more Bermudians than many other industries. Other than the ideologically driven call for a Tourism Authority what is the OBA position?

It is fair game for the opposition to challenge government on its record — to identify shortcomings. Hyperbole will no doubt form part of that challenge and contributes to a robust environment for debate. Thus far the OBA has been long on criticism and short on solutions. Given the conservative ethos that underpins much of its positioning they may be deliberately holding back from letting the public know what they would do if elected. And for this, the public should be gravely concerned.