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.

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