Please note: The following post has been composed on my mobile and as such please accept my apologies for the lack of typical exact quotes and links, as well as potential typos.
Buried within the “The leader-less opposition – what next for them” discussion over on Progressive Minds is a great few comments regarding concerns regarding controlling growth in Bermuda’s overheating economy. It is suggested that growth can be controlled through manipulating the spending power of individuals. This writer however wonders if growth could be controlled through sound policy? Whether we could moderate over-employment and development, put a temporary halt on the influx of new business and better control the effects of inflation on those impacted by it most? Would such steps offer better management of our growth for the benefit of all Bermudians?
In his commentary on the Progressive Minds blog, Oscuro Branson seems to suggest that growth can and has been controlled through a reduction of the spending power of individuals through taxation, high housing costs and manditory pensions. He essentially suggests that growth in Bermuda is caused by an increase in consumer demand and which can be controlled by increasing consumption taxes (duty) on luxury items.
This writer would readily agree with Oscuro Branson’s suggestions if Bermuda were a large country, however as a small island Bermuda’s situation may be different. As Oscuro Branson notes, Bermuda has no ability to control money supply through central banking policy due to the lack of a central bank and pegged currency and thus growth must be controlled through other means.
Before studying how we could control growth, lets assess the problem to understand what we’re attempting to solve. Growth itself is not a problem, however too much growth due to a lack of infrastructure and too much development causes over-employment, or a lack of available people in the workforce. Over-employment causes the importation of foreign workers to supplement workforce demands, which add strain to our infrastructure. This strain inherently causing inflation, a rising of prices on goods due to a devaluation of our dollar’s purchasing power.
Housing is one example of strained infrastructure where demand has risen faster than supply causing increases in rent and home prices due to the influx of foreign workers. Subsequently, because Bermuda imports the majority of it’s goods, the rise in foreign workers has also caused a rise in local spending and thus a rise in imports which has caused greater strain on our shipping, transport, storage and retail infrastructure. Being that our shipping infrastructure was originally designed for much less capacity, costs have risen to reduce the demand to cope with the difficulties of importation. This when combined with an increased number of individuals purchasing goods along with rises in housing costs, a fundamental need for all people, compounded with the snowball affect of rising cost of living causing prices to be hiked causes inflation to rise dramatically. This all occurs outside of external uncontrollable inflationary pressures such as the rising cost of oil and the rising cost of imported goods due to inflation in countries we trade with.
Being that we don’t have a central bank and our currency is pegged, we cannot manipulate our lending rates to control money supply and thus control inflationary pressures. Instead can we turn to controlling inflation and over-employment through sound policy and well planned government spending?
In times of too much growth causing over-employment, should government be reducing and eliminating unnecessary capital projects thus reducing demands on the workforce that contribute to over-employment? Beyond this, because we are a small economy, can we more easily control the growth of new international business as well? Thus, could we put a temporary halt on the formation of additional exempt business (a soft close as has been written about previously on this blog) to also reduce the influx of foreign workers? A reduction of foreign workers would hopefully reduce demands on local sectors such as hospitality, retail and construction. All of this should also be considered when questioning plans for a raft of new hotels and their added strain on our workforce and infrastructure.
While this writer does agree with Oscuro Branson on increasing duty on luxury items (though moderately and reasonably), especially the suggestion to use it to eliminate our debt and build up currency reserves, this writer also believes in the allocation of some of that increased revenue, along with the reduction and reallocation of wasteful spending towards rebates and social services vouchers to distributed equally among all people as has been discussed previously in this blog’s writings of a fairer tax system.
While this writer agrees with greater taxation on luxury items, he disagrees with utilizing a reduction in spending power as a specific solution for controlling growth as it has the potential to place greater strain on poorer elements of our society; those most affected by rises in inflation. Instead, could we control growth through sound policy by moderating over-employment and development, putting a temporary halt on the influx of new business and better controling the effects of inflation on those impacted by it most? Thus, is there a means by which we can better manage our growth for the benefit of all Bermudians?