Bermuda’s secret
Why does its island economy work
By Linda L. Smith
when Hawaii's doesn't?The similarities between Bermuda and Hawaii are numerous. Both islands are blessed with sun, sand, turquoise waters and a racially mixed population. Both depend upon tourism, military bases, imported oil, imported food and have high costs of living. Both have experienced serious tourism declines since 1990, coupled with military base closures. Both have had a single political party wielding power for over 30 years (in Bermuda, the United Bermudian party has been in office since 1968).
Yet, the differences are profound. Bermuda has no unemployment, a 99 percent literacy rate, and the third highest per capita income in the world.
Bermuda, an island of 65,000 people on 21 square miles (about the size of Hawaii Kai), is a shining example of what Hawaii could be.
The drive from the airport to the city of Hamilton (Bermuda's Honolulu) takes you past freshly painted homes on rolling hills with trimmed lawns. The road meanders around blue bays with boats of every size, including in the summer an average of nine luxury cruise ships per week.
Students wearing starched school uniforms greet you in precise, crisp English. The integrity of the Bermudian architecture contrasts sharply with Oahu's hodge-podge of buildings. A "sense of place" is more than a slogan here.
The Bermudians have found prosperity in the environmentally cleanest of industries -- insurance and banking. Bermudians help other people invest and grow their money through a series of no tax, no regulation, offshore investment laws that has turned this country into a mecca for corporate headquarters.
Bermuda is home to over 6,900 international firms, many with household names such as Bacardi Rum and Shell Oil. Bermuda also is the base for over 1,500 insurance companies handling over $76 billion in assets. These international corporations pour over $500 million a year into the economy through salaries, rents and utilities.
Insurance and banking provide Bermudians with well-paid, prestigious jobs. The insurance industry has brought Bermuda a dynamism that is lacking in older industries like retailing and tourism, those that Hawaii seems to favor.
For example, Bermuda has developed new products, such as satellite insurance, that make this small island able to compete internationally without protectionist measures.
How did Bermuda achieve this? Through a deliberate program in place for almost 30 years whose main features include:
No income taxes.
An example of the benefits of Bermuda's policy occurred in the early 1990s as Hong Kong businesses sought new locations. Hawaii could have been attractive, particularly because we are English-speaking, have a stable currency, our existing ethnic Chinese community is respected, the climate and living environment are appealing, and we have proximity to Asia. Yet by 1996 over 50 percent of the firms listed on the Hong Kong stock exchange had a presence in Bermuda while virtually none came here. What tipped the balance were four factors:
1) No direct business taxes and no restraint on the repatriation of profits.
2) A good business reputation with quality corporations already there.
3) No political "shakedowns" for contributions/absence of corruption among state, local and judicial officials.
4) Access to an impartial judicial system as part of the British Commonwealth.
Hawaii's status as a state under U.S. law will limit the scope of tax and regulatory relief we could offer foreign corporations and perhaps force us to compete with other states like Delaware, Nevada or Alaska for financial and corporate accounts and registrations.
But our burdensome taxes and oppressive employment regulations stifle our chances to attract even a small fraction of domestic and international money, prestige and talent.
Disappointingly, the Governor's Economic Revitalization Task Force focuses too much on tourism. Its suggestions fail to open any doors that could lead to new commercial opportunities.
Even the "tax relief" proposals are really tax increases since the excise tax increase will take from residents, businesses and visitors an estimated 300 million more tax dollars than the proposed personal and corporate tax reductions.
As Robert Stewart, a prominent Bermudian businessman, has remarked, "The wealth of a jurisdiction is not determined by impersonal economic forces, but by political failure to put in place appropriate incentives and sound administration."
In a nutshell, this is the essential difference between Bermuda and Hawaii.
Linda L. Smith served as the city's
director of finance from 1987-89. She worked in the president's
Office of Management and Budget in Washington, D.C.,
during the 1970s and early 1980s under Presidents Carter
and Reagan. She now manages a private manufacturing
business in Hawaii.