Cayman enterprise zone

I note with interest your leading article “Cayman Enterprise Zone: The Elusive Third Leg?” in the Observer on Sunday and the editorial “Sometimes What Glitters is Gold.”

As the editorial says, decades of experience have made many residents sceptical and even relative successes, like Camana Bay and the Ritz-Carlton, still have some way to go.

The Governor’s choice of words was wonderfully diplomatic: “A project like this is quite exciting.” Because “quite” has exactly opposite meanings in American English and British English. To Americans, “quite” means “very”, to the British it means “not very” (that is, damning with faint praise). What did he mean – take your pick. But he adds, “However exciting or interesting the project, you’ve got to ask a lot of tough and searching questions.”

So, here goes.

Jason Blick, CEO of Cayman Enterprise City, asserts that

“Special Economic Zones are a proven economic driver. They are proven to work.”

And

“What you’ll have is a revolving cycle of highly-qualified professionals who won’t be seeking [Caymanian] Status.”

Well… as the project’s promoter, he would say those things, wouldn’t he.

Trading Estates and Investment Incentives have been with us a long time but the idea behind Special Economic Zones can probably be traced back to Harvard Professor Michael Porter’s seminal work on the competitive advantage of nations. In a nutshell, Porter argues that “National prosperity is created not inherited. It does NOT grow out of a country’s natural endowments, its labour pool, its interest rates, or its currency value, as classical economics insists.” Rather, he believes, “A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.”

Porter sees national prosperity as the happy coincidence of clusters of suppliers, markets, appropriate infrastructure and supportive institutions (like Universities and Research establishments). Together, they reach some kind of critical mass that makes them world-leading.

This raises a question for the Cayman Enterprise City: whether, on such a small scale, it is possible to attain nirvana in even one component, let alone all five!

Michael Porter first published these influential ideas twenty years ago. So it is instructive to see how they have changed in the light of subsequent experience.

In a 2009 presentation on “The Competitive Advantage of Nations, States and Regions,” he concludes that “competitiveness must become a bottom-up process in which many individuals, companies, and institutions take responsibilities.” Thus he rejects the “old model” that “government drives economic development through policy decisions and incentives” in favour of a “new model” that sees “economic development as a collaborative process involving government at multiple levels.”

Mr Blick asserts that the Cayman Enterprise Zone will have an edge because “only one per cent of Special Economic Zones in the world focus on technology and knowledge, and none of these are in the Caribbean.” Hold on a moment. Just because you don’t classify Panama’s long-established City of Knowledge as “in the Caribbean” doesn’t mean it isn’t a serious competitor. They have taken the lead in internet businesses and bandwidth, are bilingual (thus access South and Central American markets), can readily match or exceed any Caymanian tax incentives, don’t suffer from hurricanes and have no roll-over policies. Then again, there is Curacao’s recently announced techno-park. Doesn’t that count as Caribbean either? Mr Blick needs to do his homework!

Clearly, it takes a bit more than liberal tax policies to drive economic development, and the story of Oracle’s frustration with Caymanian government red tape is instructive. The work of Professor Rebecca Henderson, now a colleague of Michael Porter’s at Harvard, previously at Massachusetts Institute of Technology (MIT), illuminates what that “bit more” might look like. MIT (the world’s foremost institute of technology) has done a lot of research on the question of how companies and communities can revitalize their economies once their core industries or technologies have become mature.

Briefly, Henderson says that too many companies (and countries) mistakenly adhere to a “Field-of-Dreams model of change” (that is the unfounded belief that all you need is a good idea and “if you build it, they will come”). Then – as their shopping malls, housing estates, commercial buildings and economic zones remain stubbornly empty – they compound their problem with a “Documentation Fallacy” by spending small fortunes on consultants’ reports and expensive brochures to explain exactly why people and businesses really MUST fill their unused space.

Instead, Henderson commends a “Tiger Woods theory of change” (this was before his much-publicized marital problems), namely that we have to build “muscle memory”, that our distinctive competence must be rooted in what we are.

This highlights the problem with Mr Blick’s second assertion: “what you’ll get is a revolving cycle of highly-qualified professionals.” What happened in Dubai was that the highly-qualified professionals took flight. If the Caymanian people continue to thrive chiefly by supplying support services to expatriates then any third leg will be just as vulnerable to economic downturn as Finance and Tourism.

A robust third leg to the Caymanian economy must surely be founded on the talents and creativity of its own people – not bricks and mortar. The keys lie in Michael Porter’s collaborative, bottom-up process and Rebecca Henderson’s muscle memory.

Easy? No.

Under the heading “establishing a business”, the 2011 Resident magazine resurrects the claim that the Cayman Islands are a “very, very safe place in a troubled world”. Yet until the Government owns up about the burgeoning National Debt and is seen to be addressing it, reputable organizations would probably be wise to investing here. What is the National Debt: one billion dollars, two million, more? “To shrink something grow it, to grow something shrink it,” is a trick of reverse psychology beloved by Spin Doctors. Coming clean about the National Debt (coupled with indignant protestations of shock and horror) would lessen its significance in investors and public minds. Continual evasion raises spectres of national bankruptcy.

Likewise, until the Premier takes responsibility for plugging the holes in the national accounts, it is unsafe for anyone in Government to take responsibility for anything… and a collaborative, bottom-up process to restore national prosperity is a non-starter.

Geoffrey Morton-Haworth

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