Where did we go wrong and how do we recover?
As an independent candidate in the 1984 elections I had a vision that Cayman was heading for great prosperity and proposed the following:
Reduce the size and cost of Government; work hard to create a vibrant private sector and establish by law a “lock box fund” which would be funded with 10 per cent of the total Government revenue on an annual basis. This fund would only be used for serious emergencies and if not needed would simply be carried forward as a savings account for the next generation.
At the time, many of the other candidates in the race denounced the idea as infeasible and instead criticised me for not knowing what I was talking about. I never once had a moment of disappointment about not getting elected and treated it as simply a good lesson in the learning curve of life. However, what has saddened me over the years is the inability of some of those whom we did elect (and appoint) to even recognise good ideas and do something with them. And the more things change the more they remain the same. Today, it is estimated the fund would have somewhere in the range of $400-$700 million or more, through the magic of compound interest over 28 years. (The actual financial data was not available from either the statistics department or the financial secretary’s offices).
Cayman’s financial dilemma did not start this year, last year or five years ago; it started 25-30 years ago, when we failed to realise the opportunities this country was starting to enjoy and to heed the advice of the older generation, “save for the rainy day.” Respective governments failed to plan, which in reality is planning to fail. Once again we find ourselves scrambling to prepare and balance a budget while our liabilities keep increasing and the sources of revenue are drying up because the private sector and middle class are shrinking. It does not matter from what angle you examine this; we have serious financial challenges ahead.
In 2007 the world’s economy started on a downward spiral with very few in Government, commerce or economics having the foresight to see it coming. Five years later there are many in leadership positions who do not fully understand the causes, effects or implications of this crash. The failure to understand the big picture, while focusing on the smaller parts will probably not result in viable solutions.
What we have experienced over the past five years is not a normal “down market cycle”, followed by an “up cycle”; instead it is a shift in economic fundamentals, which are evolving and taking us to a new place. But policy makers and many experts are treating this as the former and not the latter, assuming that we are soon on the verge of a recovery. Cayman is no exception. Many believe that all we have to do is wait and hope and things will return to the good old days like 2005-6 when we were rebuilding after Ivan. But this time is different and the sooner we realise this better off we will be.
In the USA there were six interconnected economic bubbles – stocks, housing, private equity, discretionary spending and more fundamentally the government debt and the dollar bubbles .While these bubbles were expanding they created much wealth, opportunities and jobs to millions in the USA and around the world. Since 2008 these bubbles have been bursting one after the next, bringing the overall economy down. The two last big ones – the dollar and debt – have yet to burst.
Delay, not prevention
The US Government has injected billions into its economy in an attempt to prevent the latter two major bubbles from bursting; however, it has delayed but will not prevent it. The American annual deficit has increased from $250 billion in 2007 to $1.6 Trillion with a corresponding increase of 200 per cent in the money supply (from $800 billion in 2008 to $2.4 trillion) and a total debt of $16 trillion, the largest in history by any nation; not to mention the record high unemployment across all sectors. There will be no equilibrium until the two final bubbles burst causing even more turmoil in the world’s economic order. In addition, inflation in commodities (food) and other products along with higher interest rates are on the horizon.
Why is all this important to Cayman? Simple. We are part of the global economy. The next time you go to the grocery store take note of where our food comes from; look around to see where our tourists come from along with much of our investments. The Cayman Islands financial umbilical cord is tied to the USA and always will be as long as we are located 500 miles from Miami.
There is another very important event taking place in less than three months time, which will affect the Cayman Islands, perhaps more so than any previous; i.e., the Presidential elections. When was the last time we saw an advert by a sitting president criticising his opponent with references to the Cayman Islands? In 2013 Caymanians with US citizenships will have start filing and paying the US taxes. If someone had told us this 10 years ago we would have thought they were smoking something. There is little doubt that the re-election of President Obama will result in a tougher stance towards the Cayman Islands, particularly in relationship to our financial services industry. While on the other hand a win by Mr. Romney could re-energise the free market system on which America was founded and ultimately create better times ahead. While these are events over which we have no control, we should be aware of all external conditions and factor them into our plans.
Cayman has been living in denial for too long because things have been so good in recent years, it’s hard for many people to accept that they would not continue to be good. But the world has changed and now it’s past time for us to change – our thinking, attitudes, behaviour, expectations and the way we have been managing our affairs and stop squandering our scarce resources. Our mantra now should be “do more with less” and work smarter not just harder, while demanding greater efficiencies and accountability. Government must be reformed from top to bottom; our debt must be brought under control; privatisation and joint ventures should have been embarked on long ago; solicitation of the best ideas should be a way of doing business; instead of panic rescue missions by a few (while they may be helpful).The measures announced so far to remedy our budget deficit are only temporary and we will face this situation again next year, if not earlier, unless the tough decisions are made now. One cannot expect a Band Aid to cure cancer.
When speaking to businessmen and folks in this country, one gets the feeling that there is finally a realisation that this is no ordinary recession and that new thinking and actions are overdue in order to help us position ourselves into a sustainable mode and hopefully chart a better future. Now, if only our Government would realise this and make the tough decisions necessary to secure some hope and opportunity for the next generation, instead of hedging their bets for the next election.
I believe there is nothing wrong with Cayman that the people who live on Cayman cannot solve, but a new vision and approach is needed for that to happen. Unfortunately the scarce ingredient is “time”; we are running out of it. For us to leave a better life for our children and grandchildren we have to become less selfish and be prepared to sacrifice, as our parents and grandparents did for us. We are running out of options Cayman.