Editorial for September 24: Economic change – for the better

Change is often regarded as negative, forcing us to operate beyond our comfort zones. Adaptation to change requires energy that at times seems to be better spent on maintaining the status quo.

Yet our economic system is such that it requires constant innovation to grow; it cannot remain stationary or it will decline. The process of transformation that goes hand in hand with innovation is at first disruptive and destructive.

New products emerge, making old ones redundant. New companies threaten established ones. Business models become outdated as markets change. New production techniques break up old supply chains.

All too often we focus on the negative aspect of what economist Joseph Schumpeter called “creative destruction,” not recognizing the opportunities it generates.

When Island Companies closed down shop in George Town earlier this month, it was such an example. And for the staff affected by the closure, there is very little positive about it – at least initially.

Now the same Flagship building vacated just a few weeks ago will become the home of the Cayman Enterprise City Center, with two special economic zone companies and their employees already slated as tenants.

Not only will it bring new types of businesses to downtown George Town, it can also induce new economic activity and ancillary services and set an example for similar businesses to follow suit.

This will require more innovative change from commercial landlords and business owners, but if successful it will become a reflection of renewed economic dynamism.

Cayman Enterprise City itself is an example for how change may ultimately end up being a good thing.

The business model of a knowledge-based special economic zone puts into question existing ways of operating.

Law firms that function as registration agents for shell companies may see special economic zone companies as a competing product. Yet zone companies may require offshore financial and legal services of their own. And CEC in fact signed up many law firms and other service providers as channel partners.

A government that is used to funding itself through license and work permit fees will receive little from special economic zone companies. But businesses, landlords, restaurants and car dealerships, and thus the economy as a whole, will benefit from the economic multiplier effect caused by new companies and their employees coming to the islands. And government will benefit from the import duties on the increased consumption of goods.

Special economic zone companies already employ 100 people, who otherwise would not be on island, with many more set to arrive. A new zone company even plans to bring in 30 to 40 staff at once.

In addition, the construction of the Cayman Enterprise City campus will provide work for many local companies and workers.

These are tangible benefits for Cayman’s economy.

One developer of residential property wrote a letter to Cayman Enterprise City, saying he had sold one property to a special economic zone company and that the company was interested in acquiring five more properties for its staff. His conclusion was: “The zone is working for me.”