EDITORIAL – It’s time for government to take a ‘U-turn’ away from socialism

“Premier: Pension contributions need to increase”

– Cayman Compass, July 3, 2018

“‘Indigent’ healthcare costs soar”

– Cayman Compass, July 4, 2018

“More money provided for poor relief”

– Cayman Compass, July 5, 2018

Over the past half-century, the Cayman Islands has forged an international identity as a pint-sized economic powerhouse and a dynamic laboratory of financial enterprise.

That perception is approximately half-true. In reality, Cayman society is composed of two universes operating in parallel – the private sector and the public sector.

Cayman’s private sector, and particularly its financial services sector, is the quintessence of global capitalism, generating wealth where none had previously existed. In other words, the private sector is creative, meaning, literally, that it creates.

The public sector, in contrast, operates not according to the principles of capitalism, but socialism. Instead of creating wealth, the public sector redistributes it by levying taxes on the private sector and expending that revenue on programs, subsidies and services.

At its theoretical best, the relationship between the private and public sectors is symbiotic, with the private sector funding the public sector, the public enabling the private, and so on. In Cayman, the association has become less of that between two coequal partners, and more of that between host organism and parasite.

The “missing ingredient” in the public sector is accountability. Private employers and employees are accountable to supply and demand, profits and losses, income and expenses, etc.

Our country’s public entities, and individuals who rely on government largesse, operate according to principles of need, dependency or, in some instances, a sense of entitlement.

With a growing civil service, mounting public expenditures and astronomical unfunded debt obligations, the cost of Cayman’s public sector threatens to exceed the ability of Cayman’s private sector to pay for it. If this trajectory continues, the parasite could kill the host.

The economic rise of our islands (the “Cayman Miracle”) has been well-documented. Here is a step-by-step guide to the peril we now face:

Step One: Because of the lack of accountability in the public sector, generations of graduates have emerged from our public education system ill-equipped to thrive in the competitive private sector. The government attempts to compensate for this fundamental failure by giving them things – in the form of legal advantages, subsidies, scholarships, direct financial assistance, etc.

Step Two: That does not solve the problem of the “unemployable” segment of the population. So the government hires them in significant numbers. (Currently, Cayman’s public service constitutes nearly 6,300 employees – the largest it has ever been.) Worse than the immediate payroll costs are the over-generous benefits packages extended to public employees, that can’t be matched in the private sector, and that government doesn’t have the means to fund. (The latest 20-year estimate of the government’s public healthcare liability is $1.7 billion, and for the public sector pension fund, $220 million.)

Step Three: Still ravenous but out of resources, the public sector turns its attention to the private sector. The nanny state becomes coercive, and commands that private businesses hire certain people, educate or train those people, ensure their retirements and provide for their healthcare … in other words, do what individuals themselves, or the public sector, is rightfully charged with doing.

Throughout, the government is perpetually running out of money, slow-paying its own bills, neglecting needed infrastructure projects, inventing new ways to tax and regulate commercial activity and raising fees on the private sector. The cost of work permit fees, for example, has become both exorbitant and extortionate (as high as CI$32,400 per year for an equity partner in a business).

Here’s the inevitability: When the cost and inconvenience of doing business in Cayman reaches a certain threshold, businesses will choose to relocate, close or contract. Such behavior is universal and documented in the work of economist Arthur Laffer (famously known, of course, for the so-called “Laffer Curve”).

Unfortunately, our elected leaders have demonstrated no willingness to downsize the civil service, to reduce the scope of government, to renegotiate its crippling benefits pledges or to introduce serious measures of accountability for what is the single largest voting bloc in the country.

1 COMMENT

  1. Sometimes, when I read comment editorial in the Compass I worry about what is to become of the Islands.

    You stay that CI has forged an identity as a “economic powerhouse and a dynamic laboratory of financial enterprise”. Really? From the outside looking in, CI\s identity is one of an “offshore tax haven where those who choose, hide their wealth to avoid paying their dues”. (I particularly like the dynamic bit – I think that means thinking up new ways to make money – hilarious!).

    And therein is the problem with your editorial. CI does not or should not exist solely to service the market in financial products but should, first and foremost exist for it’s people.

    You spoke recently about indigent health care costs on the day before the UK celebrated the 70th birthday of the National Health Service, an imperfect system that still provides UNIVERSAL primary health care without cost at the point of delivery for citizens and residents. Yes, everyone in the UK pays for it through National Insurance (paid by both employee and employer) and taxation. But IT WORKS and is the envy of the world.

    Would the compass object if a decision was made to levy a tax on workers or on companies or financial institutions to pay for primary care for EVERYONE in Cayman? I think you would because it will interfere with your tax free existence, one that engenders a sense of ME/ME when most communities benefit from a collective US/US approach.

    Then there is ‘poor relief’. Answer me this question: if the islands are an ‘economic powerhouse and a dynamic laboratory of financial enterprise’, why might there be poor people? Is it. like most other capitalist countries, one where the rich and powerful act to protect their riches and power with one approach being to keep the poor and powerless poor and powerless?

    Is that what the Compass stands for?

  2. Great editorial. When I read these stories on public sector bodies that can’t make ends meet it always reminds of this classic comment by President Ronald Reagan, “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”

    Sadly, what I see on these islands is exactly the same attitude to funding as you see in many areas of the public sector (particularly local councils) in the UK. Simply summed up it’s, ‘There’s plenty more where that came from!’ To see the impact of that logic you only have to visit any large UK shopping centre – they’re turning into ghost towns. A few years ago it was just the smaller operations shutting down but increasingly you’re seeing big high street names downsizing because of impossible overheads. Simple fact of life – people are in business to put money in their pockets not to subsidise the excesses of the public sector.

    What would be interesting is for someone to start a selective audit of how much CIG are paying or being charged for goods and services. When a similar exercise was conducted with a large UK local authority it turned out they were paying up to four times the going rates for basic things like office furniture, office supplies and building maintenance work. Their office furniture was coming from a company 200 miles away despite the fact that there was a local supplier almost on their doorstep who not only stocked the same products but was 25% cheaper, didn’t charge for delivery and offered a free on-site repair service – the people involved in the purchasing process had just never bothered to shop around for a better deal. When it came to building maintenance it was almost like they were giving their contractors a blank cheque – jobs that should have cost a few hundred pounds were running into the thousands. It also turned out that a number of staff were using what are referred to as ‘pool’ vehicles owned by the council as their full-time personal transport, like an unofficial company car, and it was calculated that by stopping this the size of the pool fleet could be at least halved. I wonder how much of that goes on at CIG?

    The other comparison it’s interesting to make between CIG and the UK is their reaction to threats of cutbacks – they both respond by employing more staff. Even if there are cuts in the UK’s public sector it’s never non-essential staff like clerical staff and middle management who are let go. What they do is start cutting at the sharp end – social workers, nurses in the NHS hospitals, emergency service personnel – because that makes headlines intended to discredit the government’s attempts to curb excessive public sector spending.

    The fact is that the characters in the 1980s UK TV series ‘Yes Minister’ not only gave a disturbingly accurate picture of the public sector mentality at the time, often referred to as self-serving and manipulative, but 35 years on very little has changed in the UK and I suspect the same applies to the Cayman Islands.

  3. Why do these private companies continue to fund the politicians ultimately responsible for the problems? The journalists at the Compass maybe do some reporting and publish the answers.

    • @ Tom McField

      I think it’s commonly referred to as ‘protecting their interests’ but that works both ways. If the politicians don’t play the game the money stops – be interesting to see how that works out in 2021 won’t it? I can almost hear the sound of a gravy train coming off the tracks already.