“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.