Yesterday’s editorial dealt with the poor state of the Bermuda economy and many of the causes of the current recession.As it stated, it was not intended as a blame-assignment exercise but as a means of determining how to fix the problem and how to avoid repeating the same mistakes.Bermuda’s primary weakness is its narrowly-based economy which is dependent almost solely on international business, and especially the reinsurance sector. On the domestic side of the economy, construction drove the economy in recent years. But when international business growth slowed, construction stopped.More broadly, Bermuda has become uncompetitive in terms of price and service. Regardless of the sector, we charge too much for a product that needs to be better.So where does Bermuda go from here?In the short term, the emphasis has to be on preserving jobs and making Bermuda competitive while increasing economic activity.Ideally, this would mean the public sector stepping in with stimulus programmes for infrastructure improvement and the like. And to be sure, the hospital project and some of the ongoing housing projects do just that. But they may not be enough. And the Government, having already racked up record levels of debt, may not be able to do more.That does not mean Government has no role to play, however. It now needs to create or re-create the conditions which enable the economy to grow in a sustainable manner, and to help Bermuda-based businesses, whether they are retailers, international companies or hotels, to compete in the global economy.In the first instance, this will require some judicious tax cuts aimed at increasing employment and lowering the Island’s costs. A one percentage point rollback in the payroll tax would reduce the financial burden on many employers while a small reduction in and simplification of the Customs tariff would also lower costs and prices and make operations simpler for many employers.This may seem counter-intuitive and getting the level of reduction right is difficult, but not impossible. The idea is to lower taxes in such a way that business activity increases and employment rises, thus recouping some of the reduction in the level of taxes.As insurance against that not happening, small increases in sin taxes and at the top end of the land tax sliding scale may be necessary.This kind of move would also send a signal out that Bermuda is business-friendly.There are already signs that the efforts by Tourism and Business Development MInister Patrice Minors and Economy Minister Senator Kim Wilson to meet business leaders and listen to their concerns have improved the environment, but words need to be backed by action. By the same token, a commitment to a review of the Immigration structure (without a commitment to repealing term limits) would go a long way to helping business confidence.Other factors are important here as well. Rising educational quality is critical because the modern Bermuda economy requires skilled workers. And reducing crime is vital. Bermuda needs its reputation for low crime and safety restored if it is going to attract businesses and visitors.The private sector has a role to play as well. Widening the economic base is essential. Reducing costs, for example of construction, is also necessary. That means narrower profit margins and lower wages (the days of charging out master masons at extreme hourly rates have to be over) But it also means exploring and investing in more efficient construction techniques. Block walls and limestone roofs are “Bermudian” but are expensive and often unnecessary.Above all, Bermuda needs to reduce its costs. Sacrifice may be necessary, but if the Island froze wages and surrendered overtime premiums for a year, it would do wonders for Bermuda’s competitive position. In the short term, it would hurt everyone. But in the long term, all would benefit more.Similarly, Bermuda could be poised for a green revolution if the private and public sectors can make it happen together. Harnessing solar and wind energy would be boost the economy and would also reduce the Island’s dependence on fossil fuels, whose costs are set to rise inexorably as supply slows. More tax incentives for these technologies, coupled with requirements that new construction be eco-friendly, would serve Bermuda well.Bermuda needs to look at its strengths (a strategic and beautiful location, good professional and technological infrastructure, business friendly environment) and its weaknesses (high costs and a limited labour pool) in determining what new economic possibilities are available.Thus, industries like manufacturing and high volume fishing are unlikely to be successful. But capital intensive industries would be well suited to the Island. These could include investing and mutual and hedge funds, where Bermuda has a presence but could do much more. High end software development could also do well in Bermuda, again, if the right incentives were in place.Tourism too has a place, but it needs to be high quality tourism in order to justify Bermuda’s prices.Above all, Bermuda needs to regain its optimism. Bermudians have a strong entrepreneurial streak and a proven ability to live by its wits. Success can be had if Bermudians work together.