For better and sometimes for worse, Bermuda tends to borrow political discussions from other countries.Right now, the big worldwide debate concerns whether governments should encourage growth or engage in austerity to bring their economies out of recession.A similar debate here has seen the Progressive Labour Party try to label the One Bermuda Alliance as the party of austerity while the OBA tries to show the PLP as a party of tax and spendthrifts. Neither description is entirely fair, even if the two parties have tended to emphasise these different approaches in their public utterances.No doubt the parties will continue their sparring, but the exercise is a little pointless. That’s because Bermuda, like many other countries, needs to encourage growth and impose austerity at the same time.That’s not an oxymoron. It’s worth noting that US President Barack Obama was recently exhorting European nations to follow the US example with more stimulus and growth strategies. But President Obama did not mention that while the US federal government has tried to follow this path with only moderate success, most state governments and cities have had to engage in tough austerity programmes because they are legally obliged to balance their budgets.So even the US has done a bit of both, and that’s the path Bermuda should follow, at least to the extent it can.It must be noted that Bermuda is different from most countries in the sense that it has a tiny domestic economy, with a small agricultural sector and virtually no manufacturing. It is instead a service economy which depends solely on two foreign exchange earners international business and tourism — to enable it to import almost everything else.Both of these sectors compete with the world for business, and to be successful, must provide a superior service at a reasonable cost to be successful. So any government’s first responsibility is to create a framework in which these economic sectors can thrive in a world which is ever more competitive. Do that, and jobs and growth will come. Fail to do it, and the economy will continue to contract.One of the challenges Bermuda has had in recent years is being able to deliver these products in a cost-effective manner. That has been more true in tourism than in international business, but high costs are one reason why many back office and support jobs for international business have left Bermuda in recent years, although immigration obstacles have made a major contribution to this as well.Reducing the cost of doing business is a complex matter, but there’s no doubt that the growth of the public sector in the last decade, to the point where it is now the single largest sector, has contributed. And Government can take the lead in reducing Bermuda’s high costs by reducing its size. The conundrum now is that because Government is the single largest sector of the economy, public sector cuts hurt the economy, at least in the short term. This is a self-inflicted problem, but a problem nonetheless.Still, the public sector needs to shrink, and job losses have to be a part of it, because so much of Government spending is on personnel. Still, it makes sense for this to be done through attrition rather than redundancies in order to avoid severe dislocation.It is worth noting that it makes it difficult for Government to borrow its way out of the recession through the funding of capital projects and the like because the cost of government and the level of borrowing are already so high. Because any borrowing will add to the cost of government, this will have a direct effect on the ability of tourism and international business to be competitive.Nonetheless, through public private projects, handled well, such as the hospital, it is possible to inject money into the economy without overburdening the public further,The other means of improving the economy is through tax cuts. This is anathema to Government as it is trying to conserve revenue, not reduce it. But targeted tax cuts can help sectors of the economy like tourism and international business to grow again, and they should be looked at as a matter of urgency.