The fourth in a multipart series on sustainable development in Bermuda.

Bermuda began to absorb successive tidal wave impacts of new re/insurance incorporations and newly arrived people beginning in the late 1980s.

Such was the enormity of the ongoing cash infusion into the economy that Bermuda withstood potentially crippling back-to-back economic blows in the early ‘90s relatively unscathed: a 1991/1992 global recession followed by the mothballing of the US military bases.

The recession did not materially disrupt the foreign investment pouring into the Bermuda re/insurance market and the wider financial services sector but tourism arrival figures plunged, further weakening the Island’s already destabilised hospitality industry. Tourism’s continuing woes went largely unnoticed and unremarked on as Bermuda scrambled to keep pace with the growing demands of its flourishing international sector.

The gradual winding down of the long-standing US military presence in Bermuda could have proved a catastrophic setback for Bermuda. The bases were shuttered as Western nations scrambled to find a post-Cold War “peace dividend” by scaling back defence budgets following the Soviet Bloc’s collapse. Bermuda suddenly had to assume responsibility for operating and funding its own airport, a sum estimated at some $90 million annually. Not only that but the regular infusions from the Pentagon for base operations and maintenance had also permeated into the local economy. And the departing US Navy personnel took with them tens of millions of dollars in direct, indirect and induced benefits to the Island’s financial well-being. A source of revenue which had helped to buoy the local economy for more than 50 years was removed in a trice.

As then Finance Minister Dr David Saul said, technically the Bermuda economy should have collapsed at this point.

Instead, after a momentary wobble, Bermuda endured and continued to prosper. By 1993 the international sector of the economy was employing 5,000 Bermudians and contributing $390 million to the Island’s coffers. At the same time hotel occupancy rates hovered around the unprofitable 60 percent level and tourism’s impact on Bermuda’s bottom line continued to dwindle at an increasingly accelerated rate.

The working assumption seems to have been tourism would continue, albeit in a diminished state, as a sturdy complement to the new international sector. But the thousands of well-heeled business visitors the Island began to attract did not meet the same profile as the traditional Bermuda vacationer. Even with their expense account lifestyles, they could not begin to make up for an ongoing shortfall in those crucial visitor numbers. Businessmen came to Bermuda for meetings and to sign contracts; true, they stayed in hotels and might go out for one or two dinners at local restaurants. But they were not staying for extended periods (overnight visits were often the norm). And they were not purchasing designer goods at stores which employed Bermudians, renting mopeds from liveries staffed by Bermudians or playing golf at courses maintained by Bermudians.

Robust and sustained growth was no longer a realistic possibility in the tourism economy, at least when it came to attracting sufficient numbers of the well-heeled vacationers who had maintained Bermuda’s infrastructure and lifestyle for more than half a century. An increase in cruise passengers might have swollen total visitor arrival numbers but their contributions to the Island’s bottom line continued to be negligible.

And even as the all-important air arrival numbers continued to contract, so did the local market for a retail sector which, although it had developed around tourism, was as dependent on its Bermuda clientele as it was on the custom of visitors. Savvy Bermudians along with recently arrived foreign workers began to seek variety and bargains overseas on organised shopping trips; even after factoring in the costs of airfare and import duty, they believed their purchases represented better value for money than what was available locally. Hobbled by crippling import duties along with high transportation and labour costs, Bermuda retailers were hard-pressed to compete.

The genuinely inefficient and inflexible companies quickly fell by the wayside. But even those enterprises which consolidated, streamlined and tried to adapt to a much-changed business environment and evolving customer tastes often found themselves in spirals of inescapable debt. Two out of three of Front Street’s flagship department stores went under as did other long-established shops, restaurants and amenities which had come to be considered Bermudian institutions. The introduction of online shopping at the dawn of the internet Age only compounded the problems faced by local retailers. While they sought relief from successive governments, recommending a sales tax replace the antiquated system based on customs duties, none was forthcoming.

And as the tourism-dependent areas of the economy shrank in direct proportion to the industry, government was increasingly called upon to become the employer of last resort for Bermudians who could not find work in the private sector. The situation was manifestly unsustainable. Government produces nothing but the conditions which allow private enterprise to thrive; it depends on tax revenues from those same businesses to pay for all of the services it provides. With the international sector exempted from the bulk of local taxes, the burden on the major sectors of the domestic economy became increasingly onerous. We were sowing dragon’s teeth.

A slickly efficient multibillion dollar, multinational overlay had been abruptly placed atop a slow-moving and parochial Bermudian infrastructure. Saddled with an increasingly top-heavy government and public sector, a diminishing domestic economy and an 18th century tax system which only exacerbated that contraction, Bermuda was now expected to compete in a ruthless 21st century global marketplace.

The gold rush mentality which took root here in the early days of the Bermuda re/insurance market had blinded us to a glaring fact: Bermuda was as institutionally and culturally ill-prepared for its radical shift in economic emphasis as it was well-placed to take advantage of this lucrative new industry in terms of its regulatory framework and legal and financial support services.