Press Clippings
Thefollowing article is reproduced from The Wall Street Journal
Bermuda's Economic Evolution Brings Pains Along With Gains
HAMILTON, Bermuda - The new building risingup the road from the cruise-ship dock is the most visible signthat international business has eclipsed tourism as economic kinghere. The Bermudiana Hotel, where Woodrow Wilson once slept, hasbeen razed. Under construction in its place: future headquartersof two major reinsurance companies: X.L. Capital Ltd. and AceLtd.
The project frames a prosperous pictureof this lush Atlantic Ocean island.
By attracting American insurers with itslax regulation and low taxes,
Bermuda has achieved what many small countrieslong to do. In less than two decades, it has transformed itselfby reducing its dependence on tourism and building a healthy,white-collar economy.
But beneath the glistening facade, troubleis brewing. Some of the 60,000 residents of this 22 square-mileisland, which sits about 700 miles east of the Carolinas, arestruggling to adapt to a computerised world of numbers-crunching.While insurance has created jobs, the most coveted senior positionsgo to expatriates, creating cultural, economic and racial riftsthat contributed to the 1998 ousting of Bermuda's conservativeleaders after 35 years.
"Many people feel they are being overlookedfor the top jobs in international business," says Jamal Hart,31 years old, who bypassed his father's parasail business by gettingan accounting degree at American International College in Amherst,Mass. He works for the phone company, and only dreams of somedayhopping to a better-paying job in the insurance industry.
Responding to such concerns, the liberalProgressive Labor Party has made it harder for foreigners to getwork permits and proposed limiting to nine years the time theycan stay here. Already, they are barred from buying homes thatcost less than about $2 million; as a result, most rent housing.
The crackdown has alienated some employers.William Williams, who manages $10 billion of investment-gradebonds, says hiring delays drove him last July to return his firmto Santa Barbara, Calif., after six years. Of 22 employees, threewere Bermudian. "The new government made it difficult forus to get work permits and hampered our ability to attract long-termcandidates," Mr. Williams says. "There was obviouslygoing to be interference with our operation going forward."
Despite the discontent, Bermuda remainssupremely prosperous. While its robust economic growth slowedto 2% in its fiscal year that ended 31 March, there is virtuallyno unemployment and the country maintains one of the highest percapita incomes in the world.
"Anyone who wants a job has one,"says Raymond Russell, president of the country's labor union."We are a lucky little country. A lot of places would loveto have our problems."
Becoming an insurance hub is just the latesteconomic makeover in Bermuda's history. Founded by shipwreckedsailors in the early 1600s, it bridged from buccaneering to farming,earning world-wide fame for its onions. But as its farmers becamestymied by steep tariffs and competition, Bermuda marketed itspink-sand beaches and coral reefs to become a tourist hot spot,wooing the likes of Eleanor Roosevelt and Mark Twain, who romanticisedit as "the right country for a jaded man to loaf in."
Tourism remained the main economic engineuntil the mid-1980s, when the industry began to suffer as less-expensivedestinations with year-round beach weather beckoned American vacationers."Did you even hear of Costa Rica 10 years ago?" asksBermuda tourism minister David Allen. Indeed, the number of visitorshere has dropped by about a third during the past decade to 300,000.The last new hotel, the Fairmont Southampton Princess, openedin 1973. Club Med and Marriott both closed resort hotels here,saying they couldn't afford to operate.
Fortunately, just as tourism began to soften,insurance began to take off when Robert Clements, then presidentof Marsh & McLennan Cos., persuaded 34 corporations to setup their own insurance company in 1986. His brainchild, Ace, wasfollowed by hundreds of re-insurers, or wholesalers who offerinsurance to other insurers, along with catastrophic and "captive"re-insurers - those created by corporations to insure themselves.
Today, insurance companies, money managersand other "international businesses," with assets of$116 billion, collectively contribute more money to Bermuda'seconomy than any industry. These businesses are also the second-largestemployer, with 3,191 jobs, compared with 3,473 for tourism.
Bermuda citizens hold about 80% of all international-businessjobs, but few of the best-paying ones. The problem, for many Bermudians,is that they don't have the right training or background for thesepositions. "The new business is about networking and intellectualcapital," says Joe Babiec, a consultant at the Monitor Groupin Boston, who was hired to help boost tourism. "It's unprecedentedhere. You just can't take a bellhop and turn him into an insuranceunderwriter."
An Ace spokeswoman adds, "On an islandof 60,000, it's difficult to find all the skills and experiencewe need." Of the company's 230 Bermuda-based employees, 75%are citizens.
Adding to the frustration, the "guestworkers" who fill most of the senior jobs happen to be predominatelywhite, while 70% of Bermudians are black.
"The new economy has brought to thesurface at least the perception of racial inequity," saysCalvert Smith, a member of Parliament for the
Progressive Labor Party and head of theisland's credit union.
In hopes of getting better jobs in financialservices, citizens whose families have worked in tourism for generationsincreasingly are getting degrees abroad and attending new insurancecourses at the island's sole, two-year college and a new insuranceinstitute funded by major insurers.
Still, many claim they are relegated toancillary and low-level jobs. When
Ronnie Burgess lost her job as a MarriottHotel switchboard operator, she combed the international-businessmarket. "The best I could find is a temp job," she says.So, she settled for answering phones at a doctor's office.
In some ways, the growth of the insuranceindustry has widened the economic disparity here. Expatriates,with paychecks big enough to allow them to dominate waterfronthomes and private schools, are driving up costs on the island.And they routinely pay $10,000 a month or more for rent.
"The government became lackadaisicalabout tourism and was not preparing locals to work in the newbusiness they were growing," asserts Cromwell Shakir, whoruns a barber shop. "The new economy has left many peoplebehind."
The tension, and the government's resultantdecision to become more parsimonious with work permits, has someworried that the country's insurance industry's continued growthcan't be taken for granted. Other countries, such as Ireland,with an abundant educated work force and lower costs of doingbusiness, are actively wooing insurance companies. Competing offshorejurisdictions could become more appealing for insurers if theyshed bank-secrecy laws that give them a dubious reputation, whichBermuda has avoided.
"Unlike factories or hotels, internationalbusinesses are collections of people with knowledge of informationthat can be applied to any problem anywhere around the world ...it would be easy and cheap for them to go" if Bermuda becameunattractive for foreign businesses," says Robert Stewart,who recently retired as head of Royal Dutch/Shell Group company'sBermuda subsidiary and now works as a money manager.
If companies go elsewhere, it would be hardto replace any lost jobs. As a result, Mr. Stewart says he isstarting to wonder how long the premise of his new book will last.Its title: "Why Bermuda's Economy Works."