By Simon Jones From The Royal Gazette

Economist Craig Simmons has issued a stark warning to Government over its plans to privatise and outsource departments.

Stating that income inequality in Bermuda was already high, Mr Simmons suggested that deficit reduction policies could have dire consequences for social cohesion and the long term stability of the Island.

Mr Simmons told The Royal Gazette: “As the SAGE Commission’s recommendations are implemented, our political leaders would be wise to consider possible economic impacts of these reforms on the distribution of income in an already highly unequal economy.

“One possible negative impact is slower growth over the medium- to long-term. In the near-term, the reforms will adversely affect the 90 percent; the poorest 50 percent will feel the pain disproportionately.

“For example, outsourcing and privatisation are efficiency enhancing strategies. Their intention is to reduce costs: labour costs make-up 40 percent of total government spending.

“Successful outsourcing and privatisation will cause, in the near-term, lower class incomes to stagnate.

“Given the negative near-term impact of deficit reduction policies on lower class incomes and the economy’s inherent tendency toward greater inequality, political insensitivity to a declining share of national income going to the lower class could have dire consequences for social cohesion, the legitimacy of our democracy and the long-run stability of the Island.”

The Senior Economics lecturer at Bermuda College likened the Island’s current inequality to that of the UK, US, Canada and Australia.

And during Thursday night’s ‘Fall Lecture’ he warned that by 2030 the divide between the rich and poor could be even greater.

“If we accept that capitalist economies have a natural tendency toward inequality and that inequality in Bermuda is high, then we should expect that over the long-run, say, by 2030, Bermuda’s economy could become very highly unequal,” Mr Simmons said.

“The rich could earn as much as 60 percent of national income and the poor only 15%. Presently, the difference between top and bottom incomes is 50 to 1. In a very high inequality world, the gap increases to 83 to 1.

“In other words, if working class people are earning on average $1,000 per week a super-rich person would earn $83,000 per week; or $4 million a year.

“More bothersome is the lack of income growth among the lower and middle classes — the 90 percent. The 90 percent should not expect to see any improvement in their pay-packets over the next 15 years.

“The gap between middle and upper classes will widen: presently, upper class individuals earn six times more than middle class individuals; that difference may increase to ten times by 2030.”

Mr Simmons added: “If I had to guess, I’d say that present day inequality in Bermuda is more like that of our Anglo-Saxon cousins — UK, USA, Canada, Australia, and South Africa- than that of continental European or Japan. Anglo-Saxon economies have a greater propensity for inequality; they fit into the ‘high inequality’ column, whereas many European countries fit into the ‘medium inequality’ column.

“The lower class in Europe earn on average 25 percent of national income as compared to 20 percent in Anglo-Saxon economies. Further, among Anglo-Saxon economies, Bermuda is more like the USA than the UK because our overall tax burdens — the ratio of total taxes to national income- more are similar. Bermuda is probably a highly unequal economy than a moderately unequal economy like Germany or France, or a low inequality economy like Denmark or Sweden.”

For more on this story go to: http://www.royalgazette.com/article/20141004/NEWS/141009869

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