By NEIL HARTNELL
Tribune Business Editor
The Bahamas could increase its annual GDP by up to $1 billion if it avoids becoming a "victim of creative destruction", a well-known economic commentator argued yesterday.
Dr Johnathan Rodgers warned Bahamians and the private sector not to "bury your head in the sand" over the rapid technological changes driving economic change in this nation and around the world.
He told the Bahamas Business Outlook conference that this country was "struggling like hell" to evolve into a knowledge-based economy given that it has "none of the elements" needed, and warned that many will struggle with the transformation this requires.
Dr Rodgers envisioned a world where Bahamians used mobile e-wallets to pay for goods and services, and suggested that commercial banks would be "among the biggest losers" in such a transition.
He also predicted the arrival of "e-books" and "virtual teaching methods" in the Bahamas, and the use of "blockchain technology and smart contracts" to purchase local real estate without the legal fees (2.5 per cent of the purchase price) and realtor's commission (6 per cent) currently charged.
The well-known 'eye doctor' said such changes could arrive with bewildering speed, and could amount to what he termed "creative disruption" for virtually the entire Bahamian workforce before the knowledge-based economy's benefits were felt. Tracing the Bahamas' economic history, Dr Rodgers said the country had largely been "a two-horse services economy" that grew thanks to a combination of the Cuban Revolution and bank secrecy.
The former closed Cuba, previously the leading Caribbean destination, to US tourists, while the latter attracted foreign capital from high net worth individuals and companies fleeing high tax rates in their home countries.
"This resulted in a prolonged period of growth that provided opportunities for Bahamians to enjoy a higher standard of living, and greater social mobility," Dr Rodgers said. "During this time it really was better in the Bahamas: We could boast the premier financial services centre in the Caribbean, and really were the envy of the region."
The Bahamas' growth momentum, though, slowed at the turn of the century amid ever-increasing competition from rival 'sun, sand and sea' destinations for the tourist dollar, coupled with the financial services industry's 'blacklisting' and constant international regulatory initiatives designed to combat tax evasion and avoidance.
Dr Rodgers said the International Monetary Fund (IMF) and Inter-American Development Bank (IDB) had recently described the Bahamas as the slowest-growing nation in the Caribbean, and one that had lost significant tourism market share to regional rivals.
And international regulatory pressures had shrunk offshore assets in the Bahamian financial sector from a $575 billion high to $175 billion, with jobs dropping from 5,500 to "less than 1,500".
"The reality is we're presently in a state of economic stagnation, characterised by sluggish GDP growth, high levels of debt, high levels of unemployment and asymmetric wealth. This is why there has been a decline in the standard of living; the rich are richer and the poor poorer," he added.
Dr Rodgers said that while the Bahamas' high cost base, "failure to innovate" and inability to expand its hotel room inventory had all "contributed to economic stagnation", other factors - such as core inflation, exchange controls, the 90 per cent foreign ownership in the hotel and financial services sector, and poor educational achievement - were equally responsible.
"If these causes of economic stagnation are addressed by appropriate policy changes, the GDP of the Bahamas will be increased by $500 million to $1 billion a year," he forecast.
"I've been advocating exchange control abolition for years. I love my wife, but I could have hugged John Rolle when I heard that news this morning (see other article in this newspaper).
"If we want to be first-world and have a higher standard of living, we must strive to participate in a knowledge-based economy."
Dr Rodgers said such economies were built on a country's human capital quality and intellectual property - qualities that many in the private sector have long argued the Bahamas lacks.
He added that the key 'building blocks' were research capabilities; a specialised labour force; and physical and financial infrastructure. However, Dr Rodgers conceded that "none of these elements exist" in the Bahamas, although he described the recently-enacted Commercial Enterprises Bill as a step forward in addressing these weaknesses.
"We need to prepare ourselves for the impact this new economy will have on our lives and standards of living," he warned, "and take advantage of knowledge-based opportunities.
"The most important feature of this knowledge-based economy is that it will be creative destruction. We will all be impacted by it. Don't bury your head in the proverbial sand and say: 'We're Bahamians; it won't happen'. That will be a grave mistake.
"If we vegetate, remain in the status quo, we will disintegrate. Forty per cent will be out of a job or in a different job, and the other 60-70 per cent will have to upgrade your skills on a monthly basis to retain your job or advance," Dr Rodgers continued.
"Some of these things will happen in the next year in the Bahamas, and some will come in the next five years as the Bahamas transitions to a first-world economy. We will have to innovate to survive."
Outlining what the knowledge-based transition will involve, Dr Rodgers said "artificial intelligence" will likely eliminate some jobs in the healthcare industry, such as medical and laboratory technicians who currently read the likes of CAT and MRI scans.
He suggested that a similar process would occur in the legal profession, where artificial intelligence will also replace some attorneys and paralegals, thereby "drastically reducing billed hours".
Dr Rodgers said the use of blockchain and smart contracts would also "dramatically reduce real estate transaction costs for consumers", and envisaged the use of captive community insurance policies as a means of lowering catastrophe coverage costs.
The evolution of plug-in electrical cars, Uber and even self-drive vehicles would lower the volume of traffic accidents, he even argued, leading to less need for auto insurance, mechanics and repair shops.
Turning to the tourism industry, Dr Rodgers said the evolution of Airbnb and other vacation rental networks will "help to change the tourism industry ownership structure and redistribute some of his wealth", shifting the sector away from its reliance on hotels - something he described as beneficial.
"The banks will be the biggest losers and consumers the biggest winners," he argued of the movement to a knowledge-based economy. "The impact will be a net transfer of wealth from the banking sector to consumers."
Dr Rodgers said this would be achieved through e-wallets replacing chequing accounts, securitised assets taking the place of savings accounts, and the evolution of peer-to-peer lending and alternative payment mechanisms.
He also urged the Bahamas to attract technology companies and cryptocurrencies by allowing them to raise capital in the Bahamas. Technology start-ups are currently unable to raise more than $1 million via initial public offerings (IPOs) in the US, and Dr Rodgers suggested that the Bahamas lift these restrictions once the necessary disclosure documents were made available.
Initial coin offerings (ICOs), which raise capital for new cryptocurrency ventures, were another market that he urged the Bahamas to target, calling for the Government to impose registration fees and levy a 1.5 per cent fee on the sums raised.
Dr Rodgers urged regulators not to impede the knowledge-based economy evolution, acknowledging that there was a "gap" between how quickly the world was advancing and these bodies.
"What's needed are regulatory tailwinds, not headwinds, to economic growth," he argued. "Politicians will have to further policies in the interests of households, not the 0.01 per cent, and be more accountable and transparent.
"Policymakers must continue to make the necessary policy changes, exchange control relaxation and fiscal tightening, to strengthen economic growth. To not be a victim of creative destruction, we must retool the skill sets of persons to make them employable employees."