The view from 1963

Letter from the Board  

The global financial crisis, Cayman’s
struggles to balance its budget, the sequential financial meltdowns among
Europe’s PIIGS, and the turmoil in the Middle East’s impact on energy prices
(let alone the question of whether countries like Egypt will end up better off
or not) could all make one gloomy about the future. Although there’s nothing I
like better than indulging my natural pessimism on matters of economics (my
last Letter was headlined Night of the Living Dead), we also ought not forget
how successful Cayman and the offshore financial world generally have been.

As part of my academic life, I spent a
week last fall buried in the British Archives in Kew, looking for material for
a work in progress (with CFR tax columnist Craig Boise) on the historical
development of Cayman’s offshore financial industry. Among the materials I
found were a series of “Monthly Intelligence Reports” sent by the Administrator
(in those days, Cayman didn’t even have its own governor) to the Foreign and
Colonial Office during the 1960s. We can use these to remind us how far Cayman
has come in a short time and put current problems in perspective. CFR is
seeking permission from the Archives to reprint selections from the thousands
of pages of material I located and we hope to bring readers a regular “From the
Archives” item in future issues. Here’s a sample from those 1963 reports.

The first report of the year opened with
discussion of the 1962 election results, a report of an unsuccessful attempted
arson in a government building (concerning which “public opinion places the
responsibility … with disgruntled politicians”.) The Administrator worried
about imports of “ganja” from Jamaica. More seriously, an attempted murder of a
police constable with an ice pick followed an “outbreak of disorder” and the
arrests of “a few drunken and disorderly men”. Resignations from the
Legislative Assembly, the resulting by-elections, and litigation over the
by-elections made up most of the news for February, although the governor also
reported “a record tourist month” due to the easing of tensions between the US
and Cuba, a particularly cold winter in the US, and efforts at mosquito control
the previous year.

Tourism fell off in March, as the
weather warmed up in North America. Coming out of a social function that month,
the Administrator found his car treated with “cow itch”. Recognising that the
FCO mandarins across the Atlantic were unlikely to be familiar with the
practice, he noted that plant involved was defined in the Oxford Dictionary
(under “cowage”) as a “tropical plant with stinging hairs on the pod” which
caused “intense irritation and a rash”. He suspected “a politician with a
grudge” as this was one of the “traditional Cayman weapons of revenge”. 

The economic report in April noted that 258
tourists had visited during the month, up from 204 the prior year. More
economic good news was National Bulk Carriers of New York was continuing to
employ Caymanian seamen and that the thatch rope industry, which had suffered a
“severe set-back” in 1962 was cheered by news from Jamaica that buyers there
were ready to resume purchases. May was “quiet” and the one page report
mentioned only the conviction and sentencing of the men who attacked the police
constable (five years each).

The return of “troublesome numbers” of
mosquitoes in the West End and two shootings (one fatal) made up the
July-August report; both shootings were the result of romance. Since the last
recorded murder had been in the 1920s, this was a major shock to the community.
The arrival of several Cuban planes at Owen Roberts Field, to offload
passengers to connect to flights to elsewhere, led to a demonstration against
such traffic. “The demonstrators, led by a number of influential politicians,
virtually took over the Airfield, blocking the runway and eventually the plane
was forced to return to Havana with all the passengers.”

The arrival of a new Medical Officer for
Cayman Brac, a position that had been vacant for “many months”, was top news in
the September-October report. Even better, the new doctor was reported to be
“of a pleasant disposition and a lover of the sea and fishing” and so forecast
to “fit in well in this small community”. “Quiet” on the political front was
contrasted with the news of a second killing, this one by a constable during an
attempted arrest of a man with a “lethal weapon”. On the economic front,
“steady purchases” of rope continued and hopes for a good winter tour season
were the main news.

The final report of the year noted the arrival of 170
tourists in November and 344 in December. The sale of the Galleon Beach Hotel
and the potential sale of the Coral Caymanian Hotel, both to a Canadian firm,
were reported. The senior British naval officer for the Caribbean arrived to
discuss a possible future visit by a navy ship. The legislative assembly passed
a budget with an £8,000 surplus (approximately US$210,000 today) although an
on-going problem of Cuban refugees arriving by boat, and costing 10s. 6d. per
day to feed while awaiting transfer to Jamaica was “creating a heavy burden on
the finances of the islands”. The report closed by noting the return for
Christmas of many of the seamen employed off island.

It would be easy to romanticise 1963 –
life in Cayman was undoubtedly a slower pace, and crime – despite the unprecedented
assaults and two deaths during 1963 – was more likely to take the form of
rubbing cow itch on an opponent’s car than something more serious. But the real
message of these reports is the almost complete absence of economic activity on
the islands. Tourism was minimal – a few hundred visitors a month during the
winter – and the only other activities noted were the sale of thatch rope to
Jamaican fishermen and Caymanian seamen’s service off-island. A slow pace might
sound good while you stew in George Town traffic, late for a meeting and
bemoaning the arrival of multiple cruise ships, but it was the result of the
absence of on-island economic opportunities that slowed life, not a desire to
relax.

Families missing husbands, fathers, brothers and sons off serving on
ships and dependent on creating thatch rope would likely have been delighted to
know the next generation would have opportunities to earn a living on Cayman.
Moreover, before we idealise the past we need to remember that the arrival of a
single doctor on the Brac was major news. Whether Cayman goes forward with the
proposals for medical tourism or not, that such a project could even be
considered feasible represents an astonishing change from just a few decades
ago. Caymanian politics might still produce heated exchanges at the LA, but no
one has tried to burn down the Glass House recently. Things have gotten much
better in many ways. 

Just a few years after these reports,
Cayman took the first steps toward its modern economy, passing modern company
and banking laws and improving its communications and transportation
infrastructure. Within twenty years, Cayman had surpassed Britain in GDP per
capita. Had any Administrator suggested that this could ever happen – much less
within two decades – the mandarins in London would have likely shaken their
heads over the impact of too much tropical sun on a formerly sensible man.

There are challenges ahead, to be sure.
Cayman’s most pressing government finance problem in 1963 was covering the 10s.
6d (approximately US$13.70 today) daily cost of a few dozen Cuban refugees. No
doubt Premier Bush would find having a problem of comparable size as his most
important agenda item a welcome relief from the more serious public finance
questions today. Whether to allow Cuban passengers to interconnect to other
flights was an issue that prompted great public passion in 1963 but was still
far less thorny than today’s officials’ need to be constantly negotiating with
the US, UK, OECD and EU over financial services issues.

Pondering how to keep
tourism levels at growing from their then record levels of 350 per month would
be simpler than the strategic challenges facing tourism officials today. But we
should remember that today’s more numerous and complex problems reflect the
astonishing development of the Cayman Islands from a place where many of the
men had to leave to find work and the mainstay of the economy was bartering
thatched rope to a world class financial centre, where trade in financial
services creates opportunities for both Caymanians and the rest of the world.
There is much work to be done, but let’s not lose sight of Cayman’s astonishing
success. 

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Andrew P. Morriss

Andrew P. Morriss, Chairman, is the D. Paul Jones, Jr. & Charlene Angelich Jones – Compass Bank Endowed Chair of Law at the University of Alabama School of Law. He was formerly the H. Ross & Helen Workman Professor of Law and Business at the University of Illinois,Urbana-Champaign. He received his A.B. from Princeton University, his J.D. and M.Pub.Aff. from the University of Texas at Austin, and his Ph.D. (Economics) from the Massachusetts Institute of Technology. He is a Research Fellow of the N.Y.U. Center for Labor and Employment Law,and a Senior Fellow of the Institute for Energy Research, Washington,D.C., as well as a regular visiting faculty memberat the Universidad Francisco Marroquín,Guatemala. He is the author or coauthor of more than 50 scholarly articles, books, and bookchapters, including Regulation by Litigation (Yale Univ. Press 2008) (with Bruce Yandle and Andrew Dorchak), and is the editor of Offshore Financial Centers and Regulatory Competition (American Enterprise Institute Press 2010).

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LinkedIn: Andrew Morriss
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Research: See my research on SSRN
Blog: Offshore Green
 

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