Consistency: The Success of the Cayman Islands
By Jeff Thomas, Feature Writer for Doug Casey’s International Man, 321gold.com and Strategic Wealth Preservation (SWP) ... 2019-03-18
Not surprisingly, as I’m called upon frequently to counsel investors seeking advice on their international diversification, one of the most oft-asked questions is why my principle country of residence, the Cayman Islands, is so uniquely advantageous.
Whilst I discuss this subject regularly, often in detail, it was only recently that I was asked to boil the answer down into a single word. I’m afraid that I was a bit stumped and it wasn’t until the next day that I was able to answer, “consistency.”
Whereupon, I was asked to elaborate. The same fellow who sought a very brief answer then wanted a fuller answer.
Fortunately, a fuller answer is easier to voice.
Over the centuries, the Cayman Islands have been exceedingly consistent. The people themselves are remarkably reliable in their natural bent to be wary of change. Perhaps even more significantly, the UK – our mother country – has also been remarkably consistent in our dealings.
The Consistency of the UK
The Cayman Islands were first discovered in 1503 and were immediately ignored as being without natural harbours or natural resources (and therefore, valueless). In addition, they’re flat coral rocks in the Caribbean Sea, with soil so meagre that large plantations could not be established. Therefore slavery, along with the divisiveness it brings, would not result in prosperity.
In this regard, Cayman was unique in the Caribbean, where most islands have mountains and fertile valleys – perfect for plantations. Since Cayman could not succeed as a slave nation, to this day, the country is predominantly of mixed race, with virtually no racial consciousness. Even the words, “black” and “white” are used primarily by new residents from other cultures.
As Cayman was, for centuries, an essentially worthless possession to the British Crown, we were largely ignored. Our greatest historical event was the “Wreck of the Ten Sails” in 1794, when Caymanians rowed out to ten of his majesty’s ships, that were wrecked off our shores in a hurricane, and rescued much of their crew.
The King thanked Cayman by decreeing that the Cayman Islands would ever be free from both conscription and taxation.
At the time, this was not a major gift, as so little commerce existed in Cayman that we weren’t worth taxing. It did, however, lay the groundwork for Cayman as a financial haven. Today, the government of the UK would certainly like very much to find some means to tax Cayman, but a royal decree is a royal decree, and the UK government has been steadfast in honouring this commitment.
However, the flip side of this relationship is that the Crown has always had an unusual record for protecting its dependencies. In fact, on those few occasions when a new Prime Minister has been elected in the UK and had begun discussions on possible taxation for Cayman, he was instructed to have an audience with the monarch, who might have advised him as to England’s historical responsibility.
In each such case, the discussion of the imposition of taxation on England’s “children” – the colonies - came to an abrupt end.
To be sure, the UK government does endeavour to create ways to regulate its dependencies, but, even in this effort, they must tread softly.
Consequently, Cayman is, to this day, of minimal value to the UK government and, not surprisingly, we occasionally receive visits from members of the House of Commons who suggest that, of course, we must wish to one day gain our independence and, is there anything they can do to make that easier for us?
But, since we’ve seen the demise of other British Overseas Territories that have degraded into banana republics after going independent, we invariably respond with a resounding, “No!” We wish to remain a dependency.
That assures us that, for a large nation to aggress against us would amount to an act of war against Britain.
The Consistency of Cayman
Caymanians are highly conscious that we possess an unusual situation in the world. We’re a small island nation, which allows us to have a small government. That, in turn, allows us to be able to operate on a relatively small annual budget. It also means that, if we can attract overseas investment, we’ll have an unusually high revenue per capita.
In 1967, we passed laws that allowed for a mutually beneficial relationship to be created with investors worldwide and, as a result, we’ve grown from being a relatively worthless coral rock to the fifth largest financial centre in the world in the last half-century.
But, of course, it’s not enough for the citizenry to have a common recognised goal. In fact, in most countries, if the economy goes south, it’s not the people who create the problem, it’s the result of political machinations.
Politicians in any country have a tendency, first and foremost, to pursue their own power and economic advancement and, in doing so, they have a remarkable propensity for throwing out the baby with the bathwater.
Yet, never in Cayman’s 500-year history have we ever had direct taxation of any kind and even our political class understand that this would not be to their benefit.
Again, this is because we’re small, yet, a very high percentage of our government’s revenue is derived from the financial industry, in the way of company fees.
Consequently, even our least intellectually-gifted political leaders fully understand that, if we were to establish local taxation or tax investment by foreigners, the investor wealth that presently resides in Cayman could be transferred to a more attractive jurisdiction in a keystroke.
Therefore, if our political leaders don’t remain diligent in assuring that the needs of overseas investors are met, they stand to lose their own jobs and incomes.
As a result of all the above, we have a country that values its consistency highly. We tend not to elect candidates who tout radical change. We tend to periodically refine our laws rather than toss out the old ones wholesale. We tend to recognise that our continued success is based upon our recognition that, if we serve the investor well, we’ll be rewarded.
It’s exactly this reputation for consistency that’s resulted in our continued growth over time.
More importantly, though, it’s the reason why, as much of the world approaches a period of financial crisis, Cayman will not be tempted to rock the boat.
Even as other countries are making an ill-advised shift toward socialism, Cayman seeks to refine its existing model of success, not experiment with dramatic change.
Strategic Wealth Preservation