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A Diverse Economy

Does Hawaii need one? How should we get it?

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When it comes to diversifying Hawaii’s economy, Paul Brewbaker has his doubts. As a longtime member of the state Council on Revenues and the former chief economist at the Bank of Hawaii, Brewbaker’s seen all the hopeful visions of Hawaii as a technological hub – a center of biotechnology or alternative energy or digital media. He’s also heard the endless political debate on what exactly is the right mix of tax policy and government assistance to achieve this vision. None of it, though, fits the classical economic theory through which he views the world. That makes him a rare skeptic in a crowd of believers.

“In Hawaii,” Brewbaker says, “the diversification mantra is something that was handed down to policymakers from Moses along with the Ten Commandments.” Although there have certainly been differences of opinion on how to achieve it, this long-standing faith in diversification is manifest in an alphabet soup of government agencies, programs, nonprofit organizations, public/private partnerships and legislative acts – HTDV, CEROS, HTDC, HTIC, SPIF, HCDC, Act 152, Act 110, Act 221/215, etc. – each of them created, in large measure, to help diversify Hawaii’s economy. “Every politician believes, ‘Thou shalt diversify Hawaii’s economy,’ ” Brewbaker says, “because, by now, everyone expects it.” The question, of course, is why?

The simple answer is money. Underlying most arguments for diversification is the premise that new industries will bring more money into the state in the form of better, higher-paying jobs. Within the tech sector (and most of those arguing for diversification are talking about technology), there’s mounting evidence that it’s already happening.

Last year, the Hawaii Science and Technology Council, a tech-industry trade association, collaborated with the Department of Business, Economic Development and Tourism to produce the first detailed report profiling the “Innovation and Technology Sector” in Hawaii. Perhaps the most impressive finding is the size of the sector today. According to the report, in 2007, combined public and private tech-sector employment totaled 31,106 workers, nearly a 3 percent increase from 2002. Perhaps more important, the average annual earnings for tech workers was $68,935 — 57 percent higher than the state average of $43,963. Collectively, the sector contributed $3 billion, or 5 percent, of the state’s $61 billion economy. Put another way, the tech sector had the same impact on the gross state product as the accommodations industry.

Economist Paul Brewbaker is
skeptical of government attempts
to diversify Hawaii's economy

For many members of the tech sector, these numbers are justification for government efforts at diversification, like the controversial Act 221 tax credits. According to Lisa Gibson, HiSciTech’s executive director, it’s also evidence of the importance of nurturing the budding tech sector. “If you have a company and you have a product,” she says, “you track the performance of your product. You do market research. You look at your organization’s strengths; you look at its weaknesses. It’s completely analogous to diversifying your economy. The sectors are your line of products. We’ve got existing products like tourism, construction and ag. We need to develop new ones, like biotechnology, digital media and dual use.” These are the jobs of the future.

But diversification is not just about jobs. It’s also about creating sustainable tax revenues. “It’s important to say that any revenue generation plan for the state has to be multifaceted,” Gibson says. “It’s no different from your own stock portfolio.” That’s a common view in the tech community.

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