A view of the future
WHAT WILL HAWAII’S ECONOMY BE LIKE IN 20 YEARS? THE COLLEGE OF BUSINESS ADMINISTRATION AT THE UNIVERSITY OF HAWAII AT MANOA POSES THIS QUESTION TO LOCAL EXECUTIVES AND COMMUNITY LEADERS. BELOW IS A SYNOPSIS OF THE SURVEY
The search for an appropriate economic and social path for the Aloha State has increasingly gained interest in Hawaii since the economic downturn of the 1990s. This concern has been further reinforced as a result of the Sept. 11 tragedy and the ongoing war on terrorism.
As the political debates intensified this year, there was a great deal of emphasis on short-term achievements. Our goal is to take a longer-term view, mainly from a business perspective, to find out what Hawaii will be like in the first decades of the 21st century. Here, we synthesize the thoughts of 76 local executives and community leaders, whose identities remain confidential. These movers and shakers spent an average of three hours completing a 26-page-long survey highlighting economic, political, educational, social and infrastructure issues. This condensed article contains highlights from the full report, which can be found at http://ec.cba.hawaii.edu.
Where should our economy go?
There is a strong recognition that Hawaii needs to diversify its economy. “Diversification begins with having a work force educated to be successful in a wider range of industries; high-potential and low-impact industries, such as software, communications, technology,” writes one respondent, a business journalist. Clearly, most respondents are looking for a knowledge-rich, environmentally friendly economy. However, there were few new ideas for diversification. An attorney and counselor remarks that “choices for core industries are limited, and long-term would entail leading-edge technologies [such as advanced materials, telecommunications, I.T.], where no region has an advantage yet. But people and government would become impatient.”
Most cite education and tourism as the core, and they suggest diversification around these two sectors. Not surprisingly, 60 percent of the suggestions from the respondents are related to the tourism/entertainment sector – new theme parks, more culturally based restaurants, greater promotion of sports-based tourism and education-oriented tourism. Health and wellness tourism is widely recognized as a market niche for Hawaii.
Science and technology are again acknowledged as key assets necessary for Hawaii to evolve into a globally competitive economy. Astronomy and space science, tropical agriculture, biotechnology, defense and dual-use technology are areas frequently mentioned.
A 30-year-long resident and president of a small business laments that “Hawaii has made no effort to develop core industries beyond tourism and military” and does not see any “silver bullets appearing on the horizon.” Two respondents suggest marine environment and e-marketing as potential areas for economic development. Their suggestions do make sense, as Hawaii enjoys a unique location for maritime research, given its geographic isolation, using information infrastructure to conduct round-the-clock e-marketing.
Perhaps what is most disquieting is that diversification efforts have not yielded any concrete, spectacular or sustainable results, as noted by an educator born in the Islands. There is a strong consensus on the potentials, but few come forward with ideas that turn into reality. Nine respondents attribute this to our inability to attract aggressive investment and the perception by many that Hawaii is not the best place to do business.
Future of the tourism industry
Most respondents (91 percent) believe that Hawaii would retain its position as a tourist destination – thanks to its pristine and natural beauties. However, a few emphasize the urgent necessity to provide tourists with an “emotional connection” where the aloha spirit is lived and not just said. A few others foresee that tourism would remain strong with the increasing share of non-Japanese tourists from Asia. A similar number of people argue that, at best, tourism in Hawaii would stabilize to remain a core industry, but not the largest.
Only five people have a pessimistic view of the future of tourism. They fear that the lack of improvements and innovation put Hawaii at a disadvantage over other destinations, such as Las Vegas and Asia. “It’s shocking to see that there is no single new hotel being planned” recently and that “no spectacular attraction is being engineered,” claim two health care professionals on Oahu. There are recent efforts to update the services of local hotels – such as the increasing use of wireless Internet – but initiatives for a major overhaul still remain on the wish list.
If anything, there is an implicit sentiment that tourism in Hawaii should be well-targeted. A business consultant advises the “hospitality business to search for a new strategy to target specific tourist markets and regions in Asia, the Southern hemisphere and North America.”
Will the military remain an economic force?
Respondents feel that Hawaii’s strategic location and the ongoing war on terrorism would help maintain a strong military presence. However, a number of them fear that overall military spending would have long-term repercussions and would decrease once Sen. Dan Inouye retires. Suggestions related to taking fuller economic advantage of the military’s presence range from providing “affordable housing/discounted hotel rooms” and providing education in primary and secondary schools to helping “prevent harassment of military personnel,” promoting “dual-use technology,” creating a “military academy for strategic studies,” and getting the federal government to “build a major weapons plant here.” Due to the limited number of participants from the military, the survey probably does not pick up as many new ideas as anticipated.
Should the government leave the business community alone?
One-third of the participants acknowledge the efforts of local government to stimulate the economy with some positive impacts. A few recognize the recent attempts by the state to improve tourism and promote the high-tech and film industries. Still, more see little real impact from such initiatives.
An overwhelming majority (72 percent) say state government intervention has not been effective and should also be blamed for the poor economic climate. High taxes, restrictive regulations, self-serving unions and the oligopolistic structure of land-ownership in Hawaii were seen as the most severe inhibitors of economic growth. However, respondents fail to specify to which government authorities they are referring. They may refer to the minimal impacts that the revitalization efforts of the executive branch have had, and the “antibusiness” laws promoted by the Legislature.
Opinions are mixed, however, on the role of the “invisible hand.” About 16 percent of the survey respondents want the government to “stay out of our way” and only 8 percent appreciate the role of the government and suggest that it find a more effective way to support the economy.
How can Hawaii be more entrepreneurial?
Entrepreneurship involves risk and uncertainty. It requires complementary managerial competence and creative opportunism. A marketing executive avows that entrepreneurship is “hard to do in the land of lotus-eaters.” To her, the resistance to change in this state will continue to suppress progressive thinking.
At least seven respondents assert that there is no lack of Hawaii entrepreneurs who have global vision. To them, what is missing is the capital required to capture opportunities. Out-of-state investments and tax and business incentives are cited as actions needed. They reiterate that Hawaii entrepreneurs are in “a black hole created by state politics.” Interestingly enough, a representative at the state House admits that “government is a problem. A true entrepreneur does not look for tax subsidy, but for long-term profit potential.”
Most of the respondents say that the role of the University of Hawaii is a mechanism for invigorating the spirit of entrepreneurship and global competitiveness of Hawaii. A business manager suggests the establishment of leadership development centers across the state. He claims that, “past and present leaders grew up under adverse conditions and operated during a time of expansive growth of the local economy. Economic conditions have changed, and Hawaii needs to produce a new generation of leaders with a global vision and innovative ideas.” A chief executive officer says entrepreneurship should be promoted as early as possible, preferably at young ages.
Will the cost of living negatively affect future growth?
More than 56 percent of respondents acknowledge our statement that, despite a high cost of living in Honolulu, the differential seems to have narrowed between the State Capitol and other major cities and that there are ways to further reduce the gap. The respondents attribute the high cost of living to various factors that include monopolistic/oligopolistic competition, union intervention and poor monitoring of market inefficiencies in such industries as shipping, energy and food.
Interestingly, 9 percent of survey subjects think that the cost of living would not be as important an issue in the foreseeable future. As one CPA puts it, “Since there is no need for heating, cooling, winter clothing, shorter (commuting) distances … (and with) big boxes like Wal-Mart, Costco and Home Depot,” the problem is to have an economy capable of generating more income for its residents. Although no respondent clearly articulates a solution to the “Silicon Valley cost of living, Midwest wages” dilemma, a solution may lie in the necessity for Hawaii to be more productive. A businessperson from Kailua advocates an environment-conscious, cost-efficient society that is able to depend less on imported products, control the unfair practices of intermediaries and make efficient use of perishable resources.
Will unions help or impede economic progress?
Labor unions were most often viewed as impeding the economic progress in Hawaii. A businesswoman comments that unions “should have a reduced role in the economy, because they often impede progress of market forces, making our industries less competitive on a global scale” and “… the strong union presence in the Islands also discourages Mainland firms from entering.” Public-employee unions were identified as being more detrimental than private ones by several people. This line of reasoning is echoed in another statement by a venture capitalist: “Private-sector unions provide needed representation. Public-sector unions have become greedy and stagnant.”
Other responses take a harsher tone on the role of unions in the economy of the Aloha State. As one business executive put it, unions “seriously impede the state’s progress and are worthless.” Another business consultant says “unions have become too powerful and politically tied.”
Think global, act local
Overall, the quality of responses seems to indicate that respondents do have a keen sense of business and entrepreneurship – that is, a focus on the efficiency of operations, value creation and new business ventures. There are, however, persistent signs of malaise regarding the current economic climate of the Aloha State.
Perhaps the most revealing observation from this uneasiness stems from the fact that we have fallen short in finding solutions that enable us to leap to the next level of economic prosperity and social welfare. It seems as though we are caught between two forces. One is the desire to preserve the quality of life blessed by a small and unique “paradise on earth,” driven by pluralism and diversity. The other is the realization that the Aloha State must pull its forces together to attain a sufficient level of economies of scale to compete effectively in an increasingly competitive global economy.
To resolve this quandary, based on respondents’ comments, Hawaii needs to re-invent itself to adapt to the realities of the new economy. As one respondent suggests, we should culturally depart from “an island mentality” or “laid-back” culture to having a more aggressive, persistent and competitive behavior.
If anything, the most practical finding of this survey is that there is a need for dialogue among Hawaii constituencies – involving all public and private sectors – to form a well-coordinated, knowledgeable, entrepreneurial team that can stand up for a better Hawaii.