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Investing Means Putting Money to Work, Not Taking It Away

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By Lowell L. Kalapa

     Observers of the Hawaiian economy will all agree that what the state needs to turn this economy around is the investment of capital that will create the jobs and the economic activity that is essential to a vibrant future.  

 

 

Investors have learned that it is difficult to turn a profit in Hawaii and if they can, then it has a poor rate of return…

       It was the investment of foreign capital or dollars, more specifically Japanese dollars, in the late 1980’s and early 1990’s that fueled the state’s economic engine as investors imported satchels of money to build new hotel properties, start new businesses and basically create hundreds of jobs. That investment set off the construction boom for which many in the industry now wistfully dream.

Ever since statehood, economists have long recognized that Hawaii is a capital short state. It needs infusions of cash investments in order to keep its economic fuel tanks filled. The lack of new investment is basically what is plaguing the Hawaiian economy. While the number of visitors coming to Hawaii has an effect on the economic well being of Hawaii, the money those visitors spend only maintains the status quo if the businesses who depend on those dollars cannot make a profit.

So what is the real problem with Hawaii’s economy and what needs to be done to turn it around? Well, investors have to see the potential return on their investment. That means their investment has to make a profit. Investors do not plunk their money down to lose it. People don’t buy stocks in the hopes that the price will go below what they paid for it. Thus, the investment environment in Hawaii has to be conducive to making a profit.

Second, that amount of return on that investment has to be better than the other opportunities from which the investor has to choose. If an investment in a Hawaii enterprise can promise only a two or three percent return whereas an investment in California has the potential of a five or six percent return, don’t you think it is obvious where the investor will put his or her money?

So, the ability to make a profit and the amount of return on an investment are crucial to attracting the capital needed to keep the Hawaii economic engine churning. So you may ask why doesn’t that capital come to Hawaii anymore? Well one has to ask if an investor can expect to make a profit in Hawaii. And if that investor can make a profit, just how much of a profit.

Unfortunately, with the high cost of living and doing business in Hawaii, investors have learned that it is difficult to turn a profit in Hawaii and if they can, then it has a poor rate of return. This is the message that has dominated the headlines over the past year as more and more businesses close their doors and leave the state.

So what can be done? Well among other things, yes, taxes should be decreased. But lowering taxes is not the only response. Lawmakers have resorted in recent years to the new tax of the 90’s, user fees. For example, this year lawmakers adopted a whole slew of new fees and increased many existing fees. Then there are the in-lieu taxes called regulations. Again, lawmakers seem to find ways to impose even more regulations.

These are not difficult issues to address. True, lowering taxes will mean less revenues which means that lawmakers have to find places to reduce spending. But hey! What about some of that other stuff, like higher fees and more government regulations?

The problem is that government officials don’t know how to spend less. They don’t know how to measure the cost of a public service and how to price it accordingly. They don’t know how to balance the need to protect with the cost that regulation incurs. So is it any wonder why the cost of living and doing business is so high in Hawaii? Is it no wonder no one wants to invest in Hawaii — at least if they want to make a profit?

Obviously, the majority of those in office don’t know how to care for the economy. What is even scarier is that if the same officials are reelected, there is little or no hope to turn this economy around.

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