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Keeping the Focus on the Business Climate is Crucial

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By Lowell L. Kalapa

     Although much of the focus during this past session was on the tax climate, taxpayers should remember that it is not only the tax structure of the state that affects the economy of the state but also the overall application of government to the state’s daily life.

What’s the application of government? It is how government regulates, controls and influences the decisions of individuals and businesses both within the state and those who are “outside” looking in, considering whether or not Hawaii might be a good place to invest. Indeed a good part of Hawaii’s current economic troubles is due to the perception of how good or bad it is to do business in the state.

One of the critical deciding factors for any investor is whether or not the investment will be profitable. A number of considerations go into making that evaluation, from the cost of the location, distance to markets, availability of materials, ease of transportation, labor force skill and availability, and certainly taxes. But taxes can take shape in a number of forms. There are the taxes that most of us recognize as a payment of money for having conducted business or earned income in the state.

But taxes can also take the form of government regulations with which a business must comply in order to open its doors in the state. Unfortunately, Hawaii has some of the most arcane regulations governing businesses and individuals. Many know of the land use laws which imposed a tight stranglehold on the use of land for years. In fact, the state’s land use laws are often cited as a major reason for the high cost of housing in Hawaii for the three decades following statehood.

All of these regulations cost something, be it time in man-hours or money. All of these add to the “cost” of an investment. The greater the cost, the less likely an adequate return on the investment. Thus, investors are sensitive to the regulatory climate because they view regulations as increased “costs.” Many of these regulations have been adopted over the years in order to protect the public at large against unscrupulous businesses. However, it seems that these regulations have gone much farther than what one would consider reasonable. Many of these regulations were adopted because some constituent ran into a problem. In fact, it used to be a well-worn joke that one senator used to introduce such regulatory legislation just because he had run into a problem with a business.

While some will argue that stringent regulation is necessary to protect the public, one has to question just how much regulation is necessary before that regulation becomes a millstone around a business. For example, many who must comply with environmental regulations cite the fact that the state’s regulations in this area are far more stringent than their federal counterparts. Given that situation, is it any wonder that a business that may have to comply with such regulations would look for a location other than Hawaii?

That is not to say that regulations don’t play an important role in safe guarding the consuming public and the environment. On the other hand, if it is those regulations which are deterring businesses from locating in Hawaii, then lawmakers need to take another look at them. There is a delicate balance between allowing individuals and businesses to do whatever they wish and tying the hands and emptying the pockets of an investor all in the name of protecting the unsuspecting consumer.

What we have learned is that many of those regulations are now stifling our economic future. While some may disagree, we must make a choice between a draconian regulatory climate and an economy that can survive and turn a profit for investors. To a large degree this regulatory climate is a product of the attitude that lawmakers have toward business. For much of the history of Hawaii since statehood, lawmakers have had a suspicion of business which in turn has led to the regulatory atmosphere that dominates the state’s business climate.

Thus, while the heavy tax burden we carry in Hawaii has an effect on potential investors, the regulatory environment is another important factor in the consideration of locating a business in Hawaii. So will this environment change? It will change only when elected officials recognize that there must be a balance within the regulatory environment and that business and government are partners in this dilemma.

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