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Let’s Talk About This Economic Slump

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By Lowell L. Kalapa

     While the politicians may want to volley charges back and forth over who is responsible for the current economic slump, it might be worthwhile to look at some of the factors that affect Hawaii’s economic climate.

Some have recently argued that the economic malaise besetting Hawaii is well beyond our control, that in fact it is the economies of Asia and more specifically Japan which have caused Hawaii to slip deeper and deeper into the barrel of economic woes. While that might be a plausible explanation given the current Asian flu, how does one explain the fact that this is the longest period of economic expansion in the United States, especially when one remembers that Hawaii is the Fiftieth State.

 

 

  So is Hawaii’s economic downturn solely a contagious side effect of the Asian flu? No, the hole that Hawaii is in is of its own making.        Is Hawaii indeed so much more closely tied with the Asian side of the Pacific Rim that the mainland economy has no effect on Hawaii? While it is true that Asian visitors spend much more in Hawaii than their mainland counterparts, does that mean we should ignore all other markets to the benefit of the Asian market? One would think not, that in fact westbound visitors out number eastbound visitors, but the amount mainland visitors spend does not make up for the impact of the Asian numbers.

On the other hand, while the visitor industry is critical to the current economic well-being of Hawaii, we all recognize that what really makes the state’s economy glow is the investment of new capital. Hawaii has always been known to be a capital short state. In other words, Hawaii does not have the resources that others are willing to trade dollars or capital in order to secure those resources. For example, Alaska has crude oil as a natural resource for which consumers are willing to trade their capital or dollars in order to secure that resource.

What Hawaii does have is its natural beauty for which visitors are willing to trade their dollars in order to have the opportunity to come and see. While the visitor industry has been Hawaii’s mainstay for most of its short history as a state, the marketplace is becoming increasingly competitive. Not only are there other beautiful and exotic spots in the world to visit, but the cost of securing that experience is becoming more competitive.

What did make Hawaii’s economy vibrant during the 1980’s was the fact that outside investors poured new capital into Hawaii’s economy. And, yes, in most cases, the money flowed from Asian countries like Japan. In the mind of those investors, the attraction was that Hawaii was a unique draw for visitors. They thought their investments would return a handsome profit.

Little did those investors know what a labyrinth of government hurdles they would have to overcome before they could begin doing business. Perhaps the most blatant was the impact fees on developers of golf courses ranging from as “little” as $25 million to more than $100 million.

In many cases, because these investors had already poured millions of dollars into their investment, they had no choice but to comply with the onerous entanglement of rules and regulations imposed by state and local governments. And so while they were flush with cash, they persevered. But when the money started to run out, things turned ugly as banks began to call their loans.

The point of the matter is that as long as investors perceived the ability to make a profit, they invested in Hawaii. And those exuberant investors of the 1980’s believed so until they found out otherwise. What they did realize is that with all of the permitting requirements, rules and regulations imposed by government, it would take a long time before they could realize a profit. That experience is now widely known. The Japanese investment experience has been repeated far and wide. Now potential investors are keenly aware of what it takes to start and do business in the state.

So is Hawaii’s economic downturn solely a contagious side effect of the Asian flu? No, the hole that Hawaii is in is of its own making. Laws have been adopted, regulations have been imposed, and costs have been exacerbated to the point where it is no longer attractive to do business in the state. The proof is in the act that despite an exuberant national economy, Hawaii had no takers in the robust mainland economy who were willing to invest in Hawaii.

And until that environment and atmosphere changes, no one – in their right and profit making mind – will want to invest in Hawaii.

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