Although there seems to be elation in some corners of the community that the economy seems to have turned the corner, those who understand the inherent weaknesses of the economic infrastructure in Hawaii remain cautious.
Why the cynicism about what appears to be a resurging economy as tax collection figures rise rather than fall and hotel occupancies climb rather than ebb? Well, more than anything else, the economic climate continues to be less than attractive to prospective investors. Although considerable effort has been poured into various tax incentives to attract high technology companies to relocate to Hawaii, the same dour business environment is being perpetuated for all but the favored industries.
Let’s face it, Hawaii has long been known as a capital short state, that is, the state’s economy needs continual infusions of capital investment if new jobs are to be created and new economic wealth is to be realized. In pre-statehood days, the sugar and pineapple industries shipped product out for which dollars were returned to the islands. As agriculture waned, tourism stepped into its place as the leading industry.
In order for that industry to grow, capital had to be invested in the hotels needed by visitors to our islands and new retail stores and commercial ventures were created to serve the needs of the visitor from shopping centers to entertainment attractions. People with the capital took the risk to invest their money in Hawaii because they saw a potential to make a profit or a return on their investment.
Sometimes that investment road was a bit rocky as the tourism industry had its cyclical “ups and downs” beginning in the mid-1970’s and once again in the early 1980’s. By the mid-1980’s, Hawaii began to pique the interest of investors who had money to burn. But little did they know about the convoluted maze of regulations and exactions they would face once they located in Hawaii. But Hawaii, despite all its regulations, looked like an ideal place to corner the market by buying up what urbanized property existed.
So money poured into Hawaii and the expectations of the community soared believing that the state had entered a new era of economic vibrancy. New facilities were built regardless of cost and investors thought they would be able to recover their investment over a period of time. However, as costs added up, it became readily apparent that the amount invested would never be recovered in a reasonable length of time.
As loans came due on the investments made in Hawaii and there was no hint of profit or return on investment, many of those properties were sold for a fraction of the original investment. It is those bargain sales that have fueled Hawaii’s economy in the last few months. At the same time, those businesses which have been able to hang on have made adjustments to run a tighter and leaner ship.
While construction activity is again visible with about a 2% growth rate, most of the activity is the result of public contracts funded with the billion-dollar CIP proposal from three years ago. True there are spots of private construction activity on Maui and in West Hawaii and a single major project in Waikiki, but nothing else to speak of that represents major investment capital.
So while the economy appears to be turning the corner, there will be none of the exuberance that Hawaii witnessed in the late 1980’s. While everyone would like to see a return to economic vibrancy, that will not happen until the mind set changes. Instead of denying that there are regulations which make it difficult to do business in Hawaii, lawmakers need to recognize the need to support business, make that all businesses, not just the high tech darlings or the film making buffs that make a splash. More importantly, lawmakers need to recognize that what growth will occur in the next few years will not be able to match the growth rates upon which the current size of government was based.
This is the critical point. True, while the slide in the economy seems to have been halted, what economic wealth will be produced cannot and will not be able to support state and county government in its present form. Unless government spending is reined in, all the recovery in the economy will be for naught as sooner or later, elected officials will be back to ask for a return to more and higher taxes.