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Value of Investment Will Make or Break Future Economy

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By Lowell L. Kalapa

Last week we talked about how much Hawaii’s economic fortunes in the near future will depend on the vitality of the visitor industry. This prompted a couple of responses from readers.
One reader commented that there are certainly other developing industries like high technology and niche diversified farming. Another noted that Hawaii cannot handle ever larger numbers of visitors as he felt the islands have just about reached their capacity to handle additional “bodies.”
There are yes and no answers to both comments, but what is even more important is understanding what will drive the state’s economy and what has driven it over the past 40 years since statehood. True, tourism or the visitor industry is the manifestation of what drives the state’s economy, but underneath the glitz of marble-tiled hotel lobbies and swaying hula skirts is the fact that none of that would be here were it not for people who had the money to invest in Hawaii.
What really makes the state’s economy snap, crackle and pop is the influx of new capital to the islands. Without a continuous flow of investment capital, Hawaii’s economy would just be treading water. This is what happened during the past decade which has been characterized as the longest economic slump in Hawaii’s history. The investment dollars that foreign investors, largely the Japanese, poured into Hawaii during the late 1980’s fueled what was to become known as the Japanese bubble. There was so much construction work that workers could pick and choose which jobs they would take. New hotels sprang up, old ones were refurbished and money flowed like water.
Indeed tax revenues bubbled over the top and lawmakers were delirious in their spending dreams. As a result of all this economic activity, Hawaii’s near full employment meant people had money to go out and buy all sorts of goods including housing for which there was a huge pent-up demand. Even more tax revenues rolled in as a result of all this consumerism. And again, the root of all this ebullience in the economy was the huge investments that were being made in Hawaii during this period.
Underscoring this need for an influx of capital through investments is the phenomenon of more and more absentee or foreign ownership of businesses in Hawaii. Some have expressed dismay in the fact that more and more businesses which were originally started by local folk are now mainland owned or foreign owned. From beloved Liberty House which will become Macy’s to favorite local eateries, many are being sold to investors who have the capital necessary for expansion and growth of those businesses.
What does this mean for the future? When it all boils down, those nonresident owners of businesses will look solely at the bottom line. While that may sound crass, that is what will drive the investment of capital in Hawaii. It is what will create the jobs, be it high technology or diversified agriculture. If investors cannot see making a profit with their investment in Hawaii, then they will go elsewhere to invest those dollars.
The Japanese investors of the late 1980’s thought they could wait for the profits to roll in, that they had all the time in the world to see their investment turn a profit. Unfortunately, what they didn’t realize was that their creditors wanted a return on their investment and couldn’t wait any longer.
The point of the matter is that if the state’s economy is to continue to grow at a healthy pace, then Hawaii has to provide an environment that will support and nurture enterprises. This means bringing about a balance between the regulatory role that government tends to play and a supportive role for government.
For example, instead of the department of agriculture acting solely as a regulator of agricultural commodities produced in Hawaii, why can’t it be a facilitator of the farming community, helping farmers with marketing, packaging, and research? Will government ever be able to process all the applications and permits of a new business in less than a week, let alone a day?
More importantly, will our lawmakers ever realize that businesses have to make profits if they want to stay in business and provide the jobs our children need? For many lawmakers, profit is a dirty word. If a business or individual is making a profit, lawmakers tend to believe that the business is ripping off their constituents. Thus, businesses in their minds should not be making profits. This thinking has got to change if Hawaii is to attract the investors and therefore the capital that this economy needs to grow in the future.

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