By Lowell L. Kalapa
There all sorts of politicians running around saying how we need to improve the economy of Hawaii calling for tax reductions and tax incentives as ways to move the economy forward.
While all of that sounds good, does it really make a difference whether or not tax reductions and tax incentives are adopted to improve the economy? What policy makers seem to miss is the outcome desired. To many, the outcome is an improved economy. While that may seem to be the desired outcome, it does not define what makes for an improved economy.
There are elements of an improved economy that we all recognize such as full employment with enough good-paying jobs to satisfy the needs of everyone who wants to work. Another element is housing that is affordable and available. For people in the visitor industry, a good economy might mean full occupancy of all the available hotel rooms and people in stores buying souvenirs and purchasing tours and excursions.
All of this sounds like elements of a good economy, but what is missing is the fact that all of these activities or indicators of a good economy depend or depended on someone taking the risk to invest in Hawaii. For years, we have all been told that Hawaii is a capital-short state. That is, we do not produce capital or money from within the state without first attracting the investment of capital in “something” in Hawaii.
Look around at the state’s number one industry, tourism. Where would the jobs be if no one took the risk to put millions of dollars into building that hotel that now employs hundreds of workers from chamber maids to bellmen to the concierge?
And what about the latest darlings of lawmakers, high technology companies? Without the investment of capital many of these high-risk ventures may not have gotten off the ground in Hawaii. In fact, this was one of the driving forces behind the “high-tech” tax incentive legislation, the attractiveness of investing in such high risk ventures that would attract what is called “venture capital” to Hawaii.
But as anyone can tell you who takes the risk of investing in a venture, no one invests with the expectation that they are going to lose money on their investment. No one enters the stock market and makes the purchase of stock with the hope that they will lose money on the purchase. Of course not! Investors put their money where they think they will make a reasonable return on their investment.
So what is the outcome or the goal for policy makers and others who would attempt to “fix” the economy? It should be to provide an environment, a culture or medium if you will, that will promise investors that they have a reasonable opportunity to make a return on their investment in Hawaii. That is not to say that there is a guarantee that investors will earn something on their investment. On the other hand, every effort must be made not to place unusual or difficult barriers in the way of a potential investment earning a reasonable return.
Over the years local policy makers at all levels have done everything to make sure that the odds of making a return on investment becomes less and less likely. Regulations, permitting, land use policies, and zoning are but a few of the elements of cost which reduce the prospect of making a reasonable return on investment. While there is nothing wrong with the concept of regulation to insure the safety and health of workers and consumers, when they are used as a way to punish or deny businesses an opportunity to make a return on investment they become as onerous as high taxes.
And while tax incentives to attract various specific types of economic activity may have appeal to the uninformed, granting tax breaks to specific taxpayers merely shifts the tax burden to others who are not so favored. The result is that instead of making the environment more attractive for all types of businesses and economic activity, those tax incentives insure that other potential investors seek out either their own special treatment or they go elsewhere to do business and invest.
So the challenge to policy makers and potential office holders is not so much as endorsing a better economy, but understanding what it takes to create the jobs and improve the outlook for the economy. Understanding that Hawaii needs to attract capital investment and to provide investors the probability that they will have an opportunity to make a reasonable return on their investment is crucial to the future of the state’s economy.