Cliff Slater’s Second Opinion


Investing in Island black holes


Tomorrow at the Hawaii Economic Association Annual Conference (public welcome)(1), learned panelists will discuss the topic, "Can Government Pick Growth Industries?" Essentially, they will discuss whether governments should pre-determine the directions markets take—or whether, as Henry Thoreau suggested, they should just get out of the way. (2)

In simpler terms, should our political leadership—Ben Cayetano, Norman Mizuguchi, Calvin Say, Jeremy Harris et al.—direct our entrepreneurs as to which future business opportunities will be successful? (3)

To merely ask the question is to answer it.

Our state and city governments have shoveled millions and millions into bottomless black holes trying to kick start new business areas. The Ocean Thermal Energy project (OTEC), Malaysian prawn farms and the City Store are three that come instantly to mind. One has difficulty thinking of any government funded project that come even close to returning the money that has been "invested" in it.

We want to invest in new prisons when private operators offer to do a better job at less than half the price. We insist on running the State Hospital when private operators will do it at half the price. We invest in what was once a profitable bus system and turn it into a $100 million a year black hole. (4) And it goes on.

All this should not be surprising.

Elected officials are generally not experienced investing millions of dollars—especially their own money or their investors. Thus, the process of officials investing public monies is not accompanied by the gut-wrenching agonies of the entrepreneur putting both hard-earned cash and ‘face’ on the line.

Instead, officials know that government failure and losses can always be smoothly rationalized away. As Winston Churchill once put it, "Political skill is the ability of foretell what is going to happen tomorrow, next week, next month and next year. And to have the ability afterwards to explain why it didn't happen." (5)

In politics, being articulate is everything. In the marketplace, it counts for little. Shoppers simply want the best quality for the lowest price. Supermarkets do not list their excuses under their prices; either they have better prices and qualities than their competitors or they do not. Period.

On the other hand, elected officials tend to approach high finance with Professor Parkinson’s Law of Triviality—the amount of time legislators spend on a budget item will be in inverse proportion to the money involved. (6)

Thus, there is much gnashing of teeth over the new Education Superintendent’s personal moving expenses of a few thousand dollars yet little or no serious analysis of where the billion dollars we spend annually on education is actually going. (7)

To most of us, a billion is a number that astronomers use; a billion dollars is incomprehensible. And so we focus on the thousands involved in moving expenses because that is something we understand. And we can be outraged over legislators incurring first class airfares yet ignore the millions they "invest."

It should give us pause when private operators are not willing to invest in these projects yet our elected officials want to demonstrate their "vision" and "leadership" by "pro-actively" investing our taxes in such ventures.

If these ventures were worthy investments private money would have been in place long before government even thought about them.




(1) Hawaii Economics Association Ninth Annual Conference on Current Economic Issues. Friday April 23, 1999. Hilton Hawaiian Village, South Pacific I, II, III & IV. 7:45am-3:45pm. $49 regular or $10 student.

(2) "Yet this government never of itself furthered any enterprise, but by the alacrity with which it got out of its way. It does not keep the country free. It does not settle the West. It does not educate. The character inherent in the American people has done all that has been accomplished; and it would have done somewhat more, if the government had not sometimes got in its way. For government is an expedient by which men would fain succeed in letting one another alone; and, as has been said, when it is most expedient, the governed are most let alone by it. Trade and commerce, if they were not made of India rubber, would never manage to bounce over the obstacles which legislators are continually putting in their way; and, if one were to judge these men wholly by the effects of their actions, and not partly by their intentions, they would deserve to be classed and punished with those mischievous persons who put obstructions on the railroads." Henry David Thoreau. Civil Disobedience. 1849.

(3) Respectively, the Governor of Hawaii, the President of the State Senate, the Speaker of the State House of Representatives and the Mayor of Honolulu.

(4) Honolulu Rapid Transit Co. Ltd., which operated the city bus system until 1971, was profitable through to the end. (See 1971 Annual Report of the Company.) Mayor Fasi then socialized the system and renamed it TheBus. At the time, he said it would be a profitable operation. In fact, it went into the red immediately and increases its losses every year. Today, including capital costs, the system loses more than $100 million annually. (See TheBus.pdf)

(5) Sir Winston Churchill. Quoted in The Cynic's Lexicon. 1965.

(6) Parkinson, C. Northcote. Parkinson’s Law and Other Studies in Administration. Houghton Mifflin. 1957. pp. 24-32.

(7) For further comment concerning the incredible waste involved in public education in Hawaii, see earlier SECOND OPINION columns and, in addition, a COMMENTARY that can be found on the home page.