Let's rethink our economy
By Cliff Slater

Cliff Slater is a Honolulu businessman and represents the Reason Foundation in Hawaii.

    Underlying much of the recent talk about the economy has been a belief that we will shortly return to normal economic conditions. The business community is beginning to not believe that. Instead, we are coming around to the idea that we have arrived at a profound and deep shift in the structure of our economy.

    Three major industries have formed Hawaii's economy in the past—agriculture, military spending and tourism. During the boom times of the 60's, 70's and 80's, the rapid growth of tourism and the stability of military spending far overshadowed the accompanying dramatic decline in agriculture.

    In the 1980's the Japanese bubble economy's impact on Hawaii construction compounded this growth. With the end of the Cold War in the late 1980's defense spending in Hawaii began to decline. In the early 1990's the Japanese easy money disappeared. All the while agriculture continued its long-term decline.

    Tourism has been the one and only industry that has survived despite our business environment. However, tourism has been flat since 1990.

    Mainland visitors have yet to return to the 1989 peak despite a booming mainland economy -- that's eight years of being down. That is a structural shift, not a short-term aberration.

    The burgeoning Caribbean cruise ship market and brand new resorts in Mexico are all helping to drain off visitors from Hawaii. Eastbound business has increased over the last eight years but this has not been enough to offset the decline in Mainland visitors. Now we have the threat of new resorts in South East Asia draining off eastbound visitors. Hawaii hotel operators are taking over sizable numbers of new resorts in these areas.

    There is some wishful thinking about importing high-tech companies to diversify our economy. But we do not have a successful high-tech business in town of any size. The successful ones have left town. For example, Intellect, Inc. has gone to Florida and Verifone has moved to California.

    Considering our hostile business environment it is not surprising. Forbes magazine calls us the People's Republic of Hawaii. Professor Epstein of the University of Chicago recently described Hawaii's regulatory environment as something from Dante's Inferno. Outrigger Hotels' Dr. Kelley last week called our business climate, "a national joke." This is called "whining."

    Yet consider our state and local taxes. They are so high that, according to the Hawaii Tax Foundation, even if we abolished the state income tax totally we would still be paying more taxes than the average U.S. citizen.

    Consider public education: Education Week rates us as having the worst quality of teaching in the nation.

    Consider that at one time 62% of all jobs in Hawaii were direct agricultural jobs; today they are only 1% of all jobs and still declining; that's a shift. There are no longer any direct flights to Hong Kong; that is a shift. In short, "normal economic conditions" no longer apply to us.

    When everyone recognizes that, we can begin to rethink our situation and have a meaningful economic summit.