This brief analysis is divided into four parts. The first summarizes Ira Rohter’s book “A Green Hawai’i” and Christopher Grandy’s “Hawai’i Becalmed”. The ideas selected from both books were the ones that deal with alternative economic models to the Hawaiian islands. The second part describes the main risk and benefit of the diversification model proposed by Rohter, and the third, the main risk and benefit of Grandy’s specialization approach. In the last part, I present few economic policy suggestions based on the analysis of Rohther’s and Grandy’s main arguments.
Part I – Summaries
Ira Rohter’s “A Green Hawaii” defends the diversification of investments in the Hawaiian islands. The professor of Political Science at the University of Hawaii at Manoa (UHM) states that mass tourism has caused more harm than positive effects on the local economy. Most jobs created were not only low-paid but also the vast majority of profit made ended up outside the islands since corporations not controlled by local entrepreneurs owned mostly of facilities and services in the tourism industry.
Writing in the early nineties, Rohter envisions “A Green Hawaii” by 2010. Economic policies supporting local business are expected to lead this transformation. Hawaiian public leaders are expected to copy and spread policies implemented by Kapolei and Waialua residents, who have decided to take over their future by rejecting the prevalent presence of large corporations on their land. In these districts, according to Rohter, communal decision-making has spread wealth among residents and established an economy less susceptible to systemic international market volatility.
Grandy’s “Hawai’i Becalmed” highlights the importance of specialization for the Hawaiian economy. It is important to note that specialization is a term never used in Grandy’s book but is interpreted in this paper as the author’s confidence in policies that do not prevent market forces from freely operating. For Grandy, it is counterproductive to prevent free market mechanisms from allocating scarce resources in the tourism sector when this industry features competitive advantages over other economic segments. Mass tourism in Hawaii has created jobs and increased tax revenues. Hawaiian residents would not have been enjoying high living standards today if the tourism industry were neglected by policy-makers.
Writing in early 2000s, the professor of Public Administration at UHM advocates a tight budget control. Hawaiian authorities have traditionally paid close attention to public expenses only during economic downturns. At these difficult periods, constituents tend to put more pressure on the government for further mitigation bills. Grandy argues that this reactive institutional behavior has resulted in acts and laws that have obstructed quick responses from private companies to help address looming recessions. This problem is amplified due to the excessive number of complicated and costly regulations. Grandy, in this context, suggests that Hawai’i’s economic growth should rely on an environment in which the private sector can freely and dynamically operates inside and outside state borders.
Part II – Main Risk and Benefit of Diversification
The main risk of diversifying investments is allocating resources in sectors that are not as competitive and productive as other industries. Tourism is the principal reason for economic growth in Hawai’i. Private and public investments in tourism infrastructure, accommodation, and various types of services have been responsible for the high living standards that Hawaiian residents enjoy in comparison with other states in the country. However, if the local government decides to create economic policies aiming the strengthening of other markets, it risks to deviate resources like capital, labor, and land to sectors that would not yield services and products as price-quality competitive as the tourism industry.
The frustrating attempt to build a high technology sector is an example. During the Cayetano administration (1994-2002), the public sector established a pool of tax credits and fiscal incentives for companies that were expected to attract high-paid jobs to the islands. This initiative, however, has not created as many jobs as expected and; in addition, resulted in a series of legislations that proven to be expensive to maintain and to promote rapid responses to moments of financial disequilibrium.
Diversification reduces unsystemic risks. As different sectors employ the workforce, the drawback of depending, for example, on foreign visitors from a single country to inject capital in the economy is minimized at times of economic uncertainty. In addition, a diversified economy tends to suffer less impact from international currencies’ fluctuation and the strengthening of different industries serves as a buffer for the local economy against market forces that are out of control in an increasingly globalized world.
Agriculture creates jobs. When more people work on their land planting and harvesting it not only creates jobs within an economic chain but also expands the local economy by propagating ripple effects throughout the food sector. Seeds, fertilizers, equipment, warehouses, wholesalers, and so on, are few businesses that greatly benefit from the multiplier effect of investments in foundation enterprises like agriculture.
Part III – Main Risk and Benefit of Specialization
The main risk of Hawai’i specializing itself in the tourism industry is wielding little control over the economy at times of international crisis. Hawai’i’s tourism industry depends heavily on overseas income. If for any reason tourists stop flying, the economy rapidly shrinks. Also, Hawai’i’s local authorities can do little to change the mood of travelers convincing them to board on planes, as September 11th 2001 exemplifies. In this context, local administrators of tourism destinations tend to function at the automatic mode while dealing with international markets ups and downs. They accelerate when visitors come and slow down when tourists sharply stop landing.
The economic crisis that hit Japan in the 80s and 90s demonstrate how much Hawai’i’s economy can be badly affected by the decline of tourist inflow. Hawai’i’s greatest economic slump happened between 1990 and 1997. The reason for this downturn was the sharp decline of Japanese tourists’ arrivals. As Japan’s economy struggled so did the Hawaiian. The result of this recession was high unemployment rates and inumerous social complaints.
The main benefit of specializing the local economy is the opportunity cost of tapping into the competitive advantage that Hawai’i presents in the tourism industry. It also makes easier and less expensive for legislators to come up with regulations that strengthen this sector. As more companies perceive local market rules as straightforward and inexpensive, more investments are made, better products and services derive from competition, and more jobs are created.
The tourism industry has been the main economic force in Hawaii since 1960s. When John Burns ruled the state from 1962 to 1974, he noticed that Hawai’i had unmatchable tourism advantages in comparison with other destinations in Asia and the US. Thus, this industry started receiving most of the attention from his and next cabinets, which largely helped the State’s economic growth from 1960’s onwards. Also, unemployment rates were kept as one of the lowest in the country. Honolulu, for example, still features one of the best quality of life nationwide and is recognized as one of the most liveable cities in the world.
Part IV – Analysis and Policy Suggestions
Hawai’i needs diversification in specialization. Tourism should continue driving the economy as the main source of capital attraction to and job creation in the islands. However, Hawai’i cannot target only the markets of Japan and the United States. China, South Korea, Europe, and Canada are economies that Hawaiian leaders should spend more time and money on elaborating marketing strategies and customer service training for visitors from these countries.
Hawaii also needs more local entrepreneurs investing in and managing the tourism sector. To address this, the state could provide special training – but not conditions – to residents. As more people who live in the islands invest their resources in tourism products and services, the economy is likely to become more competitive and diversified, more attractions are created, and more capital end up being reinvested in the islands. This initiative could also turn into a useful tool to reinvigorate environmental and cultural aspects of the islands.
Local leaders are requested to invest more in infrastructure. Traffic congestion, for example, is one of the main problems on Oahu nowadays. This problem not only affects a large part of residents but also the perception that tourists have about the main island of Hawaii. The investments in infrastructure, however, cannot be done without considering tax costs for residents, architectural impact on landscapes, and environmental concerns and long-term implications. Legislators and public administrators have to come up with strategies that improve living standards for residents by adding value to the islands as a tourism destination and not increasing fiscal burden on tax payers.
Finally, Hawaiian leaders must keep track of tax revenues and expenses during positive and negative economic moments. By doing so, public authorities create policies that would support the residents who have been severely affected by systemic international crises, which greatly reduce tourism activity in the islands. Welfare policies should be designed during the period of economic bonanza as this situation allows legislators to analyze more carefully the present and future costs of creating regulations that might hamper the State’s economic growth once the local economy gains momentum once again.
References
Grandy, Christopher. 2002. Hawai’i Becalmed. Honolulu: University of Hawai’i Press.
Rohter, Ira. 1992. A Green Hawaii. Honolulu: Nakane O Ka Malo Press.
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