Hawaii must stop
throwing away its wealthEvery new idea should be judged on
By Jim Shon
whether the money, benefits stay hereWhat's wrong with this picture? In 1996 Alexander and Baldwin made its largest investment in the history of the company -- $178 million. It all went to Guam. In fact, lots of Hawaii-based businesses actually expanded their number of employees in 1996. Maui Land & Pine, Theo. H. Davies, Fletcher Pacific Construction and ABC stores each added at least 100 workers. In all these examples the investments were made out of state.
The Economic Revitalization Task Force and the Legislature are determined to grant tax breaks to Hawaii's largest firms and most wealthy individuals. The assumption is that they will use the extra cash to improve our economy. However, the August 1997 issue of Hawaii Business quotes Bank of Hawaii economist Paul Brewbaker as noting: "Many in the Hawaii Business Top 250 credited their growth in 1996 to expansion outside the state."
Congressman Neil Abercrombie recently lamented that when they guarantee business to local firms for defense contracts, they often subcontract out to mainland companies.
So, when we provide extra tax relief to large firms and upper-bracket individuals, think twice. Their investment strategies rely heavily on compensating for Hawaii's lagging economy by investing elsewhere. You can hardly blame them if they find they can make more money off-shore, except -- and this is important -- they are the same folks who insist that by giving them a break it will help us here at home.
None of the proposals require that the tax relief be utilized in Hawaii. There are no mechanisms to reward firms after they have created more jobs here with a tax break. No, the approach is: Hand it over, and hope for the best. And the record shows that the wealthiest companies continue to export their investment capital.
I am not surprised that the hemorrhaging of Hawaii's capital has not been recognized as a serious problem by the gurus driving our revitalization bandwagon. A simple but poign-ant example will illustrate our collective myopia.
The city insists we will be better off if we collect generous rents from out-of-state musical production companies, like "Phantom of the Opera," or "Miss Saigon," while shoving the Honolulu Symphony out of its home. Whatever the rent for the auditorium, the bulk of the receipts will be collected from local patrons, and will leave Hawaii in the pockets of the producers, imported artists and promoters. These funds are always collected from the local residents, as HVCB still has not found out how to market such events to visitors.
Each time a large and expensive musical comes to Honolulu, the local artists suffer. Few if any are hired for the show, and whatever performances they have already scheduled must compete for the dwindling discretionary dollars of local audiences.
When our officials celebrated the outstanding concerts by the Rolling Stones, few thought to observe that well over a million dollars left with Mick. The local promoter got some, and the Aloha Stadium got some. But because we did not think to aggressively market these concerts to visitors, the bulk of the money came from local fans. The governor said we always benefit economically from such shows, but that is not the case.
We have perhaps forgotten a basic principle of economics: You can't prosper if you don't keep your wealth here long enough to use it.
Today there is a virtual mania to cut government employees. Yet we know they are the same folks who shop at Liberty House and who pay mortgages to the Bank of Hawaii. The bank took some of these government paychecks to buy 21 branches of the California United Bank, and added four branches in Arizona to boot.
I suggest the following questions be posed when evaluating any new proposal affecting Hawaii's economy: Let's test the benefits of
new economic proposals1. Does it bring revenue to the state?
2. Does it support existing jobs or create new ones?
3. Does it keep money in our local economy long enough to benefit Hawaii's people?
4. Does it sustain or create services essential to a healthy community?
-- Jim Shon Perhaps it is because I am not an economist that I ask the naive question: How many defaulted mortgages from those dastardly government workers can the local financial community absorb? And don't government workers tend to spend most of their incomes here in Hawaii?
Perhaps they use this for Rolling Stones concerts or "Miss Saigon," so maybe it doesn't stay here long at all. But most we know do shop and invest in our state. And when a civil servant buys Kona Coffee at Foodland, or jewelry at Maui Divers, the person behind the counter does not sneer at the cash: "Oh this is government money, we're not interested." Cash is cash, and all companies are glad to have your business.
My point is that we should place a high priority on those actions and jobs and smaller businesses that keep capital and wealth in the state. While it may be wise in the long run to reduce the government work force, in the short term we seem intent upon punishing those who use their wages to support our economy, and reward those who look for greener pastures.
The University of Hawaii brings in millions to our state. The School of Public Health and the other excellent research departments are doing their part for our economy, and creating good, clean, information-age jobs in the process. Yet we seem to think it wise to cut them back.
There is even a state policy to discourage departments from seeking federal grants. Why? Because of a fear that we might become dependent. But this attitude has left us at a great disadvantage vis a vis other states, who see nothing wrong in securing their share of the federal pie.
Even our most Hawaiian of organizations, the Bishop Estate, has a huge portion of its investments off-shore. It is the largest landowner in Michigan! What about Maui or Molokai? What about Waianae? What about jobs for OUR people.
I do not envy legislators this session. Most of our economic woes were not created here. But we will exacerbate the problems if we don't pay attention to keeping capital working for our people. It is the middle class and the smaller businesses that deserve tax relief simply because they are more likely to spend it in Hawaii.
Jim Shon is a former Democratic state representative.
Full text of the Governor's
Economic Task Force recommendations.