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Tuesday, May 14, 2002

Forbes got it right, but
for all the wrong reasons

IN ITS LATEST article lambasting Hawaii, Forbes Magazine calls this the state where "Fidel Castro would feel right at home." However, the article by Lynn J. Cook neglects to mention the erstwhile "People's Republic of Hawaii's" great leap forward.

Honolulu actually moved up 12 places to 177th in Forbes' list of the 200 Best Places to Do Business. Our city ranked 189th in 2000 and 2001, after languishing at 160th out of 162 in 1999.

Cook says Honolulu still "gets our booby prize for economic development," somehow beating out such rust spots as Amarillo, Flint, Buffalo, Saginaw, Racine, Fort Wayne, Rockford and even lowly Gary, Ind., which Forbes ranked dead last at No. 200.

No booby prize for you, Gary, but there's always next year.

Forbes and the Milken Institute determined rankings by combining growth figures reported by local governments for salaries, jobs and, this year, high-tech gross domestic product. The top five areas were San Diego, Santa Rosa and Ventura, Calif.; Las Vegas; and McAllen-Edinburg-Mission, Texas.

Unfortunately, Cook's analysis is wanting. For example, she says some of Honolulu's economic failures are self-inflicted, and cites as examples both overfishing and shutting down the long-line fishing industry.

OK, which is it? Is fishing too much or fishing not at all putting the economy in the tank, and didn't a federal judge have something to do with this "self-inflicted wound"?

Hawaii blew its "natural competitive advantage in agriculture" when workers joined labor unions, Cook says. However, she does a reverse flip to say shipping corn to Hawaii is so expensive that Parker Ranch sends its cattle to Canada for fattening and slaughter. That's some competitive advantage.

The Forbes piece also cites Honolulu's unemployment rate, 5.4 percent, as further evidence of our economic slide. Since the Bureau of Labor Statistics puts the national rate at 6 percent, this argument lacks traction.

Most states have lower taxes than Hawaii, but most cities have higher taxes. Cook turns both into disadvantages. "The state taxes everything that moves," she complains, while the city, which "doesn't pay for services like education or highways ... routinely has to borrow to meet its payroll."

ACCORDING to the independent Tax Foundation, Hawaii ranks fourth nationally in state and local taxes behind only Maine, New York and Wisconsin. However, what's important is to look at the total tax burden, where Hawaii drops to 31st.

We pay 31.6 percent of our incomes in taxes, while taxpayers in bellwethers California (10th highest), Nevada (11th) and Texas (34th) pay 33.5, 33.3 and 31.3 percent, respectively.

What's crushing small business in Honolulu? According to Cook, it's that Hawaii "is the only state that requires employers to provide medical insurance to all employees who work more than 20 hours a week ... at an average cost of $2,200 per capita annually."

Yet, four of the top five "Best Places" pay employees more than Honolulu businesses. In 2000, per capita personal incomes in San Diego ($32,515), Santa Rosa ($34,863), Ventura ($31,919) and Las Vegas ($37,113) all exceed Honolulu's $29,960. Throw in $2,200 for a medical plan and we're still in the ballpark.

COOK'S recipe for an economic basket case: "Take an island paradise, with year-round balmy weather and immense value to tourists, and add a heavy dose of socialism."

There's no other mention of tourism in the article. It's as if a doctor diagnosed a dying patient, pointing at poor diet and lack of exercise but overlooking the bullet wound in his chest.

Our tourism-driven economy depends on factors the article overlooked: the dollar-yen exchange rate, post-Sept. 11 attitudes toward travel, the state of Asian economies, and so on.

Forbes is right. Doing business here is a challenge, but becoming more like McAllen- Edinburg-Mission, Texas (per capita personal income $13,344) isn't the recipe for success.

John Flanagan is the Star-Bulletin's contributing editor.
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