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Sunday, September 1, 2002


Price of Paradise

Should Hawaii pursue
a high-tech future?

To diversify our economy, Hawaii is counting on creating high-tech businesses in bio-tech, astronomy, ocean sciences and similar areas. State government even created special tax credits as incentives for high-tech entrepreneurs. However, given what's happened to the high-tech sector lately, "Price of Paradise" wonders, did we place our bet on the wrong horse -- one that's already broken its bionic leg?

Robert J. Robinson | Peter Kay



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Don’t abandon tech



By Robert J. Robinson

THE FAILURES of Hawaii-based ventures such as World Point, Square USA, Ohana Foundation and Buzzeo; the "dot.com" meltdown; and accounting scandals at Enron and WorldCom may have left many in this state with a bad taste in their mouths regarding high-tech and its place in our community.

Indeed, there are rumblings to repeal Act 221, the Hawaii High-Tech Tax Credit, and a general desire to return to simpler, less volatile times.

Understandably, many feel bruised and abused by the gyrations of the NASDAQ and the travails of local high-tech startups. It would be a phenomenally bad idea, however, to abandon the idea of embracing technology as a significant part of the economic future of this state.

This may not seem obvious to everyone. After all, we have a thriving tourist business and real estate will always be a strong local industry. Neither relies particularly on high-tech. Additionally, Hawaii is the beneficiary of huge amounts of defense spending, which also stimulates the economy and creates jobs.

SUCH A short-term view, while understandable given recent events, is a recipe for economic stagnation, decline and the inevitable loss of our bright young people to the mainland, leaving Hawaii with an aging population and a decaying infrastructure.

The problem with relying on "mature" industries, such as tourism, is that they tend to become leaner and more efficient over time. They actually shed jobs, even as their revenues grow.

From 1979 to 1995, for example, Fortune 500 companies lost 4 million jobs in the United States, even as the economy was enjoying unprecedented growth.

Further, the Homeland Defense Initiative notwithstanding, it is likely that the long-term trend of military spending will be flat or downward, a further blow to the Hawaii economy.

In contrast to mature, large companies, entrepreneurial start-ups create huge numbers of jobs. At the same time that Fortune 500 companies were shedding those 4 million jobs, small entrepreneurial companies created 24 million jobs in the United States.

Jobs create middle-class consumers, who buy goods and houses, pay taxes and educate their children, further stimulating the virtuous cycle of economic growth.

THUS, entrepreneurship seems to be a good thing -- but why high-tech? Aren't all startups created equal? The answer, sadly, is they are not.

Entrepreneurial firms (those with annual growth of 20 percent or more) represent less than 10 percent of the one million new businesses in the United States each year. However, they account for 70 to 75 percent of new, non-corporate jobs.

The fact is that the vast majority of those fast-growing startups are high-tech in one or another of its many forms. This is a function of the way in which the market and investors view technology, and it also reflects the reality of different industry sectors.

While starting a sandwich shop or a restaurant is a great way to make a living and put kids through college, it is unlikely to create hundreds or thousands of new jobs each year. Technology start-ups, however, constantly seek to create products and services that millions -- if not billions -- of people will use.

THERE IS no question that any new business, high-tech or not, is a fragile thing. Perhaps one in ten true start-ups achieve some measure of success. A far smaller number go on to become a Digital Island or a CheapTickets.

Yet our choice is really very simple.

We can neglect high-tech and watch our island economy become more and more narrowly based and limited in its ability to create jobs and retain bright young people in the state.

Or, we can embrace high-tech and broaden our economic base and increase job growth and income for all.


Robert J. Robinson is a professor at the University of Hawaii College of Business Administration and executive director of the Pacific Asian Center for Entrepreneurship and E-Business.



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Focus on Hawaii’s strengths



By Peter Kay

CREATING a high-technology industry in Hawaii is an important component of improving our economic climate. To pursue our high-tech future successfully, we must understand why many local success stories launched their companies here and then relocated elsewhere when things started to take off.

This list includes, among others, Digital Island, now a subsidiary of Cable and Wireless; Verifone, now a subsidiary of Hewlett Packard; AdTech, now a subsidiary of Spirent Communications; and Aspect Software Engineering, now owned by Microsoft.

Our culture, weather and central Pacific location may be appealing to the entrepreneur who loves Hawaii (myself included), but we have not demonstrated staying power when reviewed by the conglomerate that only cares about the numbers.

The solution? Develop high-technology niches that cannot survive outside Hawaii so they remain here regardless of their success or subsequent ownership.

We must cultivate technology that is indigenous to Hawaii. In a very real sense, our success will not depend on attracting high-tech to Hawaii, but rather it will be the result of developing Hawaiian high-tech.

BY DEVELOPING indigenous technologies, we can create a high-tech industry that is interdependent with -- and therefore cannot survive away from -- Hawaii.

Here is a partial list of some potential examples:

1. Ocean Sciences and related biotech: I consider this a no-brainer. We can be the world's ocean science epicenter. The combination of Hawaii-based military commands, University of Hawaii research talent and a virtually unexplored hidden world that we've only begun to understand is a tremendous opportunity.

What's more, no matter what conglomerate buys the successful startup, the majority of its operations must be located here.

2. Energy: Keahole Point on the Big Island receives more sunlight than any coastal location in the United States.

It also allows engineers to drop a pipe 2,000 feet into the ocean to pump up 42-degree water. Thus, the world's only Ocean Thermal Energy Conversion (OTEC) plant uses the temperature difference between the deep, cold and shallow, warm water to generate electricity.

If Hawaii can develop this technology, the state can become the center of exportable OTEC technology, which is worth billions of dollars. Silicon Valley may rule the world in chips and bits, but it can never relocate Keahole Point.

3. Astronomy: Combine the Big Island's relatively inexpensive land, UH's new-found autonomy and the billions of dollars already invested in telescopes and any entrepreneur can see there is an incredible opportunity to expand UH and create the world's largest and most advanced center for astronomy.

Brain drain will become a thing of the past when companies rush to relocate here in Hawaii, while Mauna Kea keeps everyone well grounded in our state.

What should the state do? If there is anything people in Hawaii must understand about high-tech it is this: We cannot address development of any competitive high-technology industry in Hawaii until our children are among the smartest and most capable people on Earth.

So, should we still pursue a high-tech future? Of course!

If we want a successful high-tech future, however, we must develop the world's greatest source of capital -- our children. We must focus on creating indigenous Hawaiian technology that can only exist here, then sell its fruits to the rest of the world.

In the end, it comes down to a fundamental Hawaiian value -- the people and the land are one. Just as our aina made us the world's best sugar and pineapple producer, military installation and visitor destination, it can make us the world's technology leader in those areas that are uniquely Hawaiian.


Peter Kay is the president of CyberCom, a local technology marketing and communications firm, and the voice of "Your Computer Minute" on local radio.


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Price of Paradise
The Price of Paradise appears each week in the Sunday Insight section. The mission of POP is to contribute lively and informed dialog about public issues, particularly those having to do with our pocketbooks. Reader responses will appear in Thursday's paper. If you have thoughts to share about today's POP articles, please send them, with your name and daytime phone number, to pop@starbulletin.com, or write to Price of Paradise, Honolulu Star-Bulletin, 7 Waterfront Plaza, Suite 210, 500 Ala Moana, Honolulu, HI 96813.
John Flanagan
Contributing Editor

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