DAVID SWANN / DSWANN@STABULLETIN.COM
At the tipping point
Innovation industries are pushing Hawaii toward another economic revolution
As we stand at the threshold of 2008, it's useful to look backward at Hawaii's history, which can offer clues to where we're headed. The Aloha State is at the cusp of a new economic cycle that will foster dramatic changes in our lives. In addition to tourism and defense, our future economic engine will be powered by innovation industries such as biotechnology, advanced agriculture, software engineering, nanotechnology and other cutting-edge technologies.
No, we're not there yet by a long shot, but Hawaii is once more in the process of reinventing itself.
It's not the first time we've had to rejigger our way of life. Hawaii's earliest "industry" was sandalwood; after that was depleted, whaling was king. Ships' crews needed to replenish their stores with cattle, water and other provisions, and Hawaii was the perfect pit stop en route to the South Pacific. As whaling faded, the next cycle was agriculture, which launched the state economy into the modern era. Around the time of statehood, thanks to new technology (the jet aircraft), Hawaii moved into the largely tourism-based economy where it remains today.
This industry has served us well but has reached a maturation point. There is only so much more land that can be developed into resorts, and the very beauty that brings visitors to the state is threatened by overdevelopment.
The time is now ripe for the newest phase in the cycle which will transform our island society once again. Just as passenger airplanes provided a means to reinvent our economy 50 years ago, the Internet is a catalyst for a new economic era that leverages intellectual property instead of raw land. Rather than tourism, real estate development and large-scale agriculture, Hawaii will create high-value products such as software, pharmaceuticals, vaccines, specialty crops and value-added services.
We need to move swiftly into this new era. Like the canary in the coal mine, there are danger signs.
In September the Hawaii 2050 Sustainability Summit in Waikiki made public a much-heralded draft plan that would map out Hawaii's future. In addition to legislators and county mayors, a panel of nine high school students from both public and private schools was on the podium before an overflowing ballroom crowd at Hilton Hawaiian Village.
The students had just articulated their hopes and dreams as citizens of the future Hawaii when one of the high school panelists was asked if he planned on living here subsequent to college graduation. Without skipping a beat, he replied, "No." The question was repeated to the other student panelists, and in a show of hands not one of them answered affirmatively.
It's no secret that the middle class is eroding and our once egalitarian society is evolving into a bifurcated system that consists of the "haves" and the "have-nots." As the students at the Sustainability Summit expressed, there simply aren't enough good-paying jobs in this state to keep them here.
There is a solution, and it is tied directly to the development of our nascent innovation technology sector, which will diversify the economy and provide decent-paying, rewarding jobs.
The latest data compiled by the state Department of Taxation stated that the average salary of an innovation-sector worker in Hawaii was $67,000 in 2006. Some tech sectors pay exceptionally well. According to the Entertainment Software Association, computer and video-game companies in Hawaii averaged salaries of $84,818 last year. This compares with average annual Hawaii service industry salaries such as $22,600 for retail sales personnel or $30,000 for desk clerks.
Another important factor that these statistics don't illustrate is that innovation companies are hiring kamaaina who have returned to Hawaii after migrating to the mainland in search of jobs. Startup companies such as our own firm, Cardax Pharmaceuticals, and other companies such as Hawaii Biotech, Hawaii Chitopure, Cellular Bioengineering, People Bridge, Hoana Medical, Tissue Genesis and many others are employing highly skilled professionals (including grads from local schools). These are people who have come back home after spending years in Silicon Valley, Boston and other tech centers on the mainland.
In addition to the creation of good-paying, satisfying jobs, there are other important, if less obvious, windfalls from a growing technology sector in our state. This is called the "multiplier effect," and it measures the economic consequences of the change that one sector (in this instance, the technology industry) has upon other sectors of the economy.
In the case of the technology industry, expenditures by Hawaii QHTBs (companies helped by technology tax incentives) were more than $1 billion between 2002-2006. The $1 billion figure also includes $500 million in salaries as well as capital improvements, such as construction, and purchases of goods and services.
The multiplier effect means that people who make good salaries are able to purchase homes, redo their kitchens, buy cars, hardware, lumber, furniture, toys, washing machines and so on. They in turn create construction jobs, take vacations on the neighbor islands, go to restaurants and attend plays and movies. Naturally these individuals also pay taxes -- revenue that will fill state and local government coffers.
Is the new tech sector a threat to the tourism industry? Not at all. On the contrary, building an innovation economy will only buttress the tourism industry and increase the number of business travelers.
A case and point: Earlier this year, Cardax Pharmaceuticals set up a meeting of our scientific advisory board. This consisted of a dozen scientists from California, Missouri, Massachusetts and other states who converged here for a weeklong meeting. They stayed at the Kahala Mandarin, where we held daily conferences and spent a good deal of money at the hotel facilities. These kinds of meetings are common practice in our industry and throughout the innovation sector.
There's an additional benefit. The more technology businesses that take root here, the more Hawaii will be considered by mainland convention planners a place where business is done. As it now stands, the perception of many on the mainland is that Hawaii is simply a place to play -- where no serious work occurs. The more successful local technology companies we have, the more we will dispel this myth and the more technology tourism we'll attract.
By growing technology, we'll grow the entire economic pie for everyone in the state. For the sake of our kids, it's time to reinvent Hawaii once again.
David G. Watumull is the chief executive officer of Cardax Pharmaceuticals, an Aiea-based startup. He is a former CEO of Hawaii Biotech Inc. and was one of the Star-Bulletin's "10 Who Made a Difference" in 2004.