Part 4: We're down but we're not out.
There are lessons to be learned to help
the state prosper. And there are opportunities.
But to exploit them Hawaii must be
open to new ideas.

By Dennis Oda, Star-Bulletin
Dave Breitwieser, an optical engineer, demonstrates
a laser in the Science & Technology International
laboratory. Since 1993, the company has grown from 13
employees to 50 and it plans to hire one or two workers
a week for the rest of the year, says the
firm's president, Nicholas J. Susner.

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Turning back the tide

Saving Hawaii from drowning economically requires the involvement of both the state and business sectors

By Rob Perez
Star-Bulletin

For a hint of what Hawaii must do to emerge from its longest-running economic nightmare, look no farther than the 31st floor of Grosvenor Center.

In one room in the downtown high-rise, an engineer is busy assembling a high-tech camera for a German customer half a world away.

Down the hall, another engineer is poring over the beginnings of an equally sophisticated device, this one intended to be kept by its makers to forge new markets.

In yet another part of the office, executives likely will be discussing potential business opportunities in Hawaii, Thailand, Tunisia, Panama or other parts of the globe.

Business is booming at Science & Technology International, so much so that the 50-employee company recently moved its headquarters from a small Mililani building to the entire top floor of Grosvenor's makai tower. The company specializes in taking high-tech photos of the heavens and sites on Earth and analyzing the images.

While many Hawaii businesses are trimming their payrolls to cope with the ailing economy, Science & Technology expects to hire one to two workers a week - from scientists to secretaries - for the rest of the year, says President Nicholas J. Susner, whose office commands a breathtaking view of the city below.

Susner's vantage hasn't always been from such dazzling heights.

When he took over the home-grown company in 1993, in the midst of Hawaii's worst economic slump since statehood, the business was struggling. It had only 13 employees, was losing money and faced an uncertain future.

Susner proceeded to do to the company what many people - from mainland experts to local business owners - say is a key prescription for Hawaii's economic funk.

He streamlined the operation, boosted productivity and steered Science & Technology in a new direction, basically diversifying its customer base. The company began tapping new markets by promoting its remote-sensing technology, successfully used in government projects, for commercial applications as well.

The strategy has paid off handsomely.

Improving business climate a must

Revenue has more than tripled since 1993, the company is turning a profit and in October it was one of only 70 organizations nationwide to receive the U.S. Small Business Administration's prestigious Tibbetts Award as a "model of excellence."

If only Hawaii could boast of similar recognition.

But as a place to do business, the state is described in far less endearing terms - even by its biggest boosters. Hawaii's business climate is widely panned as tax-heavy, bureaucratic and oppressive, factors that make survival all the more difficult in today's tough times.

"I'm being taxed to death," said Helen Rapoza, who runs a facial salon in Kahala.

Improving Hawaii's business climate is crucial to regaining economic vitality, according to business owners, economic development specialists, economists, government officials and others here and on the mainland.

"Until they choose to do that, it's going to be difficult for people to succeed," said Susner.

And it's not just the state that has to get its act together.

The business community has to take the lead in crafting a succinct economic vision for Hawaii and work with government to see that the vision becomes reality, government and business executives say.

"The private sector has to carry the ball," said Seiji Naya, director of the Department of Business, Economic Development & Tourism. "The government has to be the facilitator."

Though Hawaii can't control external factors that can inflict serious damage on the economy, it can do things at home that will help soften economic blows from afar.

"We have to stop being our worst enemies," said Jim Mak, a University of Hawaii economics professor.

If Hawaii can eliminate excessive red tape, like duplicative state and county requirements, and reduce the cost of living and doing business here, partly a function of too much bureaucracy, the climate would be more conducive for company expansions and for attracting outside investors, Mak and others say.

As it stands now, Hawaii is seeing little of either, certainly when compared with the almost surreal boom days of the 1980s.

Indeed, one reason the economy is sputtering is because of the booms of yesteryear.

Some laws slow growth

Hawaii's economic growth has been so robust the past three decades that many of the laws and regulations adopted over the years - and still in place today - are designed to limit development. What's more, the rules generally reflect the state's liberal, pro-labor political bent of the past several decades and are seen by many businesses as onerous and costly.

Such a regulatory system may have once worked but is counterproductive when the economy is stagnating and companies are struggling, business owners and economists say.

Gov. Ben Cayetano recognizes the problem, but making the structural changes necessary to improve the business climate is a gradual, ongoing process, administration officials say.

"It's a structure that took 30 years to build, and it's not going to disappear overnight," said economist Greg Pai, a policy adviser to Cayetano.

DBEDT's Naya says the state is tackling the problem on three fronts:

Getting its fiscal house in order. After taking office, Cayetano embarked on a cost-cutting campaign, paring the state's work force for the first time since at least 1980, according to figures supplied by Naya. The state's payroll has gone from a peak of 65,000 employees in 1994 - the year before Cayetano became governor - to 62,250 last year.

Streamlining the bureaucracy and deregulating markets to help diversify the economy. The administration, for instance, has cut by about half the time development proposals are reviewed by the Department of Health for environmental impacts, Naya said. He also noted that telecommunications deregulation has helped bring millions of dollars in investments and new jobs to the state.

By Dennis Oda, Star-Bulletin
Miguel Busquets sets up equipment on the roof of the
Grosvenor Center, where Science & Technology
International recently moved. Electrical engineer
Mark Segawa looks on.

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Stimulating the economy by providing tax relief for new business and planning a $1 billion construction spending binge - something critics say is stealing from the future to make today seem better. Naya says because the money will be spent on investments (new schools, roads and the like) and not on consumption, it will have long-term benefits.

Cost-cutting, streamlining and pushing for diversification - similar to the prescription Susner used to restore Science & Technology to health - already is paying dividends, administration officials say, though they claim results will be more evident within the next few years.

Naya cites the decision by Continental Airlines to build a maintenance hangar here as among the early evidence the changes are helping.

"I can see light for the first time," he said.

But Naya acknowledges that much more remains to be done, that too much inefficiency remains in government. Critics say too little is being done to improve things at the state and county levels.

Rapoza said she had to deal with three different state agencies to get the necessary approvals before she could open her business in 1995. Bureaucratic snags delayed the opening by months, she said.

Naya said he gets frustrated when he hears about businesses getting the runaround from the state.

One recent example involved Oji Paper Co., a Japanese paper manufacturer. Exasperated executives of the company were here on their 10th trip trying to negotiate a lease for state land on the Big Island when Naya heard about the company's plight. He immediately got Cayetano involved and a tentative lease was negotiated.

If it was just a matter of smoothing the way for companies already considering Hawaii, the state's challenge wouldn't be so formidable.

But Hawaii isn't considered when many U.S. executives scout for relocation or expansion sites, said Ted Levine, a New York economic development executive.

"It doesn't even come up on the radar screen," he said.

Levine and other mainland economic development officials say Hawaii needs to be much more aggressive in getting its message out, in telling executives that despite what a recent Forbes article said, the state is becoming a better place to do business.

For now, the image that emerges is mostly of fun and sun.

"If you only welcome tourism and are not known as welcoming anything else, it's really hard to overcome that stigma," said Ann Blackburn, a marketing expert with Ernst & Young Kenneth Leventhal in San Francisco.

Even little things can contribute to Hawaii's uninviting business image.

When Area Development Magazine, the oldest national trade publication devoted to corporate expansion and relocation issues, offered the 50 states a chance to toot their respective horns to companies considering new sites, Hawaii was the one state it had trouble getting information from, recalled Editor Gerri Jambale.

While other states jumped at the opportunity for what amounted to free advertising, phone and fax messages to DBEDT went unanswered, Jambale said. "Just to get ahold of someone was impossible."

Jambale finally went on the Internet, found the agency's e-mail address and sent a message. She eventually got a response.

Naya admitted that he was having a problem with his staff routing some of his phone calls to other people but that has been solved.

Road to recovery

Here are measures the public and private sectors can take to boost the local economy, say business and government officials:

Eliminate the state's general excise tax - something most other states don't have - and replace it with a retail sales tax.

Target business recruiting campaigns to capitalize on strengths of University of Hawaii programs such as tropical agriculture and planetary sciences.

Target similar campaigns to lure companies with new or expanding business opportunities in Asia-Pacific. Best targets: companies considering opening or expanding operations in Asian markets with higher costs than Hawaii.

Form public-private partnerships to tap export markets for isle goods and services. One example in the works: a directory of health-care providers written in Japanese for distribution in Japan.

Streamline the permitting/licensing process and better coordinate duplicative state-county business requirements. This is a must if the state wants to attract high-tech companies that need to get products to the market quickly.

Reform workers compensation.

Make the business climate more inviting for investors, so companies can more easily access capital markets.

Work with education institutions on training programs aimed at industries Hawaii is trying to attract and expand.

Do more out-of-state, public-private sector sales pitches touting the benefits of doing business in Hawaii.

Establish tax incentives to nurture targeted industries that result in widespread community benefits.

Diversify tourism base to reduce reliance on Japan and West Coast markets.

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Wanted: Your comments
What needs to be done to help Hawaii emerge from
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