Help Wanted - Hawaii's Economic Crisis



"Certainly the unions,
like any other entity, have political power.
So does the AARP."

--Gov. Ben Cayetano

Focus on
the problem

The governor:
'Still some heavy work to be done'

Star-Bulletin reporters Rick Daysog and Richard Borreca recently sat down with Gov. Ben Cayetano to discuss Hawaii's economic problems and possible solutions. Here are excerpts from that interview:


QUESTION: How responsible are you and the Legislature for Hawaii's economic problems?

ANSWER: I think that's a difficult question to answer. I think that if you take a look at what's happening in this state, much of what's happening ... comes from economic forces that we cannot control. Most economists would point out that the economic downturn in Japan would cause Japanese capital investment in the state to virtually dry up. Whereas at one time, I think in 1989, (there was) as much as five to $6 billion in Japanese investment here.

When that began to dry up ... we should have made some real efforts to seek more-diverse capital infusion.

This economy is stronger than people think. In 1991, the state gross product was about $30 billion with the Japanese investing all of that money in the state. Since then, the state gross product has remained just about the same. In fact, it's been growing at about half a percent.

It tells you that there's some strength in the economy, but it's hard to identify. Someone must be doing something (right) for the state gross product to remain at that level.

I don't think it's useful to say the governor is responsible for X percent and the Legislature is responsible for X percent. Maybe the business community is responsible for X percent.

I think that it's not a useful thing to get an attitude of blame. As governor, I accept the general perception of the public that if the economy is bad and people are losing jobs and their business isn't good, they look to someone and say the governor is the highest level of independent responsibility. Certainly they don't hold the bankers responsible or the CEOs of the companies or the mayors. They look at the governor. I feel that it's a condition of this office.

Q: Do you think the state is better off economically than it was a year ago?

A: I think that there are signs now that the transition has resulted in some adjustments that are going to lead to some positive things in the long run. Let's take the Forbes article ("The People's Republic of Hawaii" June 16.) No one from Forbes ever spoke to me. Many of the facts they cite are in fact true. What they omit is what has happened since this administration took office. We've eliminated a few thousand (government) jobs, we've downsized the government. Just last session, the Legislature agreed to consolidate the housing functions.

We've done these kinds of things for state government. That's not recognized in the Forbes article. You would think that nothing was done here.

Forbes talks about a company like VeriFone leaving Hawaii. Take a look at VeriFone and Crazy Shirts: They are manufacturing firms. We are at a disadvantage when it comes to manufacturing things in Hawaii.

But look at the business that came in. VeriFone ... still has a presence here. Square USA and Uniden have come in. You have these things happening.

You have Neiman-Marcus, Nordstrom. You have all these big discount people coming in. You have Chelsea (GCA Realty Inc.) coming into Waikele and buying the factory outlet and paying a record price. Obviously there (are) some people who have faith in certain parts of Hawaii's economy.

Q: You mentioned VeriFone and Crazy Shirts. But they're just some of the companies that are looking elsewhere. The big local banks are looking for most of their future growth from the mainland. Bishop Estate invested hundreds of millions of dollars on the mainland. Does the fact that all of those investments are going outside of Hawaii disturb you?

A: Of course that disturbs me. It disturbs me particularly because the Bishop Estate and the Campbell Estate are entities that have been a part of Hawaii and are part of Hawaii. When Bishop Estate decides to invest a billion dollars outside of the state instead of in the state, they take it out to buy timber in Michigan or a golf course in Maryland, of course it hurts us.

The question is, how do you keep the investment here, and how do you keep them coming here? Clearly, we need to improve the business climate. What I said earlier is that the Forbes article didn't tell all that we were doing to improve the biz climate.

Bishop Estate is going outside the state because its easier to make a buck in Michigan or in other places than it is in Hawaii. There's no question about that. On the other hand, you have Taiwanese and Hong Kong (investors) who come, they buy up hotels at bargain prices, and they invest here as well. So you have to change the investment climate.

Q: Businesses say they are overtaxed and over-regulated. What is your administration doing on the subject of the business climate here?

A: I think we attacked regulation in a very, very strong way. If you take telecommunications, for example, what the bankers tell me is that they estimate over a billion dollars in telecommunications infrastructure (spending) has happened. We probably have had six or seven new big telecommunications companies come in. That's a pretty well-known fact. That's an example of our attacking regulation.

We have cut the permit process by a great deal, but there's always room for more improvement. When businesses tell me, "We're being overregulated," I would agree in part. I would say there's a lot of paperwork, and we're cutting down on the paperwork. But don't blame us for what the counties have done. That's a different story.

Q: How do you feel about the political power of the unions? That's often cited as a detriment to investing in Hawaii.

A: Certainly the unions, like any other entity, have political power. So does the AARP. The unions have powers, there's no question about that. I think you've seen some example of that. So does the business community. ... I went to Hong Kong. Hong Kong is a vibrant place. But there's a good and bad side to Hong Kong. The unions are nonexistent in someplace where there is true entrepreneurship. You have a lot of people living there in squalor. I think we need to be selective in that response.

Q: What are your thoughts on offering incentives to businesses to come to Hawaii?

A: Tax incentives work in the shortrun. Sometimes they can make a difference between a business coming to Guam or to Hawaii. What we did on Continental (Airlines) when we found out that Continental wanted to build a repair facility on Guam, I flew to Houston and talked to people there. I said, "We will give you a favorable lease rent." ... And we went to the Legislature to get tax incentives. We did Continental in six months. So the use of tax incentives works.

But if you look at tax incentives, sometimes they don't work. If you look at the cruise ship industry, they have tax incentives for 10 years. Solar tax credit has been in business for 20 years. Sometimes they work and sometimes they don't work.

Square USA came here without tax incentives. They came here because of the quality of life here.

Q: When you are making a business pitch overseas, what do you tell potential investors about sovereignty?

A: I tell them it is something we are working on. Also, this is not something that only Hawaii has. You look at New Caledonia and New Zealand, they all have these things happening. Political stability is important to investors, especially foreign investors. Compared to the rest of the world, America is pretty stable, but Hawaii has this unique situation happening, and it is a concern to them.

We basically tell them that we will work it out, and we try to pitch the other assets we have. It is not a plus for us. They are concerned.

Q: What else are foreign investors worried about?

A: One thing about business and investors like the kind in Hong Kong, they look at opportunities, and notwithstanding the obstacles they will ... figure out a way to make money.

That is why we were booming all these years with the same rules and regulations.

They do talk about the business regulations. An article like Forbes' does raise some eyebrows, and they talk about the unions, business regulation.

They want to know the role of the state and county governments; the attitude is very important to them.

Q: Our poll found that 77 percent (of the respondents) don't think you have clear vision on how to boost the state's economy. What is your reaction?

A: It is interesting about this vision thing. I have to chuckle because when I talk to business leaders, I say: "Aren't you the guys who want me to stay out of your face? But now you want me to develop a vision for you."

But, if you read my State of the State speech, I pretty much mapped out where I want the state to go.

Q: Did you develop a plan to counteract the Forbes article?

A: My first reaction was ... why should I answer this kind of a magazine? (Bank of Hawaii executive) Richard Dahl and people like that tell me that Forbes doesn't have great credibility compared to Fortune and other magazines, and that is because Forbes has been used by the Republicans as one of their tools. And that is why they only talked to people like Sam Slom. Sam Slom has about zero power in the Legislature.

So I said, "To hell with it, I waste so much energy on these things. I'm not going to do anything about it." Then I thought to myself, "I better do something." You know, the people of Hawaii aren't the sophisticated investors that you find on Wall Street. One of the things about us people here is we read something and we have such a parochial, plantation mentality. ... We think something came from the mainland, it must have some substance or credibility.

So what I have done now in my speeches (is) I am answering the Forbes article and at the same time telling them what has to be done. I always say there is a lot more that has to be done.

I don't want to leave you guys with the impression that we are comfortable. We have made some progress, but I tell you there is still some heavy work to be done.


The public: Thumbs down
for economy, up for
own finances

By Rick Daysog
Star-Bulletin

What do you think?

Most Hawaii residents believe the local economy is stagnant or getting worse, and many say that state lawmakers aren't doing enough to improve it.

But more than half believe their finances will get better in the next year.

Those are some of the findings of a statewide poll of 421 Hawaii residents conducted from June 6-10 for the Star-Bulletin by Mason-Dixon Political Media Research Inc. Poll results can be found throughout this section.

The survey, which carries a margin of error of plus or minus 5 percent, found that 50 percent of Hawaii residents believe the economy is stagnant while another 38 percent believe it's still declining. Only 11 percent thought that the economy is improving while 1 percent were undecided.

"Times are very hard," said poll participant Leilani Collins, 46, of Wahiawa. "I think the overall state economy is not good."

Poll respondents generally gave Hawaii's elected officials low marks on their handling of the economy.

An overwhelming majority -- 77 percent -- said they believe that Gov. Ben Cayetano has not presented a clear vision on how to boost the state's ailing economy.

Even more -- 81 percent -- said that state legislators have not provided the leadership needed to boost the isles' economy.

Eight out of 10 respondents said they knew somebody who left Hawaii during the past few years because of the lack of job opportunities here.

Twenty-two percent said Cayetano was most responsible for the state of Hawaii's economy, and 22 percent said legislators were responsible. Another 19 percent attributed the weak economy to former Gov. John Waihee, while 3 percent blamed the unions.

Cayetano defended his economic development policies, saying he's given a clear indication of how he wants to boost the state's economy. He said he's cutting government red tape, working to attract health care companies like the Mayo Clinic and M.D. Anderson, and working to redevelop Honolulu's waterfront.

"I think we have done an excellent job under the circumstances," Cayetano said in an interview with the Star-Bulletin. "I expect and I accept that people are going to hold the highest elected official in the state responsible for our economic conditions, justified or not. It is part of the job."

Village Park resident Dawn Young, 29, believes that Cayetano is being blamed unfairly for the financial problems that he inherited from the Waihee administration. And despite those problems, Cayetano has done a pretty good job, said Young, a small- businesswoman and homemaker.

"He's not really popular," added Collins. "I don't like him much because he's abrasive and blunt, but with the situation he's had, he's done all right."

Papakolea resident Alice Ravencraft, by contrast, blames Cayetano and state legislators for Hawaii's economic woes. The 70-year-old Ravencraft, a retiree, said that Democrats have largely gotten their way over the years and that has hurt growth here.

"I think they control most of everything. They are really wishy-washy. One minute they have money, the next minute they're in a hole," said Ravencraft, a former Democrat turned Republican. "If we had two parties, we would have a chance."

Despite poll respondents' pessimism over Hawaii's economy, a majority said they expect their own finances will improve over the next year.

Collins, for one, said she doesn't live in fear of losing her job as an assistant unit manager for the Liliuokalani Trust in Waianae.

The single parent said that the current downturn is part of the natural ebb and flow of Hawaii's economic cycle, which she believes will bounce back.


A meeting of (biz) minds

Gov. Ben Cayetano says he wants to get together with state leaders

and private businesses for an economic development summit before the next legislative session convenes in January.

The summit leaders would look for ways to improve the economy and submit their ideas to lawmakers.

Cayetano said tax reform will be one of the main issues considered, but other details of the meeting are still to be worked out.

He called on private businesses to start stepping up their role in helping the economy before the summit begins.




Contributors
Ed Lynch, editor; Michael Rovner, Betty Shimabukuro,
Joleen Oshiro, Ruby Mata Viti, designers; Dean Sensui,
photo editor; Kip Aoki, graphic artist; Joe Barberis,
Mark Coleman, Lois Lingerman, Seth Markow,
Ben Wood, Sjarif Goldstein, copy editors.



Wanted: Your comments
What needs to be done to help Hawaii emerge from
its prolonged slump? Write to us at Letters to the
Editor/Economy, P.O. Box 3080, Honolulu, HI 96802
or e-mail us at editor@starbulletin.com and share
your suggestions. Please include your
daytime telephone number.




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