Help Wanted - Hawaii's Economic Crisis

Labor’s clout

By Dennis Oda, Star-Bulletin
Cathy Vinhasa leads a cheer as she walks a Punchbowl
Street picket line on a crutch during the 1994 Hawaii
Government Employees Association strike.

Unions: We're protecting our own
Critics: You make growth impossible

By Rick Daysog

Shipping disruptions. Heated labor negotiations. A big legal battle over privatizing government services.

Reading today's headlines might give you the impression that you were back in the 1950s and 1960s when Big Labor had a tight grip on Hawaii's economy.

With the isles' finances stuck in a deep slumber, local unions' renewed activism is shaking up the isles' economic foundation. Again.

Labor leaders say they're just protecting workers' job security and their hard-earned benefits at a time when jobs are scarce or are moving out of the state. Critics contend that the unions -- largely the public employees unions -- are inflexible and have stymied growth during these tough times.

"I think they have cost Hawaii's economy over the years," said state Sen. Sam Slom (R, Aina Haina). "Unlike in other areas, the unions here, especially the public employees unions, just dug in their heels, and they have shown no concern for the long term."

For many, the unions' clout is underscored by the ongoing controversy over privatizing government services on the neighbor islands and the work stoppages on Hawaii's waterfront.

The United Public Workers union's victory in the state Supreme Court in March put a halt to the Big Island's efforts to privatize its landfill.

What do you think?

It also put a scare into the neighbor island counties, prompting mayors to temporarily suspend hundreds of contracts with outside companies.

The Honolulu Harbor work stoppages follow in a similar vein. When the ILWU shut down the harbor for a day in June and engaged in a two-day sickout at barge operator Young Brothers earlier this month, it was done largely as a show of force, said state Sen. Norman Sakamoto (D, Salt Lake).

"This has everything to do with power," said Slom, who is also president of Small Business Hawaii. "Every family and every business has had to cut back ... but the public-sector unions are rigidly holding on to what they have, and they have the clout to do so."

Unions strongly disagree, saying their efforts on the privatization issue and their actions along Honolulu's waterfront aim to protect workers' safety, preserve jobs and allow workers to earn fair wages.

They say they are as much a victim of the weak economy as the business community. Unions have steadily lost jobs over the past few years -- especially in the construction and agriculture industries, which have been hard hit by the pullback in foreign investment and the demise of sugar and pineapple.

Walter Kupau, financial secretary of the 6,900-member Hawaii Carpenters Union, noted that the unemployment rate within the carpenters union is about 50 percent. During the past four years, his union has lost some 1,900 members.

Kupau said it's unfair to blame unions for the down economy and noted that unions have carried their share of the economic development load. The carpenters union, for instance, was a big backer of Gov. Ben Cayetano's plan for $1 billion worth of state construction projects.

Ah Quon McElrath, longtime union activist and University of Hawaii regent, said much of Hawaii's economic demise has little to do with union activism and more to do with external forces such as the nation's trade policies that encourage employers to send jobs overseas.

McElrath said that if it weren't for unions, many of Hawaii residents probably wouldn't enjoy their current standard of living and wouldn't be able to cope with Hawaii's high cost of living.

"To blame this (economy) on unions is to blame the wrong set of players in the political economy," McElrath said.

Pointing fingers won't work either, warned John Radcliffe, associate executive director of the 3,150-member University of Hawaii Professional Assembly. Unions and business will need to work together if they hope to turn this economy around, he said.

Business can't do it alone nor can organized labor. Collaborative efforts such as the Pacific Resources Partnership are needed, he said.

The partnership is a joint venture set up by the carpenters union and unionized construction companies that lobbies legislators on economic and workplace safety issues.

"We're in trouble right now and there's no doubt about it, and I'm as scared as anybody," Radcliffe said of the economy. "We have basically two choices: We can sit in the dark and bitch, or we can get up and go to work to try to find a way out of it. But what we can't do is keep going to war with each other."

Great Deflation
wreaks havoc on the
value of isle homes

But it also means many things
cost less, for the first time in years

By Rick Daysog

Your house may be worth less, your weekly food bill may be smaller, and that next lube job for your car probably will cost less than it did several years ago.

Local economists say these are some of the results of the state's first deflationary period, when the overall cost of living is falling.

"I think we're definitely in a deflation," said local economic consultant David Ramsour. "I think it is the first time we would have seen it in a way that's affected our community so broadly."

Under deflation, some consumers -- especially those on fixed incomes -- benefit from increased purchasing power. And the so-called "paradise tax," in which the cost of isle goods and services are up to a third higher than on the mainland, shrinks.

But it's not as good as it sounds.

Deflation is causing major headaches for the state's real estate-driven economy.

With the drop in property values, homeowners can't sell their homes for as much as they could several years ago. Many no longer can tap the equity in their homes for loans, despite low interest rates.

Some recent home buyers who have seen their property values fall below their home prices are forced to pay thousands of dollars to meet the terms of their loans. That's forcing some into bankruptcy.

It's also creating obstacles to investing in Hawaii. Many offshore developers and lenders are hesitant to bring new capital to Hawaii if the real-estate market hasn't hit bottom yet.

"Why would you buy an asset if you think it's going down?" asked Leroy Laney, First Hawaiian Bank's chief economist. "You can put your money in the mattress and get a higher rate of return" than if you were to put it in something that's going down in value.

Deflation usually occurs during severe economic downturns and is marked by massive job losses. The Great Depression of the 1930s, which sent real-estate and stock prices into a tailspin, was the last time the nation's economy suffered widespread deflation.

Although the local deflation probably isn't anywhere near as bad as the Great Depression, Hawaii hasn't experienced anything like this since it became a state in 1959, said Laney.

He said Hawaii's economy is facing a deflation rate of about 1 percent.

He cited a 1996 study by a blue-ribbon panel of economists headed by Michael Boskin, former chairman of the federal Council of Economic Advisers, that said the Consumer Price Index overstates the inflation rate by 1.1 percent.

Hawaii's Consumer Price Index for the second half of 1996 rose just 0.9 percent, which puts the state economy in deflationary territory if the Boskin formula is accurate.

"We're not seeing a free fall. This is not a deflationary spiral," Laney said. "But for all practical purposes, we are in a deflation."

The reasons for the deflation are varied: a no-growth economy, overbuilding in the local housing market, the influx of big-box retailers like Costco and Sam's Club, a pullback in foreign investment in the isles and a slowing of population growth, which brings with it slower consumer demand.

Laney said he believes Hawaii will continue to face deflationary forces well into the middle of the next decade.

Much of the local inflation of the past decades was driven by consumer demand for homes and other big-ticket goods by the baby- boomer generation as it matured.

But as that generation ages, consumer demand will slow until their children begin to mature and become big consumers, he said.

"The 15-year period between 1990 and the year 2006 will be a low-inflation, if not deflationary, period," Laney said.

A high need for
high-tech workers

In some cases, the jobs are here,
but the job candidates are not

By Rob Perez

Getting high-tech companies to move here -- a major goal of the state -- is one thing.

But once they're here, finding workers to fill high-skilled jobs can be problematic.

Just ask the high-tech companies already here. Most have encountered the problem, aggravated because there is no good source for potential job candidates.

But the Oahu Economic Development Board wants to change that. It is developing a database of Hawaii high school and college graduates in various high-tech fields plus mainland-employed graduates who want to return to Hawaii.

The labor problem was underscored when VeriFone Inc. Chairman Hatim Tyabji told local executives last year that his company would consider Hawaii for another research facility if it knew 200 high-skilled computer programmers could be hired or recruited locally, said Bernice Bowers of the development board.

A Tyabji spokeswoman said he was unavailable to comment.

Because Hawaii doesn't have a heavy concentration of high-tech companies -- unlike Silicon Valley and other mainland hubs -- it doesn't have the pool of qualified labor that such hubs attract, industry officials say.

Pay also is an issue. Roger Stout, president of Maui Net Inc., said a top computer network systems administrator can make $50,000 to $60,000 annually in Hawaii. That same person can earn $75,000 to $100,000 in California, Stout said.

Another barrier: the high cost of living here and an education system that doesn't stack up well against school systems in high-tech hubs on the mainland.

Those kinds of quality-of-life issues make it more difficult to attract and retain top talent here, high-tech executives say.

Sometimes the problem, though, is just getting the word about a job opening to the right person.

Bowers recounted how 15 companies weren't able to fill about 50 jobs after running ads locally.

But when those companies in January met with local university professors to discuss the labor issue, the professors connected the companies with former students, and the businesses were able to fill 20 positions locally, Bowers said.

How has the slump affected you?

Chris and Doreen Emerson, Painters

The Emersons are accomplished painters, but they haven't had much time to spend on their canvases recently while guiding the Renovators Inc., their 12-year-old general contracting business, through the rough economy.

They've cut their overhead by trimming staff and moving the business into a smaller, less expensive warehouse headquarters.

Chris now straps on his tools and joins his crews on the job daily, cramming sales, preparation of bids and other tasks into after-hours and weekend work. Six- and seven-day workweeks have become routine.

"Actually, it makes us better contractors because we're more in touch with the jobs and a lot more efficient," Chris said.

Dubious Distinction

Hawaii ranked last among
the 50 states for per capita
income gains in 1996.

Source: Commerce Department

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 and share
your suggestions. Please include your
daytime telephone number.

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