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Saturday, June 24, 2000

What’s wrong with
Hawaii and Japan...
and how to fix it

By Galen Fox
Special to the Star-Bulletin

Hawaii continues to be pulled down by Japan's decade-long recession. While the mainland booms, Hawaii lags, even as leaders brag about recent progress. Hawaii and Japan trail because we share a reverence for government out of step with the fast-moving, 21st-century global economy. There is, however, good news. Reform is on the way in Japan, and Hawaii too can benefit from political changes that help us compete abroad.

Why is it so difficult for Hawaii to be more like the successful mainland and less like struggling Japan? Perhaps because we wrongly define Hawaii's Japan link solely in terms of Japanese visitors, while wrongly believing Hawaii is just another U.S. state benefiting from American success. Hawaii's growth actually follows Japan more closely than the mainland. Once we recognize the fact, we can act on it.

Japan and Hawaii: Kochoku

Within our memory, Hawaii benefited from close ties to Japan. Asia was the world's most exciting region, and Japan stood at the top. Japan had discovered the future: team management, just-in-time production methods and quality control techniques that made it leader of the industrial world. Japan dominated the market for computer memory chips, notebook computers, mobile phones and a range of other products that most represented the future. The United States then was non-competitive, producing lower quality products at higher prices.

Today the world is much changed from the heyday of Japan as No. 1, and the United States as No. 10.

The mainland economy took a dive from 1979-82 so severe that when it fully resurfaced a decade later, it was at unimaginable debt levels. But by then the Japanese bubble had burst, sending Hawaii's economy down with it. Silicon Valley-led California emerged by 1994 as the healthier of our two neighboring markets. We now know that U.S. business went through a productivity revolution in the 1970s and 1980s that helped information-technology-driven America become the envy of the world by the 1990s.

Hawaii, meanwhile, along with Japan has found itself inhaling the exhaust fumes of explosive mainland U.S. growth. We have lost 100,000 of our best people to the mainland during the 1990s. No state has seen a higher percentage of its people leave for other states in the 1990s than has Hawaii.

One sees the tragic face of Hawaii not only in the eyes of those of us who live without children and grandchildren nearby, but also in the closed shops of older communities like Kaimuki, Waipahu and Hilo. Our sons and daughters are leaving Hawaii for a better life, just as our ancestors moved here to improve their prospects.

We have been suffering for too long. What is the problem and what can we do?

Locked in an 'iron triangle'

The problem is lack of reform. People still insist on doing things the old, familiar way. They cling to a status quo that grows more outdated each year. The Japanese call the problem kochoku or rigidity. One sees it here in repeated announcements of reform plans, followed by no real change.

According to an analysis of Japanese reforms published in The Economist last November, Japan is still dominated by the "iron triangle" of big business, politicians and bureaucrats. Each has a stake in the status quo. Each resists change. Hawaii has a similar "iron triangle."

There is much to admire in Japan, where large firms have created what The Economist called a "worker's paradise." It is much like what Democrats have sought to build in Hawaii.

Good Japanese companies prize workers above all else -- as does Hawaii government. Workers run companies for workers -- as in Hawaii government. Power resides not at the top but with middle managers -- as in Hawaii government. The bureaucracy provides guaranteed employment, with wages based on seniority, not ability -- as does Hawaii government. Government regulations suit the interests of the regulators, not the consumers -- as in Hawaii.

There is more to this parallel between Japan and Hawaii. The Economist wrote that the "negative marking" done by Japan's schools and other institutions "deducts points for mistakes instead of adding them for achievements, which discourages risk-taking. Getting rich quick is deemed to be vulgar. Individual success is frowned upon."

We in Hawaii similarly strive for group acceptance as opposed to individual success. We hate to "make A." Yet The Economist suggests it is individual achievement in pursuit of rewards that drives the technology economy.

New programs layered on old

And The Economist identified another parallel to Hawaii when it said of Japan, "The evolution of Japanese society is sometimes described as 'change within continuity.' Companies and organizations carry on as before, but lay new things on top of old ones."

State government in Hawaii never abolishes the once "new" program that didn't quite work. It just layers a new program on top of the old. That's why we have the High Technology Development Corp., the Hawaii Strategic Development Corp., the Office of Technology Transfer and Economic Development, the Strategic Development and Industry Technology Branch, and now the Governor's Special Advisory Council for Technology Development along with the Pacific Center for Advanced Technology.

Japan is an industrial-era economy searching for a new path in a post-industrial world. Hawaii, like Japan, makes business defer to government, and lets government run the show. Change will come to Hawaii only when we follow the U.S. mainland model that puts business in charge of job creation, with government providing infrastructure. The job-creating states we find elsewhere in the U.S. are business-labor-government combinations advancing a common agenda...set by business.

The Hawaii solution

Hawaii's special problems are the quality of its public education system and its high cost of living. Both of these problems make Hawaii especially unattractive to technology investors, who value places that combine low costs and with quality public education.

What can we do to change Hawaii? Because Hawaii's problem is political, the solution is political. Hawaii needs two parties, not one. A two-party system will allow business, not government, to handle job creation. Government should support business, as governments do on the mainland, not try to run business, as it does here and in Japan.

To understand how business helps us all by creating jobs, let's focus on entrepreneurs, not corporations. Mature corporations from Boeing to Liberty House downsize, eliminate jobs, and serve their shareholders by cutting costs. By contrast, growth companies -- known as "gazelles" -- are led by people of vision who sacrifice everything to realize their dream. "Gazelles" expand rapidly, creating new jobs.

To support entrepreneurs, government must cut costs. That means government should cut its own size, cut taxes and cut red tape. When Hawaii starts helping entrepreneurs, business success will reward Hawaii. Investment will come here, creating jobs. The resulting prosperity will enlarge our tax base, enabling government to do the good things we want it to do, including improving education and protecting our natural environment.

How do we make state government smaller? We do so by leaving unfilled some of the 3,800 jobs that become vacant in a given year. Government leaders should help their workers understand that no one has to lose a job, if together they eliminate unnecessary work, welcome modern technology, and produce within a performance-driven system run by teams, not hierarchies.

Most workers welcome adding responsibilities -- for higher pay. The federal government has already mastered the trade-off between a smaller workforce and higher wages. Federal wages are up 18 percent after inflation over the last 10 years while, in the same time, state wages after inflation haven't risen a dime.

It is easy for the federal government to pay higher wages because its workforce, shrunk to the size it was under President Kennedy, has a total payroll 5 percent less than its payroll 10 years before. The state, on the other hand, struggles to pay its employees more, because its total payroll has ballooned 23 percent over the last decade.

Choice makes better schools

Besides making government smaller, we must reinvent Hawaii public education. We do so by supporting public school choice. It's wrong that Hawaii continues to reserve choice only for parents who can pay for private school, while forcing everyone else into a local neighborhood school.

Hawaii should allow students to take the money spent on them to the public schools of their choice -- charter schools, schools within schools, small schools and regular schools. To encourage variety, the state should decentralize the country's only statewide school system down to county/district school boards.

To develop educational entrepreneurs who successfully lead schools that attract new students, we should pay principals to leave their union and work under limited, performance-driven contracts.

Only in Hawaii do such changes seem radical. It's time to end Hawaii's kochoku. With smaller, business-friendly government and with public school choice, we will have a renewed Hawaii that will bring back our lost children, relatives and friends.

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Galen Fox is a Republican representing
the 21st House District (Waikiki/Ala Wai).