Gathering Places
Gathering Places
Diversification pays. That's a central lesson in the finance courses at the University of Hawaii's College of Business Administration. The flip side is that not being sufficiently diversified can cost you -- a cruel lesson that our state has learned all too well since September 11. September 11 taught Hawaii
a cruel lesson about
economic diversificationEstimates from the Department of Business, Economic Development, and Tourism, Seiji Naya, put the losses in Hawaii's economic activity at as much as $1 billion in the current quarter. Since Hawaii produces about $10 billion a quarter, that means the economy may be shrinking at a 10 percent annual rate.
One of our two tourist engines, Japan, is stalled for the foreseeable future. The other, the mainland, is due to rebound from recession, maybe, by next spring. Our Legislature is confronted with a Hawaii economy that almost certainly will show no growth next year and, indeed, is likely to decline.
To get Hawaii's economy moving upward again, we need to replace lost purchases by tourists. We can accomplish this with tax relief, though there's the risk that those who benefit from a lower tax bill will save the difference. In that case, the replacement can be a long time coming.
A surer route is new spending; that's the basis for the proposals to accelerate con- struction already approved, and to initiate new projects, including the Health and Wellness Center and the West Oahu campus recommended by the president of the University of Hawaii, Evan Dobelle.
Some have criticized these proposals on the grounds that the construction industry hasn't been directly affected by the downturn in tourism, at least not yet. Such criticisms miss the point. Just as tourism has a ripple effect, so outlays on construction spill over into expenditures throughout the economy.
We have to be careful, of course, that the extra spending is done wisely, in an economic sense. In several attempts to prime the pump of its economy, the Japanese government has spent over $1 trillion in the last decade on nonsense like bridges to nowhere, with little to show for the effort.
I would argue that a "wise" expenditure of funds is an outlay that helps us with a fundamental problem, which is that the economy of Hawaii is not sufficiently diversified. Spending that creates a more diversified industrial structure gets an "A" for helping with our short-term economic problem, and "extra credit" for improving our economy's mix of industries for the long haul.
The bond markets know this. They'll look more kindly on a policy package that adds to Hawaii's long-run competitiveness, even as it injects more spending into today's economy.
An ideal package in today's knowledge-based, technology-oriented economy, would lead right through universities and creates short-term economic activity in the process. The UH-Manoa's Economics Department has calculated that every $10 million of construction spending generates $20 million in business sales, $8.7 million in employee earnings, $1.45 million in taxes, and 260 jobs in construction and other industries.
The university's request to Governor Cayetano for $700 million in new construction spending would add over 18,000 jobs for residents of this state.
The follow-on effects would be a new campus -- and new dormitories -- to attract new students, and thus generate even more business. If an additional 10,000 students -- we might call them "semi-permanent" tourists -- were to enroll in the UH, they would add to the sales of business by $158 million, to worker pay by $114 million, to the tax base by $19 million, and to the employment rolls by 2,900.
Those who stay in Hawaii after graduation would contribute even more to our economic strength.
Diversification can pay; this moment of adversity is time to make it happen.
David McClain is dean of the college of business administration at the University of Hawaii-Manoa.
