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Think Inc.
A forum for Hawaii's
business community to discuss
current events and issues.

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Dealing with risk

» A sea of risk
» Mediation can soothe bad Net transaction

DAVID SWANN / DSWANN@STARBULLETIN.COM

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A sea of risk

Hawaii's vulnerabilities make
for a turbulent economy

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By Leroy Laney

In the months since last fall, Hawaii has found out once again that it has a riskier economy than a lot of other places. Global shocks, whatever their nature, tend to hit harder here than elsewhere.

We tend to forget that hard reality in between the shocks. Is there anything we can do to be more prepared when these shocks do come?

Tourism disruptions associated with the Sept. 11, 2001, terrorist attacks threw Hawaii into a recession that, luckily, was briefer than most economists at the time thought it would be. But that was not the first time we have had the breath knocked out of us by uncontrollable external events. The Gulf War in 1991 and Hurricane Iniki -- which came on Sept. 11, 1992 -- are good examples. Those events are often blamed for starting Hawaii on a downward spiral that lasted through most of the 1990s.

Any isolated economy as dependent on air travel, tourism and imports as Hawaii is has to come to terms with higher risk sooner or later. Among U.S. states, Hawaii ranks among the most economically vulnerable.

Economists usually couch their forecasts in terms of growth rates. Admittedly, it sounds good to hear that we have once again returned to economic growth rates that prevailed before a shock. This sometimes masks the fact that it may take a long time after we have returned to our previous growth path to reach pre-shock levels. And often it is those levels that people have in mind when they think of recovery from the shock. (Recall that a recession ends when positive growth resumes, even though it may be years before the previous economic peak is attained.)

To illustrate, take the Japanese visitor market, which was most hard hit in the 9-11 situation. Arriving Japanese tourists in Hawaii have slowly converged, more or less, back to growth rates that prevailed prior to Sept. 11, 2001. Yet it may be several years before we see the same number of Japanese tourists that we saw prior to that day. And it may even be a decade before we see the same level of Japanese tourists that we had in 1997, after which that market first started to decline.

As a result, an economy that is more susceptible to risks will inevitably find itself with lower levels of things like jobs or per capita income than places that are not subjected to shocks as severe. This may only become apparent over time, but eventually it sinks in.

If we are more vulnerable, can we take measures to prepare for shocks better than places that are not as risky? Yes, there are certain things that can be done.

For example, better security measures were a global response to the recent "terrorism recession." It may be that, even though they are a nuisance, these measures will eventually become an accepted part of doing any kind of business. (Several decades ago, businesses chafed at environmental concerns. Now they are simply accepted as a part of economic life.)

Yet unfortunately, a broad answer to the above question is probably no. People might choose to live in places that minimize risks of shocks, but usually overriding considerations cause them to live elsewhere. To take somewhat extreme examples, anyone who builds in a tsunami zone or on a known earthquake fault is presumably less risk-averse than others.

We might set aside a pot of money to cope with disaster, but experience shows that most rainy day funds are raided long before their intended use. And plans to use funds in this fashion also have to account for the fact that there are likely to be alternative uses, or opportunity costs, along the way.

To take another grim example, if Hurricane Iniki had hit Oahu as squarely as it hit Kauai in 1992, it would have ground the state economy to a halt for a long, long time. It would have taken an enormous amount of money to fill that gap, over and above private insurance and Federal aid. We might be able to set aside a small fraction of the costs, but it would be a drop in the bucket.

So, it seems that if one wants to live here, there are simply certain risks that must be accepted as a fact of life. Hawaii residents must become accustomed to these risks. Most long time residents probably eventually do. Consider it one more "price of paradise."

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Leroy Laney is a professor of economics and finance
at Hawaii Pacific University. He can be reached
at lo9_laney@hotmail.com.

BACK TO TOP

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Online mediation
can soothe a bad
Net transaction

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By Giuseppe Leone

Despite the dot.com bust, the future of Internet commerce looks rosy. According to recent studies, it is now projected that 1 billion people will be on the Internet by 2005, and at least one third will make online purchases. What is even more remarkable is that this huge, $1.6 trillion business will be based essentially on trust, among sellers and buyers who are unlikely to ever see or speak to each other.

Inevitably, some of those e-commerce transactions are bound to turn into disputes. So what happens when a seller in the United States and a buyer in Russia disagree over a sale transaction worth only a few hundred dollars? What recourse do they have, when litigation, small claims court and arbitration are not feasible options?

More and more online merchants are realizing that, if trust is indeed such a critical factor in e-commerce, having reliable products, clear return/refund policies and a multilanguage Web site may not be enough. It is far more effective if worldwide customers are reassured that, if they have a disagreement with the seller, they can get it resolved through an independent, neutral and inexpensive process.

Ebay has already proven how this can be done. With more than 4 million auctions daily, eBay is the world's largest online auction. When sellers and buyers throughout the world have a dispute, they are referred to Square Trade, an independent Online dispute resolution company based in San Francisco. A Square Trade trained mediator assigned to the case then gets in touch with both parties and helps them negotiate a mutually acceptable settlement. The purpose of mediation is not to determine which party is right or wrong, but to help seller and buyer answer one simple question: How can your case be resolved in a way you can both live with?

The entire mediation process takes place by e-mail, and neither the mediator nor the parties need to be online at the same time. Therefore, parties can read and respond to the mediator's messages whenever they want; after a few minutes, hours or even days.

A Square Trade mediator costs the complainant $20, with the remainder of the cost is paid by eBay. If the other party (the respondent) does not participate in mediation, the mediation fee is fully refunded.

As a Square Trade mediator, I have mediated more than 600 eBay cases, with parties across the United States, Europe and Asia; on transactions worth anywhere from one penny to $35,000. All cases have fundamentally the same features. There are some substantive, tangible issues (like money, products, refunds, etc.); and there are intangible issues (like the buyer's need to feel heard and respected), which can often be resolved just with an apology.

The settlement rate achieved through online mediation is similar to the settlement rate achieved in face-to-face mediation in small claims court, or about 50 percent. In other words, it does not really matter whether seller and buyer know each other. What matters most is that both parties feel equally empowered by a neutral process that does not favor one party over the other, and gives them total control on its outcome.

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Giuseppe Leone is a Square Trade online mediator
and mediator for the Hawaii small claims courts.
Reach him at gleone@hawaii.rr.com.

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