Pacific Perspective
Pacific Perspective
Reaction to the Forbes
article more revealing
than what the story saidWhat do Hawaii, Japan, Nevada and the by-now "infamous" Forbes article have in common? Two items come to mind. First, in the past, Hawaii, Japan and Nevada's economic and political institutions supported impressive economic growth. The success, however, was based on narrow and unsustainable circumstances.
Second, Hawaii, Japan and Nevada become insular and defensive in the presence of pressure to change as the incompatibility between existing economic and political institutions come more into conflict with forces calling for change.
The Forbes article is important, not so much for what it says, but for the reaction it generated. The article focused on Hawaii, but the reaction to the article manifests a reaction the three economies share to those who suggest their current economic and political institutions are not suitable for the new challenges.
The first reaction is to deny a problem by claiming outsiders don't understand how the economy works or how to measure the performance of the economy. When denial is no longer credible, the reaction shifts to understating the problem or to pointing out that other areas have the same or even worse problems. When understatement is no longer credible, the preferred policy is forbearance and hope economic conditions will improve and prevent the need for reform. Rather than chart a course on an uncertain sea, the preferred policy is to hope the winds and tides return the economy to safe waters without really understanding the nature of the tides and wind.
Forbearance is the natural reaction of those in power. Those who have the economic and political power to respond to the new challenges are those who benefited the most from the old regime and those who face the most uncertainty in the new regime. As a result, existing economic and political institutions are not likely to initiate change and the most likely to be the loudest defenders of the old regime.
This has clearly been the pattern in Japan. Japan's impressive growth for much of the postwar period was based on her ability to keep a rigidly controlled economy isolated from competition. Liberalization and globalization in the 1980s exposed Japan to competitive forces that clashed with the old regime. Resistance to outside criticism and unwillingness reform goes a long way toward understanding Japan's "lost decade" of the 1990s and why the first part of the new century may turn out to be Japan's second "lost decade."
Nevada has also exhibited similar characteristics. Its impressive growth in the past was likewise based on a narrow set of circumstances, namely being the "only game" in town. The emergence of Atlantic City gaming in late 1970s, the Californian lottery in the 1980s, the growth of gaming in other states in the 1990s, and most recently, the growth of Indian or Native-American gaming ended Nevada's special circumstance. Despite a political campaign initiating diversification in the early 1980s, existing economic and political institutions have been slow to change. Gaming continues to dominate the political and economic environment and constrain broad-based economic development.
Japan and Nevada achieved economic success based on special but unsustainable circumstances. The economic and political institutions remain wedded to the special circumstances and as a result, have difficulty adapting new circumstances that demand more openness, flexibility and diversity. Those who hold political and economic power have little interest in reform since their position in the new environment is uncertain.
Hawaii exhibits the same pattern and herein lies the importance of the Forbes article. The reaction to the article focused on its obvious defects, rather than a willingness to admit that the main theme of the article may be correct. Reading the various comments on the Forbes article during the past several weeks, the reader is informed there is no serious problem and if there is a problem, it's not near as large as claimed in the Forbes article; and in any event, the problem will be solved by existing economic and political institutions. The ultimate defense is to point out the article is politically motivated and meant to contribute to a defeat for the ruling party in Hawaii.
This reaction is unfortunate. It limits the dialogue needed to establish a new growth paradigm to provide Hawaii with sustained and quality economic growth consistent with its special endowment of resources.
Setting aside the Forbes article, it appears there are several aspects of Hawaii's economic environment that need a more open discussion.
First, Hawaii faces a serious problem. Much of Hawaii's growth before 1990 was based on Japan and the Japanese's love of the islands. That engine of growth will not likely return. Nor should Hawaii consider gaming as the new engine of growth. Gaming is nothing more than a special form of tourism and generates little economic benefit other than large numbers of low-wage and unskilled jobs.
Second, Hawaii needs to focus on what economists call its "comparative advantage" which was once tourism, but not any longer. Hawaii possesses a diversified, work-oriented, loyal to the state and intelligent population. Combined with its geographic position in the Pacific Basin and the already good progress toward a world-class university, Hawaii has the ability to develop a comparative advantage in information services.
Third, Hawaii does make it difficult for business, especially small business. This is a fact and to claim otherwise by making comparisons with other states misses the point. Other states don't have the type of constraints on business such as long distances, and limited and environmentally sensitive land that increase the cost of doing business in Hawaii.
Fourth and most important, there appears to be a limited range for new ideas in Hawaii's political institutions. The long standing dominance of the Democratic party that has more in common with the "cradle to grave" entitlement mentality of the 1960s than found in most other places make it difficult for Hawaii to adopt a new view of its place in the world. The dominance of one party sustains relationships between politicians and status quo economic interests and renders the relationships more insular and mutually supportive over time. The dominance of one party makes it more likely government will defend past policies, be less open to criticism and be less willing to change. Enhanced political competition in Hawaii is a prerequisite for change. This is not a call for a Democratic defeat in the coming election, but a call for more competition between and within the political parties with the goal of recognizing the world has changed and Hawaii needs a new vision for itself that basis economic growth on human capital and less on a model no longer realistic.
The bottom line is that whatever one thinks of the Forbes article, the reaction reveals an unwillingness to face reality and initiate an open debate on the problems faced by the state and the need to adopt a new paradigm or view of Hawaii's place in the United States, the Pacific Basin, and the world.
Thomas F. Cargill is a visiting professor for the first summer session at the University of Hawaii College of Business Administration Pacific Asian Management Institute. He teaches at the University of Nevada, Reno. Reach him at tcargill@worldnet.att.net.