By Jay Fidell
ThinkTech, HVCA and a number of other business and tech organizations will present “Recovery and Transformation, Straight Talk on Rebuilding our Troubled Economy,” on August 25th at the Plaza Club. The flyer and signup forms are on thinktechhawaii.com. You should come.
WHY ARE WE DOING THIS
ThinkTech is concerned about Hawaii's economy and how little we understand it. So much of the news we get about our economy is anecdotal. It's up, it's down, and we don't really know what to make of it. We're in a protracted recession and it's uncertain if tourism has the resilience to get us through to the other side.
This is made more complex by the fact that tourism and travel decisions are made elsewhere and dictated by events over which we have no control. What can we do to make our economy more productive and moderate our increasing exposure to global downturn?
Back at home, how is the recession undermining our conventional economy, and our future? We know things are changing even profoundly under the hood, but do we know how will our quality of life be reshaped? We're at a turning point and the stakes are high. We need to make life good for everyone again, or else.
This is a time when Hawaii has to figure itself out and determine what it wants to be in the 21st Century, when investment is scarce and resorts all around the world are vying for attention. Missteps in economic planning are dangerous for everyone and certainly for every destination resort.
That's why we've organized Recovery and Transformation - to get the best minds to tell us what's going on, to do a drill-down analysis of the economic matrix of our state and see the risks clearly enough to plan the future.
The speakers are blue ribbon and their collective understanding of the way things work is formidable. This could be the most important and useful conference you've attended in a long time. It’s a fast-moving discussion, breakfast through lunch, at the Plaza Club on Wednesday, August 25th.
I don't know exactly what our speakers and panelists will say at the Recovery and Transformation program, but I wanted to express some of my own views on the troubles and sea changes that are surfacing in our economy, and in the thought that these things might be worthy of some discussion at that program. After all, the state economy is, or should be, the single most important issue in the Fall elections.
HAWAII MUST RENEW ITSELF
Singapore does. In the downturn, it’s up 25% in the first quarter and that means prosperity. Its casinos are completed, popular and paying off. There are mechanisms by which homeowners can vote to tear their building down and start fresh. Cars older than 10 years must be replaced. Things are being renewed. That’s more than economics – everyone is uplifted by the prospect.
Seventy percent of the population owns its own homes. There are a million public housing units, managed by private managers. There’s discipline and predictability, and that’s good. You speed, you get caught electronically, no excuses. If the local people want to gamble they have to pay $100 to get in, and that discourages gambling among them. High school graduates get big college scholarships from the government, and they go all over the world to study. They also come home, where there are good jobs and a future.
We're a long way off from all of that. The paper tells us we will have to repay $32 billion in debt. How are we going to pay that on top of the $5 to $10 billion we’ll have to spend on rail and the $2 billion we’ll have to spend on the undersea cable? And that assumes no hurricanes or tourism disasters. How will we do this? Surely, we’ll go broke in the process. Do we have what it takes?
OPTIMISM IS NOT INDICATED
More and more of our businesses are owned by outside capital. What’s left of our local estates and trusts gets invested on the Mainland, so our own money doesn’t do a local turn. The profit all goes elsewhere – look at Waikiki, big boxes, the stores in the big boxes, the big construction companies, the big developers. You name it. They’re all from offshore and their profit is all going offshore – it isn’t staying here. What’s staying here is wages for low-end jobs.
In a spasm of self-immolation, we busted the huge economic benefit of SuperFerry and of 221 investment in the tech and movie industries. Merck recently purchased the often-touted dengue fever vaccination unit out of Hawaii Biotech's Chapter 11, and the work on that vaccine will move to the Mainland. Although there's some action in renewables, we’re really not paying attention to the huge potential of local diversified agriculture. Who’s in charge here?
The Chinese are flying to Las Vegas, not Lihue. Locally we’re building prodigious numbers of time share units. We’re doing this for the blush of construction, but there are fewer takeaway jobs on time share units than hotel rooms. And again the profits fly offshore on little wings to the Mainland. Let’s all buy lots of shares in Disney, I suppose, and hope they do well.
There is one industry that seems to be indigenous. It’s the real estate industry. The component parts of that industry have one thing in common – they’re bent on pushing for the highest prices, and usually the only one that can pay that price is from somewhere else. Local people just can’t pay that much.
The prices go up, and the local people are undone in the process. This has a huge effect on the economy and frankly it’s getting pretty serious for all of us. Look at the foreclosures and the homeless stories every day in the paper. Look at the bankruptcies and furloughs, and also at the failing state infrastructure.
THE LAND SYSTEM NEEDS WORK
What’s wrong here? It’s the land system. The whole thing is built on a failed land system, a system that became oppressive years ago, and which is slowly suffocating our economy, our families and our future. Lots of people leaving for cheaper houses and rents on the Mainland. At least they'll have a roof over their head.
The high cost of occupancy is putting the money from the low income groups into the pockets of the high income groups, and little else. The high cost of occupancy makes it hard to start a business, an education, a household or even a retirement project. In fact, it makes it hard to do anything in Hawaii.
The irony is ten feet tall. The paper reeks of foreclosures and homelessness, and at the same time includes a thick real estate section advertising homes a stone's throw away for millions. Do the homeless have money for that? What about the not-so-rich retired people, boxed into fixed and sometimes very modest incomes?
Do you think our kids have the money? Do you think they'll stay here if they have no prospect of buying a home? Do you think it's good for us that they go? What’s left – only fancy retreats, expensive villas and legions of homeless. Where's affordable housing when we need it?
I haven't even gotten into the question of industrial and commercial land, but in a funny way that's even worse for our future. High costs of occupancy yield a different if not permanent kind of homelessness, a business homelessness, the kind it’s very hard to come back from.
It's not just that we lack a good land system, it's that there are those out there who are interested in keeping it this way and, in fact, resisting any change. They are the ones who fight hard to maintain the status quo, all at the expense of the greater good and the greater community and even while our economy is slipping away from under us. What makes them do that?
They include the large landowners, including those from Hawaii who should know better, but landowners from far away who have acquired the land from afar. They are self-interested and don’t seem to much care about the greater good or fixing the troubled economy or reversing the growing disparity. They want to maximize their rents, and little else. There are uncomplimentary words to describe this.
Who in the real estate industry wants lower prices? Everyone there benefits from and consequently campaigns for higher prices. As a result the prices go up even in recession, and the cost of occupancy and doing business increases even in the worst of times. But people in Hawaii have tolerated this fantasy for years and have come to accept it even while it is eating away at their prospects and our economy.
THERE IS ANOTHER WAY
There is another way. If we seek a greater good for the greater community, perhaps we can stop the downspin by being just a little less self-interested. There is no need to keep pushing the prices up on a knee-jerk basis. We should be looking for ways to make the land system more equitable, as hoped by the Great Mahele.
Why is it that people turn away from this issue, as they have for generations? We're careening down to new lows, and we seem oblivious to the elephant in the room. The cost of occupancy is relatively higher here than it's ever been, and has become painful in so many ways. How long can we tolerate that pain as a community? How long can the homeless and dispossessed tolerate it? What will happen if we reach the tipping point? You won't like what happens then.
One solution is that there be a Great Mahele of the year 2011, and that the legislature find a clever and constitutional way to bring the large owners back to noblesse oblige or, failing that, rethink the system. Perhaps it's time for us to address the unspeakable possibility of land reform in a state where the land owners have historically held all the cards. With too much land comes too much power, and at some point it needs change.
Yes, the economy is troubled, and that’s obvious and a clear campaign issue. It's also obvious that until we fix the land system, we’ll never be able to fix the economy. Neither is easy, so let’s start working on it right away. Perhaps August 25th could be a beginning.