Economic Woes
Price of Paradise · Hawaii Public Radio · aired 1998-02-22
Guests: Paul Brewbaker (Chief Economist, Bank of Hawaii)
Duration: 1:04:36

[00:00:00] Randall Roth: Aloha. This is Randy Roth, host of the Price of Paradise radio show. We're broadcast live each Sunday morning on KHPR 88.1 and KKUA 90.7, and then rebroadcast Sunday evenings at 8 o'clock on KIFO, that's 1380 a.m. Everyone who works to bring this show to you is a volunteer who believes in the importance of lively and informed public dialogue. We believe the brightness of any community's future is directly related to the level of activity in its marketplace of ideas. Our topic this morning is Hawaii's economy, and if you've been reading the newspapers or watching the TV news, you probably have the impression that that the wheels have come off. At least that's uh the impression that I'm forming. I have as my guest in the studio this morning Paul Brewbaker.
[00:00:50] Randall Roth: who I guess Paul, you'd qualify as a local boy, even though you were born in in the Philippines. Your father was a or is a University of Hawaii professor, your mother is from the Philippines originally. Uh Paul studied at the University of Wisconsin, at Stanford, and currently is finishing up his uh PhD work at the University of Hawaii. He's the chief economist at the Bank of Hawaii and was the author of uh several of our chapters in the Price of Paradise books. Paul, good morning.
[00:01:17] Paul Brewbaker: Good morning, Randy.
[00:01:19] Randall Roth: Paul, how bad is it? Uh anyone who's been following the news here in Hawaii, I guess, most recent in terms of uh the disappointing news has been that your employer, Bank of Hawaii, has uh let go, I think, about 550 people. I saw it described in an article written this morning by Larry Johnson in the focus section, as about 10% of the workforce. And Liberty House, the same day, um very high profile companies here in Hawaii, announced that it was laying off something like 170 employees. Um again, are the wheels coming off or is something else going on here?
[00:01:58] Paul Brewbaker: Well, I think first we need to get something straight about the bank. I I'm not so sure about Liberty House, I don't know anymore than what I've read in the newspaper. My impression is that uh from what I did read was that their layoffs are are imminent. Our restructuring or reengineering process will take about 2 years to complete and involves a closure of uh a substantial portion of our our branches in the state or the combined branches of Bank of Hawaii and First Fed. And and I think it's an a a good example of how the state faces a combination of structural problems as well as um cyclical problems. Uh in our industry, in the banking industry as an example, uh in during 1997, 10% of all branches in the Western United States were closed. Uh and now this is coming at a time when the U.S. economy and the Western states in particular are doing quite well.
[00:02:52] Paul Brewbaker: Even in the face of a strong uh mainland economy, trends in the banking industry are pointing to uh less need for brick and mortar, as we say.
[00:03:02] Randall Roth: So maybe it's not so much a reflection of a bad economy in Hawaii as a general restructuring uh in in the banking industry. It's a combination of both.
[00:03:11] Paul Brewbaker: It's a combination of both.
[00:03:12] Randall Roth: Okay. Now you mentioned just a moment ago cyclical versus um structural, and and it reminds me in this morning's advertiser, uh Leroy Laney, who was chief economist at at First Hawaiian for a number of years, and I guess just recently they've announced that they're shutting down uh his office. He's quoted as saying, nobody is forecasting a recovery. We're finally coming around to the realistic view that this is permanent for the foreseeable future, and we're going to have to adjust. And to me, that gets to this issue of what we're going through being structural, that is a permanent sort of change in the way our economy functions as opposed to cyclical where if you just wait long enough, you get back to the good old days.
[00:03:56] Randall Roth: Do I have it right, wrong, or is there just a better way of describing this?
[00:04:00] Paul Brewbaker: No, I think that's a that's a good dichotomy. The the structural part of our problems have to do with the way our uh tax and regulatory uh environment are are designed. Uh they create some some bad incentives, some disincentives for business formation, for productivity enhancement. We need to deal with some of those structural issues. But there's also a cyclical component. Uh the investment cycle in particular uh is at a very low ebb. Uh construction today is probably uh half what it was adjusted for inflation at the peak of the last construction cycle uh six or seven years ago. And it's true that if you wait around for long enough, people will begin to find opportunities uh for investing and and building new capital in Hawaii. But the question is, can we afford to just sit around here and wait for that to happen?
[00:04:46] Randall Roth: Well, I think a lot of people and certainly additional coverage in this morning's advertiser suggests that the people are saying, we need bold action. That's a quote from the the editorial. And on the front page, they quoted some small business person as saying, you know, we need government to kind of grab a hold of things and I forget if the term was kick start or jump start. Something needs to be done by someone and I think people normally look to quote government when they talk about this. Something needs to be done to get things going again. Is that realistic [unintelligible — audio glitch] not?
[00:05:22] Paul Brewbaker: Well, I think it's important uh for bold action to uh take place, uh but I don't believe uh that the jump start or kick start uh um terminology is maybe the best way to put it. We it's going to take a lot of work. Uh it's not going to happen uh just because we've changed a few uh laws or regulations here or there. But uh the good thing is that the reason we rely on on government uh as uh the place where some of this leadership can occur is that we have a democracy here and government's the place where we all get together, put our heads together, and come up with uh solutions that, well, at least a majority uh of people think will work.
[00:06:04] Paul Brewbaker: The bold part of it has to do with sending a clear signal, I think, to the rest of the world or to the global capital market if you will, that uh something decisive is going to happen to change the investment climate, uh to change uh the the outlook for the economy's future.
[00:06:20] Randall Roth: And you say, hard work has to be done. Hard work by members of the legislature, hard work by the citizens of this state. And what do we mean hard work? Give me some specific examples of actions that need to be taken by someone in order to at least get us started in the right direction.
[00:06:38] Paul Brewbaker: Well, I think most of it has to occur in the private sector, although there's plenty uh that I could uh we could talk about in the public sector. But what's really going to matter for this economy is if private investment can uh step up to the plate again. If we can uh reengineer the environment somewhat, uh if we can uh show the way clear by resolving uncertainties about our economic future, uh to investors uh to commit to say, redevelopment in Waikiki, or to uh growing uh business opportunities on the neighbor islands. Um that will probably have the most uh decisive impact on on economic performance. But at the same time, uh I think everybody has come to an agreement that government is not managed particularly efficiently, uh it it tends to tends to be a lot of dead weight uh in the public sector.
[00:07:27] Paul Brewbaker: And if there are uh if there are ways that uh we can uh restructure the incentive environment within government to reward performance, to reward innovation and creativity and and productivity, then those should be pursued. This is what the private sectors have been doing uh during uh the course of the 90s, and and I think the incentive environment in the private sector to uh make those changes is a much stronger one than uh what we find in the public sector.
[00:07:53] Randall Roth: What is preventing uh whether let's say the private sector, for example, what's preventing um more uh infusion of capital to um to reengineer, to restructure, to to build back up our our tourism uh infrastructure, or whatever it might be. Why isn't something like that happening right now? What are the impediments?
[00:08:16] Paul Brewbaker: People build buildings, people build factories, they create um uh they create uh business opportunities uh in the expectation of getting returns on those investments. Profits. Um, well, no, I'm not I mean, we you know, we we invest in the stock market because we expect to have uh returns, and profit tends to have a negative connotations associated with it. Uh I think it's reasonable for somebody to expect that their savings, if put to work, should yield [unintelligible — audio glitch] modest and competitive return. We don't even seem to be doing that in Hawaii. And as a result, investors, local and uh offshore, uh by the way, but uh investors when they look at Hawaii's prospects, uh tend to rank them somewhat lower than prospects either in other economies or when they're looking at say, investing in Hawaii real estate, prospects look somewhat lower than they would see in the stock market. But I guess that's my question, why do they, whether it's folks from the outside or folks here in Hawaii, why do we look at opportunities in Hawaii as not offering as good a return as opportunities elsewhere?
[00:09:25] Paul Brewbaker: Part of it has to do with the impediments we were talking about before, the structural impediments that seem to be hanging this economy up that seem to be holding it back, preventing it from participating in the national economic expansion. Well, [unintelligible — audio glitch] uh regulatory environment that the uh the tax the economic revitalization task force talked about making uh substantial changes to the tax environment, which uh really penalizes uh the uh increase in income that is the result of uh raising one's skills or productivity. Um the uh education system that we have here both at the lower and higher education levels which uh doesn't have a real great reputation [unintelligible — audio glitch] ends up being uh kind of a liability when people are comparing Hawaii to other jurisdictions.
[00:10:15] Paul Brewbaker: I mean those are the kinds of uh structural hang-ups that are holding us back. In addition, there are a number of uncertainties that about Hawaii's future that are are waiting for resolution, and those have to do uh with things like property rights issues, associated with the uh movement towards native Hawaiian self-determination, the sovereignty movement, and recent court cases, court decisions like the public access shoreline Hawaii decision, the PASH decision.
[00:10:44] Randall Roth: Yeah. Okay. You mentioned the uh the governor's economic revitalization task force, and um I think there's probably been more criticism than support, at least as as expressed in the the media, an awful lot of of criticism. Is that not bold enough or is that simply reflecting vested interests of a limited segment of of our entire community or is it just natural that anything that would really go to the core of the status quo, that would really attempt to shake things up, is it to be expected that it would be criticized like this? Talk a little bit about these proposals and and the reception that they seem to be garnering right now. The newspaper, for example, suggests this morning that many of these proposals are are dead or languishing and one gets the impression reading the newspaper that only a few really seem to be doing well in the legislature right now. Talk a little bit about these proposals.
[00:11:43] Paul Brewbaker: Well, that's that's as I mentioned before, democracy at work. The um excuse me, the the criticism of the um composition of the task force or the way that the governor and Speaker Suki and Senate President Mizuguchi organized the process by which the task force was informed and and by which the task force reached its consensus. Um that process was subject to a to one set of criticisms, who was participating in it, who was excluded from it. I I tended to discount most of those criticisms because the the membership so to speak was actually quite broad, but the second part of uh of the criticism if you will, or debate that you see subsequent to the task force arriving at its recommendations, I think is a healthy thing.
[00:12:33] Paul Brewbaker: I think that's uh again, a sign that democracy is at work that uh number one, people feel that there's actually a shot this year. We've got an election coming up, we have a shot at actually influencing the the outcome because politicians are motivated to do something bold or decisive about the economy. Uh and we have the opportunity to do it because uh the task force process was designed to reach recommendations well in advance of the legislative session. We had several months of debate uh in in public forums and in the media, and uh through uh you know our conversations with one another. And now we have a several month-long legislative process during which the final outcome will be crafted. So I you know, it may be frustrating to be on one or another side of that debate and and to feel as if you're confronting ideas that that uh you know, you don't agree with. But again, that's how democracy works and if we keep the pressure on, uh we should come out with a pretty good list of uh of changes of reforms.
[00:13:33] Randall Roth: And when you say if we keep the pressure on, you more or less see yourself as a supporter of the economic task force proposals.
[00:13:40] Paul Brewbaker: Well, that's true, but what I when I said we, I I meant everybody that's involved in the debate on all sides. Even if they're opposed to it, if they keep the pressure on that somehow or another, uh with lots of activity, we're more likely the community to come out with a winner. I think that's right. I I think um unlike maybe some other debates where the debate was about doing something versus doing nothing, I don't think doing I I doing nothing is not an option this time. And the the nature of the debate that as I've seen it is, should we do this or something else, and that to me is encouraging.
[00:14:12] Randall Roth: Okay. Well, you're listening to the Price of Paradise Radio Show. My name is Randy Roth. I'm here with Paul Brewbaker, who is Bank of Hawaii's Chief Economist. We're talking about Hawaii's economy, and we'd really like to hear from you. Any question that you might have or comment that you'd like to share with us and with our listening audience, just give us a call at 955-8821. If you're on a neighbor island and we'd really like to hear from you, wherever you are in this state, give us a call on a neighbor island. It's 1-800-955-8821. Again, I'm here with Paul Brewbaker, who's Bank of Hawaii's Chief Economist. We're talking about Hawaii's economy and the phone number is 955-8821.
[00:14:56] Randall Roth: Paul, the engine, I guess, driving our economy right now in Hawaii is tourism. And I know this is uh an area that you've studied uh uh especially uh uh a lot uh over the last few years. And um uh this morning's advertiser had an article in the focus section by some of your fellow economists from the University of Hawaii who uh um compared us to Miami Beach. I don't know if that's a uh something that should make us feel good or bad. I in my mind at least, Miami Beach is a a tourism location that uh that hit a peak many years ago and then slid for a long time and it's made a bit of a recovery, but I don't think of it as being uh in our league right now so far as tourism is concerned. Any thoughts on all this?
[00:15:43] Paul Brewbaker: Well, obviously, uh Miami and and other tourism destinations have a a very different character from Hawaii and and it's those differences that really uh define a destination. But it is true that like uh Miami, Hawaii has uh experienced uh a extended period, three or four decades of uh steady growth and then entered the '90s uh in a relatively mature mode. Most mainland visitors had been here uh several five four or five times before. Um we hadn't really significantly changed our uh big pieces of of what Hawaii has to offer. Waikiki is a good example. And uh so, the problem the tourism faces um uh right now is redefining itself, sort of adding new dimensions or getting the word out that the neighbor islands have uh very distinct uh uh features and attractions and and uh uh and uh and uh getting Hawaii's tourism sector sort of moved into the into the second great phase uh that might be out there.
[00:16:47] Randall Roth: Mhm. Well, let's go to some callers. First Ken from Makiki. Good morning, Ken.
[00:16:51] Caller: Good morning, sir. Aloha.
[00:16:53] Randall Roth: Aloha.
[00:16:53] Caller: Morning, Ken. Uh two statements. One a comment and one a fact. The comment is, the task force and all those fellas, are the horse and buggy thinkers of yester-year. Well, they never get anything accomplished with that group. Uh fact. If you study inflation or deflation, communities succeed, many of them succeed, cities are growing at this very time. Why aren't we? Because we're chasing tourism the old dead horse philosophy. We for example, gas used to manufacture plastic conduit. They Japanese bought them out and shut them down, so that there would be no competition in Hawaii. We could have handled the South Pacific if we continued that kind of industry. But they we got shut down. I don't think that the task force can solve a supply problem, let alone industrial. But they need to wake up and all these people are governor down. We've got the same old group trying to solve yesterday's problems.
[00:18:00] Caller: Tourism is dead, and we need to revitalize this state into a whole new concept. But who's going to lead? Yesterday's horses? I don't think so.
[00:18:11] Randall Roth: Okay. Ken, we really appreciate your comment this morning. We go to Cecil on the Big Island. Good morning, Cecil.
[00:18:16] Caller: Hey, good morning. How are you today?
[00:18:18] Randall Roth: Great. How's it, Cecil?
[00:18:19] Caller: Brewbaker, I've got a comment for you and a and and a and a question. Uh kind of a uh uh I I'm an inventor by trade, and I've been working for 5 years on a project called the Artificial Island Reef Platform. Uh it can generate food product out of the ocean. Matter of fact, it is so efficient that it will revolutionize the way aquaculture is is done throughout the world. I have recently contacted our illustrious governor Cayetano, and I went to a living hell just to get a facts to him concerning this uh this this possibility because I I am convinced that we have got to drop tourism as our economic base.
[00:19:00] Randall Roth: And replace it with production of some kind, and the food production is the way to go because we have the ability to not just shift our economic base from tourism to production, but also to give us a real springboard into the future. So, so, what's, what's your question?
[00:20:05] Caller: Well, my question is how do we get past the bureaucracy? How do we get to a point where, when I get a letter back from the governor that says, I'm sorry, we can't put a prison on an island. It's too far away from healthcare, it's too far away from the people, it's too far away from this and that. And then I say, well, wait a second, isn't Alcatraz an island?
[00:20:51] Randall Roth: Cecil, you've said some provocative things this morning, some good comments and questions. I'm going to move on because we've got all of our lines filled right now, but I really appreciate hearing from you this morning. We go to Dean on a car phone and what I'm going to do, Paul, is is listen to a few more callers, and then if you take a note or two, uh I'm sure you'll have a few comments about what all of us are listening to. Let's go to Dean on a car phone. Good morning, Dean.
[00:21:15] Caller: Hi, good morning. Hello?
[00:21:18] Randall Roth: Hello, are you there?
[00:21:19] Caller: Oh, yeah, I'm concerned. I've been a Bank of Hawaii customer for a long time and now I see that they're changing their name structure and all and it's going to incorporate in Delaware. Now, the, so Brewbaker is on that council, and how much of a drain is that going to be on our economy?
[00:21:41] Randall Roth: Okay. Well, you know, that's a really good question and and I think rather than go to some additional callers, we'll stop right now and and ask Paul to respond to that specific question.
[00:22:15] Paul Brewbaker: So we're seeing a change of name and they've announced that they're actually setting their their home of incorporation up as Delaware, as opposed to Hawaii. Paul, what do these changes mean? Is this good, bad, or is this not something that the people of Hawaii should really get too upset about? Let me first say to Dean and any other Bank of Hawaii customers, any other prospective Bank of Hawaii customers, that if you have concerns about what's going on at the bank, don't hesitate to call your your banker, uh call me at the economics department at the Bank of Hawaii. I'd be happy to talk about the details. But to answer Dean's question, reincorporation in Delaware is basically a a technical change.
[00:24:16] Paul Brewbaker: We we understand that, Dean. We we are hoping to be just the opposite. We're hoping to be, in fact we are, the big business here in Hawaii, that drains things from other states.
[00:24:54] Randall Roth: Okay. Dean, thank you. Really appreciate your call this morning. You're listening to Price of Paradise Radio Show. My name's Randy Roth. We're talking about Hawaii's economy.
[00:38:00] Caller: to attract new high-tech uh telecommunication-based industry. And I'll go along with the other two speakers, the ocean around us, as well as the tremendous growing capability as uh uh the speaker's daddy is an expert in. And uh that is we can grow so much wonderful things here that maybe uh should be a new industry other than sugar, which is a dying industry.
[00:38:29] Paul Brewbaker: Okay. Dick, thanks for your call. Really appreciate it. Uh, in case listeners didn't catch that when you referred to the speaker's daddy, uh, that's Paul's father.
[00:38:37] Randall Roth: My my dad's a plant breeder. You can grow one crop of corn in Iowa every year, you can rotate corn 60 or 70 days uh in Hawaii.
[00:38:44] Paul Brewbaker: I know you're very proud of your father's work, but we're going to stay on uh on our specific subject here. Uh, any quick comment to what Dick was just saying about targeted tax breaks before we move on?
[00:38:56] Randall Roth: The literature on on targeted tax breaks is is kind of mixed, unfortunately. It it it's not entirely clear that uh those things work and they do have to be paid for. There's a fairness issue, and I think an example of what's happening with the Home Depot question is a good, good example of the of where that uh fairness issue tends to fall out politically. But Dick, I I should come back to another point, Dick make, which is an made, which is an important one. Um the we don't rely on the property tax in Hawaii to uh fund the schools. Um, we do rely on on income taxes as you pointed out. The question is really, should we when you're comparing income and property taxes in Hawaii to other states, uh should kind of case be made that that maybe property taxes are too low in Hawaii and income taxes are too high.
[00:39:39] Randall Roth: But that's a whole another issue.
[00:39:40] Paul Brewbaker: Okay. Well, let's go to Richard on Maui. Good morning, Richard.
[00:39:43] Caller: Good morning. I have a couple questions. The uh proposal seemed to dwell with on the tax situation. And the question I have is there other areas the economy that probably should have been addressed by the task force. Number one, the high cost that people are paying for oil in the state. It seems that there are monopolistic practices at work there and the state has not been aggressive in in cutting those costs down which affect all the small businesses that seem to be hurting.
[00:40:09] Paul Brewbaker: Uh, Richard, hold on just a second. I'll come back to you, but Paul, that's something that's that's been in the news lately, especially gas at the pump, which of course is related to to oil prices. A quick reaction to to Richard's first comment, and then we'll go back to him.
[00:40:24] Randall Roth: The um, [unintelligible — audio glitch] don't think the task force dwelt on the tax issue disproportunately. I think the media has, and I think a lot of the public debate has. But that makes sense. I mean it's a pocketbook issue, it sells newspapers, etcetera. The task force had an extensive array of proposals, six proposals in addition, six major areas in which there were proposals, in addition to the tax uh proposals.
[00:40:49] Paul Brewbaker: But the tax proposals got most of the attention. Yeah, that's absolutely. But what about this um, suggestion that there there are some monopolies of sorts in Hawaii including the folks that provide gas at the pump and other products from oil?
[00:41:03] Randall Roth: You know, I don't know that much more about this than the average consumer. I'm I'm a consumer like everybody else. It does seem to me that there are market power issues, that there are industrial structure issues in a number of industries in Hawaii. And that's a consequence of our small size, geographic remoteness, geographic discontiguity. Um, it may very well be the case that two refiners, uh two airlines, uh two or three big banks, uh ends up being the optimal industrial configuration and there may be problems in terms of pricing or the exertion of market power associated with that. Uh, when there's clearly identified uh monopoly power, then we do have some tools to deal with that.
[00:41:49] Paul Brewbaker: So-called antitrust legislation.
[00:41:51] Randall Roth: Anti trust uh uh laws and we do have regulatory interventions that are designed to mitigate some of those problems uh on behalf of consumers. But beyond that [unintelligible — audio glitch] don't know the oil situation that much. I agree, you know, it's $17 a barrel seems to be uh for petroleum seems to me gasoline ought to be cheaper than it is at $22 a barrel, but I visit my dad in Kansas and gas is less than a dollar a gallon.
[00:42:14] Paul Brewbaker: I know, what's up with that? Okay, Richard, back to you.
[00:42:17] Caller: Thank you. Yeah, on the same theme, the, I think that the task force looked at other proposals besides the taxing, but things like, you know, the autonomy of the university, they're mainly governmental issues per se as opposed to restructuring the the economic climate in the state. And I'll just give one other example of that and that is the the huge profits that Matson Shipping company makes $75 million a year, which is again picked up by all the small businesses in the state. And so, when I'm, I guess urging is that that we really look at a more fundamental restructuring of the economy than tinkering with the tax laws, because the the they talk about the benefits of cutting the the taxes in the state, $60, $80 million as if that's going to be a a benefit to the economy.
[00:42:54] Caller: What they don't uh look at is the fact that as they downsize government, government will not be spending money in the economy and that hasn't been put into any of the equations on how the economy's going to be affected by the uh the proposals.
[00:43:06] Paul Brewbaker: Okay. Richard, thanks for your call. We appreciate it. We go to and I think it's Beatty and I may be mispronouncing this on the Big Island. Is it Beatty?
[00:43:14] Caller: Yes.
[00:43:15] Paul Brewbaker: Good morning.
[00:43:16] Caller: Hi, good good morning. Um, my my comment and I guess a question also is that I'm really tired of of having to I feel it on the Big Island we're really having to fight back this this uh administration of the of the governor and our mayor. First, we had a uh a pulp industry that was being pushed very silently at first and then extremely aggressively later, which the whole community in Hamakua had to join together to to put a stop to. It's still happening, the mayor, the state, the Department of Land and Natural Resources are still trying to make this big company come in and do pulp timber. Now we've got a prison that's trying to be pushed on us over here on the Big Island.
[00:43:54] Caller: I feel that the government kind needs to step back and say, hey, you guys do it or you tell us how to support you in revitalizing your economy. Since Hamakua sugar went down, it was a very devastating thing to our community, but now the community is being strong. Everybody's getting ideas. Let's go into this kind of business. Hey, you like to make jelly? Let's make jelly. Bed and breakfasts are really booming over here. So many things are booming. The government keeps coming in and completely threatening to destroy what we are building. And I think it's really time for the government to come [unintelligible — audio glitch] the government trying I feel needs to be reversed so that it's from the ground up.
[00:44:37] Caller: We've been fighting battles now for years over here just trying to be let to do what we want.
[00:44:42] Paul Brewbaker: Okay.
[00:44:43] Caller: Um, and I want to say something, too, in as far as this economic task force is concerned. I see nothing in it to empower the small man directly. If you have a small business that you run out of your home, your property tax doubles because you lose your uh your home exemption. So when we started the business at our home, our private property taxes went from $1,000 a year to $2,000 a year. Meanwhile, we're giving, you know, quarter of a million dollar every year tax incentives to Hamakua Timber who's doing pulp industry. Okay, and I'd like to see that benefit the people more.
[00:45:17] Paul Brewbaker: I appreciate your call. We're going to have to move on, but thank you very, very much for sharing that with us this morning. Uh, you're listening to the Price of Paradise radio show. My name is Randy Roth and this is what's called the marketplace of ideas. Democracy is not always uh neat and tidy, and those of you who get a little bit hot under the collar listening to some of our our callers, well tough luck. That's what democracy is all about. You got to listen to everybody and think about it and hopefully the best ideas are going to eventually percolate to the top. With me in the studio is Paul Brewbaker, who qualifies as a local boy, even though he was born in Manila.
[00:45:54] Paul Brewbaker: Uh, grew up in Hawaii, went to school in Hawaii, also studied at the University of Wisconsin and Stanford and is working on his PhD right now at the University of Hawaii. He's chief economist at Bank of Hawaii, and uh he's here to answer any questions you might have or respond any comments that uh you want to share with us. We've got uh a few people on the line but we've got a couple open lines as well, so our number is 955-8821, or from a neighbor island 1-800-955-8821. Uh the director of operations for Hawaii Public Radio, Jeff Alardi is over there on the controls and the producer of Price of Paradise radio show Suzy Roth is waiting for your call.
[00:46:33] Paul Brewbaker: We go to Lou in Aina Haina. Good morning, Lou.
[00:46:36] Caller: Hi. I have a couple of questions. One has to do with the decision by the Bank of Hawaii to uh locate its charter in Delaware. And I'm uh wondering if there are elements of Delaware's law that are preferable for multinational business, why hasn't the Bank of Hawaii tried to work on getting Hawaii's laws changed instead of relocating its charter to Delaware?
[00:46:58] Paul Brewbaker: Well that's a pretty good question. I have one other about tourism. Okay. Since Paul's the economist rather than uh legal staff for Bank of Hawaii, we'll we'll just make that a comment and move on, Lou. But I think it's a good one. Go ahead.
[00:47:09] Caller: Okay, on on tourism, uh I I wonder to what extent we're running a risk of allowing the existing strongest economic powers to dictate the direction of government influence on industry. Uh I'm thinking of the analogy of uh protecting sugar too long. The the government was very strongly supportive of agriculture, particularly sugar and pineapple, because those were the strongest economic interests in the community. Mhm. And that we may have worked on protecting them too long, a kind of sunset industry approach. And I wonder if there's some danger uh that the the existing biggest economic influence in town, that is tourism, is influencing the the government or the revitalization task force or what not uh to work on maximizing the rate of growth of tourism uh after we should have been changing gears on tourism, maybe into a direction of no more growth, but changing the quality mix of it.
[00:48:06] Caller: And allowing our economic forces to move us in new directions. Uh we need more diversification, that's clear. And I think there's a a danger in having government be too responsive to the currently strongest economic interests in town.
[00:48:21] Paul Brewbaker: Yeah, and I guess that's just uh an inherent problem is that the folks that are currently um, you know, strongest are the ones that are going to have the most political control and therefore they'll probably be relatively resistant to any sort of significant change. Paul Brewbaker, what's your reaction to all that?
[00:48:36] Randall Roth: I'm no political scientist, so I'm I'm I not going to be able to say much about uh that exertion of uh power or control. But uh I certainly hope and I'm sure uh Lou shares our sentiment here that uh tourism, I hope the tourism is not a dying industry. I hope what we're talking about is, as as Lou points out, uh the need to restore the growth of tourism uh through changing, he mentioned changing the quality mix, uh leveraging the various assets that each of the islands have that distinguish them as tourism destinations from one another. And things of that sort. I I my impression is that uh the uh uh the uh task force and um people in the industry share those uh sentiments.
[00:49:21] Randall Roth: So I I'm I'm hoping that what we're doing is not protecting a dying industry, but um uh reinvigorating uh one that could continue to be strong. Uh on the point of of changing uh banking laws, anybody familiar with the experience here in Hawaii um of trying to change Hawaii's posture on interstate banking and interstate branching, knows how much of a struggle that's been. Uh we favor unrestricted interstate branching uh that that's Bank of Hawaii's position in this market. And as you may know, the the legislature's gone part way, but uh has not uh yet embraced uh uh you know, fully deregulated interstate branching. And and it's an example of the of the difficulty uh that any attempt to change uh Hawaii's laws uh faces.
[00:50:07] Paul Brewbaker: Okay. Well, let's move on. Uh we have Ann from Oahu. Good morning, Ann.
[00:50:12] Caller: Good morning. I was interested in the one of the earlier speakers who spoke about changing the kind of quality and mix that we have in tourism. And I think one of the most under publicized facets of Hawaii is our cultural life. Our Honolulu Academy of Arts is one of the five greatest museums in the country in oriental art. We have a contemporary museum which is a gem with a garden that uh can be toured. And Bishop Museum, which is affiliated with Yale University, is not only ethnographic, but it's a scientific museum. We have an excellent symphony and a a three-season opera. And we had a few a couple of years ago, a gourmet magazine said that Honolulu was one of the most interesting places, in fact, it said, the most interesting city in America in which to eat.
[00:51:00] Caller: We have ethnographic uh restaurants, little ones, big ones, small business, large business. And I think a great deal more can be done. Um for example, the internet you were speaking of, I've been uh looking into the new museum, the Guggenheim Museum in Bilbao and I've gotten pages off the internet which I've been able to print out. And I think we should uh we should stress this on the internet. We could have lovely pictures of the courtyard, the Academy, and things of this kind which would have a great deal of appeal to a different kind of tourist. We're not going to get in Glitz. We don't get the people who come to gamble, fortunately, but I think we could do a lot to um emphasize these these very livable, beautiful qualities that we have in Hawaii.
[00:51:48] Paul Brewbaker: Some very good ideas. I agree, Ann. I think uh clearly Hawaii's attractions in the global tourism marketplace have always been twofold. One is our natural endowment and the other is our cultural endowment. And uh there's no question that uh doing more to uh leverage the latter uh would be to our benefit. I might mention a Professor Juanita Liu at the University of Hawaii School of Travel Industry Management has done some interesting work on cultural attractions. You may want to seek her out to see what kind of information she has. Okay. Ann, thank you very much for your call.
[00:52:21] Caller: You're welcome.
[00:52:22] Paul Brewbaker: We go to Brian on Maui. Good morning, Brian.
[00:52:24] Caller: Good morning. Uh thank you very much for this show. It's very great today as usual. Um, just wanted to uh comment uh some people have uh, I've been on the line for a while and I here some people have made some comments that uh that are very much what I was going to make, but uh I many of us uh feel that uh tourism, it's going to be hard to make it grow given the the development of uh many new destinations, of course, in specific room and then existing destinations which are uh working very hard, of course, marketing to free people to their areas. And so if we uh like this last lady just just suggested, if we if we develop uh uh enrich our uh the qualities we have in Hawaii, which which allow us to to just maintain uh the numbers that we have.
[00:53:16] Caller: Uh, on on Maui here, uh uh several months ago in the paper, the mayor uh claimed uh that uh we've really reached uh maximum numbers that we need for tourism here [unintelligible — audio glitch] many of us agree with that because uh, you know, just maintain the 2 million people a year and take good care of them and keep the existing numbers of hotel rooms and so forth and that provides a good segment of the economic base here. And another important segment of the base here, uh another good part of the middle class economy is um the hotel is the uh agriculture industry and even though sugar is considered monocropping, uh we have a growing diversification occurring here.
[00:53:59] Caller: Uh, HCNA sugar, as you may be aware, is the probably the only remaining profitable sugar industry and they have spent a quite a huge amount of money over the last 10 years improving their infrastructure, the the efficiency of the water delivery system because they intend to stay in this for the long haul and they can, if they're not growing sugar, they can be growing other crops and they have already done the research. Surprising research on other crops that they can diversify into when the market's ready. The reason I mention these things is because this is our opportunity, we must maintain a strong uh middle class uh base, uh job opportunities [unintelligible — audio glitch] those young people for those people who don't go off to university.
[00:54:40] Caller: We don't necessarily need more high-tech uh, or perhaps let's not emphasize the high-tech as much as maintaining a strong, healthy middle class, because we have a lot of young people who are coming out of the schools who feel a little bit uh a little bit hopeless, they don't know where they're going to fit into the scheme of things. And I'd like to hear Mr. Brewbaker's comment perhaps on what how he feels about maintaining a diversified strong middle class for the sake of uh, you know, for the sake of our future.
[00:55:08] Paul Brewbaker: Okay. Brian, thank you for your call. Paul, a real quick response so that we can get to our other callers.
[00:55:14] Randall Roth: It the the fact that tourism uh is uh expected not to grow as fast as it has uh in coming decades as it had uh as it has in in previous decades is why I think the 90s are such a critical juncture and why we're all focused on uh trying to do things uh that broaden the base beyond tourism, uh trying to do things that renew, reinvigorate tourism, and uh at least keep it going.
[00:56:07] Paul Brewbaker: Okay. Well, let's go to Galen from Waikiki. Good morning, Galen.
[00:56:12] Caller: Good morning. Hi, Randy and uh Paul.
[00:56:17] Paul Brewbaker: Is this Galen Fox from the legislature?
[00:56:20] Caller: That's right.
[00:56:21] Paul Brewbaker: Okay.
[00:56:23] Caller: I wanted to respond to a conversation that came up earlier about Hawaii's tax burden. And um while it may be true that there are parts of our tax burden that really stick out and I would certainly agree with Paul that uh that the need to restructure and reduce our income tax is very important. I think the key element that we need to talk about is that our taxes are too high in Hawaii. On a comparative basis, if you compare the overall tax burden on Hawaii and that's state and local taxes, uh with what's going on in the rest of the country, and you exclude Alaska, which gets all its revenue from oil, um we have the second highest state and local taxes in the country.
[00:57:02] Caller: And that that is really a key factor in making it hard for business here. And uh what we've seen in development of business over the past two decades is a tremendous ability to increase efficiency and reduce costs, and what we need is to reduce the uh you know,
[00:57:00] Paul Brewbaker: the tax burden in Hawaii, not think at all about any increase at all in the excise tax, but to reduce the overall tax burden to make it easier for uh business to function here. and to make government more efficient as a way of paying for that uh that reduction. uh we have enormous inefficiencies in government now, and if we concentrated if, you know, if business on the outside would say to government, make your operation more efficient, do more with less. if that was the strong message that business passed to government, and and the hard decisions that the legislature where how to reduce the size of government, how to make it more efficient as a way of giving back to the people lower taxes, I think then our economy would start moving in the right direction.
[00:57:43] Paul Brewbaker: It's very interesting that right now, you know, a whole group of top finance experts are meeting this and uh trying to tell Japan how to deal with its economy. they're telling Japan to stimulate its economy by reducing taxes. That's the message I think we also need here in Hawaii.
[00:57:59] Caller: Okay, and I appreciate your call. That's representative Gaylen Fox uh calling us this morning from Waikiki. Paul, quick reaction, then I want to try to get to our callers who have been waiting patiently.
[00:58:08] Paul Brewbaker: Gaylen makes a really crucial point that downsizing government is probably a necessary condition for uh Hawaii's economy moving forward to free up the resources again as it said, to allow us to reduce the tax burden and free up the resources that can allow households to prosper, or maybe more importantly in terms of economic development, allow businesses to prosper and form. So, I don't think we have any disagreement there.
[00:58:32] Caller: Okay. Well, you're listening to the Price of Paradise radio show and we're down to the last four and a half minutes and we've got some folks who have been waiting patiently on the line, so we're going to attempt to to move through as many of them as possible. We go to Mike in Manoa. Good morning, Mike. Good morning. Uh I'd like to learn uh Paul's uh position or actually the Bank of Hawaii's position on the Jones Act, uh especially after reading Larry Johnson's article this morning about global competition and how we need to be globally competitive. Uh I think this is [unintelligible — audio glitch] key issue in terms of uh reducing the monopoly power that uh certain players have in the marketplace, and is essential for uh more uh competitive economy here.
[00:59:09] Caller: Okay. Paul, just um 15 seconds on what the Jones Act is and then a response to Mike's question.
[00:59:14] Paul Brewbaker: The Jones Act prevents foreign hulls from entering on shipping between US ports, and since Hawaii is a US port, it means that only US hulls, so that would be, you know, Matson and and Sea-Land and some of the some of the barge operations can serve the islands. Uh here again, I think we have a problem of our again our small-scale uh scope of the economy, our geographic remoteness. It's it's not entirely clear that more than two or or three shipping operations, more than two or three airlines, more than two or three refineries uh can actually be commercially viable serving this kind of market. Um removing the Jones Act's Jones Act protections uh would certainly uh create a whole new environment for shipping. It's not clear who would come in to serve the market.
[01:00:00] Caller: Okay. We go to Marlene on the Big Island. Good morning, Marlene. Hi, good morning and good morning to Paul also. Um I haven't heard anywhere, uh where the general excise tax could be structured so that it doesn't affect the sale of food or the sale of medical supplies and pharmaceutical supplies or or school supplies for that matter. Um is that something that can be done and would it be a more viable package if that were done?
[01:00:25] Paul Brewbaker: Okay. Quick response. Marlene is talking about exempting necessities from the excise tax. And the problem, the problem Marlene is you know, we we sort of immediately think of food and maybe medical care as a necessity. Is shelter a necessity? Is clothing a necessity? Is transportation? And so you see, we start getting down the list.
[01:00:44] Caller: Paul's point is all of a sudden the rate goes from 4% to 10%.
[01:00:47] Paul Brewbaker: Exactly. We have a low rate in Hawaii because we have a broad base. If we if we narrow the base, we're going to end up uh having a a higher rate. And that you know, and I understand there are some bills in the legislature right now, uh proposing to narrow the base and exempt certain of these items, and that that's a debate that needs to go on.
[01:01:03] Caller: Okay. Well, we're down to the last two minutes. Thank you Marlene. Auntie Tutu from the Big Island. Good morning, Auntie. I cannot believe this, I'm hearing so many people saying what I've been saying all along, which is that tourism is not a good base for our economy. I'm old enough to remember when we didn't have tourism as the main base, you know? And and one thing, I mean if you think about it, it's like like if this island, these islands are our mother, we've been kind of prostituting our mother about since 1960 because just having all these people that used to go to Pismo Beach or or the New Jersey shore having them come out to Hawaii in busloads, they don't know the difference, you know?
[01:01:43] Caller: What we need is quality tourism is people who want to go to the museums to study the culture and not just crowd up our beaches and our roads, then and you know, and if if the hotel starts being empty, hey, we need the housing, you know? Convert them. Okay. Auntie Tutu, I I thank you for your call. We're going to try to give Stan from Aina Haina about 15 seconds since he's been waiting a long time. Stan, you got 15 seconds to make a point. Yeah, [unintelligible — audio glitch] wondered how we could increase trust within the community, because I think the besides the lack of potential for profits, there's so much uncertainty and mistrust within the community and I wanted how or how we might fix that?
[01:02:22] Caller: Okay. Stan, appreciate your call. Um folks, you've been listening to the Price of Paradise radio show. Susie Roth is our producer, Jeff Allardi is director of operations at Pop Radio. Paul Brewbaker, whom I admire a great deal in part because he brings so much to the table but also because he talks so candidly about these issues. Paul, you've got 10 seconds to wrap it up.
[01:02:43] Paul Brewbaker: I go with Auntie Tutu. Good kind tourism, not bad kind tourism. And as far as Stan's comment, uh absolutely, we you know, we need to all pull together and get something going here, uh rebuild the trust that uh sometimes uh seems to fade away when there's a big debate.