Improving Hawaii's Economy
Price of Paradise · Hawaii Public Radio · aired 1995-09-17
Guests: Seiji Naya (Director, DBEDT); David McClain (Professor of Business, University of Hawaii); Paul Brewbaker (Chief Economist, Bank of Hawaii)
Duration: 1:03:59

[00:00:00] Randall Roth: Good morning. This is Randy Roth, host of Pop Radio. The people who work on this program are all volunteers. We do it because we enjoy doing it, and also because we believe in the importance of lively and informed dialogue. Our sponsor is the Hawaii Community Foundation, an organization that encourages and supports grassroots attempts to strengthen our sense of community in Hawaii. Our topic today is Hawaii's economy. Will it eventually get back on track or does someone have to do something in order for that to happen? I have with me in the studio this morning three of my favorite people, Seiji Naya, Paul Brewbaker, and David McClain. Seiji currently is the director of the State Department of Business, Economic Development and Tourism. Most people call it DBED. Before that, he was chair of the University of Hawaii Economics Department. He held a number of prestigious positions before that, and he's written books and all sorts of scholarly articles.
[00:01:35] Randall Roth: Paul Brewbaker is the chief economist at the Bank of Hawaii. He's lectured in economics at the University of Hawaii, Hawaii Pacific University, and the University of Wisconsin. He's been a member of the Council on Revenues, and he's the developer of something called the Paradise Tax Index that we might be talking about a little bit later. David McClain is the Henry A. Walker Jr., Distinguished Professor of Business Enterprise and Financial Economics and Institutions at the University of Hawaii, College of Business Administration. He's taught at MIT, Boston University, and Keio University in Tokyo. He was a senior staff economist on the Council of Economic Advisors for the Carter administration and is the author of a book called Apocalypse on Wall Street. Seiji, Paul, and David, good morning.
[00:02:38] Seiji Naya: Good morning.
[00:03:10] Paul Brewbaker: Morning, Randy. Aloha.
[00:03:41] Randall Roth: Um, I know one of the things that all three of you have in common is that quite recently, you've appeared at least once before an interim Senate committee that um was formed, I think a month or two ago. The co-chairs of that are Donna Ikeda, Joe Tanaka, and Matt Matsunaga. And as I understand it, they've been given a mandate to find ways to to bolster the economy. David, in this morning's advertiser, you and Paul each have an article, and in your article, you made passing reference to something that was said at at the session that you attended, or one of the sessions that you attended. Could you tell us a little bit about your uh reaction to the work of that committee?
[00:04:13] David McClain: Well, Randy, uh naturally, I think our legislators are under pressure uh to do something quickly to uh resuscitate the economy. Uh when I worked in the Carter administration, uh we had uh serious economic problems also, then the economy was too hot. Not not like our economy, which is too cold today. But in both situations, there was there was a lot of pressure to do something. And in my in my government experience, um it's often better to sort of stand back and rather than go for the quick fix, try to uh, in fact, get the fundamentals right. And when the fundamentals are right, then the economy will be in a position to grow again. Uh, what I saw in the Senate, the interim committee was a natural uh sentiment on the part of some of our legislators uh to try to uh to go for something quicker, tax breaks for selective industries and that sort of thing. Um, and that's understandable, but I think it's uh temptation that should be resisted.
[00:04:45] Randall Roth: Okay, so stick with the fundamentals. And a little bit later, maybe we'll get into some details to just what that might mean. Paul, in your piece, in this morning's advertiser, in the the focus section, I'm sure those are are Rorschach tests of of sorts and the different people will get different different messages out of them. But when I read your piece, the primary message that I got was that we really need to deal with this difficult economy in an organized sort of way, that there has to be a framework for addressing the various challenges that we have or or some guiding principles, if you will. And you suggested that this is a wonderful time for citizens to be thinking about and talking about what those guidelines or principles might be. And you suggested five specific ones. Is that uh one of the messages that you were trying to convey, what what I've described as the message that I got?
[00:05:16] Paul Brewbaker: Yeah, I think that's right. We've, uh it's taken a while for us all to get over the fact that tax revenues haven't been growing in recent years and aren't expected to grow much for the next couple of years. Uh having gotten used to that fact, we need to start looking forward now to think about how we bring about changes within the government and the way government relates to the economy, so that the fundamentals get right, as Dave put it, and so that the economy's long-term uh prospects are improved.
[00:05:48] Randall Roth: Something that uh that has been mentioned publicly lately, I know um uh Bud Smiser had an article a month or two ago suggesting that it was understandable that uh that Governor Cayetano would not be articulating some sort of set of principles or what have you during the first six months or so because it was kind of like somebody putting out a forest fire and you don't ask them to step aside and explain how they go about putting out forest fires. But his suggestion and and that of several other people recently has been it's time for the Governor in particular, the administration in general, to step forward and say, here's what we're all about. Here's our vision, here the guiding principles that we're going to be operating under. Um, what's your reaction to that?
[00:06:20] David McClain: I think that's exactly right. I think for the first six months of this administration, both uh Governor Cayetano and and Errol Onzai, the director of budget and finance, have had a hard job convincing people that the fiscal constraints on the state government are in fact real. Uh I think we've gotten to the point where people recognize that. And so, during this fall, as we move forward towards the next legislative session, I do think you'll be hearing a lot of this kind of uh dialogue between uh people in the legislature. You mentioned the Senate hearings that have been going on uh occasionally. Uh the govern the Governor's own uh uh agenda or set of initiatives will probably be uh uh coming out during the next couple months. And I think it's an opportunity for us as citizens to be a part of that process.
[00:06:51] Randall Roth: So rather than just decisions, there'll be more discussion of of policy consideration.
[00:07:23] Paul Brewbaker: That's right. We've entered a new era, and a a slow growth or no growth era, at least uh no growth near term, and there's a very different way we need to think about the role of government in the that context.
[00:07:55] Randall Roth: Okay. Well, Seiji, up until earlier this year, you were a fellow academic, and uh now you're a a government man. You're uh the head of DBED, and uh very much involved in in not just talking about all of this, but actually making decisions. I know uh you have the ear of the governor, and I'm curious what what your reaction is to what you've been hearing thus far this morning.
[00:08:26] Seiji Naya: Well, I I think uh comments uh quite good uh both Dave and uh Paul. Uh you see, we uh did not quite expect that this uh fiscal crisis uh when he uh in January. And uh we have been spending a lot of time how to uh reduce budget, how to streamline. I think we have programs lot more than that. Uh now, we are looking at uh how to revitalize our our economy, uh deregulate uh various uh the barriers to business uh to promote some new initiatives and uh in fact, uh uh tomorrow, I'll be presenting some of these issues with the Governor Cayetano to to iron out so that we can make a public later on.
[00:08:58] Randall Roth: Oh, so the ball is rolling in the direction of uh policy discussion and guidelines and that sort of thing. Okay. Well, you mentioned a word, deregulation, and David, I think that showed up in your article, and I've heard you talk about that before. Uh there are a lot of people I think that are like me. They hear that word and then it sounds like a pretty good word. I think we ought to deregulate, whatever that means. Give us some idea as to what uh sorts of things people like you and Paul and Seiji have in mind when that word is used.
[00:09:30] David McClain: Well, I think what we have in mind is uh to make it make the economy more flexible basically. And I'd go beyond just talking about deregulation to include discussing restructuring government. And I'd I'd compliment what uh Seiji had to say by just mentioning something I I did write for for the paper this morning would didn't get in because of space limitations, which is that the Governor and his cabinet are already well engaged in as what I call the unglamorous but essential business of restructuring government and the process by which it provides services. Four or five of us from the College of Business Administration recently made a presentation before the Governor's cabinet on what might be done to restructure government and in the course of preparing for that, we had a chance to learn about what's already been done. Uh this government has cut about $80 million out of the spending stream already and there are proposals that are well underway to uh combine the audit and collection function in the tax department. Seiji's own department has uh brought together a number of subdepartments uh and and consolidated those. And I think the the Department of Commerce and Consumer Affairs is along the track toward making itself as self-sustaining as possible. So, all of those things suggest that we are indeed well underway in the process of restructuring government and I and I was encouraged to learn of those as we prepared for this meeting about how to go beyond that and and restructure government even more dramatically.
[00:10:01] Randall Roth: And I guess the fact that there would be this kind of interim committee that would be asking folks like you and Paul Brewbaker to come in and share your ideas is probably a pretty good sign.
[00:10:33] David McClain: Absolutely. We'll see what comes of it.
[00:11:05] Randall Roth: Paul, what what comes to mind when the word deregular deregulation or restructuring or what have you is uh mentioned?
[00:11:36] Paul Brewbaker: There are a lot of examples of how economies around the world, economies in our region, you look at what's been going on in New Zealand the last couple of years, have uh chosen to deregulate uh certain sectors of the economy. And I think in Hawaii what and and have had great uh benefits arise from that deregulation. And I think here in Hawaii, we need to think about that [unintelligible — audio glitch] more general context, uh in in the way the government uh relates to economic activity generally. Uh in the particular area that has been a concern of ours through the years is that in the national resource management area, whether it's land use or more more most recently water use, uh there are regulatory uh apparatuses established at state and county levels that tend to be redundant, uh that uh tend to uh cause projects to take an undue length to to or achieve approval and to move forward, and that actually limit the economy's response to economic uh stimuli or economic opportunities that do do exist and that are out there for us to take advantage of.
[00:12:08] Randall Roth: You know Seiji, um this morning, Paul and and David have an article in the newspaper. Several months ago, you had an article in the newspaper. And and I have a fear that a lot of people may not have read completely through it because here you are, the director of DBED, expected to be saying things that uh are anything but critical of of the way government is approaching things. And the few first few paragraphs of that piece, I think kind of started out that way. But you know as I read that piece, you said some things that I thought were extremely provocative. Uh almost shocking that the director of DBED would be saying this publicly and uh I was just kind of blown away by what struck me as the importance of of that piece. One of the things in the piece that you noted was that over a relatively short period of time, basically during the Wahi administration, the state government share of the economic pie went from about 13% to 16%, which is just a dramatic or 13 to 17%, dramatic increase over a very short period of time. The implications of course being that major downsizing restructuring is is in order. Uh what's your reaction to what I'm saying?
[00:12:40] Seiji Naya: Well, I I think uh Governor Cayetano has been uh implementing uh some of these uh uh measures as you know that uh we have given uh uh pink slips to a number of employees, uh you know, they're very hurt because they lose job. But uh in terms of uh uh long-term, I think we have to make uh our economy much more competitive. And I think uh it is the private sector which uh which is the engine of growth. It's not really the government. Government cannot be employment uh agency. And if you look at the last uh seven-eight years, we have seen that the rapid increase and I think uh time has come to uh stop that. And it's not because of this uh uh budget crisis. I think in terms of to prepare ourselves for the 21st century, I think we have to be much more competitive.
[00:13:11] Randall Roth: Your piece, I think, if I remember correctly, said that government has as hurt the private sector that with all of the growth in government that there is been uh subsequent lack of job creation in the private sector. And I guess I was thinking of privatization and all sorts of things that here in Hawaii are considered fairly radical as I was reading it and again, you're not an academic anymore, you're the director of DBED. Did I read more into that article than was there?
[00:13:43] Seiji Naya: Uh, no, I uh in fact I have been uh saying this to all the agent uh uh technocrats, governments, uh prime ministers in Asia, telling them to uh be more competitive, reduce the uh size of government and give uh private sector uh chance to uh prosper and uh in fact I'm saying exactly same, same thing.
[00:14:15] Randall Roth: You're you're you're a radical Seiji. I think, I don't know. Uh David, what do you think is as you're listening, this and I know you you're familiar with the piece that uh Seiji wrote. What was your reaction to that?
[00:14:46] David McClain: Well, I think Seiji was right on target. And I and I think what we what we need to do in government is to to just to change the culture a little bit from crisis management, which has been the mode of the last six or eight eight months, and as you say, appropriately so, to the notion that we're going to have to continually reinvent government. Year after year, we're going to have to reinvent government. That's what corporations have been doing for 15 or 20 years and in fact even in the government sector. Uh California, Proposition 13 in 1978. From that point on, governments throughout the United States have had to reinvent themselves because they just don't have the tax revenues at the state level to cope. It's coming to us very late, but on the other hand it should be very easy now because we can benchmark on what other jurisdictions have had to do. Um I think we need to to and and the thing I hope we do this fall is we need to get the culture in place that says, this is not just a one-time thing, just to cope with this budget shortfall for two or three years, but this is a change in the way of life. It's a change in a way of life that other state governments have had to undertake that certainly corporations around the Pacific have been doing for 10 or 15 years. It's something we have to do now in Hawaii.
[00:15:18] Randall Roth: So earlier when you referred to fundamentals, and in your piece this morning where you say we need to work on the fundamentals, what you've just said is right on track with that.
[00:15:50] David McClain: Absolutely. And one of the fundamentals is a change in the culture of government.
[00:16:21] Randall Roth: Okay. Well, in case you joined us late, you're listening to Pop Radio. My name is Randy Roth, our topic today is Hawaii's economy. With me in the studio are three economists. First Seiji Naya is the director of DBED. Uh Paul Brewbaker is the chief economist at Bank of Hawaii, and David McClain is a professor of business at the University of Hawaii. If you would like to ask our guests a question or make a brief comment, just call us at 955-8821, and neighbor Islanders are always invited to call us collect. And if you joined us late, would like to hear the entire rebroadcast, tune in tonight at 8 o'clock on KIFO, that's 1380 AM, and you can hear that broadcast in its entirety. Finally, those of you who haven't seen this morning's advertiser, take a look at page B3 in the focus section and you'll see a couple uh greatly edited but very insightful articles written by Paul Brewbaker and David McClain. We have several callers on the line. First James from Kaimuki. Good morning, James.
[00:16:53] Caller: Um, good morning. Um, I have a question for um Professor McClain. Um, Professor McClain, um can you uh specifically specifically um tell the viewers uh what to what lower rates uh across the board from excise taxes to income tax to user fees you would like the the current current rates to um go down to? And also um Professor McClain, can you tell the viewers uh how to enlarge um the tax base on what groups or individuals you feel that are being under taxed? And um one last question, um to Professor McClain, um can you um give immediate immediate advice to state director um Kamikawa, and um tell him, I mean, to to give advice to to him on what strategies immediate strategies specifically that can be taken and and implemented without the approval of the state legislature to affect the common Joe?
[00:17:25] Randall Roth: James, you've asked three real good questions. I'm afraid it's going to take a book to answer them well but David's going to give it his best shot in a minute or so that we have.
[00:17:56] David McClain: Well James, thanks for those questions and let me say first of all, uh on the tax side, um my favorite area for reform is the general excise tax. This is a tax which is nominally slightly above 4%, but is in fact given the structure of the tax that it's a turnover tax instead of a tax on value added, winds up having an impact on the economy equivalent to about a 16% tax. This is a tax that needs to be reformed. Second with regard to um areas in which we might broaden the base. Uh for the one of my favorite examples is uh the tax breaks that have been given, I think, to American Hawaii cruises over the past several years. Uh this is an organization which is um not been profitable, even with those with that tax assistance, and yet the tax assistance was renewed. That's an example of the kind of thing we need to get rid of. No special tax breaks focused on on specific businesses or sectors. And finally, I am already a member of a of a group that is advising the tax director on on these matters about what what can be done. I think the situation we're in however, is frankly that much that can already be done without legislative assistance has been done by the Cayetano administration as they've gone around gone about the process of cutting $80 million out of the budget. The next round is going to involve cooperation between the administration and the legislature, and this is this is going to be I think a more difficult round because it involves a broader spectrum of consensus that we'll need to build.
[00:18:28] Randall Roth: James, thank you for your question. Very good questions. You know Seiji I just have to mention one of the things that I've been impressed with is the willingness of people in the administration to listen to uh to people like David. In fact, David was making some comments sometime ago on another radio program here. We were talking about New Zealand's experience, and uh and the director of taxation called right after the show ended and said, "I like some of your ideas, why don't you come in and talk to our tax review commission, give us the benefit of your thoughts." and I was impressed with you that that's not the normal government way. to do this sort of thing.
[00:19:33] Seiji Naya: Well, as you know, we really have to share. We have to exchange views. The government policies will affect everyone, all the business, labor, and so on. It's important to learn from intellectuals. The people like Dave and and Paul, you know, they have a tremendously good ideas and
[00:20:07] Randall Roth: Why didn't you mention me, Seiji?
[00:20:40] Seiji Naya: Randy, you are you are the best as you know and I give you a tremendous credit to contribution, public contribution you you make and but in terms of economic areas, I usually go to a Paul and Dave and I'm constantly calling them to to sound sound out the ideas I have and so on. So I do this all the time and, you know, governor listens to them, it's a terrific, terrific sign.
[00:21:14] Randall Roth: That's that's wonderful. You know, can I say I should I should add we are pretty good too. Right, right. Can I say, you see if you look at the the Hawaii's economy in the last 35 years, the post war, the history, we have done very well. But one thing we have escaped. Basically, we are free from mainland recessions. Have not really affected the affected Hawaii's economy that much or if you had a recession in Hawaii, it usually lasted just one year.
[00:21:47] Seiji Naya: You see, what has happened the last three, four years. We have a prolonged low economic growth for the last three, four years and there have been some major structural changes in the state economy. Tourism has matured. The defense spending has gone down. Uh, we have not really been able to replace with the major industries. And I think the time has come it's not just the uh the reduce, it's it's not just a matter of reducing the uh our budget, the state budget because that the constitutionally, we have to do it. But I think we come up with a new philosophy, we have to revitalize our economy.
[00:22:21] Randall Roth: Okay, that's great. We've got another caller, Lorenzo from Kapiolani Park. Good morning, Lorenzo.
[00:22:54] Caller: Randy, this good program is such a complex subject. I just want to it really deserves several program, but I just want to comment on one thing and that is uh even if the governor made all these proposals, it will have to go through the political process. And as you know, all politicians are accountable to to their own constituent, so that's where the conflict of interest comes in. What is being done to inform the one million population of the state uh of our problem and the potential solutions.
[00:23:28] Randall Roth: Okay, that's a an excellent question. I tell you there was a fairly half a page article in the New York Times on a particular restaurant owner who gone through hard times in Honolulu. This article was in the New York Times uh maybe within the last two weeks and none none of the local newspaper ever bother to even quote from that. Yeah. Lorenzo, hang on. Um I know Paul Paul Brubaker also has seen that and I know as chief economist at Bank of Hawaii he's...
[00:24:35] Caller: I want to refer to one more article, which Well, hang on and might not have gotten yet, which is in the latest issue of the Far Eastern Economic Review on the tourism industry in Hawaii. It's a very accurate and factual article and I think people should read that and who's going to publicize them.
[00:25:08] Randall Roth: Okay. Well, let's uh let's ask the chief economist from Bank of Hawaii. What do you think of Lorenzo's comments in general and and especially those articles that have appeared elsewhere, but haven't been referred to in the local press?
[00:25:42] David McClain: I'll let uh some of the rest of us uh comment on the the first part of the question regarding the political process, but I think uh Lorenzo uh brings up an interesting uh point. If you look at what the international and our national media uh write and think about Hawaii, it is uh you know, it's been said many times uh people from outside a state or outside a country foreigners foreigners often have a better perspective of a bit of better view of the big picture than uh people inside a country or an economy sometimes do. Uh, I worked both with Ashley Dunbar at the New York Times and Nigel Holloway at the Far Eastern Economic Review and in uh writing up those stories and I think one thing that uh uh was consistent both with their coverage and and the perspectives of others outside the economy, uh is that uh they often get sort of fixated on a particular negative aspect of the economy and that becomes the theme. In the case of the New York Times article, uh following uh uh the career of Randy Shock I guess it was, and in his uh experience as a restaurant um uh owner and operator uh was of course an interesting insight into the difficulties that a business person and businesses in Hawaii have, but you have to be careful about generalizing from a specific experience. And uh uh the Far Eastern Economic Review uh article on tourism uh raised some important points, but I think in in tourism generally speaking, uh there are lots of different issues that are being addressed both inside the industry and inside agencies like DBED for instance that are working with the HVB to think about how we can move the industry forward. So, those perspectives are always useful uh but again, uh they tend to to get focused on a particular aspect of an issue and and maybe don't uh contribute as much in the long run.
[00:26:15] Randall Roth: Okay, I'll tell you what. We've got all of our lines [unintelligible — audio glitch] busy right now. We've got people on hold and people trying to get in. And so Lorenzo, I'm going to have to move on, but I really appreciate you bringing those articles to our attention.
[00:26:49] Caller: Thank you.
[00:27:22] Randall Roth: Thank you. Ed from Makiki, good morning.
[00:27:56] Caller: Morning, Randy. First of all, congratulations on your program. Two specifics, I'd like to suggest for consideration. Firstly, sad state of the economies of the islands of Hawaii and Kauai. Second is not only the encouragement of new, but the survival of existing small businesses.
[00:28:30] Randall Roth: Okay. Um Seiji, you're our government man this morning. What do you think?
[00:29:03] Seiji Naya: Yeah, I I do worry about the neighbor islands. It's it's very important to uh examine their problems very closely as you know, uh we have had the fairly large uh increase in number of tourists uh but the most of them come to uh Oahu uh and, and it's very important to shift the the direction toward the other islands. To some extent uh Convention Center overflow will do that. But I think we have to worry about that. I feel personally uh the Waikiki is a supply shortage of uh good hotels whereas in other islands, they have excess capacity. It's a demand shortage and we have to respond to that differences in terms of policies. Uh of course uh [unintelligible — audio glitch] uh the county of Hawaii has been hit very hard by the closure of uh uh sugar plantations whereas [unintelligible — audio glitch] Kauai is somewhat different problem of the this Eniki hitting. So, you you have a different messages different policies are needed uh in the case of Hawaii, I feel places like Hamakua, the number of the number of measures are needed which have to be integrated such as uh try to increase the capacity building uh training aspect which the state has been doing. I think a second, I think it's very important to attract new business by providing better type of uh incentives such as uh enterprise zone, modified enterprise zone. Third, I I really feel [unintelligible — audio glitch] kind of community based economic development they're doing is quite good, but they have to be integrated. Finally, they need a leading sector. Leading sector there are uh we are thinking of a number of things in consultation with the University of Hawaii. We are thinking of shifting some portion of the college of Tropical Agriculture to the to the Hilo campus. That's where we have the largest agricultural land. That's where we have the largest number of uh agricultural workers and I feel that these are kind of things we have to do.
[00:29:37] Randall Roth: Let me get a reaction to that from from David McClain. Um, I realize that we've got economists in the room and you know, economists have a certain perspective on things. Seiji being the director of DBED has to be concerned about the political aspect of all of this. As I'm sitting here, I'm wondering to to target specific areas like the Hamakua coast on the Big Island or or what have you. Um, David, is that the sort of thing that you were a bit critical of in your piece as opposed to just focusing on fundamentals that would affect people across the state?
[00:30:10] David McClain: Uh yes, Randy, it was. Um the information that's available about the effectiveness of specialized tax incentives or enterprise zones is is really not very encouraging. South Carolina to get its BMW plant offered a tax package that cost it $80,000 per job generated. Uh in Alabama, Mercedes Benz walked away with a $250 million package costing $175,000 per job generated. Enterprise zones are [unintelligible — audio glitch] place in about 40 states in in the country, but with very mixed success and in one of the the best studied examples, in Indiana, um Professor Jim Papke of Purdue and Leslie Papke of Michigan State, and by the way, I'm grateful to Jack Siderhow for this information also at the College of Business, they concluded that 80% of the direct direct budgetary cost of the Indiana enterprise zone program essentially reflected a windfall for the businesses involved uh rather than any uh any effective subsidy to uh increased economic activity. It's it's really very hard to pick winners here. And so as a result, you're much better off to get the tax rates low, to get the base base broad, to deregulate the environment to make it the regulation more efficient, to get government out of the businesses that it shouldn't be in, and have it focus on what it should be doing, which is policy advice and a social safety net. Get those basics right and and you'll be the best you can be.
[00:30:44] Randall Roth: So we have a a healthy difference of of opinion here. Paul, uh you made reference to the the pick the winner mentality. Um, a few comments on that then we'll move on to another caller.
[00:31:17] Paul Brewbaker: Yeah, I think we have to be careful about how we think about uh implementing pick the winner strategies. For instance, I I would have uh I tend to disagree with the idea that the Tropic Ag school needs to be moved to Hilo. I nothing prevents UH Hilo's undergraduate Ag ed education and and extension programs from improving, but I I don't think we should undermine what is a program at Manoa with an international stature and uh and um you know, agriculture definitely has its place in the Big Island I'd say agroforestry is probably something we're going to see in the future. Um I think for both the Big Island and Kauai we need to think more in terms of tourism strategies and on the Big Island in particular, I'd say getting Asian carriers to fly to Keahole as soon as possible is the first thing that needs to be done there.
[00:31:51] Randall Roth: Okay, and if anyone thinks we're kind of beating up on on Seiji uh um I should mention that Seiji's a former NCAA boxing champion who's in the Hawaii Sports Hall of Fame, nobody's going to beat up on Seiji. Seiji, I know you've got a response and then we need to move on.
[00:32:24] Seiji Naya: Thank you. the the enterprise zone on the main have not worked very well. Uh my assessment is this, you cannot just look at the tax incentive alone to make anything success. You have to look at the whole number of different areas, you have to worry about infrastructure, you have to worry about capacity building. No tax incentive alone will succeed. That's that's my point. We are not really pick picking the winner but when the area is really having a great deal of difficulty, I think it's our responsibility to see how we can help. That's what I'm talking about. We're not really picking the winner there. Uh [unintelligible — audio glitch] second uh can I have uh just [unintelligible — audio glitch] few few uh sentences. I'm not really talking about wholesale shift of the college of Tropical Agriculture. Gradua school, they have a good gradual school there, but if you look at the number of students enrolled, steady decline in agricultural uh the divisions, you have to respond to that. Uh we're looking at the beefing up of the undergraduate curriculum, especially extension service, about 80% of uh uh extension money is spent on Oahu. Why? Those are the questions we have to raise.
[00:33:31] Randall Roth: Okay. In case you tuned in late, you're listening to lively and informed dialogue on Pop Radio. Our topic today is Hawaii's economy. In the studio are three economists, Seiji Naya who's the director of DBED, Paul Brubaker who's the chief economist at Banko, and Dave McClain who is a professor of business at the University of Hawaii. Uh, Ed, I've got so many people trying to get in this morning, I'm just going to have to move on.
[00:34:05] Caller: Randy, one quick thing. Don't take your eyes off Kauai. Threaten closure of sugar is badly affecting the morale on that island. Thank you.
[00:34:38] Randall Roth: Okay, and and all three guests are are nodding, they certainly understand [unintelligible — audio glitch] know where you're coming from on that. We have uh waiting patiently Roger from and I'm not is it Haula?
[00:35:12] Caller: Haula.
[00:35:45] Randall Roth: Good morning, Roger.
[00:36:19] Caller: Good morning. I wanted to compliment you on an excellent program. I had a question for Dr. Naya. I read in the article this week about the HVB's financial situation. I was wondering what the DBED will do to respond to this HVB overspending and generally do you think the state gives too much to the HVB or perhaps more importantly, how can we get the private sector to give more to the HVB?
[00:36:52] Randall Roth: Boy, we are getting some dynamite questions this morning. Uh Seiji, so that listeners understand what Roger is referring to, uh just in the last few days, I guess it's been revealed that uh HVB, the Hawaii Visitors Bureau made a mistake. They thought they had more money than they had, they overspent by $3 million. Uh HVB is is your responsibility in the sense that it's somehow uh under uh the the DBED umbrella. What's your reaction to to Roger's questions?
[00:37:26] Seiji Naya: Well, it is a terrible situation. The uh uh you asked me whether we are giving too much. Certainly I'm too much of my budget. I 61% of uh DBED budget goes to uh uh HVB and uh the percentage has uh gone up uh steadily uh over time. I used to be only about 45% of DBED budget, now 61% of budget. I think that uh I was uh uh very uh concerned with this uh $3 million uh the overspending of that uh. Obviously, they have not really checked their financial situation very very uh closely. We we are reexamining uh how our dealing with the HVB. Uh uh we have uh we have tried to not to micromanage HVB, but the public money is uh uh involved. It's important to see how it is uh wisely spent and not uh mis- mis-spent and the
[00:38:00] Caller: over spent.
[00:38:16] Randall Roth: Okay, we're going to get quick reactions from David Mclane and then Paul Brubaker.
[00:38:32] David McClain: You know Randy, I I have often said that tourism is the one area where it does make sense for the public sector to to get involved because tourism is so important to the economy that beyond the returns to private business, there's there are public benefits as well.
[00:38:48] Randall Roth: And I guess that was the main theme of Tom Lepre's piece that was in the newspaper this morning right below your piece.
[00:39:04] David McClain: Exactly right. But I think at this point the public sector is putting too much money into into the process. When we get federal grants, or grants from other private foundations, the typical requirement to the university is that we match 50/50. I think sort of a 50/50 match makes a lot more sense to me. There, the incentives are right, and right now I think the incentives are are not quite right. There's not enough private money in and too much public money in.
[00:39:20] Randall Roth: Gee, well why don't we look at our private sector representative over here, Paul Brubaker from Bank of Hawaii. What do you think of what David is suggesting?
[00:39:36] Paul Brewbaker: Yeah, I I'll give what I think is the third vote here in favor of creating greater incentives for private sector contributions to the HVB. I think that's been a bigger problem than the public's contribution. At the same time, I think the industry needs some kind of dedicated financing mechanism, so we take it out of the political process, and matching is a good idea. Dedicate part of say the hotel revenue, tax revenue stream and tell the industry basically every dollar you put in, you get a dedicated part out of the hotel revenue stream.
[00:39:52] Randall Roth: Okay, Seji, real quickly.
[00:40:08] Seiji Naya: I do have uh the bills. In fact, we have been looking at this issue, [unintelligible — audio glitch] TAT dedication to HVB. That's the hotel tax. Right and plus that the the broadening the base of TAT.
[00:40:24] Paul Brewbaker: Randy, if I could just add, we we need to preserve the research that HVB has been contributing to us all, and from which we've gained very much in terms of our understanding of the industry. Uh that is actually threatened right now, and Seji, I hope you guys are looking at that over at DBed.
[00:40:40] Seiji Naya: Okay. We don't intend to reduce role of research there.
[00:40:56] Randall Roth: Okay, well we've got so many people calling I have to figure out a way to to move this a little bit faster. We'll move on to Diana I believe it is from Hauula. Diana are you there?
[00:41:12] Caller: Yes.
[00:41:28] Randall Roth: Good morning.
[00:41:44] Caller: Good morning. Yeah um I have a couple of issues I understand I can only get one in. Um I really think that a lot of the stuff about privatizing and and all of it is a fad and it's contributed to harming the economy of America and world in Hawaii. Um most of the highly wealthy countries do not privatize and they have heavy heavy government sectors and government involvement in a great many things and they are extremely organized. We're disorganizing our country, and organization creates wealth, not disorganization. I was involved in some studies on privatizing um in California and it was a disaster.
[00:42:00] Randall Roth: Diana, I have to get a reaction to what you've said. Let's check with David Mclane first.
[00:42:16] David McClain: Well, if it's a fad, it's a 20 year old fad. Let me say that first of all, and I suspect that it's it's here to stay because of the competitive pressures that both governments and private sector organizations face.
[00:42:32] Caller: They're awful. People take government money to make a profit and to pay the employees bad bad wages.
[00:42:49] Randall Roth: Well, that's that's certainly the perception of a lot of people, David, and if that continues to be the perception there simply won't be privatization in in Hawaii.
[00:43:05] David McClain: You know, it's it's true that in every movement there are um uh examples of mismanagement, and that's I'm sure true in the privatization area. But if you look at an economy like we talked about a few months ago in New Zealand, where there has been a wave of privatizations, the unemployment rate has come down from 11% to 6%. Uh by making markets more flexible and reducing the heavy hand of government, generally speaking, it's going to be possible to create more wealth. I understand that in some Northern European countries
[00:43:21] Caller: wealth isn't being distributed across the society. There's some very wealthy people but most of the people are getting poorer.
[00:43:37] David McClain: But you know, we really have no choice. The choice is whether the pie is to stay static or decline, or whether the pie is to grow and then we can try other incentives to distribute the wealth more intelligently. The idea of using heavy public sector incentives is going to keep the pie static or smaller and then nobody will benefit.
[00:43:53] Randall Roth: Diana, you have articulately voiced, you know, a different perspective than David's. I just have to move on. I've got so many people waiting to get in. Seji, I know you want to say something briefly and then we'll move to another call. Thank you, Diana.
[00:44:09] Seiji Naya: I think there are two different issues. One is the concept of privatization. Other issue is a management of privatized uh sector. That's quite different things. Uh no matter it doesn't matter whether government or private sector, if you manage it wrongly, it's not going to work. That's one point. The second point, I have never seen, you know, I have done a lot of study, research on uh uh the plan economies, uh uh versus market economies. I have not seen one single centrally plan economy making good transition to higher growth.
[00:44:25] Randall Roth: Okay. Our next caller is David from Miloni. Good morning, David.
[00:44:41] David McClain: Thank you. Uh uh nationally publications have said that Hawaii public officials have displayed poor management of of public money. Isn't it true that you don't measure how many tourists respond to the government dollars that you spend, Mr. Niya? For example, if you set
[00:44:57] Randall Roth: Let's let's let's get an answer to the question, David. Stay on the line. Seji, what do you think?
[00:45:13] Seiji Naya: What is the question?
[00:45:29] David McClain: The question is, isn't it true that you don't measure how many tourists respond to the government dollars that you spend?
[00:45:45] Paul Brewbaker: So we don't know whether the money that uh HVB is spending promoting Hawaii, we have no idea whether it's money well spent or or not well spent.
[00:46:01] Seiji Naya: No, no. There was a major accountability study done uh not long ago which do indicate uh the the HVB promotion to uh to a tourism expansion.
[00:46:17] Randall Roth: Uh let me get Paul Brubaker's reaction to that. Seji's right, the study is underway, we're seeing preliminary results from the study, but I think the caller has a good point. What did what did it take, you know, this is the first time we've actually looked at how these marketing dollars uh have an impact. Uh well, why did it take so long to to mount this investigation?
[00:46:33] David McClain: Well the the question is uh uh if you spend $100,000, how many tourists come for that and how much do they spend? Uh that's why we get this wrap that we have such a poor management of our money.
[00:46:49] Randall Roth: So I I think the guests are green completely with you, they're simply pointing out that that has very recently started to change.
[00:47:05] David McClain: Well Mr. Niya could explain what what it's going to prove? Do you have a speculation? If you spend 100,000, what are you going to get back? Certainly you have an idea. Every, by the way, almost every business in this town has done that for years. We spend advertising all the time, and we go out and ask our customers, how did you learn about this event or how did you learn about our product?
[00:47:21] Randall Roth: Everybody in this room is nodding uh vigorously in agreement. Let's get a reaction to that from Seji and then I have to move on, I can't tell you how many people have been trying to get in this morning.
[00:47:38] Seiji Naya: You know [unintelligible — audio glitch] was a accountability study which do correlate between uh number of tourists to a promotion. That does not really answer the question uh the color is asking, that is what is if you spend additional promotional money, what is the additional uh number of tourists? Now that there's not been uh solved.
[00:47:54] Paul Brewbaker: And do promotional expenditures say in Japan or Korea uh have a different impact from say promotional expenditures in a market like California that's been pretty much worked over.
[00:48:10] Randall Roth: Yeah, I guess David, you'd say that's that's just the natural uh because government functions differently than private enterprise.
[00:48:26] David McClain: Well, I have to say at the at the university, when we look at some of our specialized programs, we do ask our customers why they came to us. So this is not just the the government is functioning differently, no I think this is a long overdue thing, and and I think the reason we didn't do it is because we were doing so well for so long, we didn't have to. We had so much money.
[00:48:42] Randall Roth: Okay, David, thank you for your call.
[00:48:58] Paul Brewbaker: Thank you.
[00:49:14] Randall Roth: We have Richard in Kaimuki, who's been waiting a long time. Richard, good morning.
[00:49:30] Caller: Yes, hi. Uh couple of questions uh related. Uh one of the most important things to any economy, especially ours, is the education of its students and uh what I'm wondering if uh is if they if the uh people there have any comment on what's happening at the university uh right now for instance, in some departments, none of the people who are untenured are going to survive next year under the current budget situation.
[00:49:46] Randall Roth: Well, let's get some reactions to uh just how the university is is fairing in this whole thing. Uh David Mclane, you're our our professor guest.
[00:50:02] David McClain: Well I I think it's quite true that funding for the university has declined precipitously. I think uh numbers uh are uh on the order of, you know, several tens of millions of dollars, while enrollment until this year had gone up by um 10 or 15%. I I have to say that um, like many other things in Hawaii, our university may have been overstaffed uh in the mid to late 80s. Uh we had budget increases that were quite dramatic. Uh when I came here uh from a university on the mainland, and I looked at the number of courses in the catalog and I looked at the uh size of the university, we had a third more courses for the same number of students. So that said to me that the the management structure here was less efficient than uh the private university I had come from on the mainland. So I think some tightening up is really in order and in fact has been going on. And I I do hope that as we tighten up, we're able to make uh some choices instead of doing across the board cuts. And I think Ken Mortimer, our President, is making efforts in those directions. I know his experience at Penn State, 19 years there in targeting 15 of those departments of his 125 departments to be internationally prominent uh was really quite successful, and I I hope the same establishment of priorities is successful here and I think the process is underway, but there's no question the caller is right. There's a lot of pain that goes with this and that's unfortunate, the people involved um the assistant professors and such are certainly not responsible for this. This is [unintelligible — audio glitch] tide that has been building for a long time.
[00:50:18] Caller: Okay. Well, follow up question, uh speaking of making the university more efficient, uh some management programs such as uh those proposed by W. Edwards Demming, uh and Marshall Furber have gotten as far as I can see here very short shrift, and yet they have been among the most successful uh in the United States.
[00:50:34] Randall Roth: Okay. Interesting comment. Thank you very much for your call, Richard. I want to remind our listeners that this is Pop Radio. If you um uh tuned in late and would like to hear the entire show, the rebroadcast begins tonight at 8 o'clock on KIFO, that's 1380 AM. Our topic today is Hawaii's economy. With me in the studio is Seji Niya, who is the director of the State Department of Business, Economic Development and Tourism, most people call it Dbed, Paul Brubaker, the chief economist at Bank of Hawaii, and David Mclane, a professor of business at the University of Hawaii College of Business Administration. Uh, Dick Miller from Kailua is on the line. Good morning, Dick.
[00:50:50] Caller: Good morning, Randy. How are you?
[00:51:06] Randall Roth: Just fine. What do you have for our guests today?
[00:51:22] Caller: Well, I again you you're doing a great job. I think that uh there should be a fourth person on the panel, Randy, and that's a uh uh a representative of labor. Uh I think Diana had the uh had a very good point, uh that, you know, it was deregulation prior to 1930 that got us into the Great Depression. Uh New Zealand is a totally different situation. I'm very familiar with that.
[00:51:38] Randall Roth: Dick, let me stay stay on the line. Uh, you mentioned labor unions. And Paul Brubaker, I know um some of the things were cut out of the the draft that you had submitted to the advertiser. But when I read your original draft, one of the messages that I got was that and and maybe I read too much into it again, but I thought you were saying labor unions are running the risk of being dinosaurs that are extinct or whatever at some point in time because they're just not adapting. They just don't, I think your words were they just don't get it. Can you talk a little bit about that and then I'll come back to Dick Miller's other point.
[00:51:54] Paul Brewbaker: Actually my my perspective was a little bit different. I had uh laid out in those framing principles for how to think about changes uh to government uh several points. The second most important of which I thought was and I'll read from the from what was in the paper, uh involving public employees in in these changes that are that are going to have to take place in the in the government bureaucracy. Public employees know best what works and what doesn't work in their own areas. Those are the people we have to go to to find out what's wrong and how it can be fixed. And second, I think clearly we need to collaborate with the public employee unions uh to create the incentive structure within the the government workplace so that people can can be rewarded for the kinds of improvements that they uh uh that they think uh are are a good idea. There doesn't seem to be right now uh in the contractual relationship between the state and and government employees an opportunity for those kinds of incentives and rewards to be taken advantage of.
[00:52:10] Randall Roth: So, so something is is broken.
[00:52:27] Paul Brewbaker: I think uh the caller's right, uh you know metaphorically we're missing that person here and I think in in how we think about how to change government, improve government uh enhance uh its role in the economy, clearly the unions have to be brought in to that uh discussion and in collaboration change uh bring about the changes in the workplace that are necessary.
[00:52:43] Randall Roth: For for what it's worth, I I called uh HGEA about 15 times and sent about 10 faxes and I've yet to hear a response in to my invitation for uh Russell Cut to be on the show. David Mclane, do you have a a thought to share?
[00:52:59] David McClain: Several, first of all, um [unintelligible — audio glitch] rise of unions uh in the 30s was in fact a a needed response to uh the more chaotic industrial environment that we had prior to that time. However, it was not because of deregulation that we had a Great Depression as Peter Temin, Charles Kindelberger, John Kenneth Galbraith and a host of other historians of of the depression will tell you. At this point in time, however, um unions have have become too inflexible and as Paul said, they need to be brought into the process. Richard Freeman of Harvard suggests that right now 11% of the private sector but 35% of the public sector are unionized and Freeman expects the private sector unionization fraction to drop to 5% by the year 2000. There are societies, and I think coming back to Diana's point is a good one because she does does make a valid point that we are disorganized in the way we put the public and private sectors together and I know this is a point Seji has made uh in a number of other contexts as well. In in certain societies, Sweden for example, 90% of the labor force is unionized and the country's companies have still mate remained competitive. That's because the unions that work with Volvo, Electrolux and Isaiah Brown Bavaria, for example, have become much more flexible in the way that they get the work done. That's what we need here and
[00:53:15] Randall Roth: So our unions have to be more flexible? What does that mean?
[00:53:31] David McClain: Well, I think it means uh adopting new kinds of uh work rule practices. It means being able to be reassigned from one job to another. Uh it means being more productivity oriented and less stability oriented. And I think, you know, if Dick would would read and I'm sure he has Reinventing Governor Government and uh the Death of Common Sense, two influential books in the last two or three years, on just the reason why unions have become less relevant uh these days and and they should be more relevant because clearly this is a time when um economic the winds of economic change are blowing more stiffly and people feel the need for protection, but the protection only can come through getting the skills to be competitive and as Diana suggested and I really applaud her for this, getting better organization between in the ways that the public and the private sector uh work together.
[00:53:47] Randall Roth: And when you say focus more on on productivity and less on stability, I think you're talking about Paul Brubaker's suggestion of incentives.
[00:54:03] David McClain: Absolutely. Absolutely. And that's the real art of governing effectively is to create in the private sector, which is not a corporation nor should it be the the kinds of incentives that that lead to greater productivity.
[00:54:19] Randall Roth: Okay. Dick Miller.
[00:54:35] Caller: Yeah, well let me just add that uh I I still think that the the notion of deregulation deregulation has brought us you know about 50 or 60 years of reasonable prosperity uh until uh it hit Hawaii the recession hit Hawaii. But New Zealand's a bad example, I think because New Zealand was a totally socialized economy which sold off all of the national assets which were the airlines, the banks, post offices and the uh and the mines uh and that's what's financing a lot of their current prosperity but nevertheless they have a 13% GST and a very high income tax. So I don't think parallels between New Zealand and Hawaii or the United States make much sense at all.
[00:54:51] Randall Roth: I think you've got a healthy difference of opinion because when you were citing the reasons that you're critical of what's going on over there our guests were were indicating they thought those were reasons to applaud what's going on over there. Let me get a reaction from Seji Niya and then we'll move on. Thank you, Dick.
[00:55:07] Seiji Naya: What we what we want is steady increasing economic growth the next uh 10 15 years about uh 2 and 1/2%, 3% economic growth rate. See, you cannot have a uh higher standard of living without higher economic growth. Higher economic growth does not guarantee good life, uh good quality of life. But if you don't have that higher growth, you're not going to have that higher standard of living.
[00:55:23] Randall Roth: So this is what David Mclane was saying about we need to grow the pie.
[00:55:39] Seiji Naya: That's right. And uh deregulation as a part of that uh strategy to make our economy move uh create more economic development. If you don't have economic development, labor will suffer. So we have to work together [unintelligible — audio glitch] the labor union. It's a very important part of our whole economic activity. We cannot isolate them. Uh at the same time they have to work with with the government private sector to make things work better. You know, that's the message we like to give. Deregulation not for the sake of deregulation. Deregulation to to revitalize our economy.
[00:55:55] Randall Roth: Okay. We have another caller on the line, who's been on the line a long time. Julie from Kani Ohe. Good morning, Julie.
[00:56:11] Caller: Good morning, Randy. I would like to congratulate you for this timely and very informative program. Thank you. I would like to address my questions to Dr. Niya. Uh Dr. Niya, what are the steps you are taking to reorganize or streamline your department? And secondly, how these how does this relate to your promoting new initiatives you have just mentioned earlier?
[00:56:27] Randall Roth: Okay. Seji?
[00:56:43] Seiji Naya: Well, uh in March uh when I came on board, uh I I saw with uh 8 to 9 uh divisions of uh Dbed and I have streamlined to a reduced to a four four divisions and they are less specialized. They will be working more closely. work with each other. Uh in the past, I I felt the department uh is bit like a university where you specialize in certain areas. You have a monopoly domain of that particular aspect then don't look at don't look at other other issues. I feel in terms of business promotion we have to work together. And uh I have also the the change the structure of library. Library not for the sake of library, but like library to be much more proactive uh meet the needs of uh community.
[00:57:54] Seiji Naya: So I brought uh the one-stop information center into library. Uh so the those are the changes I am making. Uh you see uh also the one area we have been emphasizing is the how to promote the Hawaii's participation in the Asia-Pacific and uh I know this will take a little time so I'll stop here.
[00:58:22] Randall Roth: Okay. Okay, Julie, thank you for your call. Um, one of the things that I thought a caller would raise and they haven't yet, and so I'm going to very quickly just mention thumbs up Hawaii. How does this fit into our our discussion today? Good, bad, doesn't matter. Um, let's start with Dave Mclean.
[00:58:49] David McClain: Well, I think it's a good thing. I it reminds me of the time that Ronald Reagan told us all uh in 1982 when the economy was in recession to not be so afraid to use our credit cards. Um because it's true that consumer confidence can affect the state of the economy. Um and so what I see Thumbs Up Hawaii as being is a sort of a a welcome positive antidote uh to the budget cutting gloom that that really uh was all consuming for the first few months of this year. Um so I think as far as it goes, it's fine. Uh it's not the answer.
[00:59:44] Randall Roth: Okay. Okay. Paul Brewbaker, I know your boss is one of the uh the originators of Thumbs Up Hawaii. So uh what's your reaction?
[01:00:12] Paul Brewbaker: You bet the two banks, the two big banks are intimately involved, and I think partly that involvement is motivated by the recognition that as a result of First Hawaiian Bank's consumer confidence surveys and Bank of Hawaii's business confidence surveys, that there has been a marked deterioration in the levels of consumer and business confidence, and uh and that that deterioration in in confidence is uh quite distinct from the economic performance of the economy, which has been about neutral. I mean it's been okay, but there hasn't been the same kind of economic deterioration that's uh uh been apparent in the way people think about things. So part of the part of the effort here is to just get people focused on what's really happening and go forward and seize the opportunities that may be uh in front of them [unintelligible — audio glitch] they've resisted uh looking at because of the way they feel about things.
[01:01:07] Randall Roth: So it might be too much to say we have nothing to fear but fear itself, but uh maybe we should be less fearful.
[01:01:34] David McClain: I think so. There's plenty of good news out there if you start looking for it.
[01:02:01] Randall Roth: Okay. We've got one minute to go. So rather than take any more callers, let's just see if our guests have a a few comments that they'd like to make that they haven't had an opportunity to make. Seiji?
[01:02:29] Seiji Naya: I like to continue what the Paul said about the thumbs up. I think it has much deeper deeper meaning to it. You see what we have to do either export more or do an import substitution. And you look at the product like aloha shirt, it is much more than selling a shirt. It's it is much more than buying a shoes from someone else. It sells Hawaii. And I I think we have to look inward. To be look outward you have to look inward to see that the the talents we have, uh the nice things we have and to see that instead of just using the main and research firms, we see that the people like Dave uh we have excellent talent. And the thumbs up is that precisely that message.
[01:03:24] Randall Roth: Okay. And on those positive words, we're going to have to pull this to a close. Our guests today were Seiji Naya, the Director of DBED, Paul Brewbaker, the Chief Economist at Banko, and Dave Mclean, a Professor of Business at the University of Hawaii. I want to thank all of our listeners. We had a lot of calls. There were an awful lot of people that we didn't get to, we couldn't get to, but we really appreciate your interest. If you'd like to hear the entire rebroadcast, it's tonight at 8:00 on KIFO 1380 AM. Our producer is Susie Roth, our Director of Operations Jeff Alardi. You've been listening to the Price of Paradise Radio Show. I'm Randy Roth. Aloha.