After more than a year, the Hawaiian economy is slow to diversify

After more than a year of talks about diversifying Hawaii‘s tourism-dependent economy, little progress has been made as island tourism thrives again.

“We have learned nothing from our troubled year,” said Sen. Glenn Wakai, chair of the state Senate Committee on Energy, Economic Development, Tourism and Technology. “And as we’re recovering faster than expected, it seems like there’s even less discussion. … We really missed an opportunity over the past year to really think about what Hawaii’s economy should look like.”

The legislature began with Gov. David Ige’s state of the state address on Jan. 25, in which he called for a “Hawaii 2.0” economy after COVID-19.

“Every government, every company and every non-profit organization must use digital technology to be successful,” Ige said. “We need to develop a clear vision for a more diversified and sustainable economy that is compatible with our culture and way of life. And that vision must be based on solid economic analysis. A post-COVID Hawaii cannot be a Hawaii as it used to be.”

Wakai — when asked for examples of specific efforts this term to invest in or increase in industries such as aquaculture, technology, aerospace, alternative energy, or diversified agriculture — said bluntly, “No.”

“We will go back to the old methods of milking the tourism cow. For how long?”

Wakai’s committee on Monday passed two non-binding House resolutions that would require the state Department of Business, Economic Development and Tourism to create a list of Fortune 500 companies that may be willing to relocate to Hawaii and potential incentives for them to find; and another that would call for the Hawaii Community Foundation to organize a working group “to develop a public-private partnership model to prepare for Hawaii’s post-pandemic recovery.”

The goal would be to build on the collaboration between government, philanthropy and the private sector that has helped Hawaii respond to the food shortages caused by COVID-19 when thousands of families suddenly lost their income, said Micah Kane, HCF President and CEO.

“Food insecurity has been a major concern and has been exacerbated during the pandemic,” Kane said.

He hopes to build on these collaborations and potentially bring in more mainland philanthropic investment to address even more longstanding island problems, including developing affordable housing and diversifying the state’s economy.

“We need to build on that before it gets too far in our rearview mirror,” Kane said. “We should be able to do this while enjoying a very robust tourism economy. … We need to come together.”

Carl Bonham, executive director of the University of Hawaii’s Economic Research Organization and a member of the State House Select Committee on COVID-19, said Hawaii’s tourism industry is the result of years of effort to diversify an island economy that once relied on growing sugar and pineapples.

The shift to tourism has also been driven by external forces, such as the post-WWII boom and the development of air travel.

“It was planned and an effort that involved the government and the private sector and took time,” Bonham said. “Now we’ve been talking about it (diversification) for 40 or 50 or 60 years. There was never any realistic reason to believe that we would make any dramatic changes over the last year. You have to look at this as a multi-year, decade-long effort.”

In the short term, Bonham says, “it’s still all about tourism. There is no switch that you can suddenly flip and diversify the economy.”

But Bonham said more efforts could have been made over the past year to better manage tourism, including restricting access to popular tourist attractions like Hanauma Bay and Diamond Head.

“We should have made a lot of progress on that when nobody was here,” Bonham said.

State Assemblyman Gene Ward (R, Hawaii Kai-Kalama Valley) flew to Maui Saturday to deliver a speech and saw firsthand the Valley Isle’s tourism rebound when Ward’s office offered a $850 rental car rate Dollar was only mentioned for one day.

Instead, Ward said, “We got picked up.”

Ward also believes Hawaii wasted a year by doing little to turn the economy away from tourism.

“Cynically, it’s still the same: rhetoric, not action,” Ward said. “All promised, no delivery.”

Private aerospace companies are interested in working in Hawaii as a new era of space exploration is underway – similar to Hawaii’s role in the early days of America’s Mercury and Gemini space projects. Wakai also said that Hawaii — the state closest to the equator — “is primed for small space satellite launches.”

“We’ve lived off our good looks for so long,” Ward said. “Now we have to live off our brains, the high-tech stuff. But we’re either deaf or stupid. We should have prepared the economy for re-entry and long-term survival. But I don’t see anything in the pipeline.”

Steven Bond-Smith, a senior research fellow at Curtin University Business School’s Bankwest Curtin Economics Center in Australia, has studied Hawaii’s economy as a new member at UHERO and said Hawaii will have a hard time finding another industry to support tourism to replace.

“Really small and isolated places like Hawaii or Western Australia or New Zealand have to specialize in one industry to compete with big conglomerate economies,” Bond-Smith said. “It also means that you are exposed to external shocks like the pandemic.”

“Tourism is not going away,” he said. “That’s what Hawaii is good at.”

But there are opportunities to train hospitality workers and businesses to diversify into other tourism markets, such as convention and corporate travel — or as a Hawaii-based market for travel to and from China and Brazil, Bond-Smith said.

“It lays the eggs in a few more baskets,” he said.

Comments are closed.