Neo-liberalism poses threat to well-being of Hawai'i, other states
By Jon Goldberg Hiller, Luciano Minerbi and Eldon Wegner
Higher education in Hawai'i — and in many other states across the country — faces two paradoxical patterns these days.
Advertiser library photo • Nov. 3, 1995
On the one hand, universities, as centers of advanced learning and as generators of knowledge, have become ever more central to economic success in our technically oriented and global economy.
In 1995, Gov. Ben Cayetano went before the University of Hawai'i Board of Regents to justify the UH budget, comparing its cutbacks with reductions elsewhere in the state's operating budget.
In fact, the ability to apply and generate knowledge has replaced raw materials as the central scarce resource for economic prosperity.
But at the same time, the past two decades have seen a significant erosion of public commitment to higher education.
What happened to create this paradox?
Under the influence of neo-liberal economic ideologies, some states, with Hawai'i in the lead, have significantly trimmed the share of their budget allocated to universities. Student financial assistance has been replaced by student loans.
And as investment in broad-based higher education wanes, access to quality education has become more focused on a small set of elite institutions.
Neo-liberalism is concerned with more than education "reform." Neo-liberal policies include reduced taxation, reduced public services, deregulation of industry, increased privatization of government services, destabilization of labor unions and the devolution of decision-making from national to state and local authorities.
In short, neo-liberalism has been about restructuring the welfare state that developed after World War II and reassigning government spending into new areas.
It's time for critical examination of the assumptions and consequences of the policies that flow from neo-liberal economic ideology.
These consequences impact the very nature of opportunity in society, economic distribution and the general well-being of the community.
The alleged advantages of neo-liberalism in the United States can be traced to Ronald Reagan's "supply-side" fiscal policy. This policy claims that by cutting taxes, money is freed for economic investment, which would in turn generate jobs and generally create economic growth.
Unfortunately, the deep tax cuts undertaken during the first Reagan administration (cuts that were not offset by a reduction in expenditure during Reagan's tenure) created unprecedented federal budget deficits which were only reversed late in the Clinton years. Furthermore, the Reagan years ended with the economy heading south.
In Hawai'i, we have been assaulted with many claims that our state is out of step with (neo-liberal) economic reality. Forbes magazine and other business publications attribute our poor business climate to excessive taxes, overblown public expenditures, and powerful unions.
Advertiser library photo • April 19, 2001
To be sure, the state has often wasted money and saddled taxpayers with ongoing burdens — e.g., the Aloha Stadium, the Convention Center, "Baywatch Hawai'i," Miss Universe. It is probably true that new businesses have a hard time in Hawai'i due to excessive government red tape, regulations and practices to protect established firms, but also because of regulations to protect our fragile environment.
Students returned to Manoa and other UH campuses last month when classes resumed after the faculty union approved a pay offer from the state and ended the professors' strike.
Because of the lingering impression of being out of step, our current governor and certain other influential politicians have increasingly come under the heavy influence of business interests who bear the Reaganesque message of neo-liberal economic theory.
The economic crisis precipitated by the Japanese investment bubble-burst and accelerated by the reduction of tourism resulting from the Gulf War, provided a window of opportunity to find villains. Interestingly, our major bank economists applauded the Japanese financial inflow as "investment," when of course it was really just real estate speculation.
Big business in Hawai'i would not look in the mirror regarding its own investment policies, including the lack of orderly planning for a transition out of sugar. Instead, our problems were laid at the feet of the public sector, high taxes and an excessive number of government employees.
What is the ideological commitment that drives our governor and at times the Legislature? It is to downsize government, to reduce taxes, and to replace public services with private ones.
While this may be a worthwhile set of reforms, it is a policy with decidedly more rhetorical appeal (who, after all, could be against "efficiency?") than empirical evidence that it will actually benefit our society and economy.
Lacking evidence, it is hard to refute the argument about "right-sizing" government because there is no idea about what the "right size"should be for government services.
In neo-liberal logic, less is always better, and the status quo always excessive. The threat of universal competition leads us to seriously consider a "race to the bottom" in which the lowest taxes and smallest government will be rewarded by global investment.
Nonetheless, there is evidence to suggest Hawai'i's government may not require neo-liberal reform.
A recent book by Richard Pratt and Zachary Smith titled "Hawai'i Politics and Government" (University of Nebraska, 2000) carefully examines some of the claims of neo-liberals and concludes that the evidence neither supports the argument that Hawai'i has an excessively large number of government employees nor the claim that our taxes are higher than other states.
In addition, spending does not seem to be excessive. On the contrary, a recent study by Governing Magazine has shown that when it comes to public financing of K-12 education, Hawai'i is nearly dead last (48th out of 50) in per capita expenditure. If government size and taxes are average and education spending shamefully low, what states should Hawai'i use as a frame of reference to right-size? It's a large and diverse country.
Advertiser library photo • Jan.21, 1996
How important is cutting taxes to creating economic growth? This is a central dogma of the neo-liberal economy perspective and underlies the severe budget cuts for the university as well as other state services during the past five years.
Professor William Foltz of the English department makes his point at a protest held at the State Capitol.
In 1998, the Legislature voted for a phased-in reduction in the personal income tax rate. Indeed, some have stated that we can look to the recent economic upturn as a positive consequence of their legislation. However, this seems most unlikely since the tax cut began taking effect just about the time that the economy had already begun to improve, and much of the cut remains to be phased in.
The economic upturn of the past year in Hawai'i was due to the spillover of the booming American economy and some improvement in tourism from Japan.
The tax cut can, in fact, be viewed as an irresponsible reduction of needed government revenues in order for the state to maintain its important health, education and social services. State agencies were already reeling from budget reductions and reductions of work force. These include the current serious problems at the university such as an erosion of faculty positions, inadequate support for the library and a huge backlog of building maintenance.
If we play the game of "follow the money," tax reduction is a dubious and incoherent strategy for stimulating the local economy. The claimed logic of regressive tax reductions reveals some of the contradictions of neo-liberalism. On the one hand, streamlining government by decreasing revenue is said to be responsive to global market demands for competitiveness. On the other hand, the trickle-down theory that justifies the preference for across-the-board tax cuts presupposes a closed economy, unaffected by global markets.
It is more reasonable to acknowledge that cuts in the personal income tax rate give greatest benefit to the wealthy, who (quite rationally) will invest it or spend much of it outside of Hawai'i where the global economy is strongest.
One further consequence of cutting taxes, of course, is that it increases economic inequality in the community. This occurred nationally under the Reagan presidency, and continues today in Hawai'i where, during the past two decades, middle- and lower-income families have seen declines in inflation-adjusted incomes, while the upper 20 percent has seen a steady increase in income.
The currently scheduled income tax reductions in Hawai'i are certain to have the same effect.
Understanding this, we can return to the role of the university. The context for understanding the recently concluded strike is not a simple matter of salaries but a concern for the future of the university. Although lip service is often paid to the importance of the University as an economic engine for Hawai'i's future, powerful business and political forces in Hawai'i have stood behind an agenda to limit the scope and size of UH.
This reduction has been a priority of Gov. Cayetano and of the Regents he has appointed. President Mortimer often silently acquiesced as the budget of the university was slashed by nearly one third in six years. This has reduced the opportunities for faculty research, and has threatened numerous graduate programs.
In a recent article in the Honolulu Weekly, writer Bob Stauffer argues that this constriction is encouraged by some business elites who desire a low-skill, low-wage work force, maintaining Hawai'i as a "colonized" population by disassociating our wages and standard of living from the rest of the U.S. Whether this is the true motivation, it is certainly clear that UH is not seen as good enough for the children of Hawai'i's business, political and social elite, most of whom attend institutions on the Mainland.
This lack of commitment to and pride in our local public university (a very rare attitude in other states) is ultimately reflected in institutional neglect and outright conflict with the UH faculty.
Concern for Hawai'i's economic future should prompt a different course. A major state university expands the opportunities available to local youth and is also vital to developing a more diversified and technological economy. Just look at the millions of dollars of federal grant money that UH researchers attract each year. It also provides knowledge for the local community, something driven home this past year with the unfortunate destruction of the popular School of Public Health in the interest of budgetary savings.
Saving tax dollars by short-changing education and weakening the university makes no long-term economic or social sense in today's world.
Jon Goldberg Hiller is on the faculty of the department of political science; Luciano Minerbi, department of urban and regional planning; and Eldon Wegner, department of sociology.
