HI. TECH
If goal of diversification is less risk, high-tech may not be the best idea

By John Duchemin
Advertiser Staff Writer

Ever since the first Gulf War, "diversification" away from tourism has been the economic development gospel for Hawai'i. But the pursuit of diversification has been carried out in a rather strange fashion.

To advocates of diversification, tourism — the state's main economic force since the relative decline of agriculture and defense spending in the 1980s and 1990s — is an unstable industry, to be feared as much for its cyclical capriciousness as it is appreciated for its power and profitability.

The economic pallor of the 1990s, when tourism swooned, and the recent shocks caused by 9/11 and the Afghanistan and Iraq wars are seen as proof that Hawai'i needs another source of money and jobs — preferably one that is more stable than tourism, or at least dances to a different tune, so that the whole economy doesn't rise and fall at the same time.

Here is where the logic falters somewhat. As the second pillar of the new Hawai'i economy, diversification advocates routinely choose technology — which, in Hawai'i, consists of a cluster of small science- and research-based companies in fields like biotechnology, medical research, military technology and software development.

The diversification crowd argues that by pumping government and private money into these companies, and by offering generous tax incentives to technology entrepreneurs and investors, we can eventually create a portfolio of export products like software, intellectual property and vaccines. The resulting industry would employ tens of thousands of highly trained, well-paid employees.

It's an exciting prospect and it could happen, but it's also a huge gamble. Therein lies the flaw: Diversification of Hawai'i's economy makes sense only if it reduces uncertainty, not if it adds risk.

As communities across the world have discovered, the high-tech industry is incredibly risky. It can be great when it's hot, terrible when it's not. Technology companies must be innovative, flexible and fast-paced to stay ahead of the competition, meaning they are prone to hire masses of new employees and suck in great quantities of investments when needed.

But high tech depends on the assumption that people and businesses want to spend money on better stuff. When businesses are hit with economic uncertainty, new technology purchases are often among the first things to be scaled back.

In other words, high tech is an extremely cyclical industry. If the economy is a mutual fund, the technology industry would be the speculative growth stock inserted as a gamble to jazz up overall performance —Ênot something to be introduced as a stabilizing element.

So it's inappropriate for Hawai'i diversification advocates to present high technology as a reasonable alternative to a shrinking but steady sector like the military.

That does not mean the tech industry has no place in Hawai'i. The industry does offer fabulous advantages — educated employees, international prestige, and the excitement of participating in the scientific and technical advancement of civilization. But its part in Hawai'i's future needs to be more clearly defined by economic development advocates, who would assign technology the wrong role.

Reach John Duchemin by phone at 525-8062 or e-mail at jduchemin@HonoluluAdvertiser.com.