Tourism-heavy economy needs balance
By Jay Fidell
By Jay Fidell
Tourism is in the tank. Hawai'i's economy is based on tourism, and it's coming apart. Visitors are down, days and dollars per stay are down, flights, occupancy and jobs are down, everything is down. Cutthroat global competition is up. And this isn't going to end for a while.
Tourism started down in December 2007. The DBEDT site says arrivals, days and spending dropped some 10 percent for 2008. Hawai'i had 800,000 fewer visitors than in 2007. They spent $1.2 billion less. The forecast for 2009 is not much better. Airline seats to Hawai'i are expected to drop 16 percent from now to February.
Hawai'i's tech sector ($3 billion annually) is one-fourth the size of tourism ($11 billion) and almost as big as the construction sector ($3.5 billion), and it's not subject of the whims of tourists. It's been able to raise millions in venture capital, and it will attract defense funds, especially with Sen. Daniel K. Inouye as chair of Senate Appropriations, and stimulus funds from Barack Obama, especially in his favorite areas — clean energy, healthcare and Internet access.
Tourism and tech are poles apart. Given the current economic crisis, we need to look at the strategic relationship between them going forward.
The difference between Hawai'i and other destinations is that Hawai'i is almost completely dependent on tourism, a one-horse economy. One-third of our jobs are tourism related. We have NOT saved for a rainy day. We have no Plan B and nothing to fall back on, and we are likely to pay a terrible price for an inexcusable complacency.
We had 75 years of "Hawai'i Calls" and "Blue Hawaii," and the world was ready to beat a path to our door. We opened the door wide and built, in a largely haphazard manner, a gravy train of tourism. We've been riding that train for years, and increasing our rates without improving our product.
All this action drew capital from outside owners who paid too much and had to increase rates and cut quality to make a return. These outside owners bought everything in sight. Valuations increased and they spun those properties for huge gains. Their buyers then paid too much again, and again had to increase rates and cut quality. Could this last?
It was as if a single-minded decision was made in the Burns years, not only by government but by everyone, that tourism was our identity and long-term future. Let's just be a destination. It'll always get bigger and more profitable, so let's all jump in. That decision was a huge mistake.
Voices, including that of George Ariyoshi, were raised for diversification in the '80s and the '90s, and resulted in the Mililani Tech Park and the Manoa Innovation Center, but they didn't change the primary decision. Most people felt tourism was the cash king and diversification was humbug.
After the dot-com "boom," there was a resurgence of interest in tech in Hawai'i that was not undone by the "bust" in California. Our best and brightest were coming back with dreams of remaking Hawai'i, and some launched tech businesses. Regrettably, Gov. Linda Lingle did not respond — although she campaigned on a promise of a "new beginning," she's done little or nothing to incentivize diversification.
The hotels and infrastructure have aged. They aren't so pretty or green anymore. The Kodak Hula Show was the canary in the mine, and our mojo is now gone. The attractions have faded. The streets, sewers and traffic are embarrassing. The condos are higher and the potholes are deeper. Tourists do notice, and they take all this home.
As we moved from "class" to "mass" tourism, the quality of the tourist experience went flat. Hotel staff became overwhelmed and service suffered. Mass tourism undermined our quiet enjoyment and oversaturated our infrastructure, with more crime and erosion of local culture and good will. In the end, mass tourism in Hawai'i is not sustainable.
We took tourists for granted, and when we did, we lost our charm. Redundant Hawai'i Visitors and Convention Bureau-Hawai'i Tourism Authority marketing is much too costly and won't help. We need to go back to quality. That will not be nearly as easy or lucrative.
Good news. In a diversified economy, tech can counterbalance a decline in tourism. The 2008 tech reports by the Hawaii Science and Technology Council and the state Tax Office are optimistic. Look at the Tax Office report issued in September — the one issued in December was written down by Ted Liu and his DBEDT staff.
At this point, responsible planning demands that we broaden our commitment to tech. Let's extend Act 221 and give investments and incentives to grow tech companies here. Let's give them all we've got, and tell them that we mean it, as we should have years ago. We want them home with family to raise the next generation right here in Hawai'i.
Our beloved children would come back to relive their lives with us, attracted by good jobs and a promising future. Our intellectual and business energy would be enhanced. These kids would build and balance our economy with new ideas and IP, and we would export new value. We would graduate to a center of excellence instead of a backwater.
A NEW PARADIGM
When the world rebounds, Hawai'i's tourism can't just return to what it has come to be. We need to give it the kind of high quality we had before. The hospitality infrastructure must be rebuilt, and the service must be revitalized. This is something we can plan ahead for, and start working on now.
But high quality is not necessarily high volume. It will probably generate lower volume and therefore lower revenue than before. It won't support our economy in the same way, but it will be sustainable.
The lesson is clear. We can't continue to rely on tourism as the dominant sector of our economy. The most effective strategy is for us to diversify. That's where tech comes in. While we are reorganizing our tourism sector, we should be expanding our tech sector. In that way, we'll be less vulnerable to volatility in global tourism.
So even in this adversity, we can diversify. That's likely to save us, not only in this downturn but also in the next. There's no better insurance than being prepared. Proactive management is not beyond our grasp. It's not too late. We can still do what we should have done before.Jay Fidell is a business lawyer practicing in Honolulu. He has followed tech and tech policy closely and is a founder of ThinkTech Hawaii. Check out his blog at www.HonoluluAdvertiser.com