To hear local business leaders tell it, there are few places in the sink-or-swim world of private business where the waters are as uniformly forbidding as Hawai'i.

The litany of grievances is familiar to even casual observers of Hawai'i's business community: interminable waiting periods for permits; onerous taxes; regulatory processes that seem designed to suffocate rather than promote private enterprise; layers of bureaucracy that make it readily apparent why government is Hawai'i's largest employer.

"Fundamentally, we'd like to see government be more supportive of economic development rather than simply regulating," said Jim Tollefson, CEO of the Chamber of Commerce of Honolulu. "The regulatory role is important, but there also needs to be support and facilitation."

Such perception has been backed by decades of negative press.

In 1983, Forbes magazine called Hawai'i a "virtual purgatory for business."

In 1998, The Economist bemoaned: "(Hawai'i) is an expensive, highly taxed, highly regulated little dot on the Pacific," adding, "It is also a lousy place to do business."

Perhaps the most damning point-by-point analysis came from CNBC, which ranked Hawai'i 49th out of the 50 states (better than only Alaska) in its 2007 and 2008 "Best States For Doing Business" lists.

In the 2008 study, Hawai'i placed last in "Business Friendliness" and "Workforce" categories, and also scored poorly in "Cost of Doing Business" (49), "Transportation" (49), "Cost of Living" (49), "Access to Capital" (43) and "Technology and Innovation" (43).

"It's not just our perception that it's expensive and challenging to do business in Hawai'i," Tollefson said. "It's validated by outside sources."

This wasn't always the case.

Hawai'i enjoyed robust economic growth and development in the decade immediately after statehood as tourism overtook agriculture and federal defense spending as the No. 1 source of revenue in the state.

According to University of Hawai'i economics professor James Mak, this boom period was initially facilitated by a hands-off approach on the part of the state government.

Permitting was relatively swift. Regulatory requirements were manageable. Construction progressed largely unencumbered. And as hotels and other large businesses directly related to tourism thrived, so, too, did the wide web of smaller, local businesses that provided goods and services to these frontline business or otherwise benefited by the surge in population and development.

REINING IN GROWTH

However, as the pitfalls of rapid growth — greater competition for housing, increased stress on infrastructure, negative impact on the natural environment, etc. — became more of a concern to the resident population, calls for tighter management of the state population and the number of visitors arriving each year grew louder.

The state's response was to undertake a series of expansive planning initiatives aimed at growing tourism at a rate that would allow for continued economic growth while minimizing its negative impacts on quality of life.

As part of this overall effort, new permitting and regulatory mechanisms were introduced to slow the current rate of growth and, in so doing, slow the influx of those migrating to Hawai'i for work.

However, as Mak noted, while such systems for limiting the rate of growth did address a host of cultural, environmental and lifestyle concerns, they also contributed to a business environment that made it difficult for new businesses to start and grow — a significant problem during the protracted recessionary periods that would accompany future down periods in tourism.

Former First Hawaiian Bank CEO Walter Dods, for one, rejects this idea, arguing that permitting and regulatory processes posed significant challenges for private business even during the boom period of the '60s and '70s.

Tollefson said the long-term impact of Hawai'i's failure to adequately support private business was driven home when he participated in a survey of nine Hawai'i high school students.

When asked where they planned to be in 10 years, each student responded that they would be somewhere other than Hawai'i.

"That's what I'm talking about," he said. "We need to create an economic environment with a job base that will provide opportunities for the next generation. It's the private sector that creates jobs. We need a strong, viable private sector to create jobs so the economy can thrive and prosper."

Tollefson said the time required to get requisite approvals to start a business, and the related cost, puts smaller startup companies at a disadvantage.

BIG-BOX BOOM

In the retail sector, consumer response to the recession of the 1990s and the current economic downturn has also favored businesses with deeper pockets and broader resources.

So-called big-box stores, which have the retail capabilities to leverage lower wholesale costs, have made major inroads in Hawai'i since the first Costco opened here in 1988, and in so doing have helped to change consumer shopping habits.

Economists say that while such outlets tend to hurt smaller, local businesses that aren't able to match their low prices, big-box stores are effective in lowering the overall cost of living within their host communities.

While the fluctuations of the tourist industry have affected all areas of private industry in Hawai'i, Tollefson and Dods said that the relative strength and stability of the state's financial institutions is a cause for optimism during the current economic downturn.

Still, as Dods said: "It's not healthy for an economy to have its leading businesses be financial institutions. Financial institutions need to be servicing healthy, vibrant, job-producing enterprises. We need to help small- and medium-sized businesses become big businesses."

And that, private business leaders contend, will require local lawmakers to reflect seriously on the ways in which private industry is allowed to operate as Hawai'i moves into its second half-century of statehood.