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Wednesday, September 29, 2010

Sustaining No Ka Oi

Sustaining No Ka Oi: Stimulating wealth creation in Maui Nui

Basic macroeconomic theory dictates that economic wealth is generated when economic entities (nations, states, counties, etc.) export more than they import.  Therefore, in order to grow Hawaii’s economy and increase its wealth, Hawaii must become a net-exporter. 

Given that Hawaii does not possess a manufacturing industry and given that the cost of land in Hawaii makes it unviable to compete in the global agricultural market, a first step to increasing Hawaii’s wealth is reducing its imports.  But, again, without a manufacturing industry, many things must be imported – computers, televisions, vehicles, refrigerators, etc.  In considering what can be manufactured on Maui, it becomes quickly evident that the most efficient and effective way to reduce net imports is by growing our own food.  However, when the cost of importing agricultural goods to Hawaii is subsidized, as it currently is, local farmers are forced to compete in a global market.  Ask Sandy Takishita of Howard’s Nurseries what it has been like for her and her husband competing on the global market.  Against these odds, (subsidized agricultural imports + some of the costliest real estate in the world), turning a profit it is impossible.

Going back to original statement, basic macroeconomic theory dictates that economic wealth is generated when economic entities (nations, states, counties, etc.) export more than they import.  So while increasing protection measures for our local agricultural industry by eliminating subsidies for agricultural imports will reduce net imports and thus bring us closer to a positive net export equation, that’s not enough.  Therefore, in order to grow Hawaii’s economy and increase its wealth, we now turn to Hawaii’s export commodities.

Since Hawaii lacks an industrial economy, our only viable export commodity is tourism (remember again, agriculture on Hawaiian real estate performs poorly on a global market and therefore cannot be exported.  Koa forest industry on the other hand, – may be a different story.  Talk to Art Medeiros about that.) 

Wealth that is created in Hawaii only to be “skimmed off the top” by offshore multinational hotel corporations does not count toward “net exports”.) Currently, wages for a majority of the jobs available for local residents in the visitor industry represent a sliver of the total revenue generated by these large hotel corporations. The rest goes to offshore ownership.  The composition of this industry is primarily comprised of time-shares and hotels owned by multinational corporations that deliver a very predictable yet reliable service.  They are predictable and reliable because they are equivalent and redundant.  And with a differentiator, the “sun and sand” consumer has no incentive to choose Maui over any other “sun and sand” destination. 

The only way for an undifferentiated commodity to earn positive returns on investment in a global market is by continually suppressing labor cost to globally competitive levels (i.e. the cost of housekeeping services in Belize).  So essentially, our housekeepers are now competing with every other housekeeper that works for an unspecialized hotel in every other semi-tropical vacation destination in the world.  This includes third world countries. So not only are housekeeping and other labor jobs in the hotel industry insignificant compared to wealth being “skimmed of the top”, emerging global competitors are only driving these wages lower. 

The future of our visitor industry is in family-run visitor accommodations that offer a genuine taste of our local culture that also produce their own food. They would improve the long-term sustainability of our food economy and our social fabric.  They would provide livelihoods our local families.  They would reduce our dependency on imported food. As permaculture farms, they would have minimal impact on the environment.

For example, a native Hawaiian family that has a stream running through its property could offer visitors a glimpse of authentic native Hawaiian culture.  With a little stream flow, not only could this B&B produce poi for their visitors, they could also grill up some opai.  A B&B permaculture “lodge” in Ulupalakua where it produces its own wine provides a 5 star dining experience to its visitors.  The lodge could have a stable and offer trail rides to significant cultural sites.  Opportunities for competitive differentiation amongst B&B services would ensure a highly specialized visitor industry market that is not tied to the global cost of wage-labor.

Done right, these families could also charge a lot of money for it.  Furthermore, 100 percent of the revenues across the county would stay in the county.   After expenses, labor, and taxes, what percentage of its contribution to the visitor industry would this family get to keep?  After her labor, what percentage of the Hilton Hawaiian Village does a housekeeper get to take home?  What about a receptionist? 

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