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 The Brancatelli File

joe PROFITS IN PARADISE

BY JOE BRANCATELLI

August 3, 1984--In the days when the monarchy reigned, Hawaii's government and business community got along just fine.

Back in the 1860s, for example, King Kamehameha IV found a novel way to lure a Scottish family to Hawaii. The family was planning to move its cattle ranch from New Zealand to California, but Kamehameha made them an offer they couldn't refuse. He sold them the 97-square-mile island of Niihau for $10,000. More than 100 years later, Niihau is still owned by direct descendants of the original family and it is still used for cattle ranching.

Government-business relations haven't been quite so chummy in recent years, however. With the exception of Niihau--which is off-limits to all but invited guests--Hawaii has the most carefully controlled state economy in the nation. Over the past 25 years, the state government has evolved into what some have called a cut-rate brand of socialism. Commercial and industrial development in Hawaii is controlled by intricate master plans, strict land-use rules, state-controlled economic planning departments and often implacable antibusiness cadres in the legislature and the state bureaucracy.

In recent years, as business growth has slowed after two decades of fast-paced expansion, Hawaii's business community has become increasingly vocal about the state government's heavy-handed economic controls. Constant repetition of stories about the state's labyrinthian permit and approval process and its lethargic bureaucracy has earned Hawaii an unenviable reputation as a difficult place to do business.

"The business community never uttered a peep, we never complained during the boom years of 19601980," admits Bank of Hawaii Chairman and Chief Executive Officer Frank J. Manaut. "When the growth rate was high and everybody was doing well, we glossed over the problems. But now that we've become aware that the easy-growth boom days are over, we look at the system of government regulation and we cringe a bit."

Outsiders looking at the controls imposed on Hawaiian business by the state government are often appalled. The accounting firm of Alexander Grand ranked Hawaii next-to-last in its annual survey of how states treat manufacturing concerns. Even Governor George R. Ariyoshi's own business committee criticized the state's method of dealing with the business community. It condemned everything from Hawaii's burdensome workers' compensation laws and its Byzantine land-use regulations to the state's "unsympathetic" bureaucracy and "onerous" excise-tax system.

But lest out-of-state businessmen get the wrong impression, it must be said that Hawaii's business community takes full responsibility for the government's heavy-handed approach.

"We invented all this because we're an island state and we wanted to keep it beautiful," explains Warren Haight, the vice president-Hawaii of Castle & Cooke. "We've managed to keep Hawaii beautiful. We don't have smokestack industries here. We have a good lifestyle and low unemployment. The trade-off was a somewhat onerous series of regulations and overlapping government agencies."

"The system we have in Hawaii is different from the mainland's system of allowing business to roam free," says Kenneth Brown, the president of the Mauna Lani Resort. "By nature, different is difficult and somewhat time-consuming. But I have less and less sympathy for the developers looking for the fast buck. Everything that is really wrong with Hawaii came from the fast-buck operators."

"The state hasn't had a 'y'all come' attitude toward business," admits Theo H. Davies President David A. Heenan. "When a business comes here, you don't see the governor at the airport with a lei greeting and a kiss on both cheeks. Hawaii's relationship with business has been a tug of war between the head and the heart. In our heads, we wanted business, but, in our hearts, we wanted to save our old values. And our values are about saving the natural beauty of the Islands."

The beauty of the Islands and Hawaii's traditional reliance on agriculture are what's at the heart of the state's restrictive business climate. Even as Hawaii was developing its tourism business and its urban areas as the lifeblood of the Hawaiian economy, the state's master plans and land-use rules were skewed toward protecting the environment and the agricultural integrity of Hawaii. The land-use laws mitigated against rezoning agricultural land for commercial, industrial and urban use. As a result, almost 2 million acres of Hawaii's real estate is agriculturally zoned, but less than 250,000 acres of it are actually planted in crops. And with agriculture continuing to decline in importance, the total amount of acreage in crops is likely to decrease.

"Even though Hawaii stopped being an agricultural society years ago, the residents have been resistant to the change," explains Joseph R. Pelletier, the president and CEO of Pacific Resources Inc., Hawaii's only Fortune 500 company. "We've relied on pineapple and sugar for our existence for so long that it's hard to change."

"We're really talking about the preservation of open space here," suggests Haight of Castle & Cooke. "When Hawaiians say 'agriculture,' most of them mean open space. Even though the agricultural future of Hawaii is very limited, people are reluctant to take land out of agriculture because you lose open space when you develop land for industry and commerce. When you've had it as good as we've had it, I guess you get a little selfish."

The last word on the prickly relationship between government and business in Hawaii usually belongs to Kent M. Keith. He's the director of the Department of Planning and Economic Development, the state's major vehicle for business incentive. The way Keith figures it, the problem was never Hawaii's system of a carefully planned state economy, the problem was how the system was abused.

"The state used planning to control the growth of the economy during the boom times," he says. "Planning became the state's way of regulating business. For twenty years, the state government viewed planning as a regulator rather than a method of selecting the best development options. The state's economy was growing so fast that there really wasn't any other way of controlling things and protecting Hawaii's environment and natural resources."

Keith, who too over the DPED two years ago, insists things have already begun to change. "We're moving in a new direction now," he says. "The boom days are over, so the days when the government planned to restrict business development are over. It's the beginning of the days when government will work to develop our preferred economic future. It may take a little time to turn the bureaucracy around. You can't change twenty years of conditioning overnight. But we'll get there."

This column originally appeared in Frequent Flyer magazine.

Copyright 1984-2010 by Joe Brancatelli. All rights reserved.