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The Economy
- University of Hawai'i Press
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the economy sumner la croix the road ahead In the decade after statehood (1959–1969), Hawai‘i’s economy boomed, with real per capita output (GDP) rising at an annual rate of 4.1 percent. From 1969 to 1989, per capita GDP continued to grow, but at the slower rate of 1.7 percent. The last twenty years have not been as kind, with per capita GDP increasing annually by just 0.3 percent. The slow growth has led to numerous economic problems. State and County governments have struggled to provide services desired by Hawai‘i residents or mandated by federal legislation . College graduates have struggled to find jobs in Hawai‘i that pay salaries commensurate with their skills and credentials. Hawai‘i’s businesses have struggled to remain competitive in a small market in which relatively high shipping costs raise the cost of capital and imported raw materials. While there are no easy, off-the-shelf solutions to fix the slowdown in Hawai‘i’s economic growth, Hawai‘i’s policy-makers and citizens have a reasonably good understanding of the factors that are the proximate cause of growth. However, public policies enacted to promote increases in the quantity and quality of these factors—K-12 public education, for instance—have in many cases worked poorly. Other public policies that were enacted to achieve highly valued goals were either not evaluated with respect to their effect on economic growth or this effect has just been ignored. Even if the effect of a particular policy on growth is small, the aggregate effect of thousands of policies can be quite large. These results are unsurprising, as Hawai‘i’s State and local governments lack the institutional infrastructure to evaluate changes in public policies prior to their adoption (or rejection) and after their enactment. Unless we gain a part two: ka ‘oihana 24 The Value of Hawai‘i better understanding of how and why proposed policies have worked or failed in other states, we run the risk of adopting policies that worked well in other states but will not work in Hawai‘i unless we adjust certain features to fit our island economy and society. Discussions of major policy initiatives—an appointed or elected school board, a tax on a barrel of oil, or a change in the top income tax rate—take place with little prior study of their expected effects. two competing explanations for slow growth Why has Hawai‘i’s growth rate been so low for two decades? There are two competing but potentially overlapping explanations. The first focuses on those factors that determine current output—physical and human capital , available production technologies, and the rules governing individuals, firms, and markets. Economic growth occurs over time when (1) firms provide their workers with more physical capital; (2) students enrolled in private and public schools receive an education that provides them with more human capital—i.e., an individual’s health, skills, knowledge, and motivations— than previous generations; (3) firms use new lower-cost production technologies and introduce new products; (4) rules governing firms and markets change to provide more effective incentives to conduct business in Hawai‘i efficiently; and (5) State and County governments provide more public infrastructure that increases the productivity of business firms. Slow growth or stagnation of any of these factors slows overall economic growth, but effective public policies that increase the growth rate of a slow-growing factor can increase overall economic growth. The second explanation focuses on the difficulties an economy faces when its leading industry is in decline and other industries are not emerging fast enough to take its place. Various factors may be restraining growth in new industries : (1) public infrastructure that is inadequate or complements the declining industry rather than emerging industries; (2) a shortage of labor with the skills needed for emerging industries; (3) outdated, incomplete, or burdensome laws and regulations for emerging markets and firms; (4) imperfections in regional capital markets that increase the cost for firms in emerging industries; and (5) the small size of Hawai‘i’s domestic market. basic building blocks of growth: are they in place in hawai‘i? The Hawai‘i economy is seriously deficient in a number of the basic building blocks of economic growth, including (but not limited to) human capital formation by Hawai‘i’s youth, public infrastructure provision, and the legal and regulatory frameworks that support markets. [54.225.35.224] Project MUSE (2024-03-28 18:49 GMT) La...