The Blue Wave Revisited
Tony Clapes

This month marks the ninth anniversary of the publication of Blue Wave Millennium: A Future for Hawaii.  I wrote that little book during and after the recession of the mid-to-late ‘90s.  Today our state is once again mired in a nasty recession from which there is likely to be no quick or easy exit.  The pundits are saying that for the nation at large, the first sectors to emerge from recession will be, and to some extent already are, the financial and tech sectors.  It seems appropriate to look back over the past nine years and ask ourselves a question: how are we doing?

Written on the basis of research over several years, Blue Wave looked at the major problems with Hawai‘i's economy at the time and made five major recommendations.  Still, Hawai‘i has to this day only one horse in the race for a viable economy. Though that horse, the tourism industry, has pulled up lame repeatedly, causing skilled workers to leave our shores for stronger states, Hawai‘i has done nothing of consequence to broaden its stable.  That was true nine years ago and, to all appearances, we have learned little since.  Some would add the military expenditures in Hawai‘i as a second major industry, but dependence on a regular and expanding flow of funds from the federal government is not in itself an industry.

Don’t get me wrong.  Tourism and the military presence are very important to Hawai‘i, and no one truly concerned about Hawai‘i's future should think otherwise.  The point of Blue Wave was that we needed to do more in order to stabilize and boost the state’s economy.  In putting forth that message, Blue Wave was in good company.  In 1984, under the leadership of Governor George Ariyoshi, the State published a “Statewide Strategy for High Technology Growth.”  That initiative laid out a viable though incomplete strategy for developing high-tech industries in Hawai‘i.  As a result of that effort, a few technology centers were built; state agencies were given mandates; and Hawai‘i sent representatives to mainland trade shows. Then the recession of the 1990s hit and essentially all momentum was lost.

The Blue Wave strategy builds not on the State-wide Strategy, which did not survive the re-cession, but on strategies employed with considerable success in locations around the world.  It has one premise and five action items.  The premise is that tech companies serving global markets would develop and/or settle in Hawai‘i if and only if we could provide a nurturing environment.  It happened in Bangalore, Taiwan, Singapore, and Ireland, just to name a few locations, and there was no reason to believe that it couldn’t happen in Hawai‘i.

The five action items designed to create such an environment were:

1. Assemble a high-level public-private partnership to steer the effort to diversify Hawai‘i's economy.
2. Change government services, taxes and regulations to make them competitive with those in successful states.
3. Greatly improve public education through systemic reform, support systems for students, upgraded facilities, and teachers equipped for 21st Century learning.
4. Marshal very substantial capital for both Hawai‘i-born tech ventures and tech ven-tures willing to move here.
5. Sell, sell, sell Hawai‘i as a serious 21st Century business venue.  For example, Virgina’s state marketing slogan was “VIRGINIA IS FOR LOVERS,” but in the high-tech competition, it morphed into “VIRGINIA IS FOR BUSINESS.”

With that background, let's look at how we're doing against the Blue Wave strategy.

1. Public-private partnership. We have yet to mobilize a statewide initiative for the sort of public-private partnership that would add innovation-based or creativity-based industries.  Despite the efforts of DBEDT and island economic development boards, there is not much steering of the economy going on at the leadership level.  As a result, the State continues to spin in the lazy circles of the boom and bust cycle.
2. Make government competitive with other state governments.  The State has streamlined some of its business services.  Its permitting processes, however, are straight out of the Dark Ages, and in many ways resemble institutional torture.  The difficulty of getting permits relating to tech projects is so pronounced that we are today risking departure of existing tech companies and an unwillingness of out-of-state tech companies to set up shop here.  The state bureaucracy needs to reform its processes to be reasonable to tech ventures while continuing to perform their role in assuring the public welfare.
3. Educational reform.  The public education system has been stolidly opposed to systemic reform.  As a result, we have to content ourselves with “could-have-been-worse” reports of student achievement, like the one on October 16, which focused on math improvements of Hawai‘i students over the students of past years rather than on the fact that this year 60% of U.S. 4th-graders and 80% of U.S. 8th graders performed better than Hawai‘i students.  The subject of education is profoundly important to diversifying Hawai‘i's economy and making better paying jobs available for Hawai‘i's people.  Student test scores are advancing in Hawai‘i, but they are also advancing across the country, and tech ventures are most interested in locations where the graduates of the education system are capable of filling the job requirements that the tech ventures have to offer.
4. Making capital available for tech ventures.  Money from investors is the lifeblood of new tech ventures.  New ventures don’t make much money by selling products.  They use money from investors to pay employees, buy equipment, pay rent, etc.  In many parts of the country, there are vibrant “venture capital” industries that take in money from investors and invest it in risky new ventures.  There’s no vibrant venture capital industry in Hawai‘i.  To overcome that problem, in 2001 the State began to offer very generous tax credits to investors.  For every dollar invested in a qualified high-tech business, a Hawai‘i investor received a dollar of tax credit, a portion of which would reduce the investor’s income tax over a five-year period. These tax credits became famous around the country, triggered a flow of investment money into Hawai‘i high-tech ventures, and created a minor tech revolution here.  However, they did not have sufficient support from government to sustain themselves through a recession, and earlier this year they were cut back substantially.
5. Market Hawai‘i as a place to conduct  high-tech business.  As far as I am aware, there has been no serious effort to follow this mandate on the part either of government or of the private sector.  Marketing has basically been left to the individual companies in the tech industries, which it should be in the long-term.  Yet those companies aren’t able to convey the lukewarm commitment of the State and business leaders to welcoming tech companies from outside Hawai‘i or even to nurturing our home-grown tech companies.

So, how are we doing?  In terms of diversifying our economy, we are still doing poorly.  Last year, our state was ranked in the bottom third of states in the Kauffman Foundation’s New Economy Index, an index important to tech and creative ventures; this year, 49th out of 50 in the 2009 CNBC rating of “best states for business”; 49th out of 50 in 2009 SAT scores; and in the bottom fifth of states by CEO Magazine on a broad suite of economic factors. 

Improving those four ratings and others like them is fundamental to our ability to grow, attract and retain tech and creative ventures and companies and, for that matter, other kinds of businesses as well.  In this, the Blue Wave Millennium, the leaders of government, business and unions should be working on overcoming our liabilities and improving our assets in those areas.  It is time to stop waiting for miracles and pursuing pipe dreams.  We need to get down to the hard work of diversifying our economy into higher wage, higher skills jobs with special attention to the aspirations of young people who will be entering our workforce.

Tony Clapes is an international technology attorney and Hawai‘i resident since 1998.  He is the author of Blue Wave Millennium, a book about high-tech in Hawai‘i. Before entering private practice in 1996, he was Assistant General Counsel at IBM, where he managed a large group of in-house attorneys and outside firms. He has represented high-technology companies on matters including antitrust, employee relations, Web-based businesses, intellectual property, commercial and securities law.