I. INTRODUCTION
This paper sets out to accomplish the ambitious goal of constructing a strategic plan for the further development of Hawaii's Information Economy. Already, one can see the fruits of years of labor in Hawaii's technology industry sectors by looking at the telecommunication infrastructure connecting the islands with each other and the rest of the world, the development of the Keck Telescopes and others on the Big Island, and at the establishment of the Maui High Performance Computing Center. Technology is no stranger to Hawaii, and yet -- despite the existing infrastructure and the comparative advantages the state now enjoys -- leaders have been reluctant to encourage the development of the technology industry.
II. A BRIEF HISTORY
Social norms are deeply rooted in the people of Hawaii, and the same may be said for the state's industrial trends. Ports at Honolulu and Lahaina serviced the whaling industry from 1824 - when more than a hundred ships docked in the major ports as well as the smaller ones in Hilo and Kealakekua on the Big Island and Waimea and Koloa on Kauai - to approximately 1846, when the island ports were serving close to six hundred whaling ships. Because of Civil War conflicts between captains, a grounding of ships near the Arctic, the eventual decline of the whale population, and a host of other reasons, the whaling industry dissolved. Agriculture became an attractive alternative. Produce was grown locally and sold abroad at respectable profit margins. The California Gold Rush offered traders a larger market, and many people of Hawaii found themselves letting go of the literal and metaphorical prostitution of the whaling industry. Prices for goods and services, as a result of the new agriculture industry, shot up dramatically, but companies were still satisfied with their bottom line. This continued for several years through the early 1950s, after the Great Mahele was implemented. Haole property owners purchased land as a result of the 1950 Great Mahele, disenfranchising the Native Hawaiians who were not schooled in English and therefore unaware that their traditional property system was abolished.
The agricultural traders suffered when the California Gold Rush ended, but the Civil War, which effectively destroyed the whaling industry, created the new sugar industry in Hawaii. Southern sugar was unavailable to the northern states, creating an incredible demand and high post-tariff profits for growers in Hawaii. These sugar profits remained steady for years, and the state thrived from the sweat of agricultural workers, just as transportation became more efficient and Hawaii's exposure to the mainland United States and foreign nations grew to its present heights. The tourist industry grew increasingly stronger, and Hawaii marketed itself as the preeminent vacation destination, replete with hula dancers, fancy hotels, vast and numerous golf courses, pristine beaches and friendly residents. The demand for sugar gradually dropped as the sugar companies' major clients took to more affordable substitutes such as corn syrup. Tourism and the omnipresent military eventually took the lead and became the dominant industries in Hawaii for decades. The boom of the 1980s, a product of the foreign investment in this established tourist destination, consumed the long term vision of the state's leaders, who decided to capitalize on the surplus of the present instead of planning for the possible want of the future. Indeed, the inflated value of Hawaii's economy became quickly evident as foreign investors began to sell their properties for amounts far less than their original purchase price. Just as suddenly as the whaling industry came to a halt, and as quickly as the sugar industry disappeared, Asian economies collapsed and federal cuts reduced military spending. The dominant tourist and military industries caved in and have proved to be as dependent as whaling and sugar on the whims and powers of people outside the state.
None of Hawaii's major industries were planned from the start. None of them were under the control of Hawaii's people or their leaders. In fact, most of the dominant industries were imposed upon the islands by circumstance and the transition from one to another was not always easy, particularly for the laborers upon whose backs the evolving economy has depended. To be sure, states and nations are never fully independent of the economic or political crises of other states and nations. The global and interconnected nature of international markets guarantees the permanence of relative interdependence. Nevertheless the state should draw lessons from the past and assess Hawaii's comparative strengths and weaknesses as the state braces for the next economic engine. This means that leaders, and their constituents, need to think and plan seriously for the long run, in spite of the temptation to apply short-term remedies. The people of Hawaii did not anticipate how much the whaling industry depended on stability during the American Civil War. Similarly, it was unclear at the time that agriculture and sugar in particular would become so important. It was even less clear how overseas markets would affect the industry. More recently, the strength of the Asian economy was taken for granted, and the state economy crumbled as a result of that lack of foresight. Short-term solutions, though politically desirable, have obviously failed the state in the past. The need, it seems, is for leaders in the public, private, and non-profit sectors to be proactive about rather than reactive to the new economy. Specifically, the cultural, economic, and social health of the state depends on its ability to shift from the focus of the past on how Hawaii can present itself to others to a new focus on how Hawaii can develop its own economic self-confidence.
III. PURPOSE
The paper will provide a strategic plan for developing a legal and policy framework for the technology industry in Hawaii. It is clear that any planning for developing an information economy will have to include some discussion of law because there is a "legal infrastructure" as well as a technical infrastructure that needs to be in place for such things to happen. In Hawaii, for example, specific policy initiatives and cooperation with the private sector has led to the creation of an attached state agency which has the power and financing to develop the local venture capital industry. This agency, with the professional support of local VCs, has provided seed financing to more than twenty companies, which have collectively received more than $20 million from public and private sources more than $20 million in venture capital investment. This is an example of a successful policy initiative. On the other hand, laws imposing the general excise tax have inhibited if not crippled the growth of technology-related companies. Largely as a result of the state's failure to repeal this tax, or even provide an exemption to technology companies, many startups find it financially impossible to mature without the support of research parks and incubators or university funds. This tax law is an example of how the regulatory infrastructure has arrested the development of technology companies and the information economy in Hawaii.
Given the importance of creating a dialogue about the legal and policy
infrastructure as it relates to Hawaii's information economy, this paper
seeks to explore five issues. First, this paper will discuss the framework
as it is in place today. In other words, the paper will first answer the
questions of what Hawaii's commercial, technical, and regulatory infrastructure
looks like and how the public sector has worked with the private sector
in the past to support the existing technology industry. Second, the paper
will identify areas for potential development, and will explain how the
law, in conjunction with private sector initiatives, can encourage the growth
of promising industry sectors. While this segment will look at the reasons
why Hawaii is an opportune place for the development of certain types of
technology companies, it will also discuss the limitations of the law's
role and the reasons why other industry sectors will not thrive in Hawaii.
Third, after looking at specific industry sectors, the paper will turn to
issues related to the development of the larger information economy infrastructure.
In other words, it will answer the question of what needs to happen in order
for the state to further encourage technology companies in Hawaii. The fourth
and fifth sections -- on culture and leadership, respectively -- will be
added in the late Spring and early Summer of 1999.
Kalama M. Lui-Kwan
luikwan@sims.berkeley.edu
September 1998
© 1999 Kalama M. Lui-Kwan
Last updated 3.22.99