Third Way Budget Solutions for Hawai‘i

Like any scientific issue (including political science), the solution to Hawai‘i’s economic diversification, and ultimate independence doesn’t lie in dichotomous theories. Although right-wing, free-trade theory does create a larger economic pie, left-wing protectionism is sometimes needed to ease the fall of uncompetitive domestic industries and support the emergence of new, sustainable industries in Hawai‘i. No compromise need be made between the means of conservative (the governor) and liberal (the legislature) policy makers here in Hawai‘i, but rather a single centrist (third-way) viewpoint should be created as a synthesis of these competing viewpoints. As are the alternatives I will propose, novel Third Way ideas have been defined as being “in favour of growth, entrepreneurship, enterprise and wealth creation but also in favour of greater social justice and see the state playing a major role in bringing this about" (BBC News. “What is the Third Way?” London: September 27, 1999).”


With a history of “them and us” attitudes between political parties in Hawai‘i inhibiting progress, this type of collaborative initiative is exactly what Hawai‘i needs. The goal of the Third Way policies I will propose is to meet the bi-partisan ends of both efficiency and equality by simultaneously utilizing conservative ideas of economic expansion, along with some liberal policies to expand the middle-class in Hawai‘i and supplement the free-market in fostering economic diversification. But before moving on, it must be disclaimed that I AM aware that I am merely a college student. The framework that will be laid out is not intended to be an absolute solution to Hawai‘i’s dependency, but rather mere suggestions or a preliminary design for experienced theorists and policy makers to work off of.

It is imperative that State governments work to balance their budgets during the recession to prevent unnecessary inflation, but the way Hawaii is going about it may not be the most efficient. The federal stimulus was intended for job creation, yet our state is instead focusing on job cuts. There are other solutions to help minimize the burden absorbed by the working public and future generations (See previous post).

Would the Hawaii’s tax payers prefer a small, temporary increase in General Excise taxes over the proposed layoffs and paycuts? What are the comparative consequences of each?

With a 4.5% general excise tax rate allowing over $2.18 billion in the past fiscal year, a 1% increase could generate an estimated $600 billion dollars for the State of Hawaii (well over the State’s $488 million deficit). The tax will only need to be increased temporarily to cover a two year deficit of $786 million per year. Since much of this tax is paid for by tourists, as businesses are allowed to levy the tax to their customers, this tax would be the most sensible to increase. Of course, there's no guaranteeing that the national recession will not cause a greater loss in State revenue after 2 years time, but all other actions designed by the state (such as furloughs and layoffs) are also only designed to account for the next two years. Compared to layoffs and pay cuts, this option is the easiest to undo. [All data received or derived from Department of Business, Economic Development & Tourism. Outlook for the Economy. (Honolulu: GPO, 2009)]

I also recognize that the burden of tax will fall upon consumers and businesses equally because of rather simplistic rules of supply and demand. However, if legislature was to continue to enforce the cap of the amount of the GE tax (imposed on business) to be levied onto consumers, at around 4%, then we shouldn't expect to see a decrease in spending due to higher taxes. Businesses, on the other hand, will immediately be forced to economize more efficiently.

Second, a state level cap-and-trade system with pollution credits shared and sold among businesses, similar to the recent federal bill, should be implemented. This abstract market could also prove to be a great benefit to Hawai‘i’s government as both a money maker –it’s almost as if it were out of thin air—and a protection for both environmental and economic sustainability as it would create a limit for corporate pollution.

The revenue from the cap-and-trade system could go towards the creation of new, sustainable industries. Focus shouldn’t be on preserving falling industries and “buying local”, but rather on the creation of new businesses and industries. Hawai‘i policy makers should divert the attention placed on technology to the sustainable energy markets , in which Hawai‘i would not only have the comparative, but the absolute advantage as well, with only very little threat from outside competition. Tax-credits could be appropriated for businesses in industries directly related to solar, wind, wave, and geothermal energy production and usage. Direct subsidies for infant industries could also be appropriate to allow for free-entry in an otherwise monopolistic atmosphere. This being, the subsidies would only last in the short run and the industry should not expect to rely on the funding after the first year or so.

Next, government streamlining is needed to keep costs down and reduce excessive intervention. The most noteworthy and notorious area of concern is Hawai‘i’s Department of Education, which is the only centralized, completely state-controlled system of public education among all States in the United States of America. Usually, schools are led by boards in their respective districts, while the schools are paid for by the property taxes in the area. In Hawai‘i, however, School districts are directly controlled from Honolulu by the fourteen members of the Board of Education: Central District, Hawaiʻi District, Honolulu District, Kauaʻi District, Leeward District, Maui District, and Windward District. Thirteen members are directly elected by the voters of either O‘ahu or the Neighbor Islands to staggered four-year terms. The original reasoning behind of a centralized system in Hawai‘i was to allow every child a chance at the same, quality education, regardless of where they are from. However, during these years, Hawai‘i has developed a reputation for having one of the worst net of standardized test scores in the nation.

The structure of the DOE should be broken down into smaller districts. This will alleviate the tax payers of Hawai‘i from the burden it takes to maintain a centralized system. The size of the Hawaiian Islands (especially Oahu, the most densely populated) in relation to the concentration and placement of public schools, makes it possible for students from less affluent neighborhoods to attend another with more resources. Furthermore, there are top-rate private school options spread throughout Hawai‘i’s communities that offer very generous amounts of financial aid to underprivileged children which could also reduce the costs of these programs lower than that of the public system. The fact of the matter is, a great education IS available for any child who is able and motivated in Hawaii. A child’s perceived value of education starts from within the home. Our investment in each school shouldn’t be greater than what it will produce. It’s fair to have better schools for more motivated students! If a parent wants her child to go to a great school, she’ll make it happen, even if it requires a slightly longer commute. The possibility of increasing the amount of charter schools in the islands should also be looked in to.