������Ƶ

Hawaii has appointed an economic and community navigator. Given the state’s proximity to the ocean, this is a fitting title. Like waves, economies crest and they sometimes crash.

We’re familiar with measuring the crests; the crashes are usually an afterthought. The situation here has suddenly been reversed: it is the crash that matters now.

To understand the crashing economy, it is necessary to understand what preceded it. Metrics to chart the state’s economic health were reliably predictable: consistent growth in tourism, low unemployment, and rising property values among the most prominent.

By these measures, Hawaii was thriving before COVID-19’s arrival. Strong numbers served to overshadow an economy that was slow to evolve or diversify.

Sadly, that quantifiable strength is now history and unlikely to reappear in the near- or medium-term. Visitors won’t be back en masse soon, even if effective testing becomes available.

Reducing Hawaii’s unemployment to under 20% by December would be a significant achievement, although that level would be far worse than what was seen at the darkest points in the Great Recession a decade ago.

And declining property values threaten to clobber both personal wealth and county finances for years to come.
 Historically, Hawaii’s economy evolved from relying on agricultural production to one based on tourism.

A Displaced Baseline

In 1959, the year Hawaii became a state, the number of arrivals of “visitors by air staying overnight or longer” was below 250,000. Since then, the annual total has grown spectacularly, the notable exception being 2008, which saw arrivals plunge by 10.4%, the largest single-year decline on record.

Helped by subsequent increases in flight offerings and more diverse lodging options, 10 million annual visitors became the new baseline. Until visitor travel was displaced by the coronavirus.

Since COVID-19 has prompted us to view health differently, it makes sense to question our economic wellness metrics as well.

The very visible growth in the state’s defining industry has helped hide a hard reality: measured by GDP growth, Hawaii has floundered. Between 1964 (when state GDP was first recorded) and 2019, Hawaii per capita GDP grew by 125% when adjusted for inflation. That of the U.S. grew by 185%.

It makes sense to question our economic wellness metrics.

Part of the difference was due to Hawaii’s more rapidly expanding population, which grew by 102% since 1964 compared to 71% for the nation.

But the state population has declined for the last three years, a clear signal of impending trouble. Population declines rarely qualify as a sign of economic health.

For many in the workforce who departed, the primary reasons were limited job offerings and housing unaffordability. It should be more evident now that Hawaii’s declining population pointed to pre-crash problems and that the pandemic will only exacerbate these issues.

Most economies grow by diversifying. Jobs create housing demand that the market finds a way to meet. Except in Hawaii, where sufficiently affordable housing became an aspiration instead of a reality.

COVID-19 is a health emergency whose biggest feature locally has been its destructive economic impact. It isn’t just jobs. State government finances will face challenges for years. Until now, rising residential property values have allowed counties to maintain tax rates.

As those values decline, revenue-strapped county governments will be forced to re-examine tax rates, or services. Likely both.
 Atop the navigator’s list of concerns are ways to revive Hawaii’s transformed, devolving economy. It should be obvious that the old growth model has limited validity in a crashing economic environment.

Diversification is more easily discussed than accomplished. Leaders have spoken for years about transitioning to a knowledge-based economy, but it has worked better as a slogan than as a true direction.

Though its economic and educational benefits are obvious, plans for the ultimate knowledge-based sector project, the Thirty Meter Telescope International Observatory, have been allowed to languish. Astronomy is an industry where Hawaii has unique strengths and opportunities, yet it has ceased to be part of the diversification conversation.

Visions of transforming Hawaii into the medical center of the Pacific have vanished as well.
 Stabilization, recovery, and resiliency – the areas of focus identified by the navigator – all qualify as important targets.

However, none of them means food on the table, the assurance that lack of a mortgage or rent payment won’t bring eviction, the availability of care for children whose schools have been shuttered, or a guarantee of COVID-19 testing.

Our economy has devolved to the point that existential issues have become our biggest concern. Unlike in the past, when unemployment numbers served to prove economic health (even if they masked structural economic issues), the strength and reliability of our safety net is what we now need to quantify and prove.

While it isn’t clear what path forward Hawaii’s economy will take, that path must benefit all residents. Economic vaccines don’t exist. We need to get far better at envisioning how a revived economy can narrow the inequity that has amplified the impact of the crash. The gaps have become more pronounced than ever and more essential to measure and mitigate.