Rooted in Reason: Nurturing the Seeds of Liberty


Hawaii’s Anti-Business Environment by grassroothawaii
July 19, 2010, 12:28 pm
Filed under: Uncategorized

By Kelsey Winther

The Hawaii Reporter published an article this morning by software developer David Thielen explaining why high-tech companies do not locate in Hawaii.  The benefits of having a high-tech industry are obvious, yet Thielen claims that companies are discouraged from moving here by a number of factors from educational to infrastructure problems.  He says that Hawaii’s failing public schools prevent high-tech workers from wanting to relocate their families, the lack of “world class universities” prevents a supply of interns and recently graduated employees, and that there is need for strong support and service companies.  Each of the factors that Mr. Thielen mentions has some validity. However, I would argue that these are not the most significant reasons.

To an increasing degree, employees in the high-tech sector are young and without families, making the public school point almost non-applicable.  The weakness of local universities does not prohibit companies from being fueled with qualified workers.  Any student or graduate of Berkeley, Stanford, or a similar school could seek an internship or employment at a high-tech company in Hawaii.  Finally, infrastructure must be developed with the demand for it.  If high-tech companies desired to come to Hawaii, they would invest in the needed service companies (like web designers or accountants). Support industries would develop with the demand created by high-tech companies.

So then, what is the main reason why high-tech companies are not moving to Hawaii?  The question can be answered by a recent report by CNBC which ranked Hawaii as the 48th best state for business.  High cost of living and low capital availability are both caused and added to by heavy taxes and regulation. As the state continues to engage in fiscally irresponsible activities and accrue more debt, more capital is sucked from the private sector.

David Thielen’s assessment was in no way incorrect, only incomplete, ignoring the most significant aspect of business deterrence. State intervention into the private sector and the resulting reduction in capital is the key reason why high-tech companies (along with others) are choosing not to locate in Hawaii.

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6 Comments so far
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Also the state doesn’t seem to want business expansion. I’ve heard many times when a company wants to build a store here on the Big Island and they are refused. I understand protecting the land but if you don’t allow business in you can’t complain about companies not wanting to come here.

Comment by Beth

Hi;

I wanted to speak to a couple of items you brought up.

First off, if being the “best business environment” (which different people define differently), I don’t think California & Massachusetts would be the two largest high-tech community. A good business environment is important, but not as important.

Second, the stories all talk about the young kids in high-tech companies. But the facts on the ground are quite a bit different – most high-tech employees have kids. But they are younger than in most industries and therefore primarily have kids in K-12.

Third, you can’t just import the talent and not have world class universities. Many have tried and it just doesn’t work. You need the intellectual cross-polination, not to mention you can’t afford to import every employee.

Don’t let your preconceptions color your view.

Comment by David Thielen

Mr. Thielen,
Thank you for your response.

To reply to your first point, you will remember that I granted that there are many factors affecting the lack of high-tech business. I still maintain, however, that the legal and economic environment is the most significant. This is evident when looking to a state like Delaware where over half of Fortune 500 companies have chosen to incorporate. Delaware is chosen because their flexible corporation law, the way their courts deal with business, and the effort that is taken to eliminate bureaucratic hassles for corporations. While California and Massachusetts might not be the most free and open markets the cost of business operation there are clearly lower than in Hawaii.

On the issue of schools, I don’t think this actually matters. If Microsoft found it cost beneficial to move to Hawaii, the educational preferences of their worker’s children would not prevent the move.

Finally, I don’t think you have to look much further than the Silicon Valley to find out that imported talent is what runs the high-tech sector. If California can hire workers from overseas there is no reason to believe Hawaii can’t do the same. In our modern age proximity does not play much of a role in job selection. Microsoft operates fine in Seattle without “world class” universities nearby. Is a three hour longer plane flight really going to stop the Berkeley grad from accepting a position in Hawaii instead of Washington?

In the end, I repeat that I think the factors you mention play an important role, but none on their own are sufficient to explain the void. Even if you don’t buy my analysis, I think we can both agree that a more free and open market with lower cost, taxes, and debt would only serve to encourage businesses to relocate here. Quite simply, more freedom can’t hurt.

Comment by Kelsey Winther

I think you don’t understand the world I work in.

First yes, lots of companies incorporate in Deleware. But they don’t locate there. So that’s irrelevant.

Second, no high tech company, Microsoft included, would ignore the preferences of their workers when placing a location. The assets of a high-tech company are it’s employees and you need them happy & highly motivated.

Third, overseas workers are a component, but native grown world class employees are equally important. Microsoft has University of Washington which is a superb school not to mention a boatload of other top schools in the area.

Finally, you don’t understand the costs a high-tech company faces. Taxes are irrelevant because we sell world-wide so local taxes & fees don’t touch much. The market in Hawaii is miniscule so it doesn’t matter. Rent, overhead, and other costs like that are also very small compared to labor.

Your personal desire appears to be minimal government (I think everyone is in favor of more freedom). I’m in favor of as little as makes sense. But keep in mind, that as the owner of a high-tech company, I want a government that provides superb schools, a first class infrastructure, strong social services, etc. Why? Because my company needs it and I can get top employees to locate in a place that is nice to live in.

I’ll leave it with this – name a place that minimizes government, has mediocre schools, but has a strong high-tech sector. If you can’t, then I think your view is not valid.

Comment by David Thielen

Sir,

Your response continues to disregard that fact that I am not denying that the factors you mention play a role. Nonetheless, I will respond to a few points quickly.

Most individuals in the high-tech sector are making enough money that they can send their children to private schools or they live in suburban areas with better public schools. Additionally, there are several examples of areas with poor schools but strong high-tech companies. New York City has a strong emerging social technology sector and very poor quality schools. Dallas is another example of a city with strong corporations but poor education. Texas as a whole provides a good example of my point. Very little government involvement and a free business climate has allowed industry, high-tech and otherwise, to thrive.

All the improvements that you would like to see the government make (schools, infrastructure, and social programs) require funding that must be sucked out of the private sector. This only further limits the amount of private capital that can be invested in local corporations.

Finally, you have never denied that business prefer to locate in a place with cheaper operating cost, fewer regulations on their operation, and more private capital available to be invested in supporting industries. This point alone is exactly why Hawaii needs greater market freedom if we are to attract high-tech firms.

Comment by Kelsey Winther

Hi;

I’ll grant you that New York City has a vibrant high-tech sector while their K-12 schools suck. But on every other measure I list, they do quite well (and they have your hateful high tax rate).

Dallas mostly has high-tech industries in the northern suburbs like Plano and they do have really good K-12 as well as other services.

To speak to your issues, I think cheaper operating costs are a non-issue for high-tech industries. I’m located in Boulder and if we move the company 10 miles our operating costs drop. But my payroll costs remain the same so my total monthly costs don’t change much. For high tech companies it’s not an issue.

On the fewer regulations front, there are virtually no regulations on high tech companies. I doubt ones in Hawaii face regulations much different from say Mississippi. Other industries maybe, but high-tech is pretty much left alone.

On the private capital front – yes that’s gigantic. But venture money is raised world-wide. That leaves angel investing and having more is very very important. On that issue you are right, anything that leaves more funds to be invested by local people is very valuable. But it’s not the only critical item.

Finally, to speak to your basic point that a government that has low taxes, little regulation, and therefore low services would be attractive to high-tech companies. If that were true, the Marianas Islands would have a ton of high-tech companies and the country of Somalia would be the high-tech headquarters of the world.

Offering nothing, including low taxes, is not going to bring high tech companies to Hawaii. It does put more money in private hands, but every other need remains missing.

Comment by David Thielen




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