Word On The Street

Paradise Lost?

Hawaii rides out a wave of problems.

By Janean Chun

Those braving the bitter cold of winter may long for the balmy tradewinds and white sand beaches that inspired the Hawaiian colloquialism "Lucky you live Hawaii." But Hawaii's entrepreneurs are experiencing a winter of discontent all their own. Business failure rates, bankruptcies and foreclosures are on the rise, while gross state product continues to slide.

"It takes more than a nice climate and a wonderful blend of cultures when you're battling a high tax burden and a ridiculous regulatory system," says Sam Slom, president of Small Business Hawaii, a private small-business association. "[Entrepreneurs] are hanging on by their fingernails."

For three years running, Hawaii's small-business owners, who comprise 98 percent of the state's 25,000 companies, have borne the nation's highest cost of doing business. While other states' economies have improved, Hawaii's has only worsened.

As debates rage about who or what is to blame, several factions have proposed solutions. In 1996, about 50 small-business owners ran for the state legislature. Seven were elected, including Slom, who thinks the number of entrepreneurial candidates will increase significantly this year.

Recently, Gov. Ben Cayetano unveiled his Economic Revitalization Task Force, which proposes seven major initiatives, including a 50 percent cut in the corporate income tax. "This is perhaps the most significant restructuring of a tax code anywhere in the nation," says Tom Leppert, vice chairman of Pacific Century Financial Corp. and facilitator of the task force. "It's aggressive, but given the situation, anything short of that would be a failure."

Meanwhile, the Internet continues to prove that no island is truly an island. Richard Moody, chairman of the board for Honolulu-based High Technology Development Corp., believes big names in technology may eventually move to Hawaii and use the state's features "to attract the brightest minds in the world."

The potential is clear. But can Hawaii live up to it? "If I didn't think we could turn things around, I wouldn't be here," says Slom. "But I'm sticking it out. We have to improve our business climate ourselves."

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This article was originally published in the February 1998 print edition of Entrepreneur with the headline: Word On The Street.

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