Act 221 was enacted to help promote Hawaii’s high-tech industries. The public purpose is outlined as the creation of economic diversification that will reduce our overdependence on established sources of external revenues such as tourism and the military. To do this the state has affected its tax code in such a way as to direct the factors of production, (land, capital, labor,) to high-tech industries so that they may have a competitive advantage. Not stated, but obvious, is the conclusion that all other business activity will now be at a competitive disadvantage to high tech. Remember that although productive factors may increase over time they are finite at any given point in time. The costs of doing business for everyone else will increase as they must bid against a subsidized industry for attracting labor and capital.

The free market is a self-correcting mechanism in which variances in price and profit direct investment to the production of the items that most closely meet consumer demand. Tax credits disrupt this mechanism by giving advantage to politically favored industries. It may be true that under Act 221 Hawaii will see an increase in good paying jobs in the “environmentally clean” high tech sector. The cost of this is a decrease in the purchasing power of wages earned in every other sector. Fewer workers and less capital will be available to respond to consumer demand as expressed in an unregulated market. More will be diverted to pleasing bureaucrats. Every consumer in Hawaii not directly advantaged by a high-tech salary will have their standard of living reduced below what it would have been otherwise. The act’s backers will respond that these arguments only address the short term. In the long-term subsidizing high tech will help all of Hawaii’s people. Yet their arguments do not explain what advantage Hawaii has in the high-tech area that would allow its long-term success.

There is no indication when we will have to stop subsidizing this industry. Due to its natural beauty, strategic location, and other factors Hawaii has its own built in advantages in tourism and military basing. It is no surprise that these are our two biggest industries. If there were innate advantages to locating high-tech industries in Hawaii there would be no need for an Act 221 to promote its growth. The market left to its own devices will choose an array of business activity for Hawaii that creates the greatest net advantage to the State. Attempts to diversify our economy by government interference in this selection process inevitably cause net harm to the State and its people.

A market driven economy allows for a higher standard of living for the secretary, the cab driver, the shoe shine boy, our retired folks, and indeed for everyone, since it responds to the needs of consumers, not to the desires of businesses. Producers or products, which include both business and labor interests, continually seek government interference in the market place to gain advantages over consumers. They confuse public thinking on the matter by spreading propaganda meant to convince the people the policies they favor are in fact good for everyone. They are not. Tax credits help the producers of goods and services make money without the necessity of pleasing consumers. It really is that simple.

If we want a better economy the best thing government can do is cut taxes, cut spending, cut regulations and get out of the way.

”’Tracy Ryan, chair of the Libertarian Party of Hawaii, can be reached by email at:”’ mailto:tracy.ahn.ryan@worldnet.att.net

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Hawaii Reporter is an award-winning, independent Hawaii-based news and opinion journal founded in 2001 and launched in February 2002. The journal's staff have won a number of top awards from the Society of Professional Journalists, including the top investigative news reporting awards, business reporting awards, government reporting awards, and online news reporting awards.