Economic Diversity

By 2030, strengthen a diversified economy and enhance prospects for green growth by increasing investment in innovation, improving access to financial services, benefits, and technology to support collective wealth and community vibrancy.
A diversified economy can build resiliency by creating an ecosystem of sustainable economic activity where businesses share mutual benefits, promote growth, and provide a range of goods and services to support communities and the environment. A healthy economy has a mix of small, medium, and large businesses where each tier supports each other and provide each other benefit – strengthening the support network. Additionally, a diversified economy creates an ecosystem for innovation. Economies with more flexibility reduce risk for entrepreneurship and innovation so that small and/or startup businesses can develop products to enhance operations and profitability of other local businesses.
Hawai‘i’s economic history, starting in the early 1800s to present, has had six major economic drivers (see Figure 1). It is clear from the timeline figure that historically, none of these industries had longevity to maintain strength or persistence long after their peak. This creates risk in relying on one industry to maintain Hawai‘i’s economy. Currently, the health of Hawai‘i’s local economy is reliant on the visitor industry.
Figure 1: This “Timeline for Economic Diversity” illustrates the major economic drivers in Hawai‘i  in the past two centuries (Source: Innovation Framework Report, 2014)
A diversified economy is more resilient to impacts of recessions and can recover more quickly. Increasing economic diversity or an area’s industries and jobs can significantly impact economic health. By supporting the growth of additional industries to create a strong support network, Hawai‘i can reduce economic risks to external impacts.
Figure 1: This “Timeline for Economic Diversity” illustrates the major economic drivers in Hawai‘i  in the past two centuries (Source: Innovation Framework Report, 2014)

Diversity of Local Industries 
Hawai‘i will need to maintain a robust economy to support healthy and vibrant communities. Tourism remains Hawai‘i’s largest private sector industry and export, and there is interest in making the sector more “sustainable.” In addition, Hawai‘i also has numerous small sectors – several of which are growing. There has been substantial growth in the last decade in industries classified under education, knowledge creation and research. 
Regional economies are highlighted as a major driver of competitiveness and economic strength. To quantify this value, concentrations of related industries, known as “economic clusters” are noted by economists as a source of innovation and entrepreneurial growth to make regions uniquely competitive for jobs and private investment (Delgado, 2014). Tracking Hawai’i’s economic clusters provides an important tool for gauging the ability to diversify the local economy. The U.S. Cluster Mapping Project is led by Harvard Business School's Institute for Strategy and Competitiveness in partnership with the U.S. Department of Commerce and U.S. Economic Development Administration. The project provides a robust cluster mapping database grounded in the leading academic research.

Figure 2: Growth rate of Hawaii’s strong economic clusters. Source: U.S. Cluster Mapping (http://clustermapping.us), Institute for Strategy and Competitiveness, Harvard Business School. Copyright © 2014


Figure 3: This graph shows Hawai‘i’s comparative cluster strength from 1998-2016. By comparison, the state’s regional economic clusters have a very low overall strength and growth in strength over this time period. (Source: U.S. Cluster Mapping (http://clustermapping.us), Institute for Strategy and Competitiveness, Harvard Business School. Copyright © 2014)

Figure 4: This graph shows Hawai‘i’s comparative cluster strength from 2011-2016. By comparison, the state’s regional overall economic cluster strength is still very low, however, growth in strength over this five year time period is considerably better than the historical data expressed Figure 3, highlighting improvement in recent years. (Source: U.S. Cluster Mapping (http://clustermapping.us), Institute for Strategy and Competitiveness, Harvard Business School. Copyright © 2014)

Figure 5: This graph highlights specific economic clusters for Hawai‘i on a scale of percentage change in employment over the period of 1998-2013. Size of cluster circles express number of employees in each sector, while density of color express strength of the cluster. Some clusters may be considered strong while maintaining relatively small employment numbers.
(Source: UHERO)
Hawai‘i’s economy depends significantly on conditions in the U.S. economy and key international economies, especially Japan (DBEDT, 2017) due to their high visitor rate. Hawai‘i  measures economic health by the Gross Domestic Product (GDP) – a monetary measure of the market value of goods and services produced within a period of time. Real GDP accounts for economic inflation using “chained dollars”, allowing for comparison of figures from different years. Chained dollars generally reflect dollar values computed with a base year of 2009 as Figure 6 indicates.
Real GDP is a good measure for economic growth, but it doesn’t take into account social and environmental impacts. A pioneering development in pursuit of a more holistic indicator is Genuine Progress Indicator (GPI), which factors in other attributes of state conditions to capture the social, economic, and environmental nexus. This is a recent effort in Hawaiʻi, and is used in six other states: Maryland, Vermont, Washington, Ohio, Utah, and Colorado.
Figure 6: The figure shows Real GDP in Hawai‘i  from 1996 to 2015. The real GDP is based on developments in the national and global economies, the performance of Hawai‘i’s tourism industry, labor market conditions, and the growth of personal income and tax revenues. (source: Department of Business, Economic Development, and Tourism (DBEDT))



Figure 7: Economic contributions by sector (Source: HSDC and Hawai‘i  Business Roundtable (HBR) Innovation Assets Report, 2016)
There is a move to decouple economic growth from environmental degradation with a view to improve sustainable production and consumption patterns. This transformation will be through an integrated approach to drive action at the policy, business, and community levels.
Genuine Progress Indicator
The Gross Domestic Product (GDP), developed in the 1940s, is the most commonly accepted economic metric world-wide. While GDP was not designed to measure anything but the size of the economy, regardless of inherent limitations, it is now seen as an indicator of progress. GDP measures the number of economic transactions of final goods and services within an economy within a set time frame. Yet it does not account for “good” things like volunteering or “bad” things like pollution. For example, while the Deepwater Horizon oil spill devastated the environment, domestic GDP actually increased, stimulated by the economic activity related to efforts for recovery and rebuilding in the Gulf (Costanza et al, 2014).
The Genuine Progress Indicator (GPI) is an alternative measure that goes “beyond” GDP by more holistically capturing things that are important to us  and could be a powerful tool for evaluating prosperity for Hawai‘i. Researchers posit that a localized GPI, rather than one based on scaled down national data, is more meaningful for Hawai‘i due to our unique island setting. Although GPI and GDP both begin with personal consumption expenditures, GPI then measures the value of important economic activities not captured in GDP, such as environmental goods and services, and social well-being. GPI accounts for not only unrecognized benefits but also incidental costs such as pollution externalities, ecosystem degradation and income inequality. Hawai‘i’s GPI was measured using 26 indicators modelled after the state of Maryland GPI, and although there were some matching trends, Hawai‘i’s GPI diverged from the gross state product (GSP) in particular years (Oleson and Ostergaard-Klem, 2014).





Figure 8: The wheel shows the 26 indicators evaluated to measure Genuine Progress Indicator (Source: Genuine Progress in the States Initiative)

Figure 9: The graph shows the gap between Gross State Progress (GSP), the state level equivalent of GDP, and Genuine Progress Indicator (GPI) from 2000-2009
Source: Oleson and Ostergaard-Klem, 2014
Gini Coefficient
The Gini coefficient is a global measure of wealth distribution, or income inequality, in a particular area. The Gini coefficient values range from zero to one. A figure of zero represents equality in the income earnings within society, where every person in the society has the same income. A Gini coefficient of 1 represents maximal inequality among the income earners. A low Gini coefficient score is associated with a fairly distributed income while the higher score represents skew and disparity of revenue. The state of Hawai‘i has a Gini Coefficient of 0.442 (Data Source: World Atlas, 2017 compiled with the data generated by the American Community Survey which was carried out by the US Census Bureau).
Figure 11: Gini coefficients in Hawaiʻi compared to the United States (Source: American Health Rankings).
Individual Resilience
Financial assets such as savings or property protect people during periods of financial crises such as unemployment. Assets are also a resource for lifestyle changes or opportunities such as starting a business.


Figure 12: Asset wealth among Hawai‘i residents (Data SourceCorporation for Economic Development)
Access to Open Data and Information
Access to open data and information is critical to participate fully in modern society – especially educational and professional environments. Not having reliable online access with a reasonable broadband speed in this current digital climate could affect people’s ability to work, find jobs, complete schoolwork, and perform research.
The State’s Department of Commerce and Consumer Affairs (DCCA) works to support and facilitate public and private efforts to increase access to affordable broadband and internet access services across the State. The fixed broadband speed of 25 Mbps/3 Mbps is the benchmark used in the most recent 2014-15 study by the Federal Communications Commission (FCC) to assess broadband access across the State. The Federal Communications Commission (FCC) estimated that the population of Hawai‘i  without access to fixed broadband at the 25 Mbps/3 Mbps speed benchmark was 57,000 persons or 4% of the State’s population.
Table 1: Proportion of people in Hawaii without reliable broadband access. Rural areas have nearly half the access of urban regions. (Source: Department of Commerce and Consumer Affairs (DCCA), 2014-15)
The County of Hawai‘i  had the largest percentage of population without access at 19% or 35,000 persons. This study shows the City and County of Honolulu to be fully provided with reliable broadband access which may not account for all instances.
Figure 13: The 2015 Broadband Progress Report included a Fixed 25 Mbps/3 Mbps Broadband Deployment Map, shown below. (Source: DCCA)
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SDG 4 - Quality Education
Ensure inclusive and quality education for all and promote lifelong learning
SDG 5 - Gender Equality
Achieve gender equality and empower all women and girls
SDG 8 - Decent Work and Economic Growth
Promote inclusive and sustainable economic growth, employment and decent work for all
SDG 10 - Reduced Inequalities
Reduce inequality within and among countries
SDG 17 - Partnerships for the Goals
Revitalize the global partnership for sustainable development