“Monopoly” isn’t a board game in the islands; it is an ubiquitous part of life.
While it may seem normal to lifelong residents of Hawaii, there aren’t many parts of the United States where you can see monopolies at work simultaneously in the water, on land and in the air.
But from many vantage points in this state, you can stand next to an electric company utility pole and look above a Matson vessel loaded with cargo containers at a Hawaiian Airlines plane rising into the sky.
At such moments, it is easy to feel like our lives have been, well, sort of monopolized.
Since the plantation era, Hawaii has been an almost perfect place for the cornering of consumer markets by dominant companies. And it has remained so in modern times.
This is something that Joseph Stiglitz, the Nobel Laureate for Economics, quickly gleaned when he came to speak at the University of Hawaii in 2012. He noted the ways that the state’s cornered markets weigh on Hawaii’s finances, drive up consumer prices and aggravate economic injustices.
“Hawaii has a history of being dominated by some large economic interests,” Stiglitz told a large audience at UH. The sometimes-understated former head of the Council of Economic Advisers under President Bill Clinton added, “The economy has not been as competitive as it should be.”
Translation: Monopoly, in Hawaii, is a real-world game where most of us are the ones getting played.
Many of the enduring iconic companies here, other than Matson, tend to include “Hawaii” in their names: Hawaii Gas, Hawaiian Cement, Hawaiian Telcom, Hawaiian Airlines and, of course, one of Hawaii’s most durable monopolies, Hawaiian Electric Industries. Depending on your location, you probably call the power company HECO, MECO or HELCO. Some customers frustrated by high prices have called them other things.
There are a lot of reasons for the number of monopolies, duopolies and otherwise cornered markets in residents’ lives.
Some of it is geographic. Generations ago, large cargo vessels on trans-Pacific routes would stop in Honolulu for refueling, drop off some goods, and continue on. As ships got larger and more capable of traveling long distances, that has become a thing of the past.
Monopoly, in Hawaii, is a real-world game where most of us are the ones getting played.
There is also the responsibility of our sometimes-insular political class that hasn’t always been particularly welcoming to outside — or even new local — ventures.
But more significantly, there is the question of scale. If we add in our tourist population, there are 1.5 million to 1.6 million people in the islands most days. That might be enough of a consumer market to draw a wide range of goods and services to mainland cities with lots of delivery infrastructure and similar populations. But there aren’t any trains and delivery trucks competing with the ocean vessels that deliver the lion’s share of our cargo to this archipelago state in the middle of the Pacific.
Economist Paul Brewbaker points out that major companies — with some notable exceptions — are only likely to enter the Hawaii market when they are confident they can turn a profit, and a limited number look at the set-up costs and come to that conclusion.
“A couple dozen container ships about does it for Hawaii,” the former Bank of Hawaii chief economist says of the vast majority of goods that come into the state. The state’s material needs are largely serviced by a pair of companies with around two dozen vessels between them.
It isn’t, as is widely believed, the Jones Act that prevents companies in Asia from shipping cheap freight directly to Hawaii; America’s domestic shipping legislation only prevents a foreign ship from picking up goods at one U.S. port and dropping those same goods off in another one.
The problem is more basic: It isn’t currently profitable for large foreign cargo vessels to stop in a market as small as Hawaii’s even when they are already crossing the Pacific on their way to the West Coast.
In a remarkably short period of time, technological change has taken down numerous once-dominant companies across the country. This change has acted like a whipping sheet that has struck — and continues to strike — various industries and once-ubiquitous companies at different times.
Just ask anyone who owned once-valuable stock in Kodak, or look around for big-name brick-and-mortar stores that once sold CDs, videos and books or travel. How many remain? Look at the financial bottom line of most newspapers, print magazine and book publishers. Or check out the declining valuation of traditional landline companies that didn’t evolve. Such industries tend to be largely husks of what they once were.
It can feel like nearly every major industry has faced disruption — or it will. Tesla is working to bring it to the gas-powered auto industry with its ambitious electric cars. Google and perhaps Apple are attempting to disrupt that same industry in an even more dramatic way with driverless cars.
For Hawaii’s electric utility, a glimmer of disruption arrives with the installation of every new rooftop solar panel or any other functioning renewable energy source.
Traditional television networks and cable channels are facing disruption from shows being released on demand by companies like Netflix, Amazon and Hulu Plus.
The Internet-driven disruption of real estate may have begun with companies like Redfin offering a discounted framework for selling your home. (Higher-cost real estate agents in the islands may eventually need to re-assess whether they still earn their traditional cut.)
Disruption has hit the streets of Hawaii as well. Next-generation app-driven companies like Lyft and Uber have been eating up the fares of the traditional taxi industry, which is why they now face a potential political backlash in Honolulu and many other cities.
So it is worth considering some of the ways in which our under-competitive markets might be particularly vulnerable to disruption. After all, why would we be insulated when no one else seems to be?
Hawaiian Telcom, the iconic phone company originally created in 1883, went into bankruptcy in 2008. (It has since come out the other side and diversified to offer high-speed Internet and cable television access, as mailers note.)
Even Hawaiian Airlines may one day lose its dominance in inter-island air travel. Yes, some other sizable airline could eventually come up with a more agile, efficient and effective business plan. Who knows, we might even one day see some sort of affordable ferry service return to the state, allowing residents to move more cheaply between islands.
In all likelihood, given the competitive gyrations these days, many of our dominant companies will likely eventually face challenges.
But for the moment, the most interesting one to watch is Hawaiian Electric. For the electric utility, a glimmer of disruption arrives with the installation of every new rooftop solar panel or any other functioning renewable energy source.
Henk Rogers, the founder and chairman of Blue Planet, a nonprofit that is working to disrupt the fossil-fuel era, explained in an interview earlier this summer in his downtown Honolulu office, that the power company’s monopoly made “perfect sense” when the company first began to illuminate Hawaii at the tail end of the 19th century. That continued long into the 20th century as the state was developing.
“There were no such things as global warming. We didn’t have another way of getting energy here. There was no such thing as solar panels,” Rogers said.
In our fast-decentralizing era, though, evolving technology demands that we question and, perhaps, restructure, our relationship to energy, he insists.
“Is stuff cheaper or more expensive than the stuff you bought from them back in the B.C., before Costco? If (people) say things were cheaper, they’re just lying.” — Economist Paul Brewbaker
Why, he asked, is there a power monopoly at all? After all, an electric monopoly gives a single company remarkable power and influence. In Hawaii this has led to electricity costs to customers that, by various measures, are nearly three times the national average.
The power company gets this in exchange for a commitment to serve people in remote areas. “Otherwise they would only take the juicy parts and screw the people who are living out in the boonies,” Rogers said.
But the man who made a fortune as a video game designer and entrepreneur raises the question of whether this logic is antiquated given that the costly installation of electrical infrastructure can now be replaced by a much smaller investment in rooftop solar or some mix of small-scale renewable energy sources.
“In today’s world,” Rogers argued, “the people out in the boonies are probably better off being off the grid.”
Some of the more notable economic disruptions in Hawaii that have brought prices down have been big-box stores. They may have, for the most part, arrived fairly late in the islands, but they brought remarkably honed business techniques, not to mention a much larger scale of business.
Brewbaker says there is no doubt that companies like Wal-Mart, Home Depot and Costco have brought down many prices in the islands. “Is stuff cheaper or more expensive than the stuff you bought… back in the B.C., before Costco?” he asks rhetorically. “If (people) say things were cheaper, they’re just lying.”
For companies disrupted by challenging new business models, it is worth considering what separates those that respond to such challenges with innovative improvements from those that sink into an irreversible decline.
The answer may lie in another observation that Stiglitz offered up at UH: “An economy is supposed to serve our citizens, not the other way around.”
State-sanctioned monopolies should probably, ultimately, do the same. They should serve their customers.
As Michael Roberts, an associate economics professor, wrote on the University of Hawaii Economic Research Organization’s blog, utilities long benefited from economies of scale when they had to build enormous infrastructure, but this gave them leeway to, when left to their own devices, “maximize profits by charging prices that far exceed costs.”
This leads to a situation in which local governments typically must regulate utility prices for things like water, cable TV, phone service and electricity.
“Regulation is tricky,” Roberts pointed out, because monopolies have little incentive to be forthcoming about their actual costs, and sometimes even less incentive to innovate or find creative cost-cutting measures. The reason? Regulators might pass on all of those savings to customers, leaving the monopoly without any reward.
Roberts noted some key ways that technological improvements are challenging Hawaii’s electric utility. When it comes to some renewable energies, like solar, there is no need to invest a huge amount of money to enjoy savings. The many people buying solar panels collectively make up a vast market that has driven the cost of panels down very quickly.
“Even without state and federal subsidies,” he wrote in 2014, “rooftop solar and wind are becoming competitive.”
Now Hawaiian Electric needs to find a way to dramatically lower prices to fend off its new competitors on price grounds, or it will have to corral the energy of those competitors.
Until it finds an enduring solution, every home that goes off the grid can be seen as a defection of sorts away from the power company.
Unless Hawaiian Electric, with or without its suitor NextEra, successfully adapts for the future, we may be witnessing Hawaii’s ultimate monopoly turning into just another big company. One solar panel or windmill at a time.
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