Good morning, and thank you for your invitation to address this conference. I have, perhaps rather foolishly, taken on a task that would be better left to many of you in this audience today.

The program says I am to provide you with an economic overview of the Pacific islands. In the interest of the truth, let me suggest that this small presentation is really the first part of what I hope will be an ongoing discussion at this gathering. That discussion has little to do with "Pacific island economies," but it has everything to do with the rise of the New Economy, and how isolated Pacific islands are facing dramatically new challenges as our world economic order shifts.

AN ECONOMIC OVERVIEW OF THE PACIFIC ISLANDS

But first, that stuff about a Pacific island economic overview. I'm just an editor and publisher, which is a fancy term for top paper pusher. I am not an economist. But like you, I do rely on the economists. And when it comes to the Pacific islands, we are fortunate to have one of the best economists in our backyard.

I know many of you know Wali Osman of Bank of Hawaii. Wali does consistently good analysis, not all of which finds eager ears in the islands. But I believe he plays it straight. If you need the hard numbers and detailed macro and micro-economic analysis of the region, I commend to you Wali's ongoing series of economic reports on Pacific island nations and territories.

Bank of Hawaii just released its Guam and Commonwealth of the Northern Marianas Islands reports. The Fiji report came out in September. And this summer, Bankoh released its reports on New Caledonia and French Polynesia. Wali tells me the Palau report will be off the press in February. You can download these reports at Bank of Hawaii's Web site http://www.boh.com/.

What I would like to do for a few minutes, is summarize some of the more compelling figures that Wali presents in his report. They will help shape the rest of our discussion this morning.

First, as you know better than most, we are talking about 20 micro economies, not including Hawaii. And these economies are spread out over an area three million square miles, but with only about 220,000 square miles of dry land. And on that 220,000 square miles of dry land are scattered less than seven million people.

While all of the region’s economies are insular, some are more insular than others. Using per capita Gross Domestic Product, in US dollars, here’s how diverse the region is. Our baseline is Hawaii, which has a per capita GDP of $29,164. No other island economy comes close. Among the current or former American territories, which have dollar denominated economies, Guam’s per capita GDP is nearly $19,000. But then the next largest is the Republic of Palau, with a per capita GDP of $8,806.

If you think that’s small, compare it to Fiji, one of the South Pacific’s largest and most diverse economies. In Fiji, with a population of about 815,000 people, the per capita GDP is just $2,637. I say just, but many island nations would kill for those kind of numbers. Tiny Tokelau, with a resident population of under 2,000 people, has a subsistence economy with a per capita GDP of less than $700.

The figures give you an idea of the economic diversity within the region. If there is a constant, it is the dramatic distances that separate most of the region’s island states. Even Fiji, the true hub of the South Pacific, is nearly 2,000 miles from Sydney, 3,000 miles from Honolulu and almost 4,500 miles from Tokyo.

Now, how does this play out in the New Economy? This is an economy built on an online foundation that is beginning to change the very nature of our societies. Speed and convenience are everything. The Internet is changing where we do business, and how we do business.

In this model, you might think that distance becomes less of a factor in the New Economy. When you are linked on the Internet, does a six-hour plane ride mean much?

I would suggest that the challenges of being so remote–uncertain air and sea service to many parts of the region; relatively tiny resident populations; and, attendant high costs for economic infrastructure, in particular utilities–are all exacerbated in the New Economy model.

Cost

Add to that telecommunications, or rather, the cost of telecom in the region. You can’t afford to pay the telephone charge to connect to the World Wide Web. Yet that is a reality in most of the Pacific. You know you have problems when you factor in the lack of either speed, reliability or reach of "traditional" communication mediums, such as the mail or telephones.

Still, in a global economy, it’s all but impossible for even the most remote corner of the world to escape the effects. And that is certainly true in the Pacific islands, where technology does play a major role, often in ways that we cannot predict. Let me share with you an example that most of you will remember.

Unpredictability

In the mid-1970’s, when I was a graduate student at the East-West Center, I worked on a project focused on trans-national communication. Some researchers looked at newspapers, and how information flowed across national boundaries. Others focused on short-wave radio, still a big deal in those days. Still others studies looked at what was then a young television medium in the Islands.

I chose instead to study movies: what was being shown, where these films came from, how national governments dealt with censorship, and what kind of facilities existed in island states. I traveled to nearly every island state and territory, talking to distributors and theater owners, meeting with censorship boards, and going to a lot of movies. This was 1976, and the big deal was kung fu. I can tell you that in the seven months that I was on the road, I watched more kung fu films than any person should be expected to in a lifetime.

While the study was eventually published by the University of Hawaii–it was the only region-wide research on movies that we were aware of at that time–it turned out to be important for a very different reason. About the time I was doing my study, the first consumer VCR's were being introduced. By the late 1970's, as many of you who are from island nations will remember, many of the region's movie theaters had gone out of business. This was particularly the case in smaller countries, where a handful of VCRs in homes in a sprinkling of villages could easily siphon off movie audiences.

Instead of a baseline study about cinema in the Pacific islands, which could be followed up by future researchers, my small study became the only one of its kind. And for those of you unfamiliar with the region, movies had a long and rich tradition in the islands until the mid-1970's. One of the more memorable interviews I conducted for the study was with Sir Albert Henry, then premier of the Cook Islands. Sir Albert recounted the days of his youth, when entrepreneurs would take a small projector, a white sheet and a generator around to remote villages. Since most villagers, in those days, didn't speak English well, the movie operators turned down the sound and hired people to be narrators. Sir Albert was one of them. They usually made up stories that had little to do with what was really happening on the screen.

We have seen the same story, with different characters and technologies, play out across the Pacific in the post-independence era. When I worked in Fiji in the mid-1990's, Bank of Hawaii introduced ATM’s. The one ATM in Suva at the time wasn't enough to bring large numbers of retail customers to the bank, but that wasn't Bankoh's goal. It was to entice business banking clients, and in that regard, the ATMs (not to mention readily available safe deposit boxes) were a major draw.

I mention these technologies because we are now rushing headlong into the Digital Age, and the Pacific islands will be part of the revolution. But the revolution, as it plays out in the region, will be unlike what we are experiencing in the United States, or in any of the metropolitan nations that border the Pacific.

THE DIGITAL REVOLUTION

The Digital Revolution holds great promise for companies that want to invest in the Pacific islands, or expand their current base. We are already well into the first stages of that revolution. For companies that need to, for example, establish intra-nets or expand business-to-business commerce, the online revolution will have a greater impact than widespread facsimile service did a decade ago.

Business on the Internet

Smart business executives long ago realized the tremendous potential of computer-to-computer communications in the remote Pacific. One of the first examples I saw of this intuitive understanding of the value of technology was in the Marshall Islands in the mid-1980's.

At the time, I conducted a long interview with Ramsey Reimers, the head of Reimers Enterprises, on that country's most innovative and successful businesses. Young Mr. Reimers had just established a computer link between the company's headquarters in Majuro, and a major retail operation hundreds of miles away on Ebeye on Kwajalein atoll. In those days of 2,400 baud modems, Ramsey Reimers was able to download the day's sales data from Ebeye, and get up-to-date accounts receivable and payable data, too.

Today, the Internet is giving many foreign companies unparalleled opportunity to maintain close links with their operations in the Pacific islands. One of the largest construction companies based in Hawaii, formerly Fletcher Pacific and now Dick Pacific, has a significant presence in Micronesia. The company's President and CEO, Denny Watts, uses the Internet to quickly solve problems that may crop up at job sites around the region.

He once told me about a problem they were having on Saipan. They resolved it by having the site manager use a digital camera to take photos of the problem. A few minutes later, he was able to post the images. That's when Denny and other senior executives in Honolulu got online, and conducted a video conference over their PCs while looking at the problem on the Saipan job site. They were able to resolve in minutes what would have taken days just a few years before.

How is the Digital Age going to play out in the Pacific islands? That's really anyone's guess at the moment, given how quickly the technology is changing. Just the other day, I listened to a discussion on National Public Radio about the latest research on computer chips. There are now groups developing high-speed processors that will fit on molecules. The traditional silicon wafer, as small as they are today, could soon be the digital equivalent of eight-track cassettes.

Still, I think there are a number of givens that we can expect to hold true in the Pacific islands. I would suggest they include the following:

• Computer use in the region will be limited mostly to urban areas, and within those areas, primarily to commercial enterprises and extremely well-to-do individuals.

There are a number of factors that will severely limit how widespread ownership of computers will be in most island states. Most of these countries and territories are relatively poor by Western standards. A very good wage in, say, Fiji, one of the richest countries in the region, would be 10,000 dollars. That is Fiji dollars, which is about 5,000 dollars U.S. at the moment. Would a middle-class Fiji citizen making 10,000 a year likely be surfing the Net at night from a computer at home? Not likely.

He or she is probably helping to support a large extended family, is having to pay extremely high urban electrical rates, will be paying either relatively high rent or a mortgage on a government-built home, and may also be saving to pay for tuition for their children at one of Fiji’s elite private schools.

This scenario also doesn’t take into account that it wouldn’t be unusual for this person to not have a telephone at home. And if there was a phone, which is metered by time usage, it is most unlikely that this family could afford to pay for an hour or two’s worth of surfing the World Wide Web each night.

And once you get out of the primary urban areas, the availability of electricity and telephone service becomes iffy. Again, using Fiji as the example, the vast majority of that country’s 815,000 population lives in rural areas. High tech for those people is more likely a television and VCR, and if they are really well to do, an electric water heater.

• The Internet holds great promise for business-to-business commerce in the Pacific islands.

Hawaii is a good model of what is already beginning to happen in smaller islands. Name a business here, and I will bet it is using the Internet in some way to lower the cost of goods and services, increase efficiencies in ordering and shipping, and improve communication between the company and customers and vendors. And that is in addition to the goods and services that it sells.

The negative side of the new Digital Equation will be the impact access to lower-priced online vendors have on established brick and mortar, or should I say corrugated tin and concrete retailers. In the Pacific, where the cost of imported goods are usually extremely high, the Net holds great potential.

A major constraint of the Digital Economy in the Pacific will be national duty and tariff rates, which are often punitive in many South Pacific countries. The longer those regressive tax rates remain in place, the longer it will take for island-based companies to gain operating efficiencies and lower the cost of doing business.

But one of the largest constraints will be distance, the tyranny of geography. It may take just a click or two of a mouse to save hundreds or thousands of dollars. Still, if you have to rely on less than reliable air service, or spotty shipping schedules, you have saved little.

• There will be opportunities for island-based commerce on the Web. But it will likely be limited to companies that can offer specific goods and services in sharply defined, narrow niches.

One niche that comes to mind: traditional island handicraft. I think of the remarkable weaving talent among Marshallese, or the skill of Fijian carvers and the experience of Tongan or Samoan tapa makers. A Web site devoted to the work of handicraft cooperative in, say, Fiji would hold great promise.

I have also often wondered if a Web site for South Pacific beers might not also be a good niche. I am not sure you would want to make it your only brew, but having a few Fiji Bitter stubbies in the fridge would be nice once in a while.

The Web, of course, also works for tourism. Two years ago, in the Jurassic era of Web commerce, a fellow I worked with in Tokyo booked a holiday in the Cook Islands through a Web site based on Maui. It specializes in Cook Island properties, and was able to offer a significant degree of high touch along with the high tech. That is a model that can work in other areas, too. The only constraints, of course, of having locally-based Web sites in the islands, are adequate bandwidth capacity, reliable electricity and technical support. Actually, knowing what we know of many islands areas, those last two needs aren't exactly givens.

And speaking of tourism and the Web, we have published each year for the past two years a directory of Hawaii-based e-commerce Web sites. Our last directory had over 23,000 URLS, and I know we were missing a lot. At least a third of those were tourism-based sites, hotels, attractions, airlines and the like. And for many of those companies, e-commerce works.

Let me share two examples with you. The first is Outrigger Hotels and Resorts, our largest locally-owned hotel operator. Outrigger is now a familiar name in many of your countries and territories. Their success on the Web is good news for your national tourism programs.

Outrigger was one of the first major tourism companies in Hawaii to stake a claim on the Net. It opened its first Web site in 1994, the really early days of e-commerce. Traffic to the site, and resulting commerce, has grown exponentially in the past five years. It is clear from Outrigger's experience that if you are in the tourism accommodation business, you avoid the Net at your own peril.

During the summer, a friend of mine in California sent me e-mail asking for help in booking a hotel room in Waikiki over the Christmas and New Year holiday. High season rates are usually in effect then, and we weren't hopeful of getting a deal of any kind. But she persisted, surfed the Net, and came across the Outrigger Web site. Using the company's site, she was able to book a nice room at a hotel just half a block from Waikiki Beach. And she locked in a rate of about $90 per night.

The other example is less obvious, but it is running a hugely successful e-commerce operation. That company is ABC Stores, those ubiquitous curio stores better known for kitschy magnets and beach mats. Don't let its looks deceive you. ABC Stores hosts one of Hawaii's premier e-commerce sites. In fact, it is something of a mini-portal for Hawaii.

• There is a crying need for a regional news site that shares news about the islands by locally based journalists.

The best Pacific island news site is run by the East-West Center's Pacific Islands Development Program. I believe Dr. Sitiveni Halapua is here today, and he should be commended for his strong support of Al Hulsen's top-notch site.

But what we also need are major regional-based sites that offer news coverage from print, TV and radio straight from the local reporters and editors. There are two good starts: http://www.fijivillage.com/ and http://www.saipan.com/. But both are first-generation sites that are mostly billboards rather than fully interactive Web sites. Neither, unfortunately, appears interested in trying to develop a substantive e-commerce position.

What lies ahead for the Pacific islands in the Digital Age? I believe a major challenge for all island governments in the new century will be determining how active a player they are to be in the New Economy.

The history of the post-contact Pacific has been one of dramatic change instigated by outside forces. Islanders were often at the mercy of forces that they neither understood nor could control. Today, by not acting affirmatively to make their countries active players in the New Economy, Pacific leaders will doom their people to have history repeat itself. It will no longer be good enough to not act, to try to hide in relative isolation on the fringes of the global economy.

All we have to do is think back to the early years of this century, when sail power transported most Pacific islanders around their known universe. But within 20 years, in most islands, steam and diesel power had replaced sails. Within another 20 years, jet-powered aircraft dramatically cut the time it took to cross the Pacific. Another 20 years later, by the 1980s, we began to see jet aircraft that could easily cross the entire Pacific without having to stop to refuel. It made the point that not all technological changes were necessarily for the better.

Today, in the last year of the last 20-year cycle of this century, we measure speed in a different way. Forget years. Today, we measure the exponential growth in the speed of communication in 18-month cycles. That's how long is generally takes for computer processors to double in speed.

In that kind of environment, change waits for nobody. Least of all cautious or, worse, ill-informed decision makers on small, isolated islands in the Pacific. I would suggest to those of you who are returning to island states, that your biggest challenge will be determining what role, if any, your countries will be playing in the Internet Age. Actually, that also holds true for those of us who live in these Islands.

CLOSING

If you choose to be players, the road ahead is uncertain. The technology will continue to change faster than we can respond. We will make a lot of mistakes. Decisions will have to be made to reallocate scarce resources.

But if you choose to remain a backwaters player, I think you can pretty much kiss off any hopes for long-term economic growth and prosperity. The choice is stark, but it is as clear as the click of a computer mouse. That is, I believe, today's real story about Pacific island economies. Thank you.