Back to the speakers' list
Back to the program

 

Tourism Development : Assistance from the State?

 William C. GARTNER - Director Tourism Center, University of Minnesota, St Paul, United States

 

 

INTRODUCTION

One of the more visible activities performed by a state agency is the promotion of the state's tourism products. While this is an accepted state activity questions have arisen as to the proper state role in tourism development. That is why the topic for this session has been broadened from discussing simply promotion and marketing to discussing how states currently operate with respect to tourism development as well as arguing for a new state role. Instead of asking the question should states be involved in tourism promotion it may be more appropriate to ask; "What role and responsibility does the state have for managed tourism development". To begin addressing this question requires a brief overview of some of the more relevant characteristics of tourism.

CHARACTERISTICS OF TOURISM

Tourism producers hail from many different economic sectors making tourism development a multi-sector activity. Although one could argue that the most visible signs of tourism development activity are the large multi-national corporations such as airlines and brand name chain hotels the majority of tourism enterprises are small or medium scale (SME's). Small service providers form the backbone of an economy based on tourism.

Tourism is also a community based activity. Much attention is paid to the size of a states promotion and advertising budget as a sign of development success but the true measure can only be found at the local or community level where the impacts of tourism rest. Both positive and negative impacts resulting from tourist flows reside at the local level where touristic activity takes place.

As mentioned above tourism development is a multi-sector activity. Because the impacts of tourist flows cut across so many different economic sectors it is not possible to speak of a "tourism industry". For an industry to be recognized it must have some defined type of production activity that results in identifiable products. Industries are usually named after the activity engaged in to produce a particular product (e.g. agriculture) or, when it is necessary to be more specific, they are named after the primary product(s) produced (e.g. dairy). Tourism, on the other hand, is not defined as a supply driven activity but rather it is defined in terms of demand. Tourism is not an industry but a system comprised of members from many economic sectors that work together to satisfy the needs of the tourists. Therefore tourism promotion engaged in by a state has multi-sector implications. Development activity whether it be promotion or some other form of business assistance is only an appropriate activity for a state if the consequences of the states actions are known and understood. Often this is not the case.

TOURISM TRENDS

An examination of tourism trends allows us to examine what an appropriate state role may be for tourism development. There are a number of mega-trends and ancillary trends affecting not only the supply side for tourism development but the demand side as well. A thorough examination of those trends can be found in Gartner and Lime (2000) [Trends in Outdoor Recreation, Leisure and Tourism ; London :CABI] but for the purposes of this paper I have selected four for further discussion.

One of the most significant trends affecting almost all economic sectors is consolidation. Mergers and purchases leading to bigger corporate entities have been with us for a long time. What is unusual about the current wave of consolidation is the size of the mergers. Large companies are acquiring other large companies and becoming mega-corporations. If a company is unable to find a suitor or is does not have the resources to become a suitor it is still possible to extend market penetration through the process of forming a partnership or strategic alliance. Airline alliances are probably the most visible of this form of consolidation. One World and the Star Alliance are names given to alliances that involve many different airlines from different parts of the world. The reason for the wave of recent consolidations and alliances is simple; to make sure a company, regardless of size and market share, becomes a global player. International trade is not new but the size of tourism today, with over 700 million annual international visitors, almost requires a regional company form an alliance so that it can protect it market share in the face of increasing competition from large, and getting larger, competing companies. Globalization then is the third major trend that needs to be taken into consideration when determining the state's role in tourism development.

The final trend noted is one of private sector assumption of activities formerly reserved for the state. Most noted is the handover of promotion and marketing activities from state control to private corporations. States have historically used private entities to implement promotion and marketing strategies. What is new today is a trend for states to relinquish control of strategy development to a private corporation. State money is still used for promotion activities but state agencies and authorities are taking a less significant role in deciding how state money should be spent.

The above four trends point to a mega trend emerging which we may simply call private sector ascendancy in tourism development.

TOURISM POLICY

Tourism policy developed and enacted by state agencies is the real basis for a states role in tourism development. Promotion is just one aspect of policy even though it may well be the most visible and understood of a state's tourism development activities. Basically tourism policy can be classified as either active or passive. Active tourism policy is intended to affect one or more sectors directly involved in the delivery of tourism goods and services including those reserved for delivery by the states. Passive tourism policy is not enacted to affect tourism directly but does so anyway in an indirect manner. Some examples of both active and passive tourism policies and some of their impacts will help make this discussion clearer.

ACTIVE TOURISM POLICY EXAMPLES

The country of Ghana emerged from a period of economic decline in the early 1990's and began to look for ways to increase foreign exchange earnings and expand its economic base. Tourism development was not new to Ghana but during the peak period of the 1970's the factors of production were owned and controlled by the state. Ownership of resources and the factors of production by a state is an example of an active tourism policy but this type of policy has been discredited through the years and is now practiced by only a few nations. The new tourism policy for Ghana put the onus for development onto the private sector. However since a private sector with sufficient capital for investment was not yet fully developed in Ghana the state enacted policy that offered investment incentives. Specifically the state offered a reduction in import duties for equipment needed for operating hotels. In addition the state offered assistance with feasibility plans that once completed could be taken to formal credit agencies for loans which were also backed by a state agency. This latter policy was reserved for a particular region where tourism development received high priority.

The policy was effective in increasing the number of international standard hotel rooms in the country and specifically in the target region. However the numbers of international visitors did not increase enough to fill the new hotel rooms. Although the policy had its intended effect the larger picture was generally ignored. The transportation infrastructure needed to move people into and through the target region was very poor and continued to deteriorate. Restrictive visa regulations remained in force and there was no increase in promotion or marketing activity directed at target markets. One could argue, successfully, that this active tourism policy achieved its goal. However by failing to enact other active tourism policy needed to ensure the success of the hotel development, by bringing in additional tourists, the full potential of the policy could not be realized.

The state of Hawaii in the United States provides another example. Tourism is extremely important to Hawaii's economy. For many years the state did not see the need to allocate any money for advertising as tourists came without any encouragement from promoters. However increasing competition resulted in money being allocated for tourism promotion. The size of the advertising budget slowly increased but with the decline in tourists numbers, especially from Japan, that resulted from the Asian economic crisis decisions were taken to increase the size of the states advertising budget substantially to approximately the $11 million U.S. level for 2000. Before the money could be spent a lawsuit was filed by an environmental group on the basis of a state law that required any large expenditure of public funds, that could possibly, negatively, impact the environment, be subjected to an environmental impact statement before the funds could be spent. Allocation of public funds for tourism promotion is practiced by almost every state in the U.S. and until this lawsuit no one ever formally questioned the potential negative environmental impacts of tourism advertising. 

An active tourism policy, in this case an allocation of public funds for tourism promotion, was now being challenged based on the externalities it created. Many other states in the U.S. have environmental protection laws similar to those in Hawaii on their books. Although the lawsuit has not yet been resolved the lesson is clear. An active tourism development policy must take into consideration the impacts on sectors not directly addressed in the original policy.

Another example can be found in U.S. congressional legislation. The U.S. National Rural Tourism Foundation was created by Congress in 1992. Its mission was to enhance the ability of rural America to host the international visitor. This is an example of an active tourism policy with no means to achieve its mission as the act that created the Foundation did not contain appropriations to carry out any activities. That omission was addressed in the 2000-2001 budget cycle and it is expected that the Foundation will now begin to achieve its mandate.

Finally a recent active tourism policy that was temporary was made permanent. The visa waiver policy in the U.S. allows nationals from over 20 countries to now enter the U.S. for a limited period of time without the requirement of obtaining a visa. This policy was enacted to ease congestion at the border immigration centers in the nations ports of entry.

Passive tourism policy occurs whenever action taken is not targeted directly at a sector engaged in providing tourism goods and/or services but instead is initiated to deal with some other situation and in the process there is a indirect effect on sectors involved in the tourist trade. For example air transportation policy in the United States has as its core mission to encourage competition between airlines. Competition was the basis behind the airline regulation act of 1938 and it was the same reason given for the deregulation act of 1978. The 1978 act set in motion a series of competitive acts by U.S. based airlines that have effectively lowered the real price of travel and in the process boosted air traffic in the U.S. to its highest level ever. Note that the purpose of the air transportation policy was never intended to directly boost the number of passengers.

This happened as a result of increased competition which was the main purpose of the policy. If this had been an active tourism policy the legislation would have gone further and provided resources to upgrade the U.S. transportation infrastructure. As it is now the U.S. air transportation infrastructure suffers from age and overuse. If tourism is to ultimately benefit from the 1978 deregulation act active tourism policy will have to be initiated which greatly increases the capacity and efficiency of the air transport system in the United States.

Another example of passive tourism policy can be found by reviewing U.S. tax policy in place in the early 1980's. Due to how the tax code was written hotel development costs, through limited partnership arrangements, were more easily used as losses against income. This led to a rapid and substantial increase in the number of hotel rooms in the U.S. with downward pressure on prices. By the time the tax law was changed in the late 1980's the U.S. had an oversupply of hotel rooms leading to a higher than normal rate of bankruptcies and discount sales for many of the newer properties. Eventually development slowed and demand and supply found an uneasy equilibrium. What this example points out is how a tax policy led to increased supply which for the most part benefited consumers-an unintended consequence. In this case policy not directed at tourism led to an effective lowering of prices for consumers and trouble for producers.

Finally the last example of passive tourism policy can be found in a recent report commissioned by the World Bank. The report dealt with an assessment of large water control projects that the Bank has supported through the years. Essentially the report concluded that if all benefits and costs, including environmental and socio-economic, of the projects had been considered the dams should have never been constructed. It is expected that this report will be accepted by the Bank and future water control projects will stand very little chance of receiving Bank financial assistance. Policy that serves to reduce or eliminate funding for future dam projects will have an effect on tourism but no one yet knows what that might be. That is the nature of a passive tourism policy. Since the policy was not directed at tourism the overall effect on tourism is not well understood. On the other hand an active tourism policy is intended to have a measurable impact on the sector of tourism that is targeted.

APPROPRIATE STATE ROLE

Given that policies, both active and passive, are enacted by different branches of government the question of what is an appropriate state role when it comes to tourism development is relevant. Destination promotion, historically a role embraced by the state, has been called into question by at least one legal battle in Hawaii, as noted above. Although states have been engaged in tourism promotion activities for years without questioning their right to do so it now is becoming more apparent that the consequences of state actions must be considered. If this movement continues one legitimate role for the state is to engage and assist in planning for tourism development. It is the nature of state tourism promotion that the focus is on bringing more people to the state. Whatever negative impacts result from that action are dealt with at the local level. The lack of any tourism development plan either at the state or local level exacerbates any negative impacts from tourism development. Therefore it may be time for states to become more actively engaged in the tourism development planning process, not necessarily to do the planning but through policy driven programs to provide assistance for local level planning. In a sense the state would engage in planning empowerment.

Other areas where there is a need for a strong state role are in research and education. Many of the problems associated with sectors with heavy membership from small businesses deal with lack of resources. Lack of resources is one of the arguments used for states to engage in tourism promotion. However as argued in this paper and in some courts tourism promotion is not an unbiased policy.

The provision of planning assistance plus research and education support can be viewed from a neutral perspective. Planning puts development control in the hands of local people and research and education provide the intelligence and the ability needed for wise decisions regarding the level and intensity of future tourism development.

CONCLUSION

State tourism agencies, often referred to as National Tourism Organizations (NTO's), have undergone very little change over the years. They are often found in a Department of Economic Development or as a stand alone agency. Some have specific mandates to address environmental and socio-economic impacts of their actions but in reality very few do. With tourism's rapid growth in the last twenty years, a better understanding of how tourism systems operate, and a trend that points to more and more private sector influence in the promotion and development process it may be time for new paradigms of the state's role in tourism development.

Numerous NTO's actually recognize that tourism is a multi-sector activity and have created advisory boards comprised of representatives from other state agencies (e.g. Parks and Wildlife, Agriculture) to provide input as to how certain policies may affect tourism development. The advisory boards have shown very little ability to determine the course of state action with regard to tourism development. However the basis for what a state needs to do can be found in the advisory board system.

Essentially is it important to recognize that policy analysis can do more to predict the future of tourism development than can new promotional activity. Both active and passive forms of tourism policy are enacted by government on a regular basis but for the most part the implications of such actions are ignored or are restricted to only the targeted sector. A much more inclusive analysis of policy impacts could and should be a function of a NTO. However to accomplish this would require that advisory boards become something more powerful than what they currently are. Possibly they are the basis for the creation of a new NTO directed to not only assisting the development of tourism in an orderly manner but actually providing insights into the outcomes of both proposed active and passive policy initiatives.

In conclusion I return to the title of this presentation. Tourism Development: Assistance from the State? The answer is yes but not just when it comes to promotion activity. With all the changes that have taken place within the last twenty years, including the knowledge base we possess for understanding the implications of numerous policy decisions, old models of state assistance, primarily restricted to promotion and marketing activities, are outmoded and in need of a major overhaul. I would contend that we have now reached a level of maturity when it comes to tourism development that state agencies responsible for tourism development, will fail in their mission unless they reinvent themselves.