Diversifying the Alaskan Economy: Political, Social, and Economic Constraints
Brown, William S., Thomas, Clive S., Journal of Economic Issues
As a high school senior, I asked my representative, Don Young, what kind of jobs would be available in Alaska after l finished college. He replied that he saw great prospects in the timber industry, and ignored suggestions from my classmates that perhaps it was time for Alaska to work on diversifying its economy. As a result, I, along with the large percentage of my peers who left the state for their post secondary education, won't be back after graduation . . .
- Katie Lay 1995
Throughout its modern history, the rich resource base of Alaska has brought both benefits and costs. The benefits have been in the form of the huge earning potential of furs, fish, timber, oil, and other minerals. The costs have come in the guise of frequent and often debilitating economic fluctuations as these resources have been over-harvested and mismanaged. The resource that dominates the Alaskan economy today, of course, is oil, and as the international market for oil fluctuates, so too does the economy of Alaska. This paper will examine the Alaskan economy and explain why such wide fluctuations have occurred. We will also look at the potential for economic diversification and at some of the technical and cultural constraints on that diversification. Our conclusion is that while diversification may be possible, it may not be desirable.
The Alaskan Economy
Long before the first Russians arrived in 1762, Native Alaskans lived off the land and seas. The early Russian arrivals were hunters and fur traders and established few permanent settlements, yet these few Russian immigrants were enough to take a significant toll on the Alaskan resource bounty. By the early nineteenth century, local populations of seal, walrus, and otter had become extinct in many areas, but whales may have been hardest hit. Alaskan Natives had long harvested whales for food, clothing, and even building materials, but their take was sustainable - the few whales needed by the Natives did little if any harm to the whale population. Things changed with European and American demand for whale oil and baleen in the nineteenth century. Hundreds of whaling ships fished Alaskan waters and by 1852, the value of the catch was estimated to be around $14 million. But within 20 years, the whale population was shrinking so much that whaling crews were forced to hunt walrus. The story is the same for fur seals and sea otters: 5,000 sea otters were harvested per year in the 1880s but only 29 were taken in 1910. As whaling and the fur business began to contract, Alaska's fishing industry took off, and the first salmon cannery was built in 1878, just two years before the first important gold discovery occurred in Juneau. The salmon fishery remains a significant element in the Alaskan economy today, aided by millions of dollars spent on salmon hatcheries, but whaling is done only on a highly regulated, subsistence basis by the Inupiat Natives around Barrow, and the fur trade contributes only a tiny amount to the state economy.
The early days of Alaska's economy were to foreshadow things to come: Every time a new resource was found to be commercially viable, it was exploited rapidly until it was no longer profitable. This pattern was to become one of the major sources for the boom and bust cycles that have characterized the Alaskan economy for two centuries. One way to dampen the business cycle, of course, is to use government spending to offset declines in private spending. The government sector has been important in Alaska since 1923 when President Harding drove a golden spike to begin construction of the Alaskan railroad to connect Anchorage with Fairbanks. The government sector is second only to oil in its importance to the Alaskan economy today, and Alaskan residents receive more than $1,400 per capita in federal aid compared to a nationwide average of less than $700. However, it must be stressed that while government spending does act as a stimulus to the Alaskan economy, it is not administered so as to reduce cyclical fluctuations. …