By PAUL FUHS
Like the turn of the seasons, we can regularly count on seeing opinion pieces expounding the wisdom of “moving beyond our extractive industries and making a transition to an alternative economy.”
Somehow, this alternative economy is never fully described, although presented in the most sincere and heartfelt, aspirational manner. How real is this goal and what would we compare it to?
When I was Commissioner of Commerce and Economic Development in the early 1990s for Gov. Wally Hickel, I commissioned an input/output model of Alaska’s economy to determine the structure of what really drives our economy.
Such a study entails an analysis of how new money comes into the state annually as personal income. This incoming money is what then drives the service economy. Without this initial input, there would be no service economy, except for those that export services that bring the money back to Alaska such as our Alaska Native Corporation 8(a) operations.
A related study included how many times that incoming money circulates throughout the economy, known as the multiplier effect, and how quickly it leaves, known as leakage.
We have quite a bit of data on the number of jobs per industry that are often cited, but that employmment data does not represent a proportionate percent of annual income. For instance, an industry may have a lot of workers, but their pay level could be low, and they could be seasonal workers who do not live in Alaska and take their wages home with them when they leave.
By comparison, the average wage for a year round miner in Alaska is $116,000 and the multiplier effect for that industry is 3 times turnover. Other industries had a much lower multiplier as low as 1.1.
So, the most important figure to understand our economy, and to guide our economic strategy, is the incoming money which drives the whole rest of the economic system.
At that time in 1991, here was the breakdown:
- 37% oil and gas, including development, taxes, and Permanent Fund revenues funded by oil
- 13% fish, timber, mining, and tourism combined
- 29% federal money, military and civilian
- 20% income provided to retirees
- 1% entrepôt (transportation services like Fed Ex, UPS, etc.)
As an important note, the contribution of retirees comes from the payments they receive from 401(k) funds, other retirement accounts and investments, social security payments, etc. Their substantial contribution to the economy, despite being larger than many other industries, is almost never recognized. That is wrong. We should honor our seniors and support them staying in Alaska.
In a subsequent input/output study in 2008, Scott Goldsmith of the University of Alaska Anchorage Institute of Social and Economic Research, found an almost exact income distribution outcome.
Since then, other studies have shown that our economic structure hasn’t changed. To protect our economy, it makes sense to actively support and grow our basic industries instead of intentionally abandoning them as some people are suggesting, while also supporting new opportunities.
So, what is the current state of our economy?
Oil and gas will continue to dominate, with several major productions coming online with billions of development investment. The oil revenue based Permanent Fund will continue to produce distributed earnings. And an increasingly likely and already permitted LNG export project would be a huge plus. But what of our other industries?
Fisheries, while being a major employer, are stuggling due to world market conditions. The industry, as a whole lost $1.8 billion last year. Fisheries can be supplemented by mariculture operations, but this is not enough to build an entire economy upon. Value added processing for higher value products, and more utilization of waste can provide some benefit, but it is recognized that this industry has a long way to go to respond to this crisis.
Mining is a bright spot for the economy, and with the support of the new administration, several major projects should be able to be brought online in the next few years. Markets are strong for Alaskan minerals, especially considering the mineral requirements of alternative energy vehicles and products.
Alaska’s timber industry, the stalwart industry of Southeast Alaska, has been decimated due to regulatory actions of consecutive presidential administrations such as the roadless rule. The new administration has indicated a more supportive direction to allow this renewable sector to provide what will be a substantial, but not overwhelming contribution to the economy.
Alaska’s tourism industry will continue to expand. More Alaskan ownership, local employment, and a focus on winter tourism will help expand the seasonal impact. We should welcome all visitors to Alaska, just as we would want to be welcomed when we go on vacation. And tourism must be presented as an industry that can coexist with the other industries, rather then being used as an excuse for why the other industries should be shut down.
One of the most immediate and effective things Alaska can do to support a resilient economy is the training of our own students and workers to take the jobs required by these industries. If Alaskans are not qualified, these industries have no other option than to hire outside workers.
The uncertainties around federal funding are concerning, but still not completely known. If federal funds to Alaska are cut to reduce the US deficit, we will have to rely even more on our basic industries.
In Alaska, we have addressed some of the leakage problems by expanded provision of services such as health care, but we have lost ground in retail due to internet purchases. On balance, we produce almost none of the goods we regularly consume, and we remain an export based economy. A manufacturing sector would be welcome, but high energy prices, wages, regulations, and logistics have always worked against this Asian country model in Alaska.
All told, Alaska’s Gross Domestic Product is $54 billion in 2023. So, what is going to drive the alternative economy? Those proposing some mythical transition need to provide the details for what can bring new money into the economy. I will be glad to see it. Even if new ideas can provide a limited contribution, they will be welcome, but they will not replace the solid basis that our resource production industries represent, which ultimately drives our service industries.
To be realistic, we need to understand these economic dimensions, and they need to be a part of our education system, so that our children, and theirs, will be ready to embrace and be part of an economy that can provide them a living. Our seniors will be glad to have their grandchildren around.
Paul Fuhs is former Mayor of Unalaska, Former Commissioner of Commerce and Economic Development, and Chairman of the board of AIDEA, the Alaska Energy Authority and the State Bond Bank.
If we could solidify our energy production locally, data centers would be a welcome industry here, I think.
Except energy costs are high and they employee very few workers. Also, we would be bowing to Biden’s coattails of the infrastructure/broadband bill. I realize it was bipartisan but at this point we CANNOT go back.
You sound like a Tall Mike puppet. Data centers are not our next industry. Keep pumping the Anchorage oil into your disgusting mindset and consider yourself a feeble bananaquit.
Tech is advancing to the point where large data centers may not be necessary anymore. Take a look at Jay Valentine’s Fractal Computing Substack. Cheers –
Nice article . . . . . thanks Paul
And the first thing Yundt, the “conservative business man” could think of when he was elected to office was to raise taxes on Hilcorp!?!?
Until the miner/oil field worker/ seasonal worker, commonly employed in Alaska’s extractive industries, calls this wonderful state their actual home the supposed ‘multiplier effect’ of high wages used in editorials such as this is a well worn out misdirection that has been ceaselessly used, ad nauseam, to promote ‘TAMAR’. Take Alaska Money And Run.
Thanks Paul, great synopsis. Regarding the contribution a robust forest products industry might make to Alaska’s economy, let’s not forget that a major Finnish forest products industry was ready to build a large mill in southcentral Alaska in the late 1980’s and assist Alaska in managing a portion of the spruce-birch forests of that region Alaska. The Finns sent foresters and soil scientists to Alaska. These professionals concluded that the tree-growing conditions in Southcentral Alaska were virtually identical to those in Finland. They were run off. Now the spruce timber throughout the Southcentral region is dead, impacted by a region-wide spruce bark epidemic. If we ignore this problem, the white spruce stands in Southcentral Alaska will eventually be reestablished but it will take at least 75 years. It may make sense to take action to convert at least some of these stands of fire-prone dead timber into stands of viable young timber. Finland has a total land area of 130,128 squire miles; 15 pulp mills, 70 saw mills and 8 plywood plants. Southcentral Alaska is one third the size of Finland. By managing some of our timber we could have a robust forest products industry that would bring great paying jobs and secondary economic benefits to our state. By the way, in absolute numbers, there are more moose in Finland than in all of Alaska.
Another big factor is that people come to Alaska to make money, work a few decades, then sell out and move south. Money is donated to colleges down south. Starting with whales, then furs, gold, timber, fishing, tourism, logistics etc. Alaska is a huge. Infrastructure is inadequate and our environmental standards are high. It is a place for major corporations. Money is made here, but the idea is to move it elsewhere. So far banking is kinda different, but not enough to move the meter much.
Paul, since SB-21 was forced on us, we’ve had 11 years of population loss. We’ve lost $10 billion in dividends, which is $60,000 for a family of four. Clearly the promises of SB-21 were lies, we’ve not had more TAPS throughput, and we’ve lost North Slope jobs. Fixing this terrible system, and ending the $8 dollar per barrel corporate welfare credit would do a lot of good for our economy.
The Permanent Fund is the biggest funder for state government, and its not being properly managed, or inflation proofed. The corpus of roughly $80 billion has stayed the same for several years. The fund will not provide enough funding in future years, and dividends which are really important for rural Alaskans are going to be lost.
We do not spend enough to keep our roads and bridges in good repair, either.
Now we hear talk about taxing Alaskans with sales and income taxes so working Alaskans will have to subsidize the theft of our oil. How many more people are going to leave when we’re hit with more taxes?
We still have almost $7 billion in debt to the old PERS/TRS system. How are we going to pay that bill? Reckless legislators like Giessel want a new defined benefit system, but can’t tell us how we’ll deal with the debt from the old system- soon they’ll demand an income tax to pay for it.
We need new leadership. Dunleavy and current legislators have utterly failed Alaskans.
eliminate 75 percent of the federal parks up here open up our state
Alaska will always be a colony until we can develop our energy infrastructure. The high price of electricity and fuel has always been a drag on our in-state economy.