A model for Alaska's road to economic growth: boutique steps.

Author:Roy, Ashok K.
Position:ECONOMY
 
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The opinions expressed herein are those of the authors alone and not of the University of Alaska System or Alaska Business Monthly.

"It is not the strongest of the species that survives, or the most intelligent; it is the one most capable of change."

--Charles Darwin

"Insanity is doing the same thing over and over again and expecting different results."

--Albert Einstein

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The purpose of our article is to provide a measure of the daring of an idea, install a new idea, and subvert some old ones--not by giving people vertigo but by clarifying and lengthening our perspectives and intellectual discourse.

In general, Alaska's economic characteristics are similar to that of small islands: remoteness; economic activities less diversified and more specialized from a narrow range of markets and resources; high transport costs; etc. The result of these characteristics is that Alaska's "capacity of transformation," using former MIT Professor Charles Kindleberger's terminology, appears to be limited. Alaska's small domestic market, now coupled with low oil prices, further limits the options available for economic development.

Petroleum, the federal government, and the basic sector (mining, fishing, timber, and tourism) drive Alaska's economy, and 97 percent of Alaska's jobs are evenly distributed among these groups. For a variety of reasons, federal spending relative to population in Alaska is the highest in the nation, and oil revenues average 90 percent of Alaska's unrestricted general fund revenues making Alaska fiber dependent on oil revenues to fund state government. In recent months, Alaska's oil revenues have fallen precipitously, and according to the latest (2015) US government landmark Annual Energy Outlook released at the Center for Strategic & International Studies conference in Washington, the US Energy Information Administration, which prepared the outlook, thinks oil prices will stay below $80 per barrel through 2020. Turning to the basic sector: tourism is seasonal and mining and fishing are extractive, and with no viable processing and refining plant infrastructure in place, they do not exhibit much potential for growth.

By way of setting the canvas on the national energy scene with which Alaska's economic well-being is inextricably intertwined:

* The US produces about 62% of its oil needs (Note: Oil has to make it to refineries to be useful.)

* Coal provides 34% of electricity and is declining quickly

* Natural gas provides 30%...

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