Fostering Alaska Business Development

Institute of Social and Economic Research, University of Alaska Anchorage

Fostering Alaska Business Development

A Commonwealth North Report

Financial Support Provided by

First National Bank Alaska

March 26, 2002Edward Lee Gorsuch

ChancellorUniversity of Alaska Anchorage


3 Principles

• A Rising Tide Lifts All Boats• Growth Doesn’t Equal Development• Growth Is a Double Edged Sword


Principle #1: Rising Tide Growth Increases Output (Gross Product)

65 70 75 80 85 90 95$0

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98 $

ALASKA REAL GROSS PRODUCT( NET OIL AND GAS)


Principle #1: Rising Tide Growth Puts Alaskans to Work

65 70 75 80 85 90 95

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STATE / LOCAL GOVT SUPPORT INFRASTRUCTURE BASIC

ALASKA EMPLOYMENTTHOUSANDS


Principle #1: Rising Tide Growth Increases the Market (Personal Income)

60 65 70 75 80 85 90 95$0

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98 $ALASKA REAL PERSONAL INCOME


Principle #1: Rising Tide Growth Drives Down the Cost of Living

1960 1965 1970 1975 1980 1985 1990 1995 20001.0

1.1

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1.0

1.1

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ANCHORAGE COST OF LIVINGRatio to US Average


Principle #2: Growth Not DevelopmentPermanent Fund Dividend Payout (mill 99$)

$0

$200

$400

$600

$800

$1,000

$1,200

1995 2001


$0

$500

$1,000

$1,500

$2,000

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$3,000

$3,50098

$

1990 GROWTH 1990 TO 1995 GROWTH 1995 TO 1999

Principle #2: Growth Not Development Federal Aid Per Capita: #1 in Nation


Principle #2: Growth Not Development Job Growth Slowing

60 65 70 75 80 85 90 95-5%

0%

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0%

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ANN

UAL

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Alaska Annual Job Growth


Principle #2: Growth Not Development Real Income Growth Since 1990

$813

$251

$78

-$500 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Millions of 1998 $

LABORINCOME

INVESTMENTINCOME

GOVTTRANSFERS

(INC PFD)


Principle #2: Growth Not Development Per Capita Income is Falling Behind

1960 1965 1970 1975 1980 1985 1990 1995($4)

($2)

$0

$2

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$6

$8

1998

TH

OU

SAN

D $

ADJUSTED FOR ALASKA COST OF LIVING DIFFERENTIAL

ALASKA PER CAPITA INCOMEDOLLARS ABOVE OR BELOW US AVERAGE


Principle #2: Growth Not Development Out-Migration During Growth

50 55 60 65 70 75 80 85 90 95-20

-10

0

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Thou

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Alaska Net Migration


Principle #2: Growth Not Development Population Aging Since 1990 (000)

-100

1020304050607080

0-39 40-64 65+

.


Principle #3:Economic Growth is a Double Edged Sword

• Competition from Outside firms– Economies of Scale– Market Dominance– Expatriating Jobs and Profits

• Consumer Benefits– Lower Cost of Living– Recycled Savings


Principle #3:Economic Growth is a Double Edged Sword

• Growth Brings Outsiders– Walmart– Safeway– Wells Fargo

• National Trends Toward Consolidation– BP/Amoco– Phillips/ARCO/Marathon

• National Trends Toward Devolution– DELL– Auto Manufacturing


4 Strategies

• Increase Exports• Add Value to Exports• Substitute Local Production for Imports• Manage Fiscal Policy


Strategy #1: Exports

• Definition - Expand Goods and Services Sold Outside Alaska

• Payoff• Potential—Big



1960 1965 1970 1975 1980 1985 1990 1995$0

$5

$10

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AGRICULTURETIMBER

SEAFOODGAS

OIL MINERALS

VALUE OF NATURAL RESOURCE PRODUCTIONBILLION 1998 $



• Examples– Oil and Gas– Mining– Tourism– Education– Seafood

• Challenges– World Markets for Traditional Resources– Supply Constraints


Strategy #2: Value Added

• Definition - Process What We Produce• Payoff• Potential—Modest


Strategy #2: Value Added

65 70 75 80 85 90 950

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Oil and Gas TImber Seafood

ALASKA PROCESSING EMPLOYMENT


Strategy #2: Value Added• Examples

– Seafood Processing– Refining– Timber– B&B’s– GTL’s– Veneer

• Challenges– Distance to Market– Cost– Scale


Strategy #3: Import Substitution

• Definition: Do for ourselves what we currently pay others to do

• Payoff• Potential--Modest


Strategy #3: Import Substitution: Progress in Recent Years

00.20.40.60.8

11.2

Ratio to US

Average19871997


Strategy #3: Import Substitution: Wholesale Trade Deficit

0

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Durable Goods Non-DurableGoods


Strategy #3: Import Substitution: Services Deficit

0

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Jobs


Strategy #3: Import Substitution

• Examples– Jet Fuel– Oil Field Modules– Health– Education– Engineering and Related Services

• Challenges


Strategy #4: Managing Fiscal Policy

• Fair• Sustainable• Realistic• Gradual• Complete

• Strategic• Flexible• Efficient• Stable• Transparent


Strategy #4: Managing Fiscal PolicyThe Alaska Disconnect:

Best Case Scenario Assumptions

• New Basic Sector Jobs in Anchorage• New Workers have Families• Families Use Local Services and State

Transport Services• Families Pay Their Share of State & Local Taxes• New Development Pays it Pro Rata Share of

State and Local Taxes


Strategy #4: Managing Fiscal PolicyThe Alaska Disconnect:

Best Case Scenario Fiscal Results[ Excludes PFD]

• Each New Basic Job creates a $1,100 Annual Burden on Public Finances– Revenues = $5,200– Expenditures = $6,300

• Local Government Net Benefit = $300• State Government Net Burden = $1,400


4 Promising Opportunities

• Traditional Resources• New Resources• Import Substitution / Services• Quality of Life


Promising Opportunity #1:Traditional Resources

• Oil– North Slope Exploration Support

• Gas– North Slope Gasline Support– Cook Inlet Gas Exploration– GTL Technology, Finance, and Design

• Mining– Tidewater Smelter


Promising Opportunity #2:New Resources

• Tourism– New High End Attractions– Music, Theatre, Eco-Tourism– New Destinations

• Air Cargo– Warehousing– Assembly– Manufacturing

• Technology– Engineering– Finance– Telecommunications


Promising Opportunity #3:Import Substitution / Services

• Health Care• Professional Services• Prisons• Higher Education• Federal Research and Development


Promising Opportunity #4:Quality of Life

• Telecommuting• Footloose Industry• Retirees


6 Roles for Public Policy

• Target Opportunities and Compete• Create Investment Attractive Environment• Secure Federal Regulatory Relief• Invest in Human Capital and Infrastructure• Expand Mechanism for “Buy Alaska”• Support a Policy Research Agenda


Fostering Alaska Business Development

A Commonwealth North Report

Financial Support Provided by

First National Bank AlaskaMarch 26, 2002

Edward Lee GorsuchChancellor

University of Alaska Anchorage

Documents

Fostering Alaska Business Development