Page 1
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
Page 2
Institute of Social and Economic Research, University of Alaska Anchorage
3 Principles
• A Rising Tide Lifts All Boats• Growth Doesn’t Equal Development• Growth Is a Double Edged Sword
Page 3
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #1: Rising Tide Growth Increases Output (Gross Product)
65 70 75 80 85 90 95$0
$5
$10
$15
$20
$0
$5
$10
$15
$20
Billio
n 19
98 $
ALASKA REAL GROSS PRODUCT( NET OIL AND GAS)
Page 4
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #1: Rising Tide Growth Puts Alaskans to Work
65 70 75 80 85 90 95
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
STATE / LOCAL GOVT SUPPORT INFRASTRUCTURE BASIC
ALASKA EMPLOYMENTTHOUSANDS
Page 5
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #1: Rising Tide Growth Increases the Market (Personal Income)
60 65 70 75 80 85 90 95$0
$5
$10
$15
$20
$0
$5
$10
$15
$20
Billio
n 19
98 $ALASKA REAL PERSONAL INCOME
Page 6
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #1: Rising Tide Growth Drives Down the Cost of Living
1960 1965 1970 1975 1980 1985 1990 1995 20001.0
1.1
1.2
1.3
1.4
1.5
1.0
1.1
1.2
1.3
1.4
1.5
ANCHORAGE COST OF LIVINGRatio to US Average
Page 7
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #2: Growth Not DevelopmentPermanent Fund Dividend Payout (mill 99$)
$0
$200
$400
$600
$800
$1,000
$1,200
1995 2001
Page 8
Institute of Social and Economic Research, University of Alaska Anchorage
$0
$500
$1,000
$1,500
$2,000
$2,500
$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
Page 9
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #2: Growth Not Development Job Growth Slowing
60 65 70 75 80 85 90 95-5%
0%
5%
10%
15%
-5%
0%
5%
10%
15%
ANN
UAL
PER
CEN
T C
HAN
GE
Alaska Annual Job Growth
Page 10
Institute of Social and Economic Research, University of Alaska Anchorage
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)
Page 11
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #2: Growth Not Development Per Capita Income is Falling Behind
1960 1965 1970 1975 1980 1985 1990 1995($4)
($2)
$0
$2
$4
$6
$8
1998
TH
OU
SAN
D $
ADJUSTED FOR ALASKA COST OF LIVING DIFFERENTIAL
ALASKA PER CAPITA INCOMEDOLLARS ABOVE OR BELOW US AVERAGE
Page 12
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #2: Growth Not Development Out-Migration During Growth
50 55 60 65 70 75 80 85 90 95-20
-10
0
10
20
30
Thou
sand
s
Alaska Net Migration
Page 13
Institute of Social and Economic Research, University of Alaska Anchorage
Principle #2: Growth Not Development Population Aging Since 1990 (000)
-100
1020304050607080
0-39 40-64 65+
.
Page 14
Institute of Social and Economic Research, University of Alaska Anchorage
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
Page 15
Institute of Social and Economic Research, University of Alaska Anchorage
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
Page 16
Institute of Social and Economic Research, University of Alaska Anchorage
4 Strategies
• Increase Exports• Add Value to Exports• Substitute Local Production for Imports• Manage Fiscal Policy
Page 17
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #1: Exports
• Definition - Expand Goods and Services Sold Outside Alaska
• Payoff• Potential—Big
Page 18
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #1: Exports
1960 1965 1970 1975 1980 1985 1990 1995$0
$5
$10
$15
$20
$25
AGRICULTURETIMBER
SEAFOODGAS
OIL MINERALS
VALUE OF NATURAL RESOURCE PRODUCTIONBILLION 1998 $
Page 19
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #1: Exports
• Examples– Oil and Gas– Mining– Tourism– Education– Seafood
• Challenges– World Markets for Traditional Resources– Supply Constraints
Page 20
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #2: Value Added
• Definition - Process What We Produce• Payoff• Potential—Modest
Page 21
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #2: Value Added
65 70 75 80 85 90 950
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
Thou
sand
Oil and Gas TImber Seafood
ALASKA PROCESSING EMPLOYMENT
Page 22
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #2: Value Added• Examples
– Seafood Processing– Refining– Timber– B&B’s– GTL’s– Veneer
• Challenges– Distance to Market– Cost– Scale
Page 23
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #3: Import Substitution
• Definition: Do for ourselves what we currently pay others to do
• Payoff• Potential--Modest
Page 24
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #3: Import Substitution: Progress in Recent Years
00.20.40.60.8
11.2
Ratio to US
Average19871997
Page 25
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #3: Import Substitution: Wholesale Trade Deficit
0
2,000
4,000
6,000
8,000
10,000
12,000
Jobs
Durable Goods Non-DurableGoods
Page 26
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #3: Import Substitution: Services Deficit
0
1,000
2,000
3,000
4,000
Jobs
Page 27
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #3: Import Substitution
• Examples– Jet Fuel– Oil Field Modules– Health– Education– Engineering and Related Services
• Challenges
Page 28
Institute of Social and Economic Research, University of Alaska Anchorage
Strategy #4: Managing Fiscal Policy
• Fair• Sustainable• Realistic• Gradual• Complete
• Strategic• Flexible• Efficient• Stable• Transparent
Page 29
Institute of Social and Economic Research, University of Alaska Anchorage
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
Page 30
Institute of Social and Economic Research, University of Alaska Anchorage
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
Page 31
Institute of Social and Economic Research, University of Alaska Anchorage
4 Promising Opportunities
• Traditional Resources• New Resources• Import Substitution / Services• Quality of Life
Page 32
Institute of Social and Economic Research, University of Alaska Anchorage
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
Page 33
Institute of Social and Economic Research, University of Alaska Anchorage
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
Page 34
Institute of Social and Economic Research, University of Alaska Anchorage
Promising Opportunity #3:Import Substitution / Services
• Health Care• Professional Services• Prisons• Higher Education• Federal Research and Development
Page 35
Institute of Social and Economic Research, University of Alaska Anchorage
Promising Opportunity #4:Quality of Life
• Telecommuting• Footloose Industry• Retirees
Page 36
Institute of Social and Economic Research, University of Alaska Anchorage
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
Page 37
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 AlaskaMarch 26, 2002
Edward Lee GorsuchChancellor
University of Alaska Anchorage