My turn: Are Alaska's resources a curse?

Often resource-rich governments fall seriously in debt when commodity prices drop

Posted: Wednesday, May 31, 2006

Alaska's resources blind many politicians. Too many politicians keep Alaska an economic colony, exporting raw materials and importing finished goods. Other states make the real money, forcing Alaskans Outside for jobs, while older Alaskans can't afford to live here as economic development stalls and the democratic process withers.

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Meanwhile, too many Alaska politicians use "drunken sailor" budgeting to spend money when they have it, instead of diversifying the economy and helping Alaskans get globally competitive jobs in Alaska. Their failures ensure that Alaska remains hooked on oil sales, putting even the Alaska Permanent Fund and permanent fund dividends at risk if crude prices fall.

Selling raw resources worked well enough in the 18th and 19th centuries, but wiser 20th-century states turned others' raw resources into valuable finished goods by adding education-based value. That manufacturing era is ending (manufacturing shrinks 1 percent annually). The late Peter Drucker wrote that 21st-century economic success comes by adding education-based value to ideas - education, medicine, entertainment and software.

Hard to believe, with oil and gold near record highs? But who makes the real money - those who sell crude and gold, or those who operate the refineries or make and sell plastics, fertilizer, medicines and fuel-efficient hybrid cars?

Natural resources usually slow states' economic development. Economists call this phenomenon "the curse of resources."

The Economist magazine asked "Can Oil Ever Help the Poor?" Their answer: "Probably not." Too often, politicians overestimate oil wealth, overspend on capital projects and ignore maintenance costs, so their once fortunate governments fall seriously in debt when commodity prices drop. Is this true in Alaska, with the Public Employees' Retirement System and Teachers' Retirement System underfunded by billions? Oil development is capital-intensive, so oil's rewards go mostly to capital, not to labor, creating few jobs.

Natural resource dependence also often slows political progress toward democracy. Thomas Friedman, in the May-June issue of Foreign Policy magazine, cites University of California Los Angeles political scientist Michael Ross for showing how.

Ross writes that oil-rich states use money to relieve social pressures, because oil money erases any need to tax people. Oil-rich states don't need to listen to people. Remember Alaska ending its income tax?

Remember attacks on the permanent fund dividends and efforts to use fund monies, even after 84 percent of Alaska voters in 1999 said no, government should not get even "some" fund money?

Permanent fund dividends are equal in amount, and an equal amount is a bigger percentage of smaller incomes, so the dividends help moderate- and low-income Alaskans most. The dividends are Alaska's one success story, preventing poverty; yet some Republicans say they "don't like people to get something for nothing."

Doesn't the state get 85 percent of its money without broad-based taxes? Some Alaskans even call for revenue sharing, apparently eyeing fund and dividend money to avoid even local broad-based taxes. "No representation without taxation," writes Friedman. Still want no taxes?

Ross says oil wealth leads to patronage spending. Alaska's government seems to use "reverse patronage": Criticize capital budget overspending and all funds for your district are cut? Alaska has serious small-population "family politics" problems - leading to anti-democratic political dynasties. Didn't Alaska lose an attorney general over apparent patronage spending?

Ross describes "repression effects," where oil states rely heavily on police and security, drying up democracy. Alaska's prison population grows much faster than Alaska's population. Corrections, formerly 3 percent of Alaska's budget is now over 6 percent, going on 7. Is corrections really "Alaska's growth industry?" Repression effects here?

Friedman sums up these tendencies in his "first law of petropolitics," that small "d" democratic process works in inverse proportion to crude oil prices. Is that true here?

Why didn't Alaska's politicians use our surplus to diversify our economy?

Remember those bumper stickers, "Lord: Give us another oil boom and we promise not to blow it all again?" Alaska's voters must remember in November.

• Joe Sonneman, a Juneau resident, taught graduate economics and public policy courses at the University of Alaska Southeast. He is on the Democratic State Central Committee and Juneau's Commission for Aging.



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