Alice Rogoff, Publisher of the Alaska Dispatch, asked me to put down some thoughts on economic development strategies for Alaska. Here are some thoughts. 

Civic leadership is a generational game. Civic leaders, when they do their job right, are planting seeds to trees that they will never see. The question facing Alaska’s current generation of civic leaders: What steps are we willing to take to build the next generation of shared prosperity: The Next Alaska?

We clearly have a choice. We can continue to ride the waves of investment that have been made to develop our state’s resources in past generations. Or, we can begin charting a new path for the Alaska that we will hand to our children and grandchildren.  This choice will involve leveraging our resources to build an economy that is more prosperous, less dependent, more sustainable, and more resilient.

The choice comes down to how we set and execute our state’s economic development agenda over the coming years. But before we start exploring our alternatives for The Next Alaska, we need a common understanding of economic development.

First Things First: What is Economic Development?

Economic development is the process of collaborating to build a shared prosperity. We launch economic development initiatives when we see an opportunity that no organization can pursue alone. Economic development is not a single project, a “Big Thing” that promises shared riches. It is, instead, a process of building strong collaborations that stimulate productive investment and shared outcomes. This perspective on economic development shifts our thinking from isolated projects to integrated systems.

In the past, economic development in Alaska was largely a matter of inviting outside businesses into our economy to help develop our natural resources.  Now, as the Alaskan economy has matured, the real opportunities of economic development lie elsewhere. They come from growing our own economy from within. We will find these opportunities by collaborating in new and different ways. When we do that, we will find the promising opportunities to build a shared prosperity. The open question: Can this generation’s civic leaders see these opportunities?

Growing From Within

Three flows of money drive prosperity in any economy. We can refer to these three flows as “Good Money”, “Neutral Money”, and “Bad Money”. Economic development builds prosperity by increasing the flow of Good Money, increasing the velocity of Neutral Money, and reducing the flow of Bad Money.

AK1

Good Money flows into an economy when businesses sell products outside the economy. This “export base” pumps up income levels. Good Money also flows when the federal government makes investments or transfer payments.  The challenge for Alaska, of course, is that the state’s traditional Good Money flows – from oil and gas and the federal government — are slowing down. North Slope oil and gas production peaked in 1988 and has been declining dramatically, and federal government expenditures have been leveling off.

Plugging the Leaks.– Neutral Money and Bad Money flows are closely linked. Neutral Money circulates within the economy when Alaskan residents buy and sell from each other. Bad Money flows out of the economy when residents buy goods and services from outside that they could buy locally. Money leaks out of the economy. Think of holes in a bucket.

Reducing Bad Money flows can increase the velocity of Neutral Money flows. Here’s an example. Food producers and food buyers are coming together in Fairbanks to create new markets for locally owned food. When Alaskans grow and buy more local food, we plug a huge hole in our economic bucket. We reduce our dependence on the outside, and we keep our money here in Alaska. That creates more jobs and higher incomes. The same is true when we develop our renewable resources. When we produce more of the energy we consume, we reduce the flow of income out of state. Again, we plug a huge hole.

AK2Developing Alaska’s Long Tail Economy.– Yet, growing the Next Alaska economy involves more than plugging leaks. The Next Alaska will also find opportunities in developing Alaska’s “long tail” economy. The idea of the “long tale” is straightforward. Developed by Chris Anderson to explain the emergence of new market opportunities in the digital economy, the concept has application in regional economic development as well.

Rather than relying on a handful of large Good Money flows to power Alaska’s economy forward, Alaska’s economic development strategy can be focused on developing dozens of smaller Good Money flows. These flows will comes from globally competitive businesses that compete in niche markets. Taken together, they can create significant new jobs and higher incomes.  On the scale of a single business, companies like Amazon are using the opportunities of the “long tail” to power their business. Alaska can do the same with its state economy.

What are some of the potential “long tale” business opportunities for Alaska? The outlines are already clear. They include:

  • Renewable energy technologies
  • Marine services
  • Cold climate technologies
  • Rocket launch technologies
  • Cold climate housing
  • Oil spill response
  • Specialized super computing capabilities
  • Distance delivery in education, medical and management services
  • Specialty solvents
  • Light aircraft operations and maintenance, safety and navigation
  • Marine and arctic biological sciences
  • Aquaculture
  • Remote communications technologies and systems
  • Aerospace technology and operations

Steps to Growing the Next Alaska

To reach its next level of shared prosperity, Alaska needs to strengthen its homegrown economy. Here’s how.

Step 1: Thinking differently.— The Next Alaska will focus on managing the flows of money flowing through the state economy. We need to increase the flow of “good money” by creating and expanding Alaskan companies capable of selling in the global markets. This step can be as straightforward as branding Alaskan made food and selling it to the lower 48. There are dozens of “long tail” opportunities in Alaska, but first civic leaders need to see beyond the “Big Thing” approach to economic development.

We also need to buy and sell more from each other and reduce what we buy from outside the state. That will increase jobs and incomes. So, if we can increase renewable energy and reduce our dependence on outside diesel, we will boost both incomes and jobs across the sate. Equally important, we will be more self-reliant. We are already heading down this path, but we can do more, and we can move faster.

Step 2: Behaving differently.— In today’s economy prosperity comes from connections and collaboration. Building a homegrown economy will require extensive collaboration across organizational and political boundaries. We cannot build these connections and collaborate in a hostile atmosphere of distrust.

How we behave toward one another will determine how well we collaborate. What is true in our families is also true in our economy.

Step 3: Doing differently.— We will also have to work together differently. We need to learn together by doing. Nobody from outside can build the Next Alaska for us. We will have to experiment. We need new food and energy systems, new approaches to our mining and fisheries, new approaches to expanding tourism.

The University of Alaska is partnering with Purdue University on new, agile strategy approaches to build the networks we need. Called strategic doing, these new skills enable civic leaders to form collaborations quickly, move them toward measurable outcomes and make adjustments along the way.

Paul Collits, president of the Australia New Zealand Regional Science Association recently commented on the breakthrough nature of strategic doing, “Local economic development is the identification of local assets for growth and leveraging them through collaboration.  The best methodology I have seen in twenty years for achieving this is called strategic doing.” To take full advantage of these new approaches, the University of Alaska will continue its collaboration with Purdue University, where these new approaches have been developing.

Summing Up

The new pathways the Next Alaska are not lighted highways. They are game trails we will find and follow. We will need to work together, experiment together, and learn together…more quickly. Building the Next Alaska involves placing many more small bets each with lower risks. The state government can accelerate the development of the Next Alaska with relatively small investments in new forms of collaboration.

The good news is that the pathways to the New Alaska can lead to a higher level of prosperity for all Alaskans, a more sustainable economy based on the assets we share, and a brighter future for the next generation of Alaskans.

 

References

Goldsmith, S. , 2012. Federal Spending in Alaska: Running Out of Steam?. [Webnote No. 11, Institute of Social and Economic Research, University of Alaska Anchorage].

Goldsmith, S. , 2013. Alaska’s Economy: The Challenge Ahead. [Presentation, Institute of Social and Economic Research, University of Alaska Anchorage].

Goldsmith, S. , 2010. Structural Analysis of the Alaska Economy: What are the Drivers? [Report, Institute of Social and Economic Research, University of Alaska Anchorage].

Hudson, H. , 2012. Toward Universal Broadband in Rural Alaska. [Report, Institute of Social and Economic Research, University of Alaska Anchorage].

Knapp, G, 2013. A Very Brief Introduction to Alaska’s Economy. [Presentation, Institute of Social and Economic Research, University of Alaska Anchorage].

Knapp, G, 2012. An Introduction to the Economy of Alaska. [Presentation, Institute of Social and Economic Research, University of Alaska Anchorage].

Johnson, E. et. al., 2012. Stranded Renewable Energy Resources of Alaska. [Report, The Alaska Center for Energy and Power, University of Alaska Fairbanks].

 

Ed Morrison is Director of the Purdue Agile Strategy Lab. He is also an adjunct professor at the University of the Sunshine Coast in Queensland, Australia. For the past five or six years, he has been developing new, agile approaches to strategy in open, loosely joined networks, a discipline he calls Strategic Doing. Prior to starting his economic development work, Ed worked for Telesis, a corporate strategy consulting firm. In this position, he served on consulting teams for clients such as Ford Motor Company, Volvo, and General Electric. He conducted manufacturing cost studies in the U.S., Japan, Mexico, Canada, Italy, Sweden, and France. Ed started his professional career in Washington, D.C., where he has served as a legislative assistant to an Ohio Congressman, staff attorney in the Federal Trade Commission, and staff counsel in the US Senate. He holds a BA degree cum laude with honors from Yale University and MBA and JD degrees from the University of Virginia.

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