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The realities of Alaska's bush economy.

Recent rounds of budget cuts increase the financial plight of the state's rural communities.

Sen. Georgianna Lincoln pulls out the letter she received from constituents in Mentasta just yesterday, pleading for help with a crisis: There is no running water in the village health clinic, rendering it unusable.

Lincoln says such circumstances are widespread in many parts of rural Alaska, where a costly decades-long war on poverty and several unique economic development experiments seem to have made little dent in the chronic economic plight of the Bush region.

"We're a third world out there," she says.

As the state budget declines and Alaska's overall economy limps along, many urban Alaskans are tempted to conjure a hundred stereotypes as they deplore the drain of public money to fund rural schools, energy subsidies, housing, costly sewer and water programs and other services.

What lurks behind the stereotyping is the notion that Alaska can't really afford a rural population that is healthy, well-educated and employed because Bush residents consume too much public money and return too little to the economy.

In truth, rural Alaska defies simple description. Statistics clearly show the Bush is a diverse region where some areas have made substantial economic gains and others have floundered, usually for reasons far beyond local control. The idea that rural Alaska is somehow a net drain on the state's economy is not credible, say economists.

In fact, some observers believe that a healthy rural economy is a boon to all Alaskans because Bush residents today depend on the state's urban areas for supplies and services. Ongoing state investment in a viable rural economic infrastructure is really no different than other state expenditures -- from capital projects like docks, airports and roads to small business loans and energy interties -- intended to diversify and stimulate economic activity elsewhere in the state.

Bush Bucks: Drain or Diversity

Key indicators provide one way to describe the rural economy. For example, unemployment figures for July 1992 show that the Matanuska-Susitna region had higher unemployment (13.8 percent) than the three largest rural areas (Yukon-Kuskokwim, 10.8 percent; Northern, 11.1 percent and Southwest, 5.5 percent). On the other hand, the statewide unemployment rate was 7.8 percent, while for Anchorage it was even lower, at 6.8 percent.

While state government spends more per capita in rural than in urban Alaska, the differences are not dramatic and are consistent with the fact that fewer private sector economic opportunities exist in the Bush, and the cost of living and service delivery is greater.

Even when accurately represented, the statistics sometimes fail to tell the whole rural story. In a far-reaching 1992 study, economist Lee Huskey of the University of Alaska Anchorage's Institute of Social and Economic Research demonstrated that rural Alaska actually has three economic systems: subsistence, market (cash) and transfer.

The subsistence economy consists of traditional hunting, fishing, gathering and community sharing activities. The market economy generates income through wage labor and the sale of resources, such as fish. The transfer economy is based on money and services provided by the state and federal governments through welfare, pensions, public sector employment, subsidized schools and other services -- just like the transfer sector of the state's overall economy.

"In Alaska, to talk about one place being more of a drain than another is sort of silly because everybody is lapping at the public trough," Huskey says. "I think in many cases the villages are an extreme example of what the state as a whole is like." At the same time, he says it is important to remember that the social and economic health of rural Alaska depends on all three sectors being viable.

"Transfers in rural Alaska are relatively more important because there's relatively little out there," Huskey notes. "When transfers decline, rural areas take a bigger hit. It's the decline that makes this a problem."

One of the misconceptions about the rural economy is that there are many transfer programs designed just for rural areas. Actually, says Huskey, there are very few transfer programs created solely to benefit rural residents. Where special programs exist, they tend to be directed at precisely those problems for which rural Alaska earned its Third World image: housing, safe water supplies and power subsidies (created by the lack of affordable fuel sources near communities).

Third World Comparison

According to Huskey, rural Alaska is neither all poor nor entirely small-scale in economic terms. For example, the economy of Sand Point is more robust than Bethel, even though Sand Point is smaller. And he rejects the Third World comparison.

"Even though people are poor, they are not nearly as poor as people in Africa and other parts of the Third World. There are very few Third World countries that have a permanent fund dividend program," says Huskey.

Another key difference is that rural residents are far more politically franchised, Huskey notes. Citizenship gives them a legitimate political claim on government resources as well as the freedom to leave rural areas in search of better opportunities.

According to Huskey, one hopeful development for rural economic gains is Community Development Quotas, a new concept that allocates a percentage of offshore fisheries harvest to western coastal communities. The resulting revenue stream is intended to create employment and training opportunities.

"This has actually given villages property rights to valuable resources," he notes. "And they're supposed to use a chunk on scholarship and training so they can be economically mobile."

Private Sector View: Alaska Commercial Co.

Another experiment in socioeconomic engineering, the Alaska Native Claims Settlement Act (ANCSA) of 1971, has produced widely varying results throughout Alaska. But despite the chronic poverty that persists in many rural areas, those who regularly do business in the rural market economy find a high degree of fiscal responsibility among rural residents -- and in some communities, a fair amount of cash.

With a mercantile legacy in the Alaska Bush dating back to the Russian era, the Alaska Commercial Co. (ACC) has long been involved in rural economic development. Recently the company entered a new phase with its purchase by The North West Co. Inc. (TNWC), a Canadian company with an equally rich history in that country's hinterlands. TNWC has committed to a $30-million capital investment program for ACC, including plans to double the Cordova and Dutch Harbor stores as well as add 15 to 25 new stores over the next five years. What attracted TNWC to Alaska was simply money.

With $65 million in annual sales, ACC rakes in about 15 percent of the state's rural retail sales. That translates into an overall market worth about $495 million. ACC is out to capture even more of that business, and company officials say that means working with the realities of the rural economy, not fighting them.

Take credit management: Loans and credit are sometimes scarce in rural areas not because of poor credit history, but because of the lack of any history at all, or lack of collateral. For example, financing for building supply purchases has been a problem because many communities were unplatted, making it impossible to secure the loan with real property. This problem is gradually being alleviated as communities and village corporations sort out land status under terms of ANCSA.

"We have customers out there who have had accounts with us for many years and who pay their bills like clockwork," says Jim Campbell, chief executive officer of ACC and Frontier Expediters, a sibling wholesale firm. He notes that circumstances in rural areas differ dramatically from those in urban areas, but don't necessarily warrant denial of credit.

"Our customer base is a subsistence-based lifestyle," says Campbell. But that doesn't mean the customers don't have a variety of needs. "One misconception is that our customers are not as sophisticated as urban customers. That is entirely wrong. They want and expect quality, price, service and style. There's a feeling that all they want is Carhartts out there. That's just not true. We have to be very careful in our product mix."

Also mistaken, says Campbell, is the notion that rural residents are not competent economic planners.

"That's a dangerous assumption," he says. "Native communities understand the process better than most, and they respect it. Villages are now asking what kind of economic development they want, what fits their lifestyles and having answered that, going after it."

A Public Sector View

The ignorance of many Alaskans about Bush economic realities is a constant challenge to Elstun Lauesen, statewide economic coordinator for the Alaska Department of Community and Regional Affairs. Part of his job is to combat the persistent but incorrect view that rural Alaskans have run off with the state's golden egg.

Lauesen fears that attempting to resolve the state's looming budget dilemma by cutting state funds to the Bush may prompt an exodus of rural job seekers to larger towns, where competition for limited work is already keen and social programs are strained.

Indeed, economists have already noted a steady flow of rural Natives from villages to urban areas over the last decade, masked by relatively high birth rates in villages.

Lauesen cites the example of Fairbanks, which was faced recently with an inexplicable school enrollment increase of about 300 students. Public officials looked everywhere for data to explain the source of such a dramatic and unexpected increase: the airport, the military, the Canadian border. Finally, he says, the student increase was traced to families who had moved into Fairbanks over the course of a summer from Yukon River villages, looking for better employment opportunities. Many were staying with family members while they applied for jobs, public housing and other benefits.

"These people were coming in from the villages and one of the reasons they're attracted is the services," says Lauesen. It is common, he notes, for families to move from small villages to regional centers like Galena or McGrath. When state and federal budget cuts suck away employment opportunities in these smaller towns, the temporary residents turn to Anchorage and Fairbanks.

"What you have is a rural 'Grapes of Wrath' created by the benign neglect of government," says Lauesen. He says when urban political leaders rail against alleged inequities in state spending, they fail to appreciate the complexities of the state's economy.

"They're going to see the rural ghetto grow in their own urban centers, and that's not acceptable. It's one of the greatest concerns I have. That's what we're presiding over because we don't understand how our economy works."

The Rural View

Sen. Georgianna Lincoln says she doesn't much like being in Juneau -- she loves it. But like Lauesen, she wearies of trying to get her colleagues to understand what life in the Bush is really like.

Lincoln feels that ANCSA has been the most important Bush economic stimulus, allowing rural people to participate more fully in the market economy without abandoning their villages and subsistence traditions.

"And the Native regional corporations," she is quick to point out, "have given an economic boom to Anchorage and Fairbanks."

She is less than enthusiastic about state efforts to help rural communities realize economic opportunities. Lincoln remembers Gov. Walter Hickel making a sweeping promise at his inauguration that under his administration, Alaska would finally make progress in rural economic development.

"We have not moved one inch from that point in time," Lincoln charges. "I don't see that we have done much to develop an economic base out in the villages."

Lincoln says her legislative colleagues have scarcely done better. For example, efforts during the last session to streamline grant procedures for rural communities made it more difficult for communities to secure funds they are entitled to by law.

"You have to have 20 attorneys to interpret it. We're setting up communities to fail from a sense of frustration. I don't know who it streamlines for -- I call it planning from the top down," Lincoln charges. "I just see the state truly, truly putting stumbling blocks in front of communities, and we've discouraged small business (too)."

Despite the uphill battle, Lincoln clings to the possibility that the rural economy will eventually be better understood and its residents treated as first class citizens. In her vision, the greater emphasis on grass-roots community economic planning will take stronger hold and state expenditures in rural areas -- even in decline -- will conform more to actual needs defined by local residents.

"My hope is that we may really become partners in this whole system," says Lincoln.

But with the hope comes a warning.

"My greatest fear for the rural economy is that legislators that don't understand, who have never been to bush Alaska, will continue to dominate rural economic policy. There are some legislators who simply don't care. You can hear them yawning when you try to tell them about it. I'm afraid that we'll become the forgotten part of Alaska."

Even a bullish assessment of the rural economic future by ACC's Campbell comes with a subtle but significant caveat. "It's a sleeping giant," he says, "if we'd just do something about it."

ANCSA's Economic Legacy

Steve Colt, an analyst at the University of Alaska Anchorage's Institute of Social and Economic Research, has analyzed some of the myths surrounding Alaska's rural economics, especially those arising from the mixed legacy of the Alaska Native Claims Settlement Act (ANCSA) passed in 1971. The act allowed Natives to retain ownership to about 44 million acres of ancestral homeland and allocated $1 billion to compensate them for lands given up to the advance of civilization. The act was intended to provide a vehicle for developing local market economies without destroying local subsistence economies.

In an April presentation to Commonwealth North, Colt identified five rural economic myths about rural Alaska and analyzed the corresponding realities:

Myth 1: ANCSA corporations made their shareholders rich.

Reality 1: The Permanent Fund dividend program has paid far more to all Alaskans than Native corporations have paid to their shareholders.

Myth 2: ANCSA lands made their shareholders rich.

Reality 2: Prudhoe Bay acreage has returned more to us all than Native lands have returned to shareholders through development activities.

Myth 3: Thanks to oil wealth and federal hand-outs, rural Alaskans are just as well off as urban Alaskans.

Reality 3: Rural Alaskans outside the North Slope and the maritime zone remain far poorer than their urban counterparts, and have made almost no gains in per capita real income since 1984.

Myth 4: Rural Alaskans enjoy extravagant energy subsidies which artificially depress the price of living and encourage wasteful habits.

Reality 4: Rural Alaskans enjoy modest cumulative energy subsidies ($2,200 per capita) compared to utility customers in certain parts of Southeast (about $16,000 per capita), while energy consumption rates of rural residents are about half as much energy consumption in Southcentral and Southeast.

Myth 5: Rural residents get more than their fair share of capital project dollars.

Reality 5: Although they benefit from the actual improvements made, rural Alaskans never even see most of the jobs and dollars spent on bush capital projects.
Per Capita State Spending

Selected Operating Expenses/Loans/Capital Appropriations Annual
Average FY 1984 to 1989

Anchorage $5,464
Mat-Su $6,165
Kenai Peninsula $5,258
North Slope/Kotzebue $8,966
Interior Rivers $7,709
Lower Yukon $7,970
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Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Date:Aug 1, 1993
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