Alaska Economic Overview
Alaska’s abundance of natural resources has always been the mainstay of its economy. Early explorers trapped animals, particularly seals, for their valuable pelts. Although no longer a large industry, gold mining once provided wealth to those who panned for Alaskan gold. Large commercial fishing ventures play an important role in the national and global economy, but it is the large natural gas reserves that serve as the bedrock of the state’s economy. While not as popular an energy source as it once was, coal mining is still a large industry in the state. Because of its proximity to Russia, Alaska is also home to a large defense industry that views the state’s location as a valuable strategic asset. The state’s southern tier is largely dedicated to agriculture, with most agricultural products grown for local consumption. Alaska’s forests supply timber and other wood-related industries. Manufacturing is a small portion of the economy, and most goods are imported. Because of federal subsidies, taxes continue to remain low.
Russia maintained control of Alaska until 1867, when declining fur profits contributed to a decision to sell the land. United States Secretary of State William Seward encouraged the sale, and when a deal was struck for $7.2 million, many critics referred to the agreement as "Seward’s Folly," not fathoming its value. But that attitude soon changed, when salmon canning and gold mining boomed during the second half of the 19th century.
The discovery nearly a century later of more than 33 billion cubic feet of gas reserves has made Alaska a focal point for the ongoing debate between those who support exploring land for continuous sources of energy and those who want to protect the environment. These reserves have a value of at least $5 billion. This figure does not include Alaska’s 8.7 billion cubic feet of oil, which is also worth billions of dollars. Today, Alaska has grown into a popular tourist destination, especially Denali National Park, home to Mount McKinley, the largest peak in North America.
Farming represents a very small portion of the economy of Alaska. It contributes only $25 million to Alaska’s annual revenues and the cash value of its crops is consistently ranked 50th (last) in the United States. The winters are so long and the temperatures so cold that very little land can be used for farming. As a result, there are only 500 farms in the state. Most of these farms can be found along the southern coast. Many are used for raising timber—approximately $14 million of agricultural revenue is derived from the forest products sector.
The most valuable livestock commodity produced in the state is milk. Almost 10 million pounds of dairy products are sold annually and have a value of almost $100 million. The 1.5 million pounds of beef sold each year raise an additional $50 million in revenues. Farmers also raise chickens, hogs, and sheep. Native Alaskans raise reindeer as a source of meat and hides, although most of this is used for internal consumption and does not provide much money for the state economy.
Fishing contributes $5.8 billion annually to the economy of Alaska. In terms of economic contribution, it is second only to oil and gas in its affect on Alaska’s gross state product (GSP). Not only does fishing generate billions of dollars in revenues, it also serves as the largest private employer in the state. Salmon, cod, pollock, halibut, and crab represent the bulk of the fish that are routinely caught off Alaska’s shores.
More than 56,000 people hold jobs in the fishing industry and another 22,000 hold jobs that are indirectly related to the industry. As of 2008, there were just over 686,000 people living in the state, meaning that almost 9 percent of the population is involved in the industry. This is more than all of the people working in gas and mining combined. Alaska fisheries are subject to regulations that prevent over-fishing, ensuring there will still be fish to catch for centuries to come.
BANKING AND FINANCIAL SERVICES
The banking and financial services sector employs only 1.6 percent of Alaska’s population. Alaska USA Federal Credit Union, First National Bank Alaska, and Wells Fargo Bank are the three largest financial sector employers in the state, though their combined number of employees is fewer than 2,300. However, more people are being hired in this industry than in previous years. Banks with headquarters in other states, such as Wells Fargo, are discovering that technology allows them to transact business in Alaska, where business expenses are lower than in many other states. Though a small sector, its state-of-the-art technology is allowing it to grow. The field enjoys revenue of almost $663 million and employs almost 1,500 people in the state.
Alaska Communications Systems Group Inc., valued at $44 million, is a publicly traded company that employs more than 700 people. It provides integrated telecommunications services to individuals, businesses, and wholesale customers throughout Alaska, including DSL and dial-up Internet access and wireless services. Its major competitors are AT&T, Arctic Slope Regional Corporation, and GCI. Only 0.1 percent of the state’s population is employed in the communications industry.
The construction industry in Alaska is more stable than it was in the middle of the 20th century. It employs between 12,000 and 16,000 people and is dependent primarily on military and pipeline construction projects, which generate $1 billion and $500 million each year, respectively. This sector represents 5 percent of the state’s economy. Although it once represented as much as 10 percent, forecasters believe that it will remain steady at approximately 5 percent for decades to come. The federal government is responsible for a large segment of the construction industry, as it requires military base infrastructure renewal, barracks, family housing, and training areas. The missile defense site at Fort Greely is the largest defense department project in the state, and total costs stretched out over several years are estimated at $250 million.
Almost 33,000 students attend one of the three campuses of the University of Alaska. The oldest and flagship campus is in Fairbanks; the largest is in Anchorage; and the third, the Alaska Southeast campus, is located in the state capital, Juneau. The Fairbanks campus boasts the only Cray supercomputer in the region. The state is also home to the private Alaska Pacific University. Almost 134,000 students are enrolled in 530 public schools in preschool through grade 12. There are an additional 6,200 students enrolled in 64 private schools (preschool–grade 12) throughout the state. Approximately 300 Alaskan university students complete a degree in education each year. The public education system is funded primarily through taxes paid by the oil industry.
The oil and gas industries are the largest sector of the Alaskan economy and provide state coffers with over $20 million in annual tax revenues. The total value of Alaskan oil and gas reserves is estimated at $14 billion. Eighty percent of the state’s revenues are derived from oil extraction, representing the state’s largest export. Between 1974 and 1977, the Trans-Alaska Pipeline was built as a joint venture among BP, ConocoPhillips, Exxon, Mobil, Koch Industries, and Chevron Corporation. The pipeline is operated by the Alyeska Pipeline Service Company and transports oil 800 miles from Prudhoe Bay in northern Alaska to Valdez in the south. Alaska is second only to Louisiana in crude oil production in the United States. Natural gas was discovered in the north in 1967, and there is a proposal to build a natural gas pipeline as well.
The entertainment industry represents a very small sector of the state’s economy. Alaska does not have any major league baseball, football, or basketball teams. It has one professional dance company, three symphony orchestras, and 33 museums and places of historical interest. Almost 3,800 people work in the entertainment industry in the state. Gambling establishments, amusement parks, and recreational facilities account for almost 2,700 of those jobs. The state’s entertainment industry is worth approximately $280 million and a little over $53 million of that represents entertainers’ salaries.
According to the Alaska Division of Insurance, 11,000 people are employed in 385 insurance-related companies in the state. Alaska National Insurance is the largest insurer in the state and provides business, life, health, automobile, and homeowners’ insurance. Almost 300 of the insurance companies in the state underwrite projects connected to the oil and gas industry, providing pipeline, drilling equipment, and worker’s compensation insurance packages.
Manufacturing represents only 5 percent of the Alaskan economy. Only 11,000 people are employed in 450 manufacturing firms throughout Alaska, most of them in the seafood processing industry. The state is considered the center of the world’s salmon-packing industry. Petroleum-related manufacturing represents the second largest segment of the industry, with more than 5,000 employees. The relatively stable fishing industry generates some $11.2 billion in revenue, while the oil industry, which is subject to the fluctuations of world oil prices, brings in about $5 billion.
MINING AND EXTRACTION
There are four major mines in Alaska. Base and precious metals are mined from three of them, and the fourth is mined for coal. The number of mines is not expected to change over the next several decades. Despite this small number, almost 300 companies have a stake in these mines. Four metals represent 90 percent of Alaska’s production in this field: zinc, gold, lead, and silver. Jobs in the mining field tend to pay a higher wage than the state average. As of the early 21st century, the industry generated over $5 billion in annual sales. The field provides jobs for more than 5,500 Alaskan residents in more than 100 communities, including rural areas where other jobs are often not available.
When most people think of Alaska they think of oil and gas reserves, snow-capped mountains, and great fishing. Many do not realize that Alaska has approximately 6,000 registered nonprofit organizations—more per capita (110) than any other state. Because 11 percent of the population lives at or below the poverty line, nonprofits play an important role in providing basic goods and services for people who otherwise could not afford them. Research by the Foraker Group shows that funding for these organizations comes from fees, private donations, and government support. The government’s role in the Alaskan nonprofit world is critical, because although the number of nonprofits is high, the number of donors is quite low. Alaska ranks lowest in the nation in personal giving of households making over $200,000 annually. This imbalance is of concern to the Alaskan and federal governments as it represents an attitude that "the government will take care of us." The state is looking for ways to encourage more people to make a financial commitment to those less fortunate.
Because of its small population, Alaska is not a large retail center. However, some of America’s largest retailers still maintain a presence in the state. Walmart is the largest retailer. Many consumers order clothes and household items through online shopping sites. State retailers enjoy sales of $10 million annually.
Technology is a growing sector of the Alaskan economy. Since the industry is not affected by the intense and long winter season, it is viewed as worthy of more public and private investment. The Alaska Science and Technology Foundation (ASTF) has spent almost $5 million to bring wireless technology into the classroom and an estimated 3,000 pupils in Kindergarten through 12th grade have participated in ASTF-sponsored projects in math, science, or technology. Another ASTF project has established the state’s first genotyping lab, in Anchorage. The ASTF-supported Alaska Technology Transfer Assistance helped Alaskan entrepreneurs receive $4 million of federal Small Business Innovation Research seed grants.
There are 117 information technology firms in Alaska earning almost $50 million in federal contracts alone. It is a growing industry in the state because it is not dependent on climate conditions and work can be done remotely for potential employees who do not live in urban centers.
While biotechnology contributes less than 1 percent to Alaska’s GSP, the field is growing by 5 percent annually, as pharmaceutical companies realize that Alaska’s proximity to Asian markets makes it an ideal location for investment, since corporations can easily ship goods to the large Pacific Rim markets.
Alaska Software Development Corporation is the largest locally headquartered software development company in the state, with 100 employees. Giants such as IBM and Hewlett-Packard also have offices in the state.
Aviation is the most valuable component of the transportation industry in Alaska, both in terms of number of employees and the revenues it generates. Most cities and villages in the state are only accessible by air. Some 47,000 people are employed in Alaska’s aviation industry, making it the fifth largest employer in the state. Between direct spending by airports and the secondary spending of businesses within the airports and their employees, aviation contributed $3.5 billion, or 8 percent to the state economy in 2007. People living in rural communities would have no ability to travel in the winter without the presence of local airports. Even the capital of the state, Juneau, is not accessible to the Alaska Highway or any other major roadway in winter. Because towns are so far apart in Alaska, the state relies heavily on aviation to move freight in and out. On a per capita basis, Alaska moves 39 times more freight by air than other rural states such as Idaho, Oregon, Montana, and Wyoming.
TRAVEL & TOURISM
Tourism is Alaska’s second largest private employer and the state’s fastest growing industry, with more than 1.4 million visitors each year and revenues of $1.5 billion. The Alaskan tourist industry employs more than 39,000 people and attracts some one million visitors each year. Many people come to Denali National Park to visit Mount McKinley, the tallest peak in North America. Fishing and hunting is responsible for $800 million in revenue each year. Additionally, about 200,000 tourists enjoy whale-watching excursions, which are worth in excess of $32 million to the city of Juneau alone.
The number of visitors has been increasing steadily by approximately 5 percent each year. Tourism is the third largest private-sector employer in the state and provides more than $579 million in salaries and benefits. The industry contributes $1.6 billion to the state’s economy and provides more than $150 million in annual state and local tax revenue. Alaska is a regular stopover for U.S. flights bound for the Far East, and as America-China trade is expected to grow, so too is the number of tourists.
The federal government employs 35 percent of Alaska residents, making it the largest employer in the state. Federal spending in Alaska is high relative to the overall population because of the state’s strategic location and its large oil and gas reserves. More than 60,000 people hold defense-related jobs and another 64,000 are civilians receiving a federal paycheck. The federal government is also the largest landowner in the state. In addition to federal health care and infrastructure programs, these jobs generated over $9 billion in revenues in 2006. The large number of jobs in the public sector also makes Alaska’s economy more resilient to changes in market conditions.
-World Trade Press