Alaska: Nigeria of the North

The state’s peculiar socialism for rugged individualists may have to yield to fiscal realities


IT is TEMPTING to overlook the people of Alaska: they are so few, and their state is so vast. Everyone has heard that Alaska is big, but it really is big, and its natural features tend to dwarf anything that men have done. Even the transAlaska pipeline, that prodigy of largescale engineering, has left a barely visible mark upon the landscape. After comparing the pipeline, as it appears from the air, to a thread across a golf course, one environmentalist told me that it was a good thing so few people had seen the territory the pipeline would traverse, back during the debates about its construction. The numbing emptiness, he said, would have made most people incapable of taking the need for environmental precautions seriously.

In their daily lives many Alaskans reinforce the impression that what matters most about their society is its natural setting. Much of local politics still turns on the “subsistence” issue—what share of the wild fish and fowl should be reserved for those who eat what they kill, Fairbanks, which with 28,000 people is the state’s second-largest city, sits in the Alaskan interior on a patch of permafrost that sank like a tile when the earth’s great crustal plates ground past each other. In this basin, sheltered from wind, dense, gelid winter air collects; in January, Fairbanks enjoys slightly under four hours of sunlight a day and temperatures of 50° below zero. The difference beetween 20° and 50° below zero, I was toid in Fairbanks during a recent visit, is that at 50° below you have to drive more carefully, because a tire can shatter if it hits a pothole.

But at the moment the real drama of Alaska does not concern its landscape, or even its weather. The state, bigger than most nations, now seems to be rapidly recapitulating some other nation’s economic history. Is that other nation Nigeria?

Alaska’s economic saga is a long chronicle of booms and busts. Russian trappers came for sea-otter fur, American prospectors came for gold, Japanese businessmen came for timber—and all of them left, once they had killed, dug, or cut the most profitable part of the resource. The latest boom, of course, is based on oil, and it too is nearing its end.

In the early 1960s the state government invited oil companies to bid for exploration rights on Alaska’s North Slope, the bare, permanently frozen plain, home to musk-oxen and caribou, that reaches from the foot of the Brooks Range northward a hundred miles to the Arctic Ocean, The leases for the year 1965 brought in a paltry $6 million. Three years later, at Prudhoe Bay, the Atlantic Richfield Company (ARGO) discovered the largest oil field in North America. By the early 1980s, when oil was flowing at full capacity through the trans-Alaska pipeline, ARGO and its sister companies were pumping $6 million worth of oil every fourteen hours. In 1976, while the pipeline was still under production, Alaska’s petroleum output was worth about a third of a billion dollars. Five years later it was worth nearly ten times that much.

Of these new riches Alaskans have received at least their fair share. One barrel of each eight lifted from Prudhoe Bay is assigned to the state, as a royalty payment. In addition, the state imposes corporate income taxes, mineral-severance taxes, and various other measures designed to keep the wealth at home. From 1972 to 1982 Alaska’s revenues, nearly all from oil, increased from $48.4 million to $3.6 billion. Of every dollar the state collects for its “general fund,” 90 cents comes from oil.

Suddenly rich, Alaska was better equipped to meet its longest-standing internal challenge: the division of spoils between the growing number of white Alaskans and the aboriginal population of Eskimos, Indians, and others, collectively referred to as “Natives.” In 1971 Congress passed the Alaska Native Claims Settlement Act, one of the most complicated pieces of legislation in the nation’s history. The act extinguished the Natives’ ancestral and often overlapping claims to Alaskan land, including certain portions intended for pipeline construction. In return, the 80,000 Natives received from the federal government a settlement of $1 billion, and permanent title to about one ninth of the state’s territory—44 million acres of land.

In itself, such a settlement constituted a dramatic departure from Indian relations as practiced in the rest of the United States (which Alaskans habitually refer to as “Outside”). The philosophy that accompanied it represented perhaps a greater change. In place of the socialist paternalism that had long guided the Bureau of Indian Affairs, corporate capitalism was to be brought immediately to Alaska’s Natives. Their territory and resources were assigned to a variety of new “Native corporations,” in which the Natives living at the time of the Settlement Act would be the only shareholders. A class of extremely urbane, Outside-educated Natives assumed leadership of the largest corporations and began investing their people’s money in hotels, banks. Fisheries, and oil. Even though their managerial mode of authority was at odds with the traditional hierarchy of the tribal village, some of the corporations pledged themselves to serve as bulwarks of the imperiled Native culture.

The Native politicians helped direct some of the state’s oil wealth toward the remote bush villages where most Natives still live. The “bush caucus,” whose influence in Alaska is comparable to that of ethnic blocs in the eastern United States, pushed for new schools, community centers, and roads. Prefabricated school buildings were barged up from Seattle during the ice-free months and unloaded on islands and at coastal villages. Teachers were recruited, at the highest salaries in the nation (an average of $37,200), to bring literacy, math, and science to villages that might contain six or eight students. Snowmobiles (called “snow machines”) and motorized “tricycles” with nubby all-terrain tires began to replace dog teams in the bush.

The rest of the state also experienced a capital-spending boom. New housing developments were built with government-subsidized loans. Ambitious hydroelectric projects ere launched around the state. Using future oil revenues as security, some communities and the state government threw themselves onto the bond market. The North Slope Borough, the local government with jurisdiction over Prudhoe Bay, contracted long-term indebtedness of $1.2 billion, or $150,000 for each of its 8,000 mainly Native citizens. Alaska’s population, which had risen during the pipeline-construction boom of the early 1970s, began falling after 1977, when the pipeline was finished and the welders and truck drivers went back to Texas to look for work. But in 1981 the population exploded again. There had been 302,000 Alaskans in 1970, and 402,000 ten years later, after the pipeline boom had leveled off. But last year the state’s population topped half a million, and it is now said to be growing by 10 percent a year.

Yet on their arrival these new Alaskans find a state that sees the bottom of its money barrel. Vast as it is, the Prudhoe Bay field is not limitless. Almost a third of its proven reserves are already gone, and its production will begin to fall within five years. More important, the crash in the world oil market means that each barrel taken from Prudhoe Bay leaves less money in Alaska’s hands than Alaska had anticipated. In 1981. when oil prices were high, the Department of Revenue estimated that in the next fifteen years the state could count on $99 billion in oil revenues. One year later it had reduced its estimate to $35 billion. For ten years Alaska’s hardest puzzle was figuring out the best way to invest its wealth. Now its fiscal officers can point to budget deficits within three years.

WILL THIS MAKE Alaska our own little Nigeria, desperately broke so soon after it seemed to swim in wealth? Many Alaskans answer in the negative, and they have two arguments on their side.

One is that Anchorage, traditionally a trading center that drew on a vast, primitive hinterland, has finally reached the critical size at which it can generate its own demand and support its own enterprises. Instead of merely importing finished equipment and exporting oil, gold, and fish. Anchorage now has small factories producing some of the manufacturing supplies and consumer goods that once came from Seattle and Los Angeles. Of the new nongovernment jobs created in Alaska since the beginning of the pipeline boom, in 1973, only about a quarter were directly tied to oil or other extractive industries. The rest were in finance, services, tourism, manufacturing, and other fields typical of a diversified economy. If these other engines of economic life keep Alaska afloat while the good ship Oil is sinking, they will support Jane Jacobs’s theory that import-substitution is the basis of economic growth.

The second argument concerns a less tangible asset: the immigrant vitality of Alaskans. As a focus for immigration, Alaska has long been a cross between a land of golden opportunities and a last outpost for those on the lam. (Last March, in Anchorage, I walked through a Native art gallery with the curator, who described the provenance of several dozen pieces of antique walrus ivory worth $1,000 or more apiece. A few weeks later I saw a newspaper clipping saying that he had vanished—along with much of the collection.) Some of its immigrants are running away from the boss, the sheriff, or the alimony collector. But many others are ambitious young people who recognize that they can take charge more quickly here than anywhere else in the United States. Alaska’s population is the youngest in the country; much of the politics, communications, and business activity in Anchorage seems to be dominated by people in their twenties and early thirties. Perhaps they will find a way to see their state through the coming hard times.

But consider what they and other Alaskans are up against. They have advertised themselves as what they originally must have been: ferocious individualists, bent on fending for themselves and scornful of socialist coddling. Yet their economy has grown more dependent on the generous hand of the state than the most Democratic wards of Chicago ever were.

This is partly unavoidable. The government, in its various federal and state guises, owns nearly all the land in Alaska. Apart from the Natives’ territories, less than one percent of Alaska’s land is in private hands. Because it takes a lot of people to administer the National Parks, supervise the salmon hatcheries, and run the military bases, the government plays the employer’s role to roughly the same degree in Alaska as it does in Washington, D.C.

Perhaps it was also unavoidable that the state would enact many public benefits— entitlements, in Outside parlance—without knowing how to pay for them once the oil money was gone. The state now spends about four times as much money per Alaskan (in real terms) as it did ten years ago—but it collects much less money from any source except the oil wells. In 1980 it abolished the personal income tax, and it has no sales tax. (When you offer a dollar bill for a 95-cent item, you suffer momentary confusion upon getting a nickel in change.) Alaskans, in their affluence, have created an elaborate network of entitlements unrelated to need. Students in Alaska are eligible for low-interest loans to finance college or graduate education—and half of the total is forgiven if they return to the state for five years. Elderly “pioneers" with twenty-five years’ residence in Alaska can receive subsidized housing in the state’s Pioneer Homes. Even though there is no income tax, there are two leftover tax credits— in effect, full rebates of up to $100 for political contributions and $230 for child-care expenses. And then there is the “dividend.”

In an attempt to smooth the way to the post-oil future, the state’s voters in 1976 approved the creation of a “Permanent Fund.” One quarter of all mineral royalties, plus related income, go straight into the fund. (By 1983, $3.7 billion had been paid in, while another $14 billion of oil revenues had been spent.) The principal of the fund was carefully hoarded for the future, but what of the interest it earned? jay Hammond, a bush pilot and swashbuckling figure who was governor throughout the oil-boom period, promoted the idea of the “dividend”—a direct payout of the profits to all citizens of the state.

According to the original proposal, the largest dividends would have gone to those who had lived longest in Alaska. The federal courts threw out that provision, saying it was discriminatory, and dividends were awarded to anyone who had been in the state for six months. The first dividend, paid in 1982 and reflecting several years’ accumulated earnings, was $1,000 per person. Later payments were to represent half the annual income of the fund; the other half was to be reinvested to protect the principal against inflation.

The idea behind the dividend was to give every Alaskan a stake in the sharpeyed management of the Permanent Fund. If your annual check reflected the market performance of the fund, you would presumably be more skeptical of its being invested in low-interest urbandevelopment loans—and more interested in blue-chip stocks or mineral investments. It seemed like a dream come true for J. Peter Grace and everyone else who has ever said that government should he run like a business.

The dream will last just as long as the oil does; then Alaskans will have to figure out how to pay their way. In the U.S. Congress strong men quake at the task of reducing benefits we can no longer afford. Alaska will soon face that task. If its people, so inventive and optimistic, accomplish it, they will have something to teach not merely the other oil baronies but also their fellow citizens Outside.

—James Fallows