Alaska: Caribou Commons Or America’s Lost Ace?

The most serious collateral damage from the BP spill disaster could very likely be in the far north, along the Alaskan coast. The problem is not a current spill but the Obama administration’s ban on offshore drilling and what many fear may be a broader attempt to close the state from further resource-related development.

Such an approach could harm both the local and national economies for decades to come.

Locking up of this vast northern state–which is home to some 700,000 people and has more coastline than the rest of “lower 48″combined–would be tantamount to the U.S. throwing away a strategic ace in the hole. Alaska contains many of the strategic assets–oil, zinc, lead, gold and, perhaps most critically, rare earth metals–critical in the increasingly multipolar battle for global prosperity.

The move by some in the administration and green activists to freeze the last frontier recalls Frank and Mary Popper’s proposal to turn the Great Plains into a “buffalo commons” for wildlife, Native Americans and grasslands. In this case, this new Alaska could be labeled “the caribou commons.”

By now it’s clear that the Great Plains region has value well beyond accommodating vast herds of bison, which have indeed been expanding. According to a recent Portfolio.com survey, four states either completely or partially in the Plains–North Dakota, Texas, South Dakota and Nebraska–rank among the top six states in economic performance.

Alaska–buoyed in large part by energy production and its spinoffs–ranked second on the list, its residents doing far better than those in what the locals call “the outside.” Yet for all its wealth, Alaska has a peculiar challenge that stems from the fact that the vast majority of its land is owned by the federal government.

Right now oil drilling represents the most important and contentious issue. Sixteen billion barrels of the black tea have come out of the North Slope alone since the 1980s, more than originally expected. An estimated 56 billion additional barrels exist, much of it in coastal waters.

For decades, oil has driven Alaska’s prosperity. Before the discovery of the Prudhoe Bay field in 1967, Alaska suffered a per-capita income some 20% below the national average. Today it ranks eighth.

Roughly 100,000 Alaskans work for energy companies, either directly or indirectly. Jobs in the oilfields, as well as the mines, pay an average of between $70,000 and $100,000 a year. These industries have helped it rise as one of the national leaders in producing good middle-class, blue-collar jobs.

University of Alaska economist Scott Goldsmith estimates that oil accounts for two-thirds of the state’s growth since it became a state in 1959. Just eliminating the vast fields on Prudhoe Bay tomorrow, he estimates, would wipe out roughly one-third of all the state’s jobs. Oil-related taxes account for roughly 84% of the state’s total revenues.

Alaska has other industries, such as tourism and fishing, but these pay far lower average wages than energy. “Without oil, we are essentially a third-world country,” notes Dan Sullivan, mayor of Anchorage, home to nearly half the state’s population.

Not surprisingly, many Alaskans believe a ban on new energy and mining projects would end their relative prosperity. Goldsmith, for one, envisions the state turning into something akin to Maine (ranked 30th in per-capita income), a tourism-dominated playground for the visiting rich scarred by grinding poverty.

Already oil-fueled revenues that fund government employment have fallen dramatically. Since its peak in 1988 oil flowing through the Alaska pipeline has dwindled from 2 million barrels a day to barely 700,000. This total could fall to under 600,000 by 2018.

Without the development of new fields, Alaska, which now enjoys the country’s largest rainy day fund, could face a huge fiscal crisis. According to recent University of Alaska estimates, the state could confront California-style insolvency within a decade or two.

Of course, most Alaskans do not want to see energy–or mining–expanded without strenuous controls. Many of them live in this isolated, often brutally cold place in order to enjoy its natural splendor and bounty. Climate change–irrespective to this summer’s chilly weather–also is a wide concern among people who live adjacent to retreating glaciers and worry about depleting arctic fisheries.

Yet if Alaskans passionately want to preserve their staggeringly beautiful environment, they also are unlikely to embrace a vision of pristine poverty. Having suffered the depredations of international energy, mining or fishery companies, they also are not anxious to leave their fate to the Environmental Protection Agency or litigation-happy, trust-fund groups such as the Center for Biological Diversity.

“A lot of people in the lower 48 [states] want us to pay for their sins,” suggests Alaska Sen. Con Bunde, reflecting a widely felt sentiment. “They may never come to Alaska, but knowing it’s there keeps them warm inside at night.”

To protect their economy, Alaskans will need to learn new skills. For a generation they relied on powerful, now retired longtime Sen. Ted Stevens to protect their industries and make them the largest per-capita beneficiaries of federal largesse.

Best suited for this role are the powerful Alaska-based, native-owned corporations. Unlike the oil companies run from Dallas, Houston or London, these companies are locally rooted. Together the top 13 native-owned firms possess some $4 billion in assets, a billion-dollar payroll and 12% of the state’s land.

Taking control of their destiny may also mean changing attitudes common in a society that combines the most rugged individualism with what many call “an entitlement mentality.” After all, this is a place where big oil pays most of the bills and every individual receives an $1,300 annual check from the energy-funded Personal Dividend Fund. “The typical Alaskan doesn’t give a damn about what happens as long as they get their PDF check,” observes Dan Robinson, an economist with the McDowell Group, a local consulting firm.

To maintain its long-term prosperity, Alaska needs to shift from petro-welfare to investing its energy wealth in the growth and diversification of its key industries. The state, for example, has huge potential for wind, geothermal and tidal production and should be a hub for both new fossil fuel technology as well. It also can use its locale on a key Pacific trade route as a center for advanced logistics (Anchorage Airport carries the world’s fifth-largest cargo tonnage).

The rest of the country also has a big stake in the fate of America’s Far North. Lost production of energy and mineral resources would make us more dependent on other, often unfriendly countries. With exploration shifting to far less environmentally sensitive places like Mongolia or Africa, you also can count on greater net ecological damage as well.

Alaska’s concerns may seem remote those in the “lower 48.” But how the 49th state fares may determine whether the rest of America can build a more sustainable and prosperous economy in the decades ahead.