What Alaska did with its oil wealth: State policy and economic development, 1969 to 1986
Alaska's decisions on use of large per capita revenues from the development of state-owned oil resources were colored by historical and geographical features peculiar to the state. Old patterns of Territorial administration, coupled with Alaska's strategic military importance to the rest of the United States, had shaped communications, transportation and service delivery systems directed at federal rather than state needs. The state's endowment of natural resources provided an economic base but left it vulnerable to fluctuations in world commodity prices. As a result both of the resource-based economy and the harsh winter environment, employment was highly-seasonal, with government providing one of the few opportunities for year-round jobs. Most capital investment and much of the seasonal labor supply were provided by outsiders. In many parts of rural Alaska, the transition from a traditional, subsistence economy to a cash economy had only just begun, with painful social and economic consequences. Most Alaskans at the time believed that existing economic problems stemmed not from natural causes but from outsider interests exerting undue control over the state's economy. Most also believed that state government could and should change the economy by assuming a more active role in economic development. Although state leaders engaged a large number of experts to advise about possible uses of the oil wealth, most of whom disagreed with the opinions cited above, expert advice was often ignored in favor of public opinion. Over the years of high oil revenues, the state allocated its resources among four alternatives. First, it distributed some of the wealth to state citizens in order to stimulate private economic development. Second, it spent considerable amounts on infrastructure and public services. Third, it invested heavily in certain sectors of the Alaskan economy. Finally, it saved some of the revenues for the future. The effects of state action on the economy and other aspects of Alaskan life were not always what had been envisioned. In several instances, state action contributed to the instability of the economy. In others cases, state programs added to the social and environmental problems attendant upon rapid development. Some major development efforts failed completely, while others set the state on a course which may have severely limited future growth. Based on the experience of the Prudhoe Bay bonanza, it is recommended that the state save most of the revenues accruing from a major new development effort, at least during the development period. Such a cautious approach to sudden wealth would allow the state maximum flexibility for future fiscal policy while avoiding the costly mistakes of the past.