America's Welfare State

America's welfare state

Aug 24th 2006
From The Economist print edition

How Alaska's rugged pioneers wallow in unearned cash

NEVER let anyone tell you there is nothing to do in Alaska during those long, dark winters. When the snow is deep, you can jump off the roof of your house into a drift. ?It's like landing in a cloud,? says David Pine, a local student. You can go cross-country skiing on a floodlit trail around Anchorage?which becomes a cycle path in the summer. Alaskan licence-plates may growl that this is the ?The Last Frontier?, but urban areas?where four-fifths of Alaskans live?are amply stocked with espresso bars, broadband connections and all the comforts of modernity. Alaskans are, on average, slightly richer than Americans who live in the ?lower 48? states. Yet they are wrapped in a thick mink coat of subsidies.

Federal spending supports a third of all Alaskan jobs, according to the Institute for Social and Economic Research at the University of Alaska in Anchorage. Alaska's representatives in Washington, DC have a hard-earned reputation for piping federal dollars back home. A proposed $229m ?Bridge to Nowhere?, connecting the town of Ketchikan to an airport on an island with a population of 50, is the most notorious boondoggle. But the state is paved with pork?from its half-empty high-speed ferries to the $500,000 that the federally-funded Alaska Fisheries Marketing Board gave to Alaska Airlines to paint a giant king salmon on one of its aeroplanes. Citizens Against Government Waste, a watchdog, calculates that Alaska guzzles more pork per head than any other state.

Why is Washington so generous to Alaskans? It is not as if they have no other source of cash. Alaska's oil wells allow the state to function without levying an income tax. And the interest from a $34 billion ?Permanent Fund?, in which past oil receipts are stashed, gives every Alaskan man, woman and child an annual handout, expected to be about $1,000 this year.

There are some good reasons for the federal government to spend money in Alaska anyway: it supports 21,000 troops there, it has obligations to indigenous Alaskans and it owns (and must look after) some 60% of Alaska's land. Add to this America's romantic view of pioneers, and perhaps a lingering fear that its vast territory, if no one is encouraged to occupy it, may one day be grabbed by a foreign power. That was a reasonable fear back in 1880, when, 13 years after America bought Alaska from Russia, a census found only 435 frostbitten non-native residents. During the cold war, too, it made sense to play safe. But now the population is a healthy 665,000 and there is no plausible invader. Surely, with oil prices so high, the taxpayers of the lower 48 should be given a break?

For some reason, this idea gets little attention in Alaska. Politics revolves around two issues: how to suck more cash out of Washington and more fossil fuels out of the ground. Alaska's three members of Congress are adept at the former. The latter task is trickier?it involves complex negotiations with energy firms, and an uphill struggle to persuade the rest of America that a bit of drilling will not do too much damage to the Arctic National Wildlife Refuge. The big debate in the current race for the governorship concerns how and where to build a gas pipeline.

The Republican incumbent, Frank Murkowski, favours a pipe running south from Prudhoe Bay (where the gas is pumped) to the Midwest, via Canada. He has come close to cementing a deal with oil firms. But he was rudely dumped by his own party in a primary on August 22nd. His ditching was unrelated to the pipeline or any other big issue; his problem was simply that Alaskans do not like him. His campaign song acknowledged as much: ?And I'm proud to be supporting Frank Murkowski/ He's a man that's not afraid to take some licks/ He might not win awards for his charisma/ But Alaska's gonna need Frank in '06.?

Apparently Alaskans disagree. Mr Murkowski came third in the primary, with less than a fifth of the vote. Yet as a senator for 22 years, he never had trouble getting re-elected. What has changed? When Mr Murkowski was far off in Washington, DC, his critics snipe, Alaskans never got to know him. More important, as a senator, he brought home goodies. As governor, his decisions have involved pain as well as gain for Alaskans.

Inheriting a deficit when he took office in 2002, he raised taxes on cigarettes and abolished the ?longevity bonus?, a handout to persuade old people to stay in Alaska. This was probably necessary, but it was tactless of him to order a state jet, which he seems to use a lot, while calling for austerity. These and other displays of high-handedness, such as appointing his daughter Lisa to fill his vacant Senate seat, doomed Mr Murkowski.

The two hopefuls
The victor in the Republican primary, with 51%, was Sarah Palin, an articulate former small-town mayor. She is both fiscally and socially conservative, abhorring abortion (though, as governor, she would have no power to ban it) and favouring the death penalty for child-killers (though Alaska does not allow it). She has threatened to toss a figurative bomb into the pipeline negotiations, by demanding that other routes be considered and by suggesting that the gas should be liquefied in Alaska and shipped out by tanker. Her critics think this impractical.

Her Democratic opponent in November will be Tony Knowles, who was governor between 1994 and 2002. His party label ought to hinder him in such a conservative state as Alaska, but he is seen as a pragmatist. Mr Knowles says he would renegotiate Mr Murkowski's pipeline contract so skilfully as to net an extra $2 billion a year for Alaskans, though he gives few details.

Both candidates agree that Alaska needs to diversify, so that its economy depends less on a commodity whose price goes up and down like a drunken mountaineer. But neither really knows how this might be done. And neither likes to consider that Alaska's federal subsidy might also take a tumble some day.