THF STRATEGY l)F R TON~! DFVFIOPMFNT DL

Prepared for the First Meetinq of the

Federa 1 Advisory Coundl on· Reqi orra l Economic Deve 1 onment

Washington, D. C. October 22, 1968

by

Arlon R. Tussinq Economic Consultant

FEDERAL FIELD COMMITTEE FOR DEVELOPMENT PLANNING IN ALASKA

Anchoraqe, Alaska

REGIONAL PLP,NiHNG IN THE ll, S, ECONOMY

The economy and political institutions of the United States

gre\'J up in a framework of decentra 1 i zed decision rnaki ng. Our commitment

to ~rivate enterprise and the wide range of powers reserved to the

sovereign states severely limit the way in which our people can mobilize

their resources for any complex natio~al goal except perhaps defense.

But as the American eco(lomy has become richer, more complicated, and

more interdependent, the people have demanded an ever-increasing range

of pub 1 i c serv1 ces, so that expenditures and transfers by a 11 1 evel s

of government now amount to cibout three-tenths of the national product.

As a nation \'ie have neither the 1.,ii 11 nor the mechanisms for carrying

out centralized economic planning. Yet government action in its

aggregate is now unquestionably the most important determinant of the

size, shape~ and direction of our economy. To the economic influence

of the government's tax and regulatory activities must be added the

fact that the federal government alone is by far the nation's bigqest

employer and is the biggest customer of American private enterprise.

Inevitably, different programs established at a distance of decades from

one another and different agencies with diverse traditions. structures,

and constituencies have enormous potential to complement and strenqthen

one another or to overlap, compete, and conflict. The process of

gov~rnment reorganization, however sluggish, is one response to these

potentials. Unification of the armed forces and formation of the

departments of Health, Education and Welfare; of Housing and Urban

Development· and of Trans tion are ex les e

tant outgrowth of the need for coordination and planning in government

is the growing importance of bodies without primarily administrative

responsibilities, independent of specific administrative agencies,

whose job is to assist in making the government's total impact

effectively responsive to the nation's total needs. Different parts

of this job fall to the Joint Economic C6mnittee of the Congress, the

Council of Economic Advisers, the Bureau of the Budget, and other parts

of the Executive Offi~e. Together, these bodi~s can offer Congress and

the President frameworks for decision and criteria of effectiveness

broader than those of individual programs or the agencies that administer

them.

Of course, the Council of Economic Advisers is responsible

for economic forecasting as an aid to decision making at all levels of

government; and the Bureau of the Budget is charged with the nation's

fiscal housekeeping. What is distinctive about these agencies, however,

is that they are required to take a hard and comprehensive look at just

what are the nation's goals, what are the priorities and tradeoffs

among them, how can they be reconciled within the government, and how

can they most efficiently be effected.

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While the federal government does have within it some

structural capacity for thinkinq through many kinds of problems which

face the whole nation and are affected by the actions of many agencies,

11

together local, state, and federal governments, or even the different

federal agencies, to deal with the problems which are metropolitan or

regional in scope and which require a complex and coordinated attack

from every level of government. O~r failure to organize for the

assault on rural poverty and urban decay overshadows the handful of

outstanding intergovernmental successes in enterprises like river-basin

development.

Local areas are eligible for assistance under several federal

programs depending upon their rates of unemployment, average income •

level, or proportion of their population living below defined poverty

levels of income. Some prominent examples are the provisions of the

Public Works and Economic Development Act of 1965, the Economic Oopor­

tunity Act, and Defense ManpO\ver Policy No. 4 (revised).· With this

legislation and policy, the Congress and the government have implicitly

asserted that key aspects of poverty and unemployment are their

community or regional dimensions, and that an important part of the

attack on poverty and unemployment is the attempt to foster economic

development in the areas where these conditions seem to be endemic.

Programs based on this premise are administered by the departments of

Health, Education and Welfare; Labor; Commerce; Agriculture; Housing

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and Urban Development; the Office of Economic Opportunity; and even by

the Defense Departrnent in its procurement nreferences. Funds of federal

origin, broadly directed at regional or community development, are

as v1e I.

is no agency or level of government generally charged with maximizing

the complementarity and minimizing the duplication and conflict among

these efforts. There is generally no agency or level of the federal

government on a st&te, regional, or metropolitan basis charged with

thinking about the economic and social dynam"ics of the region and

evaluating alternative strategies for coping with its problems. This

·1 believe should be the primary function of any regional development

agency established by the fed era 1 government .

. Shortcomings of the Title V Approach

The regional corrrnissions established under Title V of the

Public Works and Economic Development Act of ·1965 are not clearly

designed to undertake this planning function. Their shdrtcomings arise

from a failure to identify the problems to be solved and the failure to

specify explicitly a theory, philosophy, or strategy of economic develop-

ment. In the absence of explicit definitions, strategies, and measures

of success, the Title V approach rests on the im.plicit premise that each

of the development regions has high unemployment rates and low average

incomes because of a lack of aggregate demand in the region, and

particularly because of the lack of investment in plant and equipment

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and public facilities. A further assumption is that these circumstances

can be r-eversed by "seeding" (according to the language of a generation

ago, "pump priming") with strategic public expenditures. Finally, it is

csc:;umed that regional economic developmGnt stimul in thi hi

will in fact improve the opportunities and income of those people whose

plight invited concern in the first place. These prepositions are all

plausible,and each of them contains more than a kernel of truth; yet as

a basis for regional development strategy, their general apolicability

has not been demonstrated.

Many of the areas of the United States which seem economically

.stagnant, or which are declining either absolutely or relative to the

nation as a whole, are in svch circumstances·for good economic reasons

and are irreversibly so. What these areas, including the existing

development regions, have in conmen is a heritage of several generations

of underinvestment in hwnan resources, so that significant sections of

their population are not prepared to seize upon new economic ooportuni­

ties whether they appear close to home or far away. Foi the mountaineer

of eastern Kentucky it may not be critical whether the modern job in a

nevi factory or office occurs in his home county or in the outskirts of

Cincinnati; for the Eskimo of the Kuskokwirn Delta it may not matter

whether the factory is close by in Bethel or hundreds of miles away in

the Kenai petrochemical complex; what is crucial is the kind of job it

is--whether he has the education, skills, and attitudes to be hired and

to succeed in it.

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My purpose here is not to substitute one oversimplified or

unsu:ported hypothesis for another but to emphasize that the problem of

regional und~rdeveloprnent requires a great deal of economic sophistica­

tion 2nd a multi-faceted aorroach, of which an i ral

scent in the region is only a small part. In each of the existing

develop~ent regions the federal government is already spendinq at least

a billion dollars per year, and these expenditures are already the most

important single determinant of the pace and direction of economic

activity in these regions. The ability of the regional planning body

to irfluence the disposition of these funds is far more important than

is its control over a few hundred thousand dollars or even a few

million dollars in supplemental grants for its own projects. For this

reason, I believe that supplemental grants and independent funding

authority are more a handicap to a regional planning body than they are

assets, because they will inevitably compromise its objectivity and

independence and its relationships with the states and with federal

age:.cies.

Each state and each community is eager to receive federal

m~ney. and federal agencies themselves are seldom known to oppose the

establishment of new programs under their jurisdiction or to argue for

the reduction or elimination of existing ones. No agency or level of

government should be expected objectiv~ly to compare the merits of its

existing or projected programs with alternatives under other auspices.

Nor is it realistic to expect one agency to participate wholeheartedly

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in cooperative planning which subordinates its activities to the

objectives of other parts of the government. To function effectively,

the regional planning body must be free of administrative responsibili-

tiec; anrl should he i 1

loans, or inter- or intra~government transfers.

We have no doubt that the effectiveness ofthe Federal Field

Corrrnittee for Development Planning in Alaska vwuld have been badly

comoromised had it been just another agency comoetina for project

funding. Exactly the same considerations require the commissions to

be in fact independent in judgment and responsibility. 11herever in the

.government the commissions are located for housekeeping purooses, their

primary responsibility must be to the Executive Office of the President,

to the Bureau of the Budget, and to the Congress. Although there is now

no such precedent, I vtould suggest the addition to this 'list of the

Council of Economic Advisers. I would propose that the Council be

mandated to make appropriate economic foreca~ts to evaluate the fiscal

impact of government in each state or in each of the deve1opment

regions.

The crucial question in considerinq renewal of the authoritv

granted under the 1965 Act is whether there are unique tasks for the

commission which cannot be served just as well by other aqencies or by

the several states. Only the intellectual tasks--oversight, research,

planning, and persuasion--stand out. Supplemental fundinq of state or

agency projects might \'/ell be sponsored or supported by the conmission;

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indeed, one of its most important jobs ought to be to suggest and

independently to evaluate such projects; but the need for a new level

of government.with its own funding is not apparent.

Whether or not the commissions and the coordinati 1

ought to be within the Department of Commerce depends on whether the

ciepcfi.,ment has the a.bi l ity and vii 11 take the 1 eadershi p in economic

development policy nationa'lZ.y. At present, a good argument mi9ht be

that the regional planning function would have greater independence and

greater authority somewhere in the Executive Office of the President.

The most serious of our regional underdevelopment problems

a.re really national, problems: structural unemployment, underinvestment

in human resources, and the culture of poverty exist throu9hout the

United States. Our urban crisis is in large part generated by the

export of people, together with their economic and social handicaps,

from the countryside. The problems of rural stagnation are worsened by

the fact that the metropolitan growth centers cannot absorb and employ

these people at their present levels of education, skill," and accultura­

tion. It is ludicrous to draw the boundaries of development regions

deliberately to exclude these metropolitan centers. Finally, if the

concept of development planning bodies is valid for the seven estab­

lished regions, it is valid for every other section of the United

States.

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Al~ska's Requirements for Development Planning

Nine years after achieving statehood, Alaska's development,

industrial and human, still depends uniquely on the policies of the

federal government. Almost one-fifth of the state's population are

military personnel and their dependents. BetvJeen one-fourth and one­

fifth of civilian jobs are directly with federal agencies. The Alaska

Railroad and the state's long-line telephone and telegraoh facilities

are government ovmed. Even the grm,;th of private industry in Alaska

depends almost wholly on development of minerals, timber, and scenic

. and wildlife resources--land resources in a state where 97 percent of

the land is still in the hands of the federal· government. This list

does not exhaust the \'lays 11hich Alaska is exceptionally influenced by--

benefits or suffers from--the activities of the federal government,

but it suggests the magnitude of federal responsibility. /

Obversely, the national interest in Alaska is uniquely

large. Ninety-seven percent of Alaska's area is public land, but by

that fact Alaska also contains half the nation's remaining public

do~ain. Alaskans may be discouraged by the fact that most of their

state is today of little use except ~s scenic wilderness; on the other

hand~ Americans in general may see Alaska as ho1ding the vast bulk of

the nation's increasingly precious supply of scenic wilderness.

Alaska's oil reserves, in large part on public lands and on the outer

Continental Shelf, are the state's most valuable commercial assets

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2nd its assurance of fiscal viability. If they are as gigantic as

they now seem, however, their importance to the nation may tower above

their regional significance. They may dominate the nation's petroleum

and of energy. on the nation's strategic self-sufficiency, and on the

bslance of payments and balance of power.

When Alaska became a state it became the state with the

smallest population a~d lowest population density of all the states.

It was located an enorir,ous physical and economic distance from the rest

of the country. Prices and costs vtere exceptionally high, and the

state's economic base was virtually limited to national defense and

rni1 i tary construction together v.1i th salmon fishing. There was no

regional economy as such; the. economic links among the various Alaska

communities were far weaker than the ties of each of them with Seattle

and the rest of the 11LorJer 48. 11

The big task for the new state was the creation of an economic

ba~e which would make self-government meaningful. The Statehood Act

transferred a number of formerly federal responsibilities to the state

government. provided for trans iti ona 1 grants, and permitted the state

to extend its potential revenue base· by selecting up to over 100 million

acres of unappropriated public land within its boundaries. These provi­

sions themselves, however, did not provide the capital and enterprise

v-1hich were a prerequisite to the growth of permanent emoloyment and

revenues.

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All of the problems Alaska faced at statehood are still with

her, but their relative urgency has changed. The specific weight of

federal activities in Alaska remains the highest of any of the states.

But private industry in Alaska has clearly entered the 11takeoff to

sustained growth. 11 There has been a steady expansion in the forest

products industry so that about two-thirds of the state's total

allowab~e cut is now committed to production. While the older salmon

fisheries remain in chronic disorder, Alaska-based fisheries have

successfully expanded into new species and new markets. The most

spectacular aspect of economic growth within the state has been the

development of oil and gas reserves of remarkably low discovery and

production cost per barrel. Alaska is now one of the top oil states

and, within four or five years, rnav well be number one. The natural •

gas reserves in the Cook Inlet Basin have attracted the beginnings of

a petrochemical industry. And Alaska's proximity to Japan and under­

development have attracted both markets and capital from that country

as well as from the United States for the products of her timber,

fisheries, and petroleum industries.

These economic developments, together with the logic of

self-government itself, have strengthened the links among the state's

economic centers, attracted a host of supporting. industries, and

provided some of the economies of scale necessary to reduce the price

and cost differentials between Alaska and the rest of the country.

The state is entitled to select land under mineral lease or with

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potential mineral value, and participates in mineral and timber

revenues from federally owned lands, so that a rapidly growing revenue

b~se for government seems assured. Accordingly, neither the state's . , . l f l

longer seriously in doubt.

Alaska still has serious obstacles to its healthy economic

grmvth -and still requires intelligent planning at every level of goverr.­

ment. Yet it is the very success of economic develooment efforts in the

state which point up the most critical and most difficult task for

development planning in the foreseeable future. Rural Alaska, and

particularly the state's Eskimo, Indian, and Aleut oeoples, still hanq

precariously between traditional subsistence livelihoods and the urban

culture and market economy .. As a peoole, Alaska's Natives are simply

not participating in or benefiting from the state's spectacular economic

grov,;th. \J.i th few exceoti ons, A 1 aska I s Natives are not property ovmers,

nor do they have the acculturation, the education, or the skills to move

into the job opportunities created by Alaska's growth industries. In

~any cases their plight is compounded by overt or unconscious discrimina­

tion, or by indifference fostered by their physical isolation from the

state's centers of progress. In almost every measurable asoect, the

relative economic position of the state's Natives has worsened since

statehood. Ironically, unemployment and poverty in rural A.laska entitle

the state or its subdivisions to participate in a number of special

federally funded programs, but it is not clear that the benefitis of all

these programs do in fact reach Alaska's rural poor.

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This paradox, of course, is not unique to Alaska. Several

years ago, before the United States became massively involved in

Vietnam, the national rate of unemployment was staying above 5 percent

rven 1 i A

then in the government and among economists whether the key to reducing

unemployment was to be found in increasing demand through fiscal and

monetary means or in 11structural II factors. Looking back, it is obvious

that both sides in this debate we~e more than half right. Five years

of expansion of demand, led by a $40 billion increase in annual federal

spending and a $40 billion increase in the money supply, have in fact

created almost 8 million new jobs. But structural unemployment is still

with us as are our-rural and urban ghettos an·d the_ culture of poverty.

Alaska is exceptional only in the relative magnitude of the •

problem. Alaska Natives make up about a quarter of the state's

permanent civilian population. Their cultural distance from urban

industrial America is probably the greatest of all our minorities. But

Alaska Natives have now brought forth a young and increa~ingly sophisti­

cated political leadership which is demanding restitution of or compen­

sation for their ancestral lands and waters and a real share in the

economic progress originating in the state's resources. These claims

have brought a halt to the state's land-selection program and have cast

a shadow over the prospects for further development of the state's

natural resources. They can conceivably be 11settled 11 in adversary

proceedings and on the basis of legalistic formulas. But such a

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settlement is not guaranteed to provide adequately for either the

development of rural Alaska1 s human resources or for the wise manage­

ment of the state's natural resources. Alaska1 s economic development

so far has largely igno

on the land. But the future of the state's resource industries and

the future of the state 1s Native population are now intimately inter­

twined .. These aspects of Alaska's development require more than a set

of discrete programs pursued by the several federal and state agencies,

but a philosophy and a strategy of development implemented by a

coordinated set of policies and programs.

As I remarked above, America's traditions and institutions

do not permit centra 1 p 1 anni ng of the 11command11 variety. Nor do I

believe the situation requir~s such a drastic innovation. Alaska is

fortunate that, among the established development regions of the United

States, it is composed of one state and of the whole of that state.

There is, therefore, a natural locus in state government for the major

share of the regional planning effort. The state ought to have a

particularly large role in the formulation of its own development

philosophy and the general strategy of development which follows from

that philosophy. For instance, the question of whether the bulk of

development effort and public works should be concentrated in the more

advanced 11economic core 11 of the state, where their returns would be more

palpable and more immediate, or whether the priority should be in

investment to 11open up11 the more underdeveloped areas admits of no

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clearly correct answer and is largely a matter of values and

philosophy. Similarly, the degree to which Alaska's development

should preserve the frontier's laissez faire attitudes, the extent to

i rh i • 1 1 I

its fishermen, prospectors, homes tea de rs, 1 oca 1 merchants, and other

small entrepreneurs as a refuge from giant capital, bureaucracy, and

the technology of the future, is clearly a matter for political decision

within the state so long as the decisions do not clearly damage paramount

national interests. Since stateh6od, Alaskans have moved far on the

road to developing, at least implicitly, answers to these questions.

~uch remains to be done at the state level in developing the mechanisms

of planning and in arriving at the details of devel9pment strategy;

but if one compares the state's accomplishments with both its needs . and fiscal and population base--the latter rou~hly comparable to that

of Augusta, Georgia; Madison, Wisconsin; or Stockton, California--its

progress has been remarkable.

The continuing large role of the federal government in

Alaska's economy, the huge national interest in the wise development

of Alaska's resources, the national commitment to equality of oppor­

tunity for the nation's disadvantaged communities, and the still

limited fiscal capacity of the state call for a regional development

planning body within the federal government. Its job should not be to

direct the work of other federal agencies, much less those of the state,

but should be above all a place where the federal establishment as a

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\'/hole, assisted by a staff of exceptional imagination and competence,

can think about the total impact of government on the total development

of the region· and about the development of the region as a whole within

regional development commissions as a whole are also applicable to the

Alaska instance. The povrnr of the planning agency,both within the

federal ·government and outside it, should be that of analysis,

recommendation, and persuasion. \\f.ithout the encumbrances of responsi­

bility for program administration or for the disbursement of funds, the

regi ona 1 body can speak with equa 1 authority to federa 1 administrators

in the field, to department heads in Washington, to the Bureau of the

Budget, to the -state, and, on request, to the Congress. Its authority,

then, will rest not on an abi~ity to command performance but on the

competence of its staff, the intelligence of its thinking, and the

clarity of its presentation.

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