Chris Stephens: Alaska's future growth industry must be education

real EstateJanuary 5, 2013 

Development projects always seem to be on Alaska's horizon, yet we never know what is really going to happen. For example, right now there are: offshore oil development in the Arctic; Pebble Mine in the Bristol Bay region; a gas line from the North Slope.

But Alaska's future is more than major projects. Last summer, noted economist Professor Robert Reich, the former secretary of labor in the Clinton administration, gave some sage advice in a luncheon presentation to the Anchorage Economic Development Corp.

Reich said the key to Alaska's future is education. His comments, echoing a theme by others who have presented to AEDC, were particularly enlightening and are summarized below.

Yet in spite of being told that we need to focus on education to make our state's future more secure, we are to a large degree ignoring this advice. We are acting as though we need do nothing different.

Reich pointed out that economies such as Alaska's, which are based on natural resources, are at risk of "profound dangers" from uncertainty surrounding future supply and demand as a result of rapid technological advances. He mentioned hydraulic fracturing of shale rocks to release natural gas, a practice referred to as fracking, as an example.

We should recognize the truth in his words. The new technology in shale gas development in the Lower 48 has caused a huge increase in supply and consequently a sharp drop in natural gas prices. These changes have killed the proposed natural gas line from the North Slope to the Lower 48. We are now looking at exporting our gas to foreign markets that currently have higher prices.

Reich said the only way Alaska can secure its future is by diversifying through government investments in infrastructure and education. The most valuable and most sure resources are the skills and insights of our people. What makes us rich is a work force that can innovate. With the changes technology is bringing to supply and demand for our natural resources, we have to be able innovate to ensure continued development. That means our people have to be educated in ways that help them become innovators.

(Reich's presentation can be heard online. Scroll to the bottom of the page, below Addressing Alaskans Archive, and click the right marker. His remarks on Alaska begin at 18:45 minutes into the presentation.)

Note: By calling for us to diversify, Reich was not saying we should go find new industry to come to Alaska. The need to diversify our economy has been known and discussed for years, but always in terms of new industries. Instead, Reich said diversify by investing in the industry we have -- education.

He is right. Bringing in new industry means finding someone who wants to open shop here. That means other people make the decisions. All we can do is try to convince them it's a good idea.

But education is ours. We can decide to invest in education. We can make education a major Alaska industry.

Education is vital for many more reasons than Reich mentioned. We owe a solid education industry to our children and ourselves, including real estate investors. Education drives the economy in several ways. It provides direct jobs and demand for goods and services. Education staff and students add to our intellectual capital. Quality education attracts businesses and highly skilled individuals who want to live in a community with a strong education foundation. Education enhances our standard of living. It makes it possible to have trained Alaska workers instead of importing them. Studies and reports abound that demonstrate the high value of education to a community.

In spite of all the advice from Reich and other experts, we aren't making education a priority. Why? We pay lip service to education, but when the time comes to allocate dollars to education, it doesn't happen. For example, the University of Alaska has an incredible backlog of $750 million in deferred building maintenance. Last year the university asked the Legislature for $75 million for maintenance work, but the Legislature funded only about half the requested amount.

Evidently maintaining the university's physical assets is not a high priority. Otherwise, lawmakers would not have dared to cut the university's maintenance budget or have allowed such a tremendous backlog of maintenance costs to develop.

We don't value education because we haven't had to. We have had it so good for so long, we have been able to rely on the oil industry as a way to make a very good living without a lot of schooling.

I happen to come originally from the East Coast. Back there, everyone knows education is essential. They don't have any industry that pays 90 percent of their state budgets, spurring the economy and providing high-paying jobs for high school graduates.

Reich's warning about the effect of technology means we cannot sit back. We can no longer afford to think that the way it has been is the way it should continue. We have to put a much higher value on education. If we don't, we'll be overtaken by technology and its effects on our natural resources (like shale gas), and we'll find it too late to make effective changes. We will miss all the other benefits a quality education system provides.

This means our leaders must act now. One such is Anchorage Mayor Dan Sullivan, who wants to improve K-12 education in Anchorage. Education has to be improved across the state in all forms -- K-12, college and trades. This improvement will happen only if our elected state officials make education a priority. And that means money.

We were smart in establishing the Alaska Permanent Fund, which now holds about $40 billion. We need to be smart again and make education Job 1 for Alaska.


Chris Stephens, CCIM, is a local associate broker specializing in commercial and investment real estate.

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