Editor's note: The following is an edited transcript of a speech delivered by Scott Minerd, chief investment officer of Guggenheim Partners LLC, at the 2011 Arctic Imperative Summit in Girdwood. He will be speaking to the Alaska World Affairs Council at noon Friday, March 2, at the Egan Center in Anchorage.
In the 17th and 18th centuries, there was an economic model which became very popular called Mercantilism. Under Mercantilism, the nations of Europe expanded their territories into new regions and extracted resources from them. Those nations then brought the resources and wealth back to their homes.
There were certain benefits associated with being a member of the Mercantilist system. In the areas where the Mercantilists invested, there was population growth, there was the expansion of the rule of law, and there was the development and advancement of technology. But there were also disadvantages that came with Mercantilism. It tended to foster a sense of dependency. There was exploitation of natural resources and there was a lack of commitment to the development of local human capital.
For those who benefitted from and then exited the Mercantilist experiment, there were two types of outcomes. There was the successful outcome, embodied by the United States when they were colonies of Britain. The colonies succeeded as a nation because they developed education. They invested in their human capital. They encouraged and rewarded entrepreneurialism. They developed sources of domestic capital. They fostered the development of local industries. They invested in technology. And, most important, there was local ownership and control of both the natural resources themselves and the production facilities.
For other post-Mercantilists, there was a darker path. They mistook the job creation that was supported by natural resource extraction as economic growth and permanent industry. They failed to invest in local capital, infrastructure, and human capital development. They failed to foster local sources of capital and allowed private-sector profits to accrue to foreign entities. They substituted the development of bureaucratic systems for the development of free enterprise. They fostered a high sense of dependency among indigenous people by providing excessive government support. In general, they failed because they did not incentivize economic independence, and they did not support the development of human capital along with the development of domestic monetary capital.
There is no shame in exploiting the advantage of local resources under the Mercantilist model. Indeed, some of the greatest nations of the world -- including the United States, Canada and India -- emerged from this system. Mercantilism was the spark that ignited the fire of local economic development. Nevertheless, there are those who have yet to successfully transform from Mercantilistic dependency into vibrant, healthy societies. A quick look at sub-Saharan Africa provides a glimpse of how bleak the post-Mercantilist era can be.
Today, Alaska -- and indeed the entire Arctic -- stands at a crossroads. You have benefitted greatly from your vast resources. The Arctic nations, to a greater or lesser extent, have provided a foundation on which to build a successful post-Mercantilist society. As for Alaska, the benefits of U.S. security, the pre-supposition of the rule of law, and the protection of personal property, are among the many other factors which make comparison to an emerging market a distortion at best. Yet, for Americans, Alaska, in many ways, is her emerging market. It is her final economic frontier.
Winston Churchill referred to the resource-intensive colony of India as “the jewel in the crown of the British Empire.” Today, I would propose that Alaska is the crown jewel of America. India today represents one of the most vibrant and growing economies in the world. Alaska, within our lifetime, may become the most dynamic growth engine of all the states of the Union. Today, Alaska stands at the crossroads and, in many ways, the work undertaken here is a call to action. The challenges ahead are great, but so are the resources.
It is a time like this, a pivotal moment in history, with the favor of good circumstance, which defines the future. Now is the time to develop the strategic relationships which will open the door to tomorrow. Do not mistake money or capital for friendship. There is plenty of capital in the world. There is plenty of monetary capital here in Alaska. Capital will flow where returns are attractive.
Rather, find capital that will work with you. The genius of the sovereign wealth funds lies not in the monetary returns on the capital that they have invested, but in the returns that have accrued to their societies through the transfer of the human capital experience -- from working with those people who have managed the funds.
The best capital partners for Alaska are the ones that will share their talents as well as their money. Candidly, you don’t need their money, but you do need their talent. Anyone will invest their money for a quick buck. Make sure you are getting more than money. Get their experience, get their knowledge, get their skills and make them your own. Do not be fooled. You cannot do this alone. You need the help of the world, but not necessarily their money. Their money will help, but their human capital resources are to be traded for the rich resources of Alaska.
Make their human capital your human capital. Involve your universities. Involve your native corporations. Develop your local financial institutions. Partner with your fellow citizens in the Lower 48 and make sure that their knowledge becomes your knowledge. It won’t be easy and it will not be fast. But, in the end, it will be yours, and it will become one of the great assets of the Arctic. And then Alaska will be the jewel in the crown of America and, indeed, will become one of many splendid jewels of the Arctic, which shall become the crown jewel of the world.
Scott Minerd is the chief investment officer of Guggenheim Partners LLC, a privately held, diversified financial services firm with over $125 billion under management. Minerd and Guggenheim Partners have an ongoing interest in investment opportunities in the Arctic region. He will be speaking to the Alaska World Affairs Council at noon Friday, March 2, at the Egan Center in Anchorage.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch. Alaska Dispatch welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.