U.S. ENVIRONMENTAL PROTECTION AGENCY
REGION X
1200 SIXTH AVENUE
SEATTLE, WASHINGTON 9 8 1 0 t
MAY 7 1985
REPIY TO
AnNOF! M/S 312
MEMORANDUM
SUB J ECT: R«tft1^EeoiWiitfc-Trsnds?
FROM: R. Coughlln
TO: Julie Hagensen
This paper 1s submitted as a discussion piece and for background
Information of EPA employees. Its purpose Is to provide an Informational
matrix to assist them In their implementation of programs and 1n the
conduct of their continuing dialogs with the various publics we serve atndi
regulate.
The method 1s factual and expository. There is no effort to analyze
economic policy or to forecast the future course of the regional economy.
Personal Income Is employed as the Index of economic performance,
per-caplta personal income as the measure of comparative performance.
Shift analysis is used to isolate the components of change, and thus to
detect the major trends that have affected the regional economy;
The heart of the analysis is contained In section 6, which is, I
fear, rather lengthy. Sections 1 through 5 are Intended to, briefly, set
a national and historic background. Section 7 attempts to integrate and
simplify the materials of section 6. The knowledgeable reader can
probably confine his efforts to section 6. (if he is extremely
knowledgeable, he can further reduce his expenditure of effort by
consulting only the tables in that section.£
I hope this thing proves useful. It was fun taking the time to do it.
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1. Relative Population Growth
Federal Administrative Region 10—the States of Alaska, Idaho,
Oregon, Washington—has had a heritage of continuous growth. Slnce-
settlers began filtering Into the Willamette Valley "of Oregon before the
Mexican War, each census but one has seen the region's population Increase
at a rate In excess of the national rate.
The modern (for the purposes of this study, the years between 1929
and 1983) record of population growth of the region 1s presented, "in terms
of both estimated numbers of persons and of annual rates of growth, In
Table 1. Though growth has been uneven among the four states and between
various periods, all four states have enjoyed significantly greater than
average rates of population increase since 1929. In that time the'region
as a unit has expanded its population at half again the rate of the
nation. Over the most recent decade—I.e. since 1973—-Region 10's
population has grown at twice the national rate.
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Table 1
Population Growth. 1929 to 1983 •
1. Numbers of Persons
Year | U.S.. 10s | chge| AK. 103 | chge| ID. 103 | chge) OR. 108 | chge| WA. 10s | chge| Reg X. 10S» | Chge
1929 |
1933 |
1937 |
1941 |
1945 |
1949 |
1953 |
1957 |
1961 |
1965 |
1969 |
1973 |
1977 |
1981 |
1983 |
121.8
125.6
128.9
133.4
139.9
149.2
160.2
172.0
183.7
194.3
202.7
211.9
220.2
229.8
234.2
1
| 3.8
1 3.3
1 4.5
| 6.S
1 9-3
|11.0
(11.8
|11.7
|10.6
| 8.4
| 9.2
| 8.3
| 9.6
| 4.4
II
II
II
II
II
II
|| 205.0
|| 230.9
|| 237.8
|| 270.9
|| 296.0
II 333.2
|| 397.4
|| 411.8
|| 479.1
1
1
1
1
1
1
1
|25.9
| 6.9
(33.1
|25.1
|37.2
(64.2
|14.4
|67.3
|| 447.7
II 465.2
|| 507.1
|| 502.5
|| 490.2
|| 569.5
|| 596.1
|| 641.8
|| 684.2
|| 685.9
II 707.0
|| 782.1
|| 883.4
|| 959.4
II 989.0
1 II
1 17.511
1 41.9H
1 -4.6||
1-12. 3||
1 79.3||
1 26.6)1
1 45.7||
1 42.4||
1 1.7||
( 21.1||
1 75.111
1101.311
1 76.0(1
1 29.6(1
0.946
0.978
1.049
1.070
1.260
1.435
1.601
1.712
1.787
1.937
2.062
2.239
2.439
2.650
2.662
1
(.032
|.071
(.021
(.190
1.175
1.166
1.111
(.075
1.150
1.125
|.177
|.200
1.211
(.012
II 1.555
|| 1.593
|| 1.682
II 1-793
II 2.237
|| 2.294
|| 2.466
|| 2.724,
|| 2.882
|| 2.967
|| 3.343
II 3.477
II 3.772
|| 4.217
|| 4.300
1 H
1.038 ||
1-089 ||
1-111 IT
1-444 ||
1-057 ||
1-172 ||
1-258 ||
1-158 ||
1.085 ||
1-376 ||
1.134 ||
1.295 ||
1. 445 ||
1-083 ||
2.949
3.036
3.238
3.366
3.987
4.299
4.663
5.078
5.353
5.590
6.112
6.498
7.094
7.826
7.951
I
(.087
|.202
| .128
(.621
1.312
(.364
|.415
1.275
1.237
1.522
| .386
1.596
(.732
1. 125
Mean chge
Period
a.o
34.3
38.7
.123
.196
2. Annual Percentage Rate of Change
1929-33
1933-37
1937-41
1941-45
1945-49
1949-53
1953-57
1957-61
1961-65
1965-69
1969-73
1973-77
1977-81
1981-83
Mean
•Alaska
1.0 ||
0.6 ||
0.9 ||
1-2 II
1-6 ||
1-8 ||
i.a || 3.0
1.7 || 0.7
1.4 || 3.3
1.1 || 2.3
1.1 || 3.0
1.0 || 4.S
1.1 || 0.9
1.0 || 7.8
1.2 3.2
excluded
II i.o
II 2.2
II -0.2
II -0.6
II 3.8
II 1-2
II 1-9
II 1.6
II 0.1
II 0.7
>
II i.s
II 3.1
II 2.1
II 1.5
1.4
II 0.8
II 1.8
II 0.5
II 4.1
II 3.3
II 2.8
II 1-7
II 1.1
II 2.0
II 1.6
II 2.1
II 2.2
II 2.1
II 0.2
1.9
II 0.6
II 1.4
II 1.6
II 5.7
II 0.6
II 1.8
II 2.5
II 1.4
II 0.7
II 3.0
II i.o
II 2.1
II 2.8
II 0.5
1.8
II 0.7
II 1.6
II 1.0
II - 4.3
II 1.9
II 2.1
II - 2.2
II 1.3
II 1.1
II 2.2
II 1.5
II 2.2
II 2.5
II 0.8
1.8
.357
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2. A Basts for Comparing Regional Economic Performance
It 1s one of the firmest of economic principles that, in the absence
of effective barriers, people will migrate to improve their incomes. That
being so, It would seem that some aspect of Region 10's economic
performance has, almost continuosly over the past half century, been
sufficiently superior to that of a good portion of the rest of the nation
to attract persistent immigration.
The broadest and most commonly employed measure of economic
performance is the gross national product (GNP), the estimated value of
all of the goods and services produced in a nation in a period of one
year. Gross product has the significant merits of being generally
accepted and understood. But for purposes of tracing comparative regional
economic success it has several, drawbacks—the most critical of them being
the absence of any consistent, authoritative measurement of gross regional
or state products.
Fortunately, the U.S. Department of Commerce has for some years
compiled state by state estimates of personal income, including
reconstructions that take the series back to 1929. And for purposes of
regional comparison, personal income is probably a superior criterion than
regional product, since it excludes variables such as capital formation
and inventory shifts that are vital to overall economic function but do
not bear immediately and directly upon the well being of Individuals. -
Personal income constitutes the largest share of GNP, accounting for
over 80% of the total. It is the money income that is made available „
directly to individuals, and consists of all wages and salaries, business
income of farm and non-farm proprietorships and partnerships, dividends,
interest, rent, and transfer payments (predominantly pension and social
security payments, but also including remittances to and from foreigners
and Income maintenance grants), minus contributions for social Insurance.
Defined in terms of GNP, personal income is equal to GNP minus retained
earnings of corporations, capital consumption, changes in inventory
evaluation, contributions for social insurance, and business accruals.
Like GNP, personal income is calculated in dollars and presented as
an aggregate. If it is to be used for purposes of comparison, then, it
must be adjusted for differences in population and purchasing power. In
the discussion that follows, all dollar values have been converted to 1983
purchasing powe^r, equivalence with the use of the consumer Price Index.
per-capita evaluations are based on the mean annual population estimates
of the Bureau of Cetfsus.
Since 1933, when it touched a low of less than $2900 per person,
personal income in the United States has been rising at an average rate of
almost 2.9% a year. (Compounding annual rate, exclusive of population
increase, for period 1933 through 1983.)
-------
The course of per-cap1ta personal Income appears, when rendered
graphically, to have been almost undevlatlngly upward from 1933 to 1979.
Conversion from a wartime economy resulted In a drop of about
$1000—roughly equal to the 1929 to 1933 loss—between 1945 and 1949. And
classical Inventory recessions dampened the pace of Increase In 1938,
1954, 1958 and 1975. But the predominant thrust has been unfailingly
upward.
Trend analysis, however, suggests that growth of personal Income has
been considerably more Irregular than the aggregate record suggests.
Indeed, it is possible to detect five distinct periods, each with a
duration of roughly a decade, that compose the overall record of economic
growth of the past half century.
Periodic variation in income growth becomes evident if change in
per-capita income is treated as a linear rather than, as is more common, a
functional relationship. In performing such an analysis, the fifty-five
years 1929 through 1983 have been considered as forty-six sequential ten
year periods (1929-1938, 1930-1939, 1931-1940, etc.), with the linear
trend of per-capita income calculated for each ten year period by the use
of least squares regression.
Figure 1 presents the results of the analysis. Mean (linear)
Increase in per-capita personal Income Is plotted as a histogram, with
mean annual per-capita Income superimposed as an unbroken line. In the
graphic form, both the dramatic Increase in economic well being of
Americans and the sharp variation In the rate of accretion of that well
being become obvious.
Per-capita personal Income increased at an Increasing rate in each of
the ten year periods ending in years 1938 through 1945. It was a time of
transition from the worst depression of modern times to total industrial
mobilization for global war. Forced savings—rationing, wage and price
controls, surtaxes—at the end of the period promoted capital formation
necessary to continue the course of economic growth created by gradual
reutilization of idled capital in its early years. Overall, per-capita
personal income more than doubled.in the years between 1933 and 1945,
rising from the equivalent of $2876 of 1983 purchasing power to $6782.
Demobilization and transition to peace time economy curtailed income
growth briefly. Between 1946 and 1952 growth persisted, but at a
decreasing r$£e. Indeed, each of the ten year periods ending in the years
1950, 1951 and 1952 was characterized by modestly negative shifts in the
trend of personaltincome; so that by the end of the period in 1952,
per-capita income of $6,487 was only slightly altered from the $6,361 of
1946.
Over the period 1953 through 1961 average personal Income rose at a
fluctuating rate. Inventory recessions in 1954 and 1958 Interrupted a
generally upward movement. With much of the accumulated consumer demand
of the depression and war years becoming satisfied, as the period
progressed the economy seemed to lack stimulus; and both inflation and
unemployment rates edged gradually upward in the course of general
affluence. Income per person was $6,706 in 1953, $7,540 by 1961.
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300
(0
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,£100
(ft
o?
2°
su
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\ii,ea
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*70CX
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'5oo
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-------
The sixties were golden years, with average Income rising at a rising
rate against a background of falling unemployment and stable prices. In
spite of social perturbations and the Vietnam War, the economy performed
brilliantly, driving average Income from $7,803 in 1962 to $10,122 In 1970.
Since 1970 average Income has again been increasing at a decreasing
rate. Values peaked in 1979 at a level only slightly above average income
of 1978, and have been fluctuating somewhat below the 1979 level in the
ensuing four years. Average income of $10,251 in 1971 rose to $11,880 in
1979, dropped to $11,675 in 1983 as economic growth in the U.S. failed for
the first protracted period since 1929-1933 to match the rate of
population growth.
Comparison of the income shift characteristics in each Regi'on 10
state with the nation during each of these periods provides an explanation
of the region's atypical population growth, and an Insight into the
likelihood that the region can sustain such growth over the next decade.
3. Development of the Contemporary Economic Base
To an extraordinary—and generally unrecognized—degree, the relative
prosperity and population growth of the Pacific Northwest over the last
forty years has its roots in industrial expansion forced by the second
world war.
In 1929 per-capita personal income of the area, when adjusted for the
distribution of Its population, was slightly less than the national
average, $3,961 vs. $4,054. Washington's average income was significantly
above average, Oregon's significantly below the norm, Idaho's much lower
than average. The virtual collapse of the U.S. economy in the next four
years struck the Northwest hard. The gap between mean income of the area
and the nation more than doubled, Northwest personal income falling to
$2,681 per person. Idaho, with its reliance on agricultural production,
was particularly hard hit, suffering almost precisely the same dollar loss
per resident as the U.S., though its average income in 1929 had been only
73% of that of the nation.
1929 - 1933 Shift in Per-capita Personal Income
Dollars of 1983 Purchasing Power
1929 1933 Shift
US 4054 2876 -1178
IDAHO 2949 1769 -1180
OREGON 3886 2769 -1117
WASHINGTON 4299 2892 -1407
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Recovery from the 1933 low was, prior to American entry Into the war,
somewhat more rapid In the Northwest than the nation. Per-caplta Income
1n Idaho, aided by stabilization of prices of agricultural products,
exceeded Its 1929 level by 1934. Oregon's per-caplta Income rose above
the national level 1n the same year, exceeding Its 1929 level by 1936.
Washington's average Income did not again attain 1929 levels until 1939, a
year before the nation reached that benchmark, but 1t remained above the
norm throughout the depression.
Once American participation In war was Initiated, that moderately
superior economic performance was transformed Into explosive growth.
Between 1940 and 1944 per-capita personal Income Increased 83% In Oregon,
81% In Washington; and even Idaho, out of the mainstream of the war
effort, experienced a 79% Increase In average Income, while the nation was
experiencing a 51% Increase in income per person. The opportunity to
share in the income generated by war production produced a wave of
immigration. Though Idaho actually lost population during the war,
Oregon's population grew 187. between 1941 and 1945, Washington's grew
25%. The region, which contained 2.5% of the nation's population In 1941,
accommodated 9.6% of its total population growth over the next four years.
Those four years transformed the economy of the Pacific Northwest.
Before the war the region had subsisted on a narrow industrial base. It
supplied softwood lumber, soft wheat, limited port facilities for trade
with the Orient, chemical grade wood pulp, and processed seafoods for
national markets. Most of Its modest manufacturing served only regional
or local markets; and the same was true of a good part of its
agriculture. Its war production role vastly broadened that narrow base.
In four years the Pacific Northwest supplied a disproportionate share of
total output of ships, bombing airplanes, staple foods, construction
materials, non-ferrous metals, and packaging materials. And by tfve end of
the war, the Northwest had become the focus of production of nuclear
weapons.
The industries that developed in the early forties have survived,
evolved, grown, been the basis of the subsequent prosperity of the Pacific
Northwest. Shipyards operate on a much reduced scale; but until recently
the other industries that were the War's legacy to the region have all
expanded.
Hydroelectric power, basic to the area before the depression,
flowereql^on a broader scale after Bonneville Dam and Grand Coulee Dam
demonstrated the ability of large scale power generation to create its own
demand. TheKfifties and sixties saw development of every available power
dam site in the region, installation of long distance transmission lines,
construction of storage dams and reregulating reservoirs to optimize the
exploitation of the water resource.
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Irrigated agriculture expanded In lockstep with hydroelectrldty, In
part because of the essential compatibility of the engineering, In larger
part because sales of electricity through a variety of power pooling
mechanisms provided a means to finance Integrated water resource
development. Irrigation broadened the range of crops produced In the
region; and 1n turn, development of row crops and forage created
opportunities for food processing and cattle feeding, once practically
unknown in the Northwest. More recently, orchards and vineyards have
extended agricultural and food processing diversification.
Non-ferrous metals smelting based on low cost power extended to
metals shaping and ultimately fabrication. All of the wartime aluminum
plants were transferred to the private sector, expanded, remain In
production. Three additional aluminum reduction plants have been built
since the war. Titanium and magnesium production have been Installed.
The region's several small, scrap based steel mills remained competitive
through conversion to electro-processing. An obsolete copper
smelter-refiner and lead-zinc smelting complex had lives extended by
availability of low priced power.
P1ywood. a rarely employed, near exotic, building material prior to
World War II, came into massive use as a consequence of global war
construction needs. The quality of Pacific Coast Douglas Fir made it the
preferred—indeed, virtually exclusive—raw material. So capacity
Installed during the war remained on stream and was supplemented in
postwar years, providing a major market for Northwest forests and a
position of absolute advantage that remained until the introduction of
slicing tools to supplement peeling and the development of superior
adhesives, both in the late nineteen-fifties, permitted use of inferior
woods that allowed other regions to overcome the Douglas Fir region's
plywood monopoly.
Corrugated kraft packaging was also developed during World War II, to
provide light, strong containers for air transportation; and it provided
another impetus to Northwest forestry. Previously, distance from markets,
lack of strength of short fibred spruce and hemlock wool pulp, and the
high resin content of Douglas Fir restricted Northwestern pulp production
to dissolving grade pulps for national market and regional markets for
packaging and newsprint. With wide use of corrugated boxes and employment
of sulfate pulping, Douglas Fir provided an adequate raw material source.
The high value of the species as timber and plywood prohibits its
exclusive UjS£ as pulpwood, but the scale of northwest timber production
results in enormous quantities of factory residues that may be converted
into wood chips^for pulping. So residue-based kraft pulp from the
Northwest early established a cost advantage that overcame unfavorable
transportation charges to make it competitive in national markets.
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Mu1t1-enq1ned aircraft have become the region's most significant
contribution to the world economy. Building on the experience gained In
fabricating World War II1s preeminent heavy bombers, the Boeing Co. has
produced four generations of commercial jet aircraft, each generation
becoming.the predominant airplane of Its type 1n use by all the world's
airlines. Supplying equipment and technical knowledge to support that
production has brought about the expansion of metal working,
Instrumentation, engineering, and training occupations that extend the
Income producing Influence of aircraft production far beyond its direct
employment Impacts.
Nuclear related industries, centered upon the Federal reservation at
Hanford, concentrated on production of weapons grade plutonium but, of
necessity, extended Into uranium processing, power production, waste
disposal and a variety of research and development activities that have
kept the Northwest at the forefront of nuclear engineering.
Each of those industries came into being, or was vastly expanded, In
the years 1941 through 1945. Superimposed upon the region's timber
production and dry farming, they created a strong, diversified industrial
base built on natural resources and a skilled labor force rather than
propinquity to markets. The consequence was a level of personal Income in
Oregon and Washington and in the region as a whole that was distinctly
above national standards—a level of income that was to encourage
continuing immigration and expansion of local markets in the decades that
followed.
Table 2
Comparative Per-capita Personal Income, 1945
1983 Dollars per Person
Alaska NA
Idaho 6245
Oregon 7451
Washington 7773
Region 10 7484*
US 6782
* Excludes Alaska
4. Comparative Income Shifts
Though the income producing advantage that the Pacific Northwest
established in the early nineteen-forties has narrowed in succeeding
years, it persisted into the nineteen-eighties. Per-capita income in
Region 10 in 1983 was $12,349, compared to $11,675 for the nation as a
whole. The degree of advantage in somewhat inflated by high Alaskan price
and income standards, and particularly by the effects of Alaska's
petroleum boom. For Pacific Northwest states the advantage narrows to
the difference between the national $11,675 and $12,062.
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Even that reduced regional advantage Is partly Illusory, however, an
artifact of above average Income In Washington, which contains 54% of the
region's population. Idaho has remained, and Oregon has dropped, below
the nation 1n average Income; and the unfavorable disparity seems to be
widening. The pattern of substandard Income growth In the region was
established 1n the late nlneteen-fortles. It can be traced by measuring
the constant dollar gap between average state personal Income and average
national personal income 1n the last year of each of the Income growth
periods distinguished earlier.
Table 3
Difference Between State and National Mean Income
Year
1946
1952
1961
1970
1983
Mean State Income Minus Mean U.S. Income. 1983 Dollars
Alaska Idaho Oregon Washington
NA
+2,849
+1,225
+2,005
+5,145
-260
-391
-1,193
-1,616
-2,333
+622
+586
+26
-600
-755
+709
+807
+655
+260
+376
To a degree the progressive reduction 1n relative regional Income
producing strength could have been anticipated. The region's prosperity
was built upon efficient exploitation of basic natural resources—timber,
arable land, falling water—and a skilled, well paid labor force. Low
population density and distance from markets hindered development of -
fabricating Industries and specialty services. And the well paid skills
of the labor force discouraged emplacement of labor intensive industries
not related to specific regional advantage.
Nonetheless, personal income rose with the rest of the nation well
into the seventies—more slowly than the rest of the nation, it Is true,
but from a higher base. That is no longer true. Since 1974,"while the
national mean Income has been rising sluggishly, only Washington among
Region 10 states shows any mathematical propensity to continue to increase
average income. Both Oregon and Alaska display an essentially
flat—though within broadly fluctuating ranges—income trends. Per-capita
income in Idaho has indisputably been falling.
Table 4
Trend of per-capita Personal
U.S.
Alaska
Idaho
Oregon
Washington
Income, 1974-83
Linear Slope
1983 Dollars
+ 11
-25
-85
-4
+61
Coefficient of
Correlation
.66
-.06
-.66
-.03
.36
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The Indication that potential problems are posed by substandard
personal Income 1n two of the four states of the region, and by something
between substandard growth and actual decline 1n three of the four, 1s
reinforced by other observations about the economy of Region 10 over the
last ten years.
Since the fourth quarter of 1974, at least three, and more often all
four, states of the region have been listed each month among the ten
states with highest unemployment rates.
Major plant closures have occured In non-ferrous metals, food
processing, pulp and paper, lumber and plywood. The majority of minor
lumber mills have closed.
The Pacific Northwest has accumulated massive excess capacity to
generate electricity, and had begun to market 1t aggressively to both
extra-regional customers and local electro-process industries. The region
has for several years been attempting to sell energy well below the
marginal cost to generate and transmit in order to meet fixed costs, and
to subsidize weakened local industries.
The region's largest commercial bank was saved from failure by a
negotiated buy out at distress terms by an out of region bank. Its
largest thrift institution was similarly saved by forced merger. More
than a half dozen small banks have failed.
Since these dismal events have occurred in a context of national
recession and only partial recovery, there is a tendency to attribute the
region's poor economic performance over the last decade to business cycle
mechanisms. And the longer term weakness of comparative income growth has
sometimes been viewed complacently as the inescapable consequence of an
economy in pursuit of equilibrium—the normal regression of income
variations toward central values.
A less comfortable hypothesis is possible. Evolutionary economic
forces may have progressed in directions that reduce the comparative
advantage enjoyed by the region in the last half century. In that case,
neither business cycle upturn nor national economic growth can be depended
upon the restore the region's high relative affluence.
There is not enough evidence to make any of the possible explanations
of the region's economic problems wholly persuasive. But examination of
the comparative dimensions of shifts in income sources can make it easier
to appreciate the changes the region has experienced in the last decade,
and may provide insights into the possible direction of its immediate
future.
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5. Shifts 1n Industrial Sources of Income
It Is possible to trace the development of an economy with
considerable precision by comparing the amount and composition of Its
gross Internal product or Income over time. Such a comparison 1s
attempted for sources of U.S. personal Income In table 5.
Table 5
Industrial Sources of Personal Income
Fraction of Gross Personal Income
Agriculture, Forestry, Fisheries
Mining
Construction
Manufacturing: Durable Goods
Non-durable Goods
Trans., Communication, Utilities
Total Goods-related Sources
Wholesale & Retail Trade
Banking & Financial Services
Other Private Sector Services
Government: Military
Federal Civilian
State & Local
Total Service-related Sources
Transfers (net of contributions)*
Portfolio Income
Gross Constant
Dollar Personal Income
Per-cap1ta Constant
Dollar Personal Income
*Gross transfers
1972
.028
.008
.050
.079
.132
.057
.354
.130
.043
.120
.020
.035
.087
.434
.073
.140
1.000
1 .000
.109
1979
.024
.012
.047
.069
.130
.058
.341
.125
.044
.128
.011
.029
.082
.420
.087
.153
1.186
1.105
.129
1983
.012
.012
.038
.064
.103
.055
.283
.116
.045
.143
.013
.028
.081
.425
.104
.185
1.215
1.025
.148
The outlines of the decade are clearly delineated. Personal income
rose on both an aggregate and per-capita basis between 1972 and 1979.
Between 1979 and 1983 aggregate Income growth was insufficient to maintain
per-capita income.
Goods producing industries sustained a relative loss of ability to
produce income. The deterioration was most pronounced in the case of
agriculture, where a sustained 1983 drought in the midlands and a record
freeze in the southeastern states exacerbated price and financial
difficulties of the nation's farmers. Mining was alone in the goods
producing sector in sustaining its share of income production; but that
record was uneven. Strong gains in income derived from petroleum
extraction throughout the period offset widespread weakness in other
mining activities.
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Cu:-H- -\p:'b^i^.-' rr. •o
ICL DcrV'do^ai«evit-
-------
Contrary to the popular wisdom, which Increasingly tends to portray
the U.S. as a society In transition from a base In goods production to one
based on services, Incomes produced from service related sources were a
near constant portion of the total In each of the three years. Gains by
F1nanc1al-and miscellaneous services sectors were offset by losses In
government and trade. ("Military" Income 1s somewhat deceptive, In that
1t Includes only direct payments to the armed forces. The steep drop 1n
military share of national Income between 1972 and 1979, then, reflects
the Interruption of conscription and end of the V1et Nam war. Vastly
larger procurement values are distributed through other Income producing
categories, notably manufacture of durable goods.)
Growth In share of Income sources was concentrated 1n two areas.
Income from dividends. Interest and rent rose enormously under the
Influence of rising Interest rates. And transfer Income rose almost as
much—a consequence of rising unemployment compensation disbursements and
the effects of pensions on an aging population whose oldest component's
principal source of Income is a Social Security system Indexed for
inflation. (Perhaps the conventional wisdom needs revision. We may not
be shifting from a nation of farmers, steel puddlers,-hard rock miners and
loggers to one in which beauticians, lawyers, janitors and media
consultants predominate. The numbers indicate that it Is more likely that
we may all be evolving to be pensioners, rentiers, or on the dole.)
The temporal referents were selected deliberately, each intended to
represent a significant point 1n contemporary economic dynamics.
The concept underlying use of the years 1972, 1979 and 1983 is that
1973 was a watershed year for the international economy. The transition
of OPEC from a loose deliberative body to an active cartel 1n that year
resulted in an order of magnitude increase in petroleum price. The effect
on the world economy of the massive increase in the price of the most
basic of all industrial raw materials was a chain of price Increases,
inventory building, enhanced demand for working capital, higher interest
rates, and, ultimately, trade and exchange restrictions. Thus 1972 was
chosen as the last year of the old economic regime; the year that ended
the postwar period of growth and affluence for the industrialized nations
and-launched us on a new course whose coordinates remain to be determined
The choice of 1979 is somewhat arbitrary. The rapid inflation
—centered upon raw materials but quickly disseminated through the
economy—of 1973 and 1974 was interrupted briefly by a short, Intense
inventory recession in 1975. Price rise resumed in 1976, continued—
perhaps fed, perhaps controlled, by escalating interest rates—through
1979. Since 1979 economic output has been stagnant, raw material prices
have been dropping relative to prices generally, unemployment has remained
high, personal income has been falling. If the initial effect of OPEC's
actions was inflationary prosperity, the longer term accommodation to that
action has been deflation of the prices of raw materials and a stagnant
economy.
Nineteen eighty-three was selected simply because it is the most
recent year for which information is available.
-------
The period has been, for obvious reasons, a time of obsession with
price. OPEC's actions upset three decades of International price
consensus; and subsequent radical shifts In the time value of money
extended, and diverted the course of, the price perturbations that OPEC
had Introduced.
The course of those price shifts may be reduced to a simplified
series. Raw materials generally adjusted quickly to higher petroleum
prices. The prices of other fuels rose as rapidly as petroleum products;
agricultural and forest products and metals nearly matched them.
Inevitably, prices of finished goods, transportation, labor, and — above
all — Interest rates were caught up 1n the Inflationary spiral.
A process of adjustment set In after the 1975 recession. The price
of petroleum continued to rise, as did those of most finished goods and
services. Interest rates Increased systematically. But raw material
prices generally faltered. After 1979, raw materials were 1n often excess
supply, and prices began to fall. By 1982 even petroleum's price was
sinking, as OPEC price discipline unravelled. But neither Interest rates
nor goods for final consumption mirrored the deflationary trend.
A classic scissors crisis has evolved In the nineteen-elghties.
Regions and Industries producing basic materials have suffered as the
prices of their output has fallen, while the prices of the finished goods
and financing needed to produce them have continued to rise. The
economies of some nations that had long since emerged from third world
status — Argentina, Chile, Mexico, Brazil, Nigeria among them — have come
to the point of near collapse. The situations of three of the four Region
10 states, producers of foodstuffs and Industrial raw materials, is not
unlike, though certainly less severe than, the one faced by such nations.
The price record of broad commodity groups significant to Region 10
is summarized in terms of index numbers in table 6.
Table 6
Price Index
Numbers, 1972, 1979, 1983
Factor
Consumer Prices
Long Term Interest Rates
Home Mortgages
Aaa Corporate Bonds
Industrial Commodities
Raw Fuels
Fuels & Power
Farm Products
Lumber & Wood Products
Pulp & Paper
Metal & Metal Products
1972
1972
100
100
100
Mean Value
1979
173.5
133.6
141.8
= 100
1983
238.2
167.0
165.4
100
100
100
100
100
100
341 .4
344.1
193.1
208.2
193.1
210.0
626.4
561.5
198.6
213.0
262.5
248.7
-------
6. Shift Analysis
All of the preceding has been background, an attempt to establish the
economic environment In which Region 10 states functioned during the last
decade, to outline what was happening to the whole In order to distinguish
the consequences for some of the affected parts.
The method for assessing the recent (1972-1983) development of the
economies of the states of Region 10 1s comparative shift analysis—
calculation of the degree of difference and of change In economic
circumstance specific to each state. The variable used to measure those
changes Is gross personal Income, expressed In dollars of 1983 purchasing
power.
Some definitions are in order.
Basic industries, for the purposes of this study, are those whose
portion of state personal income production is equal to or greater than
the proportion of national personal income produced by the same
Industries. They are, then, industries in which the particular state is
theoretically self sufficient or produces a surplus for export.
Traditionally, only goods producing industries—for some purposes the
distinction was reserved for resource based industries—were considered to
be basic. That view is clearly outdated. The financial services supplied
by New York, the recreation by Las Vegas, the education by Boston,, the
religion by Salt Lake City constitute basic Industries for each of those
communities, sources of occupation and Income and,of a surplus that is
exchanged for the production of other communities.
Secondary industries are, simply, those which are not basic. Their
shares of state output are less than the shares of national output that
the same industries compose. They are industries which may either have a
local demand pattern that varies from the national or whose local output
the region must supplement with imports.
Shift is a quantitative change in whatever variable fs being
considered. In the analysis that follows, three sources of shift are
distinguished.
Growth, which may be positive or negative, refers to percentage
change in gross national personal income between two points in time. As
the concept is employed in this analysis, it is a computational device
needed to isolate more significant shifts that have occurred as a
consequence of internal changes in the economies of Region 10 states. The
calculation logic is that a state can maintain its proportional share of
national income production without internal change only if each industry
in that state has its own income production altered in the same measure as
national income. Thus national growth becomes the norm by which internal
shift may be measured.
Sectoral shift involves a change in the proportion of national gross
personal income that is provided by a given industry. Sectoral shifts may
involve productivity change or alterations in demand that result in change
in income producing strength of an industry, relative to other
industries. Sectoral change, like growth, is national in scope. The
degree in which it is effected in any location may vary significantly from
the norm; its calculation is based on national experience.
-------
Shift? In advantage are those which change the economic specialization; of
a given segment of the economy—In this case, the Region- 10 states. Where
growth and sectoral shifts represent participation In national economic
trends, shifts In state advantage measure the economic change that Is
peculiar to the state and alters Its economic base. (In a larger sense,
It 1s the sunr of all of the shifts In advantage among trading partners
that creates the growth and sectoral shifts that are the stuff of economic
dynamics.) In calculation, shift In advantage 1s a residual. It Is the
value that remains after the affects of growth and sectoral shift have
been subtracted from total change.
A. Overview
I. Growth
As previously noted, growth of personal Income since 1972 had been
uneven. In the Initial seven year period of raw materials Inflation, U.S.
personal Income rose from $944.585 billion In 1972 to $1.943 trillion in
1979. Adjusted for purchasing power change with the Consumer Price Index,
the Increase was from $2.2495 trillion of 1983 purchasing power to $2.6677
trillion, or 18.59%. Personal Income In 1983 of $2.734 trillion, was only
2.49% above the price adjusted 1979 level.
Region 10 States, with their extreme economic dependance on raw
materials and first stage processing, shared spectacularly In the earlier
period of rapid income growth. As a group, they more than doubled the
national rate of Increase. Since 1979, their relative performance has
been poor. (Though Alaska continues to lead the nation In growth of
personal Income.)
Table 7
Shift in Aggregate Personal Income
Personal Income
Billions of 1983 Dollars Shift
Location 1972 1979 1983 1972-79 1979-83
U.S. 2249 2668 2734 .186 .025
Alaska 4.018 6.284 8.238 .564 .311
Idaho 6.806 8.142 9.450 .196 .161
Oregon 22.522 30.658 28.585 .361 -.068
Washington 37.101 51.726 52.368 .394 .012
Region 10 70.447 96.810 98.641 .374 .019
-------
The form of the comparison over simplifies the relationships. It
conveys neither the elevated rate of Immigration that diluted Income
growth 1n Region 10, nor shifting year to year changes In economic
performance. Thus Washington, like the U.S., experienced Its best year In
terms of Income per person In 1979. Its neighbors peaked earlier, Oregon
and Idaho 1n 1978, Alaska In 1976; and all four Region 10 states have a
negative overall trend of per-caplta Income since 1976.
Table 8
Comparative Per-cap1ta Personal Income, 1972-1983
Income per Person, 1983 Dollar Equivalents
U.S. Alaska Idaho Oregon Washington
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
Linear trend si
Coefficient of
10,752
11,232
11,007
10,814
11 ,143
11,482
11,873
11 ,880
11,490
11,592
11,457
11,675
nee 1976
12,589
13,685
14,504
17,684
18,769
18,030
16,731
15,577
15,615
16,227
17,129
16,820
-234
Correlation -.51
9,304
10,136
10,282
9,699
9,888
10,010
10,449
10,108
9,725
9,673
9,223
9,342
-125
-.76
10,352
10,840
10,775
10,593
1 1 , 1 44
11,505
11,978
11 ,894
11,311
10.927
10,558
10,920
-120
-.59
10,779
11,436
11,367
11,500
11,937
12,217
12,870
12,894
12,329
12,173
11,833
12,051.
-45
-.28
II. Sectoral Shift
The shift analysis is conducted in terms of thirty-three
variables—twenty-nine income producing industry groupings and four forms
of income transfer—and two time periods. An abbreviated list of the
variables involved—which have been distinguished because of their
relevance to Region 10—has been presented in Table 5.
While that table provides a broad outline of the forces that are
altering the nation's and the region's economic base, a clearer picture
emerges if all twenty-nine industries are considered, with change
highlighted by eliminating the complication presented by transition year
1979. Sharp differences in the direction and degree of sectoral shift
emerge from such an array.
Negative growth was demonstrated by eleven of twenty-nine industry
groups that together produced over a quarter of the nation's 1972 personal
income. Although constant dollar gross personal income increased 21.57.
between 1972 and 1983, those industries were able to produce less income
for their owners and workers in 1983 than they did in 1972.
-------
Fraction of 1972 Shift 1n Income
Industry Income Production Production 1972-1983
Farming .0260 -.561
Other Durable Goods* .0225 -.332
Primary Metals .0165 -.282
Textiles & Apparel .0159 -.241
Military .0197 -.219
Furniture & Fixtures .0040 -.150
Stone, Clay & Glass .0073 -.136
Construction .0498 -.085
Food Processing .0171 -.061
Fabricated Metals & Mchry. .0388 -.056
Federal Civilian Govt. .0349 -.043
* Includes autos and automotive equipment
Declining growth characterized five Industries accounting for 13% of
personal Income, whose Income production Increased, but at a lesser rate
than population (10.2%), Indicating a reduction In per-caplta demand for
their domestic products.
Fraction of 1972 Shift In Income
Industry Income Production Production 1972-1983
Retail Sales .0825 .007
Lumber & Wood Products .0057 .008
Other non-durable Goods .0209 .051
Paper & Allied .0077 .071
Chemical & Allied .0135 .094
Normal growth was demonstrated by five Industries, whose aggregate
share of personal income In 1972 was just over 17%. The group's growth is
considered to be normal, in that its income production exceeded Increase
1n population without exceeding the overall increase In personal income.
Fraction of 1972 Shift in Income
Industry Income Production Production 1972-1983
Mining .0045 .112
State & Local Government .0866 .131
Electric & Electronic Eqpt. .0201 .147
Transptn., Comctn., Utilities .0574 .173
Petroleum Refining .0035 .195
Above average growth occured in eight industries that supplied more
than 23% of 1972 personal income. Half of the eight were service
industries.
-------
Fraction of 1972 Shift In Income
Industry Income Productloir Production 1972-1983
Wholesale Trade .0472 .224
Non-bank, Financial Svces. .0326 .231
Transportation Eqpt.* .0116 .259
Other Services .1202 .443
Banking .0105 .444
Agricultural Services,
Forestry, Fisheries .0024 .535
Instruments .0053 .563
Petroleum Extraction .0031 1.968
* excludes autos & automotive equipment
3. Basic Industries
Table 9 lists the basic Industries and a calculation of the
exportable surplus of Region 10 states 1n 1972. Two aspects of the
listing are worth note. Basic, or export, Industries,accounted for an
extraordinary portion of the personal Income of the region. And the bulk
of both the basic Industries of the region and of the Income that they
provided was concentrated In activities that were to experience negative
or declining growth 1n the next decade.
-------
Table 9
Region 10 Basic Industries. 1972
(All values In Minions of 1983 Dollars)
Personal Income Produced
Source
Farming
Agtl. Svces. Forestry.
Fisheries
011 & Gas Extraction
Other Mining
Construction
Mfg. Food & Kindred
Paper Allied
Lumber & Wood Pdts.
Transportation Eqpt.
Tsptn. Communication
Utilities
All Goods Related
Sources
Wholesale Trade
Retail Trade
Military
Federal Civilian Govt.
State & Local Govt.
Service Related Sources
Portfolio Income
Transfer Income
Contributions,
Social Ins*
Transfers
Gross Advantage
AK | 10 | OR
TotallAdvtoe I Total IAdvtae I TotallAdvtoe
| WA
I Total IAdvtae
I
I I I
74S I 568 I 653 I
I
71
86
410
79
40
67
372
1125
61
74
210
10
9
44
141
S49
29
I
576 | 497
517 | 377
622 | 274
I
1715 | 1148
I
I
I 750 |
I I
I I
I I
I 750 I
67
32
13 | 86
I I
71 I 40 | |
402 | 63 | 1167 I 45
267 | 151 | 488 | 103
I I 271 | 98
338 | 299 | 1946 | 1818
I I I
I I I
| | 1436 | 143
I I I
I I I
1852 | 1134 | 6047 | 2306
I I I
| | 1267 | 204
650 | 89 | 2103 | 245
148 I 14 | |
262 | 24 | I
| | 2224 | 274
I I I
1060 I 127 I 3370 | 723
| 3196 | 54
7 | 2572 | 113
I I
I I
I I
7 | S768 | 167
I.
| 1697
I
1268
3196
| 1276 | 311
I I
I 162 | 73
I I
I I
I I
I 643 | 9
| 529 | 243
| 1236 | 1025
| 1691 | 1261
I I
| 2115 | 176
I I
I I
| 7652 | 3098
I I
| 1762 | 11
| 3170 | 109
| 993 | 262
I 1550 | 255
| 3849 | 636
I I
|11,324| 1273
I I
I I
| 4539 | 488
I I
1-1336 | 14
I I
| 3203. | 502
I I
I | 4873
< U.S. Mean = advantage
-------
The specialization of th& economies of the Region 10 states is
demonstrated by considering the proportion of its total personal income
that each state derived in 1972 from its set of basic industries.
Alaska obtained 70.7% of gross personal Income from industries that
supplied 28.4% of national gross personal Income.
Idaho derived 53.81 of gross personal Income from industries that
supplied 24.31 of national gross personal Income.
Oregon obtained 67.4% of gross personal Income from industries that
supplied 38.2% of national gross personal Income.
Washington, with the most diversified and balanced economy In Region
10, derived 59.8% of gross personal Income from industries that supplied
39.9% of national gross personal Income.
To Intensify that high degree of dependance on a few basic
Industries, the three Pacific Northwest states concentrated their economic
efforts to a very high degree in producing and processing the outputs of
farms and forests.
Source
Agriculture
Ag. Services, Forestry,
Fisheries
Food Processing
Lumbering
Pulp & Paper
Sum
Personal
Idaho
745
29
267
338
31
1,410
Income In
Oregon
653
86
488
1,946
271
3,444
Millions of
Washington
1,276
1983 Dollars
PNW
2,674
Percent of 1972 Personal Income 20.7 15.3
Percent of goods-related Income 55.4 43.3
Percent of Gross Surplus 111.2 107.8
10.4
33.3
78.9
13.1
39.4
93.2
It was that element of basic industry concentration 1n resource based
activities that made the region so sensitive to the scissors crisis in
pricing that developed after 1979, and resulted in the high proportion of
regional personal Income from basic industries that were characterized by
negative or declining sectoral shifts between 1972 and 1983.
Percent of 1972 Basic Industry By Growth Category*
Negative Peelininq Normal Growth
Alaska
Idaho
Oregon
Washington
55.7
51.2
15.2
20.1
3.8
27.7
28.5
22.2
35.0
2.0
24.1
26.9
5.5
0.8
8.9
16.3
excludes transfers
-------
B. Alaska
For Alaska the period under study can only be described as a boom.
Between 1972 and 1983 the state's population more than doubled, constant
dollar gross personal Income Increased more than fifty percent.
That growth—which Is characterized for Alaskan basic Industries 1n
table 10A and for secondary Industries In table 108—derived from a single
source, exploitation of North Slope petroleum deposits. The Alyeska
Pipeline was Installed, and drilling platforms emplaced, between 1974 and
1977. In 1977 North Slope oil began.to find Its way to market.
The transforming effects of the development of arctic oil deposits on
the economy of Alaska 1s difficult to appreciate. Popular folklore has
been so full for so many years of the treasury of natural resources that
Alaska constituted that there was little recognition of how poor or how
undeveloped the state truly was until OPEC drove oil prices to a level
that made exploitation of the North Slope deposits commercially feasible.
Before the pipeline, the state supplied a viable fishery, a fragile and
subsidy dependant forest products industry, episodic mining, and a
dwindling petroleum producing industry whose combined production of
personal income in 1972 was less than $350 million 1983 dollars. In the
same year, over a billion dollars—no less than 27% of gross personal
income of the state—was derived from Federal Government payments to its
civilian and military employees. Government was the state's largest
industry, the dominant force in its economy.
The $368 million per year (constant 1983 dollars) increase in
personal income from petroleum extraction provided by North Slope deposits
by 1983 more than matched the total personal income generated by all
production and processing of raw materials in Alaska in 1972; but the sum
only partially conveys the source's direct contribution to the state's
economic growth.
Substantial growth of income from transportation, communication and
utilities and from construction must also be traced to oil. In the one
case, pipeline operation and maintenance and operation of storage,
berthing and loading facilities for crude oil relate to the demand for
petroleum movement: in the other, provision for the physical
infrastructure of the enlarged oil and oil handling industries has been a
major demand factor.
Still a third industry must be recognized to owe a major portion of
its growth to North Slope oil. Oil royalties and fees collected by Alaska
have allowed the state to eliminate its income tax. Roughly 85% of state
government income is derived from oil revenues; and 75% of local
government revenues are obtained from the state, so may be considered to
be oil revenues once removed.
-------
Table IDA
Alaska. Basic Industry Shifts
Millions of 1983 Dollars
Shift. 1972-1979
Shift. 1979-1983
Source
Agctl. Svces. Forestry Fisheries
Oil & Gas Extraction
Construction
Mfg: Food & kindred Pdts.
Paper & Allied
Lumber & Wood Pdts.
Tsptn., Communication. Utilities
Goods Related Sources
Military
Federal Civilian Govt.
State & Local Govt.
1972
71
86
410
79
40
67
372
1125
576
517
622
Growth
13
16
76
15
7
12
69
107
96
116
Sectoral
5
21
-16
-14
-3
3
6
2
-54
-36
-27
Advantaa
-41
202
97
101
4
10
287
660
-206
-49
343
e 1 979 i
48
325
567
181
48
92
734'
1995
423
528
1054
Growth
1
8
14
5
1
2
18
11
13
26
i pectoral
-2
11
-81
-13
-4
-12
-24
-125
12
-13
-2
-5
no
617
-38
-11
-9
63
727
-11
-44
275
42
454
1117
135
34
73
791
2646
435
484
13S3
Service Related Sources
1715
-117
88
200S
-3
220
2272
Total Basic Industries
2840
-115
748
4000
-128
947
4918
-------
Table 10B
Alaska. Secondary Industry Shifts
Source
Agriculture
Mining
Hfg. Textiles & Apparel
Chemicals & Allied
Petroleum Refining
Other non-durables
Furniture & Fixtures
Primary Metals
Fabricated Metal & Mchry.
Electric & Electronic
Tsptn. Eqpt.
Stone. Clay & Glass
Other Durables,
Goods Related Sources
Wholesale Trade
Retail Trade
Banking
Other Financial Svcs.
Other Services
Service Related Sources
Contributions. Social Ins.
Residence Adjustment
Portfolio Income
Transfer Payments
1972
5
12
-
10
5
17
2
-
5
-
2
12
-
70
121
312
40
76
398
947
-210
-169
260
288
Growth
1
2
-
2
1
3
-
-
1
-
-
2
-
23
58
7
14
74
-39
-31
48
54
Sectoral
-6
9
-
-4
1
-13
-2
-
23
-
6
-3
-
11
23
-50
3
-
50
26
-33
-
85
123
Advantage
7
-5
-
11
4
19
-
-
4
-
-5
-1
4
38
33
185
27
68
275
588
-45
-190
227
46
1979
7
18
-
19
11
26
-
-
33
-
3
10
4
131
200
505
77
158
797
1737
-327
-390
620
511
Growth Sectoral
-7
-15 '
-
-7
-1
1 -8
-
-
1 -34
'
-
-10
-4
-86
5 -26
13 -50
2 12
4 3
20 120
59
-8 -16
-10
15 261
13 159
Advantaoa
1
31
1
7
3
19
1
1
4
1
-
17
9
95
94
187
3
48
184
516
-80
-179
20
230
1983
1
34
1
19
13
38
1
1
4
1
3
17
9
142
273
655
94
213
112!
2356
431
579
916
913
Transfer Sources
169
175
38
414
404
-9
319
Total Secondary Industries
1186
212
664
2282
377
602
3317
-------
Given that construction of direct Impact of North Slope oil on the
state's economic growth, 1t 1s possible to roughly calculate Its amount.
Eliminating external Influences—national growth and sectoral shifts—
Incremental Income from construction, transportation, communication and
utilities; and state and local government added to Incremental personal
Income from petroleum extraction produces a total of over $2 billion, or
49% of total growth of pe'rsonal Income In Alaska between 1972 and 1983,
that can be traced directly to North Slope petroleum extraction.
Table 11
Personal Income Growth Attributed to North Slope Oil Production, 1972-1983
Source Millions of 1983 Dollars
Petroleum Extraction 368
Advantage Shift
Construction 714
Transportation, etc. 350
State & Local Government 628
Total 2060
But If Alaska's recent prosperity has had a single source, the
magnitude of the source's Income addition to a state with so small a
population, has induced broad expansion of secondary Industries. The
state, largely as a consequence of Federal Government incomes, .has
traditionally produced an income surplus—i.e. the sum of the positive
advantages represented by its basic Industries has exceeded the amount of
the sum of the negative advantage of its secondary industries. With the
Income growth of the last decade, that surplus has increased.
Calculations are presented in table 12.
-------
Table 12
Shift In Alaska Income Surplus from Baste Industries
Source Advantage. Millions, of 1983 Dal Tars
1972 1979 1983
Basic Industries
Goods Producing 549 1112 1611
Services Producing 1146 1280 1369
Secondary Industries
Goods Producing -776 -1107 -1157
Services Producing -232 -174 -240
Gross Surplus 687 1111 1583
Net Transfers -124 -132 -40
Net Surplus 563 979 1543
The strengthening of the general economy by petroleum derived Incomes
has been sufficient to raise a pair of secondary Industries to basic
status. In the case of retail trade, a $20 million negative advantage in
1972 was transformed to a $37 million positive advantage 1n 1979 that
broadened to a $92 million advantage in 1983. The Instance of banking is
ambiguous. A slight negative advantage in 1972 was transformed to a
slight positive advantage in 1979 that was again reversed 1n 1983. Though
it is less than certain, Alaska seems to have achieved Income parity in
the development of its banking industry.
Perhaps more significant is a continuing drop in the net amount of
negative transfer income. Historically, Alaska—because of a combination
of high wage rates, labor shortage, and protracted summer work days—was a
place for Intermittent laborers to spend a summer accumulating funds that
left the state with them, leading to persistent negative income
transfers. In the last decade, a combination of rising portfolio income
and a decline in contributions for social insurance relative to total
personal income appear to to be minimizing, if not eliminating, that
characteristic of Alaska's economy.
AJ 1 developments of the last decade have not been positive. There
has been a pronounced reduction of the income producing strength of the
state's resource based industries other than oil. Depletion of fishery
stocks—notably the luxury seafoods, king crab and salmon—has caused a
loss of a portion of Alaska's advantage in that area. And the strength of
the dollar has cut deeply into export-based forestry industries. Alaska's
advantage in lumber and wood products in 1983 was $10 million, or 23%,
lower than in 1972. In the case of pulp and paper, where export problems
have been compounded by attrition of demand for chemical grade wood pulp,
the Ooss of advantage has been more extreme. By 1983, paper and allied
products had become a secondary Industry, with a $22 million negative
advantage.
-------
C. Idaho
Idaho's economy, after expanding vigorously 1n the five-year
inflationary aftermath of the Arab oil embargo, turned sluggish in ensuing
years. Personal Income declined Irregularly but persistently after 1978.
Population growth was atypically high throughout the period, the state's
inhabitants increasing by more than 200,000 persons, or greater than 26%,
between 1972 and 1983. The consequence has been a condition In which
per-caplta income rose sharply in 1973 and 1974, fluctuated 1n a narrow
range between 1974 and 1979, and has been sinking 1n the eighties.
-------
Table 14A, which summarizes basic Industry Income shifts,
demonstrates the static condition of the key components of Idaho's economy
over the last decade. Net loss of advantage 1n basic Industries
compounded the effect of negative sectoral factors to produce a modest
decline In gross personal Income from basic Industries, In spite of the
narrowly stimulative effects of national economic growth.
Transfers—enlarged by agricultural support payments as well as
unemployment stipends—reduced the Impact of basic Industry Income
decline, but, as has been noted, were Insufficient to sustain per-caplta
personal Income.
Secondary Industry shifts, detailed 1n Table 148, reveal some
anomalous patterns whose meaning Is open to Interpretation.
Secondary goods-producing Industries displayed a propensity for
strong relative growth. The absolute growth of the sector was limited to
the period of inflationary expansion between 1972 and 1979; but Idaho has
Increased its advantage in a number of miscellaneous manufacturing
areas—notably paper, fabricated metals, electric and electronic
equipment—during the sectoral decline of U.S. manufacturing after 1979.
It is unclear whether that modest sustained growth Is linked to inertial
effects of Inflationary expansion in the Mountain States, or whether it
represents a continuing movement of labor intensive manufacturing into
low-Income, low-wage regions. Whatever the source, the tendency, If it
can be sustained, must be considered favorable to Idaho, in that It-
broadens the state's economic base and relieves some of the pressures
created by exposure to price fluctuations in the uncertain agricultural
and forestry Industries.
Secondary service industries, which accounted for more than half of
the state's gain in non-transfer personal income between 1972 and 1979,
experienced no change in income producing ability after 1979. The
sectoral strength of the group was offset by a significant negative shift
in advantage that gave up a good portion of the robust growth of the
previous seven years. The sharp distinction between the two time periods
in the performance of secondary service industries would seem to
demonstrate the dependence of such occupational groups on the health of
basic industries. Theirs is a derived demand: when farm prices fall and
the food processing plant goes to short shifts, the hamburger stand, and
the town tavern, and even the local lawyer suffer.
Paradoxically, given the overall drop in income per person, secondary
transfer income was a positive influence on personal income in Idaho in
the last decade. The gain was concentrated in portfolio income—income
from dividends, interest and rents. While the absolute gain in portfolio
income is explainable in terms of rising interest rates, the shift in
advantage in a state with a falling average personal income is puzzling.
-------
Table MA
Idaho. Basic Industry Shifts.
Millions of 1983 Dollars
Shift. 1972-1979 Shift. 1979-1983
1972 Growth Sectoral Advantage 1979 Growth Sectoral Advantage 1993
Agriculture
Agctl. Svces, Forestry. Fisheries
Mining
Construction
Mfg.: Food & Kindred Pdts.
Lumber & wood Pdts.
Goods Related Sources
Retail Trade
Military
Federal Civilian Govt.
Service Related Sources
Transfer Payments
Total Basic Industries
745
29
71
402
267
338
1852
650
148
262
1060
750
3662
138
5
13
75
50
63
121
28
49
139
-46
7
12
-20
-19
4
-62
-65
-70
-47
-182
160
-84
-177
3
IS
125
36
96
98
54
16
41
111
127
336
660
44
111
582
334
501
2232
760
122
305
1187
1176
4595
16
1
3
14
8
12
19
3
8
29
-104
-2
-17
-93
-15
-14
-245
-58
14
-15
-59
182
-122
-80
13
18
-74
-10
-156
-289
-42
-11
-27
-80
44
-325
492
56
115
429
317
343
1752
679
128
271
1078
1431
4261
-------
Table 14ff
Idaho, Secondary Industry Shifts
Millions of 1983 Dollars
Shift. 1972-1979 Shift. 1979-198J
Source
Petroleum Extraction
Mfg.: Textiles & Apparel
Paper & Allied
Chemicals & Allied
Other Non-Durable
Furniture & Fixtures
Primary Metal
Fabctd Metal & Mchry
Electric & Electronic
Transportation Eqpt.
Stone, Clay & Glass
Instruments & Related
Other Durables
Tsptn, Communication, Utilities
Goods Related Sources
Wholesale Trade
Banking
Other Financial Services
Services
State & Local Govt.
Service Related Sources
Contributions, Social. Ins.
Residence Adjustment
Portfolio Income
1972
-
5
31
45
24
7
36
40
12
64
26
-
24
381
695
269
69
138
722
588
1786
255
24
893
Growth
-
1
6
8
4
1
7
7
2
12
5
-
4
71
SO
13
26
134
109
-47
4
166
Sectoral
-
-6
-3
-5
-17
-6
-3
29
-14
8
-4
-
-28
7
-42
-29
4
-
64
-35
4
-42
-
110
Advantage
3
7
10
23
52
-2
-40
96
-29
-81
7
1
75
105
285
164
24
64
175
141
568
-58
26
245
1979
3
7
44
71
63
-
-
172
29
3
34
1
75
564
1066
454
110
228
1095
803
2690
-402
54
1414
Growth
-
-
1
2
2
-
-
4
1
-
1
-
2
14
11
3
6
27
20
-10
1
35
Sectoral
12
-7.
-5
-8
-8
-
-
-116
-1
-6
-15
4
-41
-27
-218
-30
13
4
138
-16
109
-19
-
300
Advantage
-12
-
17
-
16
7
3
122
18
-10
-
-3
-30
-24
124
-37
-11
-54
-55
-20
-177
22
-
104
1983
3
-
57
65
73
7
3
182
47
7
20
2
6
527
999
398
115
184
1205 "
787
2689
-409
55
1853
Transfer Sources
Total Secondary Industries
662
3143
68
30
213
1066
1066
4822
281
172
126
73
1499
5187
-------
The net effect of the various perturbations of Idaho's economy has
been a slight alteration of the composition of basic and secondary
Industries. The state's relative dependence on a narrow set of basic
Industries,, as measured by gross advantage, has actually Increased over
time, In spite of those Industries' predominantly unfavorable sectoral
trends. Some broadening of the basic group has occurred. Transportation,
communications and utilities, secondary Industries by a narrow margin In
1972, experienced sufficient growth In the 1972-1979 period to achieve
baste Industry status. And Income from state and local governments 1n
Idaho declined sufficiently less slowly than the national rate for the
Industry to raise 1t to basic status by 1983. Thus, though the state's
array of basic Industries has broadened somewhat, they remain a group that
Is characterized by negative sectoral shifts; so that their Increased
economic health does little to relieve the continuing downward drift of
Incomes.
Among secondary industries, the relative income producing vigor of
secondary goods industries was insufficient to offset the erosion of basic
Industries, or the relative decline of secondary service Industries. As a
result, the narrow Income surplus that Idaho Industries-produced in 1972
had become a deficit by 1979 that broadened 1n succeeding years. Yet, in
spite of the reduced vitality of Idaho's goods and services producing
Industries, the State's net income surplus has expanded as a consequence
of rising transfers. Continuing positive shifts In advantage for
portfolio Income and other transfers—notably farm income supplements—
give the State's economy a flavor of an aging worker padding out
progressively declining wage dollars with unemployment checks and the
distribution of an annuity. Net transfers, which provided an astonishing
20.8X of Idaho's gross personal Income 1n 1972, rose to 23.8% In 1979, 31%
in 1983!
Table 15
Shift in Idaho Income Surplus from Basic Industries
Advantage. Millions of 1983 Dollars
Source 1972 1979 1983
Basic Industries
Goods Producing 1134 1326 1076
Services Producing 128 112 78
Secondary Industries
Goods Producing -993 -1234 -1001
Services Producing -235 -242 -325
Gross Surplus 34 -38 -172
Net Transfers 917 1424 1945
Net Surplus 951 1386 1773
-------
0. Oregon
Oregon, with the most Industrialized economy among the Region 10
states (19.7% of 1972 personal Income was derived from manufacturing, as
compared to 16.71 In Washington, 13.5% In Idaho, 5.9% In Alaska) has been
brutally damaged by the post 1979 recession. Gross personal Income of the
state fell 6.8% between 1979 and 1983, while that of Its neighbors was
rising. As a consequence, average personal Income fell from a level
distinctly above the nation's to one distinctly below. And In the 1980's
Oregon has begun to experience net emigration and a reduction In rate of
population Increase
Though problems are distributed throughout the state's economy, they
center upon two Industries, lumbering and construction. Oregon 1s the
nation's leading lumber producer, and forest products Industries provided
almost 10% of 1972 gross personal Income of the state. But 1983 Income
from lumber and wood products was less by the equivalent of $348 million
than In 1972—a negative swing 1n Income from a basic industry of almost
the same absolute magnitude as the positive leverage imparted to Alaska's
economy by North Slope oil. The negative leverage imparted by falling
construction activity was even greater—a drop in income of over a billion
1983 dollars in a thirty billion dollar economy. Construction has been a
basic industry in all Region 10 states since the depression, a consequence
of above normal population and economic growth. But construction is the
most volatile of industries; and the current decline in construction
activity—felt in all three Pacific Northwest states, but most heavily in
Oregon—has been both more severe and more protracted than in prior
postwar inventory recessions.
To a large degree the sharp drop in income from construction in
Oregon is not a source, but a consequence, of recession. Demand for
construction is derived, it ebbs and flows with the expansion or
contraction of other activities. In a circumstance in which construction
is a basic industry, the swings from boom to bust and back again are
invariably accentuated.
Construction's shrinkage was recapitulated in all of Oregon's basic
Industries, none of which increased its output of personal income between
1979 and 1983. This can be understood in part as a response to the severe
shrinkage of the state's principal manufacturing industry; but it must
also be recognized to be a consequence of the Portland Metropolitan Area's
role in the larger Northwest economy.
Situated at the nexus of the three western railway systems with the
intersection of Interstate 5 and Interstate 80, and providing the
transition between Columbia River and Pacific Ocean navigation routes,
Portland is the depot, warehousing, and wholesaling center for the
Interior Pacific Northwest, much of western Montana, and a part of
Northern California. Except for the relatively self contained Puget Sound
area, the commercial activities—and much of the specialty
manufacturing—of the Columbia River Basin revolve in large measure around
Portland. In particular, transactions involving lumber, plywood, and
grain and other foodstuffs are concentrated in markets quartered in the
Portland area. The consequence has been that the stagnation of the
national economy, and in particular the virtual collapse of western
-------
lumbering and the pains of western agriculture, have been reflected In a
general reduction of the functions that the Portland area serves for the
"entire Northwest region. (Which Is not to say that Oregon's economic
dlfflcult1.es have, been most visible 1n Portland. In fact, the size and
complexify of the metropolitan area's economy has, to a degree, Insulated-
It from the worst features of the recession of the eighties. Hardship has
been most severe 1n lumber towns, where Intermittent operations and
layoffs have curtailed personal Income, or mill closures have eliminated a
town's very reason for being.)
The breadth of Oregon's basic Industry recession Is detailed In
quantitative terms 1n table 16^ Two aspects of the relationships deserve
comparison with Idaho. Like Idaho, Oregon's basic service Industries
expanded vigorously in step with goods producing Industries In the
inflationary 1970s. And, like Idaho, those same Industries contracted
sharpjy when goods producing industries fell off—a demonstration that
service occupations are as vulnerable to recession as reputedly more
volatile manufacturing. Unlike Idaho, Oregon experienced a negative shift
In advantage in the case of portfolio Income. While Income from
dividends, interest and rent continued to rise with Interests rates, the
proportion of such Income fell relative to national experience.
Another aspect of Oregon's economic adjustment to the recessionary
eighties can be seen in table 168, which reports income shifts associated
with secondary industries. There Is, as with Idaho, a tendency for
secondary manufacturing industries to grow (though only in a relative
sense) and for secondary service Industries to shrink. Indeed, in
Oregon's case the propensity was so pronounced that the share of state
personal income derived from manufacturing rose from 19.7% in 1972 to
22.31 1n 1983. Given the direction of sectoral shifts in the national
economy in that time frame, the relative Increase in income from
manufacturing is a startling datum, but one whose significance is not
readily apparent.
More than the other states of the Northwest, Oregon has experienced
significant structural shifts as a consequence of the economic changes of
the eighties. As noted above, the state's dependance on manufacturing has
Increased, in the face of a falling proportion of national income derived
from manufacturing. By 1983, construction no longer qualified as a basic
Industry in Oregon, the state's share of income derived from construction
dropping below the national norm—an event almost unprecedented in a
western state. Conversely, instruments and related products expanded
sufficiently to achieve and maintain basic industry status, as Tektronix
and its sister firms in Portland's southwest suburbs broadened product
lines and increased their shares of one of the few domestic manufacturing
markets to expand in the eighties.
-------
Table 16*
Oregon. Basle Industry Shifts
Source
Millions of 1983 Dollars
Shift. 1972-1979 Shift. 1979-1983
1972 Growth Sectoral Advantage 1979 Growth Sectoral Advantage 1983
Farming
Agctl. Svces, Forestry. Fisheries
Construction
Mfg. Food & Kindred Pdts.
Paper & Allied
Lumber & Wood Pdts
Tsptn.. Comctn., Utilities
Goods Related Sources
wholesale Trade
Retail Trade
State & Local Government
653
86
1167
488
271
1946
1436
6047
1267
2103
2224
121
16
217
91
SO
362
267
236
391
413
-172
25
-77
-71
-12
15
28
-264
110
-245
-132
16
58
542
16
34
-40
103
729
126
447
384
618
185
1849
524
343
2283
1834'
7636
1739
2696
2889
15
5
46
13
9
57
46
43
67
72
-314
-6
-280
-46
-14
-43
-83
-786
-91
-174
~49
174
-44
-793
-17
-28
-699
-150
-1557
-230
-359
-201
493
140
822
474
310
1598
1647
5484
1461
2230
2711
Service Related Sources
Portfolio Income
5594
3196 594
-267
414
957
503
7324
4707 117
-314
906
-790
6402
-34 5696
Total Basic Industries
14,387
-117
2189 19.667
-194 -2381 17,582
-------
Table 168
Oregon. Secondary Industry Shifts
Millions of 1983 Dollars
Shift. 1972-1979 Shift. 1979-1983
Source
Oil & Gas Extraction
Other Mining
Mfg.: Textiles & Apparel
Chemicals & Allied
Petroleum Refining
Other Non-Durable
Furniture & Fixtures
Primary Metal
Fabctd Metal & Mchry
Electric & Electronic Eqpt.
Transportation Eqpt.
Stone, Clay & Glass
Instruments & Related
Other Durables
Goods Related Sources
Banking
Other Financial Services
Services
Military
Federal Civilian Govt.
Service Related Sources
Contributions/Social Ins.
Residence Adjustment
Transfer Income
1972
-
40
90
60
21
181
76
217
491
226
162
100
57
181
1902
229
629
2555
131
734
4278
895
179
3196
Growth
7
17
11
4
34
14
40
91
42
30
19
11
34
43
117
475
24
136
-166
-
594
Sectoral
46
-120
-18
3
-64
-21
-12
110
-31
31
-15
34
-178
-235
15
-
242
-264
-178
-185
-159
-
592
Advantaqe
-28
101
12
-S
117
-11
132
148
-54
-23
22
332
178
921
14
369
341
197
71
992
-172
303
-338
1979
65
88
65
23
268
58
377
840
183
200
126
434
215
2942
301
1115
3613
88
763
5880
-1392
-482
4044
Growth
2
2
2
1
7
1
9
21
5
5
3
11
5
7
28
90
2
19
-35
-
101
Sectoral
-51
-60
-23
-3
-23
-14
-183
-352
-3
-17
-46
11
-123
-887
40
11
417
43
-46
465
-57
-
555
Advantaoe
22
34
4
-17
34
-45
50
156
71
-188
-2
-74
209
254
-69
-406
-479
-52
-4
-1010
166
50
194
1983
-
38
64
48
-
286
-
253
665
256
-
81
382
306
2379
279
748
3641
' 81
732
5481
-1318
-432
4894
Transfers
212:
433
-813
2170
498
410
3144
Total Secondary Industries
3302
10.992
11.004
-------
The effect. In terras of net advantage, of the various shifts has been
negligible. Oregon's economy shrunk. Its dependance on Imported services
grew; Its dependance on Imported goods remained constant. An Increase 1n
net transfers was necessary to balance the economy after 1979. But 1t Is
balance at a smaller aggregate level.
Table 17
Shift In Oregon Surplus from Basic Industries
Advantage. Millions of 1983 Pol Tars
Source 1972 1979 1983
Basic Industries
Goods Producing 2203 3046 2206
Services Producing 589 960 782
Secondary Industries
Goods Producing -2438 -2908 -2417
Services Producing -764 -615 -1041
Gross Surplus -410 483 -470
Net Transfers 405 -479 578
Net Surplus -5 4 108
E. Washington
Though Is has not been entirely unscathed by the recession of the
eighties, Washington's economic performance has been noticeably superior
to that 1f Its Pacific Northwest neighbors. Personal Income did not begin
to fall until 1980, when the nation as a whole slipped Into recession, and
after Alaska, Idaho and Oregon personal Incomes has peaked. Per-caplta
personal- Income, which had been regressing toward the national mean
through the seventies, has fallen less rapidly than for the nation 1n the
period since 1979.
That superior performance was due In large measure to relative
strength in Washington's basic industries, (c.f. table 18A) Basic service
Industries were particularly strong. Washington, with a 55% larger
population, experienced a lesser loss of personal Income between 1979 and
1983 from wholesale and retail trade than did Oregon; while Income from
governments—paced by significant expansion in both the military and state
and local government categories—actually increased.
Basic goods producing industries, too, were strong, the value of
their 1983 income production remaining distinctly above the 1972 level, in
sharp distinction to both Oregon and Idaho. In a relative sense that
strength was concentrated in agriculture, where personal income in 1983
was greater than in 1979. Specialty crops, particularly in the Walla
Walla and Yakima areas, experienced both good harvests and rising prices
that, on a statewide basis, offset the losses suffered by farmers
producing grains, row crops, and meat animals. In an absolute sense,
strength in transportation equipment, Washington's principal manufacturing
Industry, helped to sustain the aggregate level of personal income,
particularly in the Seattle metropolitan area.
-------
Somewhat surprisingly, strengthen basic Industries did not extend to
secondary service Industrie*. As 1n the cases of Oregon and Idaho.
exceptional growth of secondary services In the 1970's could not be
sustained Into the 1980's, with negative shifts 1n advantage outweighing
positive sectoral Influences In both financial and other services, (c.f.
table 18B>
In common with the other states of the region, overall Income
producing power of Washington's secondary manufacturing Industries
dropped, but the state gained some advantage In every secondary
manufacturing sector between 1972 and 1983. To a degree, the relative
gain was a consequence of the fact that income from manufacturing
decreased less rapidly 1n Washington than It did nationally after 1979.
But In the cases of primary metals, fabricated metals and machinery, and
petroleum refining the value of personal Income produced in 1983 was
greater than in 1972; and in the cases of chemicals, electric and
electronic equipment, and instruments, value of income production in 1983
exceeded both 1972 and 1979, demonstrating both relative and absolute
growth of those industries.
It was, in the main, external influences that produced Washington's
strong comparative economic performance of the early eighties. (An
exception should be noted for the entrepreneurship and economic planning
of central Washington farmers, who made investments In such diverse crop
groups as apple orchards, vineyards, asparagus, and onions to escape the
prevailingly adverse demand patterns encountered by American agriculture.)
It has been development of Alaskan oil, Industrial preparation for war,
and expansion of trans-Pacific trade that has benefitted the state, of
Washington.
Those benefits hava been unequally distributed, focussed as they are
on the port and industrial assets of the Puget Sound region. Timber based
southwest Washington has recapitulated Oregon's economic distress; and the
experience of much of agricultural Washington east of the Cascades has
paralleled that of Idaho. But Puget Sound ports have been the staging
area for both the construction of the Alyeska pipeline and for North Slope
drilling. Seattle remains the focus of Alaskan wholesaling, trade with
the lower forty-eight, and financial and professional services—though, as
Alaska's economy has become dominated by its petroleum imbalance, much of
the latter business has transferred to Tulsa, Houston, Dallas, and Los
Angeles. Ordinance and military engineering has brought brisk business
for the Boeing complex, Puget Sound shipyards, and the burgeoning
electronics and instrumentation firms east of Lake Washington.
Emplacement of the Trident submarine base has bolstered construction and
service industries in the Kitsap Peninsula. .And trade with the Orient,
once composed predominantly of exports of aircraft and food grains, has
advanced steadily with the progressive expansion of consumer imports from
Taiwan, Korea, Japan, and, more recently, the Republic of China.
-------
Table ISA
Washington. Basic Industry Shifts
Millions of 1983 Dollars
Shift. 1972-1979
Shift. 1979-1983
Farming
Agctl. Svces. Forestry, Fisheries
Mfg.: Food & Kindred
Paper & Allied
Lumber & Wood Pdts
Transportation Eqpt.
Goods Related Sources
Wholesale Trade
Retail Trade
Military
Fed'l Civilian Govt
State & Local Govt
Service Related Sources 11
Transfer Income
Total Basic Industries 21
1276
162
643
529
1236
1691
5537
1762
3170
993
1550
3848
.323
4861
,721
260
30
120
98
230
314
328
589
185
288
715
904
-290
41
-119
-21
26
52
-311
186
-414
-445
-300
-222
-1195
998
-508
-151
163
126
-40
34
1027
1159
428
743
119
204
296
1790
413
3362
1095
396
770
566
1526
3084
7437
2704
4088
852
1742
4637
14,023
7176
28,636
27
10
19
14
38
77
67
102
21
43
115
179
-S76
-10
-84
-26
-79
-31
-806
-168
-319
79
-84
-89
-581
1016
-371
607
-129
-4
-
-373
-296
-195
-207
-110
95
26
224
28
-376
-543
1UC l?nj
1153
267
701
554
1112
2834
6621
2396
3761
1047
1727
4617
13,548
7995
23,164
-------
Table 188
Washington-. Secondary- Industry Shifts
Millions of 1983 Dollars
Shift. 1972-1979 Shift. 1979-1983
Source
Petroleum Extraction
Other Mining
Construction
Mfg. Textiles & Apparel
Chemicals & Allied
Petroleum Refining
Other Non-Durables
Furniture & Fixtures
Primary Metals
Fabctd Metal & Mchry
Electric & Electronic
Stone, Clay & Glass
Instruments & Related
Other Durables
Tsptn.. Comctn., Utilities
Goods Related Sources
Banking
Other Financial Services
Services
Service Related Sources
Contributions, Social Ins.
Residence Adjustment
Portfolio Income
1972
2
95
1717
90
179
69
219
69
429
495
148
160
17
221
2115
6025
357
1124
4141
5622
-1336
322
5115
Growth
-
18
319
17
33
13
41
13
80
92
28
30
3
41
393
66
209
770
-248
60
951
Sectoral
-
-78
-129
-202
-31
5
-109
-36
-21
186
-52
-26
57
-300
47
-689
26
-
409
435
-269
-
698
Advantage
-2
62
1523
214
94
12
270
-24
131
-21
104
49
52
204
270
2986
93
331
828
1252
-402
334
785
1979
-
97
3430
119
275
99
421
70
619
752
228
213
129
166
2825
9443
542
1664
6148
8354
-2255
716
7549
Growth
-
2
85
3
7
2
10
2
15
19
6
5
3
4
70
13
41
153
-56
18
188
Sectoral
-
-94
-513
-110
-42
-5
-42
-26
-335
-644 .
-5
-84
21
-225
-152
- -2256
73
21
765
859
.-105
-
1660
Advantaae
3
60
-929
74
90
-9
49
11
181
542
47
28
92
190
-10
424
-42
-381
-885
-1308 "
105
20
408
1983
8
65
2073
86
330
87
438
57
480
669
276
162
245
135
2733
7844
586
1345
6181
81 12
-231 1
754
9805
Transfer Sources
4101
429
717
6010
1555
533
82.48
Total Secondary Industries
15.748
175
4955 23,807
158
-351 24,204
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The end result has beerr that the State of Washington's economy has
changed slightly In composition. It has simply grown steadily larger. The
only alteration In the balance of basic and secondary Industries that has
occurred Is a resumption of construction's basic Industry status after
1972, when lingering effects of Seattle's "Boeing mini-recession" had
consigned 1t briefly to the ranks of secondary Industries. A prevailing
deficit 1n Income balance from Industrial sources has persisted, with a
practically constant value of transfer Income sufficient to produce a net
Income surplus from the state.
Table 19
Shift 1n Washington Income Surplus from Basic Industries
Advantage. Millions of 1983 Dollars
Source 1972 1979 1983
Basic Industries
Goods Producing 2921 5082 4160
Service Producing 1272 1205 1249
Secondary Industries
Goods Producing -4476 -5822 -4534
Service Producing -438 -527 -1835
Gross Advantage -721 -62 -960
Net Transfers 1085 777 1109
Net Advantage 364 715 149
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7. Striking * Balances Sow* Qualitative Consideration*
11 1 s clear that the perlotfc since- the Impostttoir of the- Arab-oil
embargo has been a ttine of change for the economies of the Region* 10
states. It Is not so clear what the nature of the change has been.
Trends have been contradictory. A period' of Inflationary expansion-
that was focussed on the raw materials that form the base of the regional
economy has been followed by a recessionary Interlude characterized by raw
materials price deflation. Regional economic processes have been obscured
by a pronounced decline of American heavy Industry, massive expansion of
Alaska's economy following the opening of Its Arctic oil deposits, and the
existence of substantial differences In economic specialization among the
states of the region.
Thus the numbers presented to this point have been confusing, with
shifts In advantage and sectoral shifts exaggerated by the economy's
sudden transition from expansion to recession, with both forces expressed
predominantly 1n the agriculture, timber, and energy resources that the
region specializes In supplying.
Table 20 represents an effort to eliminate some of the confusion by
Integrating the two sub periods and altering the mode of shift calculation
to present the net effect of changes that took place between 1972 and 1983.
Table 20
Net Shifts In Region 10 Personal Income, 1972 and 1983.
Net Shift. Millions of 1983 Dollars
Source Idaho Oregon Hash PNH Alaska Region 10
Agctl, Forestry, Fisheries -136 193 469 526 20 546
Mining 2 -151 -221 -370 363 -7
Construction 56 -249 513 320 724 1044
Mfg.: Food & Kindred Pdts. 57 9 96 162 60 222
Forest Products 27 -322 -121 -416 -2 -418
Other Non Durables 70 64 414 548 43 591
Primary Metals -2 141 223 362 19 381
Electric, Electronic -3 221 136 354 -23 331
Transportation Eqpt. -68 -230 1031 733 -11 722
Other Durables 195 456 495 1146 57 1203
Tsptn, Comctn., Utilities 79 -12 250 317 379 696
Trade 53 70 812 935 450 1385
Financial Services 9 -106 -3 -100 142 42
Government 150 310 795 1255 534 1789
Other Services 121 -113 65 73 509 582
Net Shift 610 281 4954 5845 3264 9109
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Transfers are Ignored; The values presented are the differences In the
Income production of Industrial aggregates between actual production that
occured 1n 1983 and the Income that the Industry category would have
produced if, a) the state's economy had been configured precisely 1 Ike-
that of the nation In 1972 and, b) Income production of each Industrial
group In 1983 had changed from 1972 In the same degree and direction that
1t did for the nation.
A glance at the final row of the table reveals a positive value In
each column. Thus—discounting effects of transfers-the economy of each
Region 10 state Is found to have grown at a faster rate than the national
economy between 1972 and 1983. (Which Is another way of saying that the
expansionary effects of the period that ended 1n 1979 have continued.to
outweigh the consequences of the subsequent recession, to this time.)
And that provides an Initial conclusion about regional economic
performance. The relative decline in well being of Inhabitants of the
Pacific Northwest—as measured in the reduction of their per-caplta
Incomes—traces to above normal population growth rather than to economic
stagnation. The regional economy has performed relatively strongly, but
not sufficiently so to meet the expectations of all of the people who have
stayed 1n the area or have been Induced to move into it.
A second conclusion is less obvious, and somewhat surprising.
Running counter to national trends, the region has Increased its degree of
industrialization—that is. It is dependant on manufacturing for a larger
portion of Its personal Income today than it was In 1972. To an extent,
the apparent industrialization of Region 10 must be conceded to be a
mathematical artifact: income from a number of regional industries failed
to fall as fast after 1979 as did that from their national counterparts.
Nonetheless, aggregate growth of manufacturing Income of the region-was
sufficient to compensate for the loss of Income from forest products
manufacture, still the principal manufacturing industry, and to Increase
the proportion of non-transfer personal income derived from manufacturing.
In similar fashion, the region's share of national production of
declining farm income increased, as did Its share of income from
construction, transportation, communication and utilities. Goods related
industries produced over 58% of the region's 1983 net marginal income
Increase over 1972. Thus it may be conjectured that Region 10's exposure
to further down turns in the business cycle has been enhanced, that its
future economic stability may be even less than in the past, when
notoriously cyclical forest products industries were more dominant than
they are today.
The largest single component of the region's net increase in personal
income has been government. For the nation, constant dollar income
derived from government in 1983 had increased less than 4% over 1972, with
a 10.7% reduction in Federal civilian and military sources of personal
Income slightly overmatched by a 13.1% Increase in income from state and
local governments. In Region 10, a 30% increase in income from state and
local governments was sufficient to produce a 17.9% increase for the total
government sector.
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High tech Industry categories, th«-current darling of Industrial
development Interests, have been one of the sources of tne relative
strength of regional manufacturing. Electric equipment, electronic, and
Instrument Industries added $350 artlllow to the Pacific Northwest's $5.8
billion positive net shift 1n personal Income, an amount equal to just
under half the net shift contributed by transportation equipment. The two
groups are believed to comprise Region 10's principal segment of arms
manufacture, and may be considered to have benefltted greatly from post
Viet Nam military expenditures.
The only regressive components of the regional economy, In comparing
Its 1983 Income production with 1972, are mining—Its relative Income
production In the Pacific Northwest sufficiently weak to neutralize the
effect on the regional economy of marginal Income production from Alaskan
petroleum extraction—forest products, and financial services. As a
practical matter, the relative deficiency of mining Is Insignificant,
representing nothing more than Oregon and Washington—essentially
non-mining states—failure to participate In the Industries' extreme
national growth.
Negative marginal income from forest products Industries, on the
other hand, 1s highly meaningful. It represents a real loss of income, of
jobs, and of the economic well being of entire communities. Similarly,
relative weakness of financial services is a significant matter, though of
minor scale compared to forest products. That weakness 1s in considerable
measure a compound of the consequences of effective failure of
Washlngton'.s Seafirst, Inc., of Oregon's Equitable Savings and Loan (both
rescued by acquisition) and several state chartered Oregon rural banks.
Some qualitative observations are in order.
Alaska's high prosperity must be recognized to be tenuous. The
state's economy has become so dependant on petroleum production as to be
highly vulnerable to price risk. Alaska has become, in substance, the
nation's largest one industry community; and for that community to
continue to flourish, petroleum production rates and prices must continue
to be high and stable. There is no protection against ultimate depletion—
though the state's "Perpetual Fund" represents an innovative effort to
provide just that—so the key to Alaska's economic future lies in the
success of oil exploration and development in deferring the winding down
of its oil economy until the prices of other Alaskan mineral resources
reach levels that permit their exploitation.
Forest production probably can not recover its central role in the
regional economy. Both resource and technological constraints are in
force to limit the dimensions of the industry, without regard to the play
of the cyclical market influences that effect its intermittent expansions
and contractions. On the resource side, the Forest Service's 1972
judgement that cutting and regrowth were in balance in the Pacfic
Northwest means that, in the absence of expensive measures to stimulate
growth, there is no marginal raw material to develop. Since the wood
utilization rate is also at or near its limit (residues are fully employed
either as raw materials or as fuel), there appears to be an absolute
-------
ceiling on the araounlr of wood ttwt ttw reglow cim incorporate in
products. On the technolog^ca;! side, continuing development of fabricated
wood forms for use in structural appil IcatiVoire and the softening of local
building code* have virtually eliminated the qualitative *dvant«gs that
Douglas ftr held for so long over other Nortti Amerlrait wood species-
In the longer term, however, it is probable that the Pacific
Northwest will recover Its prime position In wood products. Expansion may
not be possible, but a firm leadership position in an industry
experiencing rising real prices is highly likely. Again, the explanation
lies 1n the supply of wood as a raw material. Where forestry in the
Pacific Northwest has been governed by the sustained yield concept, forest
practices in competing North American areas, notably the Southeast and
British Columbia, have aimed at maximizing revenues. Those forests are
being—have, for a couple of decades, been—cut at a rate In excess of the
reforestation rate. It will take time for the effects of forest depletion
to have an effect on supply; but by the turn of the century Pacific
Northwest forests should again begin to be solidly established as the
prime source of North American wood products.
The evolution of energy production and energy Intensive Industries
may be expected to compose the least favorable component of regional
economic development. The damage done to the Northwest economy by the
WPPSS debacle was profound, and will persist. The cost of abandoned and
mothballed generating plants has been Incorporated firmly into the rate
base, as has the cost of effective Incremental capacity for which there 1s
presently no demand. As a consequence, Northwest power rates have risen
at almost precisely twice the national rate since 1972. Northwest,
electricity remains the nation's least costly; but for Industrial
consumers the effective tradeoff to be considered Is the gap between power
costs and transportation costs. Since the 1940's that gap has favored the
Northwest, but only for the most energy Intensive of industries. The
number of such industries has been shrunken perceptibly by WPPSS. And
since the marginal cost of electricity 1n the Northwest In the future will
be equal to—or greater than, if fuel transport charges are unfavorable—
the national average, there is no reason to anticipate a reversal of the
attrition of regional advantage imposed by WPPSS.
(It should be noted that effects of the region's comparatively rapid
rise 1n electricity rates are largely undisclosed by the numbers In this
analysis. Those numbers include, for example, the closure of the Bunker
Hill complex in Northern Idaho; but the closure of a copper refiner and a
copper smelter in Tacoma, a secondary lead smelter and a scrap steel plant
1n Seattle, and an aluminum reduction plant at the Dalles all occurred
after 1983, so are not represented in this report. In none of the cases
noted was electricity cost the prime reason for closure: but in every
case 1t had contributory impact.)
Another source of potential economic—and social—difficulties for
Region 10 may prove to maintaining the level of state and local government
services. State and local governments compose a basic industry in each
state of the region. Quality of public facilities and services—
educational and justice systems, parks and highways, fire and police
protection, public health and water and waste disposal facilities—has
traditionally been given high priority in Region 10, particularly in
-------
Oregoir and Washington-. Public services and amenities* have- beemr considered^
complements rather thaw competitors to economic development. But tfretr
financing has bee* simplified in the past by above average- incomer.
Conttnulny decline of average income combined with> Inflexible- taur bases
and constitutional balanced budget provisions has Involved each Northwest:
state tn a series of policy disputes in the eighties that are focussed on
annual or biannual budget processes. In the absence of economic growth,
1t must be anticipated that such dispute will Intensify,, and the support
to local economies provided by government may erode.
The most optimistic element among the region's economic prospects 1s
progressive expansion of trans-Pac.lflc trade. Its quantitative expression
can be found In the positive advantage developed In Northwest wholesale
trade and transportation over the last decade. For where much of the
nation sees the Pacific trade In terms of a losing competition with
Japanese manufacturers for the durable consumers' goods market, for the
ports of Seattle and Tacoma and Portland It has meant Increased landings,
storage, wholesaling and financial revenues.
Those ports are large, efficient served by excellent rerouting
facilities. Though the local markets they serve are much smaller than
those of the Bay Area and Southern California, their access to major
Middle West and Northeast markets Is at least equal, as, for the long
term. Is their access to potential American exporters of food, timber an!
Industrial goods.
Development of Pacific rim trade will unquestionably be slow.
Japanese protectionism, the poverty of China and Southeast Asia, and the
absence of a coherent American trades policy all inhibit Its development.
But—barring the occurrence of war or global depression—Pacific trade
will continue to expand, and hopefully, to broaden. Oregon, Washington,
and, as a supplier of raw materials, Alaska should all benefit.
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