Economic Development

Economic development tells the story of economic growth and of the development in living conditions over time based on production, that is, on exogenous factors inside and outside the Arctic territory, on endogenous factors, and on the power to make and implement decisions. In the following essay, common features and characteristics of Arctic economic development will be outlined and followed by facts on each of the Arctic economies. As the eight Arctic states (Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States) only include one sovereign state, Iceland, sovereign since 1944, economic development in the Arctic has always been heavily influenced by decision making in more southern parts of the Arctic states and by world developments outside the Arctic in general. This is clearly demonstrated in center-periphery thinking, in the hinterland approaches, and in the initiatives taken for economic development. In short, much of the development over time can be seen as the peoples living in the Arctic try to regain influence on decision making on the Arctic territory and their own affairs or as a struggle for achieving human, economic, and societal rights.

The strong southern influence, with different societal structures in relation to state-market structure and to type of civil society implying different economic regimes (market economy, command economy, and mixed economy), has meant that similarities in Arctic living conditions have developed into differences as a consequence of the management systems related to the different state regimes. The differences have further been stressed as a consequence of the speed of economic development since the end of World War II, combined with the increased geostrate-gic importance of the Arctic in world politics during the same period.

Studying production is normally based on a production function approach presenting output as a result of input and specified as Y = f(K,L,J). The variables refer to Y = yield, K = capital, L = labor, J = land, minerals, and natural resources, and f specifies the technical relations. Arctic economies are characterized by a low density of population, that is, L is scarce in relation to J. Furthermore, the quality of J is often extremely high, while the quality of L is often relatively low due to size of critical mass and low level of education. Capital accumulation in the Arctic is often low as much capital is transferred out of the Arctic. This is a consequence of a large proportion of the labor force not living permanently in the Arctic and of investments being undertaken by corporations and investors outside the Arctic. The result is that production in the Arctic is mainly related to primary products. The impact is that exports are concentrated on few products while imports are diversified.

The small flexibility in production creates a strong dependency in the Arctic on the demand of primary products outside the Arctic. This dependency is mirrored in the phases of Arctic economic development, which has been characterized mainly by cycles of boom and bust. When oil was needed for lamps in

Europe and resources were scarce, there was an intensive whaling phase; when fur was needed, the hunting and trapping phase was intensive; when metals were scarce, mining was the main production in the Arctic; and when the oil crisis in 1973 threatened southern lifestyles, the search for oil and gas in the Arctic became intensive. With respect to fisheries, the dependency has been more on nature than on changes in southern demand for fish. It is a characteristic feature of Arctic economies that the different phases do not disappear, and a new phase does not penetrate the whole economy. Now where wilderness and pristine nature have become scarce, we witness an increase in tourism. In that way the economies can be said to become more diversified over time, but it is characteristic that the productions are isolated from each other and not linked together via value chains. It implies that value added in production is less than normally found. Also, the new tendencies evolving services from the Arctic in the form of laboratory and test services as research, testing of cars on icecaps, and utilizing hundreds of years of written information on people for medical research, etc. can easily become exports of services without the creation of extra value added from value chains in the Arctic.

The demand for Arctic production is good for Arctic economic development, but the lack of flexibility makes the economic development vulnerable to economic business cycles. It is especially the case when the state has a weak role, that is, if the state only has small expenses in the territory. Therefore, military presence in the Arctic demand for military bases has often been a stabilizing economic factor in Arctic economies and a factor to improve infrastructure.

With respect to living conditions, the technical development as well as economic growth have made life materially easier, but it has to be mentioned that the speed of change in living conditions has caused mental and psychological problems for some peoples. Alcoholism, other kinds of misuse problems, and a high rate of suicide have been connected to economic development. Here, it must be remembered that many indigenous people jumped from a traditional life into modernity in a period of 50-100 years.

Most Arctic economies have an ongoing problem related to population versus peoples. It is more the rule than the exception that the indigenous peoples have become a minority in the Arctic. It is not the case in Greenland or in Iceland, Iceland only being populated the last 1000 years and with a well-known history. It creates problems for who has the rights to decision making. Is it the state, the local Arctic population, or the indigenous peoples, and how shall economic development take place when more people live in the same territory? In the Arctic we find the unitary state model (Sweden, Finland, and to some degree Denmark), the statehood model (Alaska/USA and Russia), the indigenous peoples rights model (Norway, Canada, Denmark), and the sovereign state model (Iceland). The models give legitimacy for decision making to different agents and authorities.

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