Posted by: knightbird | February 5, 2015

Developing Value Added Business in Alaska

Governor Bill Walker has his hands full with the Alaska fiscal crisis. He just announced by letter a potential for cutting 300 jobs from the state workforce. With 16,000 jobs supported by the state, and 335,000 total jobs in Alaska, the reduction is not a crisis. The big cuts will have to come in 7 years when Alaska’s savings account runs out if we don’t change the way we do things. I wrote an opinion article for the Alaska Dispatch News in January suggesting the Governor consider adopting the principles of Lean Government as a way of protecting service delivery for Alaskan citizens. I have submitted a second article describing how state adoption of Lean Government could help our businesses become more competitive.

Now, the Governor proposes we find a way to add more Value Adding business for our natural resources. While I firmly believe that we need to do so, I don’t believe we can be competitive unless we change the way we manage our businesses.

By Value Adding, the Governor is talking about further processing local resources. My ANCSA Regional Corporation, Sealaska Corporation, has been engaged in timber harvesting for decades. Many of the logs are shipped overseas because they have a higher value there. Alaska used to have 2 pulp mills that tool low value logs and converted it to pulp for raw materials to make a variety of products. The pulp was shipped and converted into products somewhere else. We added a small amount of value, but still, the major part of value was added elsewhere.

However, we are limiting our thinking if we only consider manufacturing as the universe for additions to value. Huge contributions to value are contained in a variety of other types of services. Financing, transportation, insurance, warehousing and other types of value can be a source of additional income to our citizens. We shouldn’t restrict our Value Discussions to just manufacturing. Nor should we ignore manufacturing. Through Lean Manufacturing principles, we could become competitive in some areas. And if we apply administrative Lean to our operations, we have a chance to achieve what the Governor asks for. But how can we embrace Lean Thinking if the services our businesses requires from our government are themselves inefficient. I am advocating in Alaska for a symbiotic adoption of and support system for Lean Thinking applied everywhere. Our natural resource businesses have huge expense to achieve operations because of inhibitory permit requirements. Long lead times and obstacles exist in politically charged debates. The high cost of health care in Alaska contributes substantial costs to our business operations. Quality of life issues are not addressed in meaningful ways. Education is expensive and can be frustrating. Every wasteful process in Alaska subtracts from our ability to be competitive. That means we must rely on politics to achieve our competitiveness, and the state can’t do much more for that. If we are truly competitive, we don’t need to subsidize our businesses. We are, in essence, subsidizing our businesses because of the lack of an income tax. Wages in Alaska go farther because of the lack of an income tax. Transportation subsidies, energy subsidies and other government expenditures can be though of as subsidizing businesses as opposed to supporting businesses.

For Governor Walker to advocate for more Value Adding, he has to present a compelling argument for why we can add value in Alaska. For the Gas Pipeline, the compelling argument was a significant subsidy and elimination of competition.

Dr. Gunnar Knapp made a compelling statement to the Harvard-Yale-Princeton Club Luncheon on February 2, 2015. If businesses pay no taxes in Alaska, and their employees pay no taxes, then government service increases caused by new employees are completely subsidized by the people of Alaska. Oil revenues are a common resource for Alaskan’s, and their use to provide government services subsidizes businesses who need more classrooms, highways, public safety and myriad other public services.

It is important to create new jobs to accommodate our citizens. And we may need to subsidize some services in order to secure those jobs. But my argument is that adopting Lean Government and Lean Business principles can reduce the cost of government provided services, and the subsidy they represent. Lean Business principles can reduce the amount of incentive needed to attract business like Value Adding to Alaska. Let’s start this conversation somewhere. I don’t hear it yet.

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