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Arctic Human Development Report

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   Arctic Human Development Report




                                                                                                                                                                             Chapter 4
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Economic Systems
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Lead author: Gérard Duhaime, Université Laval, Québec City, Canada.

Contributing authors: André Lemelin (Université du Québec á Montréal), Vladimir Didyk (Kola Science Centre), Oliver Goldsmith, (University of
Alaska at Anchorage), Gorm Winther (Agio Greenland and University of Aalborg), Andrée Caron (Université Laval, Québec City), Nick Bernard
(Université Laval, Québec City), and Anne Godmaire (Université Laval, Québec City).




Economic activities create and distribute wealth
that individuals, households, and societies can                               Area of study
use in reaching different social and material                                 The circumpolar area discussed in this chapter includes all political or
goals. Therefore, economics is a fundamental                                  administrative entities overlapping the Arctic for which relevant sets of data
dimension of human development. In the                                        are publicly available. They are:

Arctic, subsistence activities have been impor-                               • Alaska
tant to local economies, but the region is also                                 in Canada: the Yukon, the Northwest Territories, Nunavut, Nunavik, and
incorporated in the economies of the Arctic                                     Labrador
                                                                              • Greenland
nations and in the global economy. These con-
                                                                              • The Faroe Islands
nections are becoming increasingly important.
                                                                              • Iceland
Examples include exploitation of oil, gas, and                                • in Norway: Nordland, Troms, Finnmark, and Svalbard
mineral resources but also harvesting of the vast                             • in Sweden: Västerbotten and Norrbotten
biological resources in the region. Government                                • in Finland: the provinces of Oulu and Lapland
or state supported public service illustrates the                             • in the Russian Federation: the republics of Karelia, Komi, and Sakha; the
close connection to national economies. Taken                                   oblasts of Arkhangelsk, Murmansk, Tyumen, Kamtchatka, and Magadan;
                                                                                the autonomous okrugs of Nenets, Khanty-Mansii, Yamal-Nenets,
as a whole, the Arctic economy is large enough
                                                                                Krasnoyarsk Krai, Taimyr (Dolgan-Nenets), Evenk, Koryak, and Chukchi.
to be geopolitically important.
   The first part of this chapter looks at the Arctic                         Few regions of the Russian Federation extend beyond the Arctic, e.g. the
as a whole and describes its economy by explor-                               Tyumen Oblast. These have nevertheless been incorporated in full, since the
                                                                              economic data published by Goskomstat Russia are not available on a
ing three major characteristics: the large-scale
                                                                              smaller scale. The area covered in the chapter corresponds to that examined
resource exploitation, the lack of manufacturing,                             in previous studies that are used to identify economic trends and changes
and the prominent role of public service and                                  (1, 2, 3).
transfer payments. The second part identifies the
principal similarities and differences amongst
different parts of the Arctic, while the third part                      Map of Arctic
discusses the most striking recent trends that                           Region
will affect the future of the Arctic economy.


The industrial distribution
of the Arctic economy
Three characteristics set the economic situation
of the Arctic apart from that of other regions of
the world (4, 5). First, the formal economy is                                                                              80
                                                                                                                                 o




mainly based on large-scale resource exploita-
tion. Second, family-based commercial fishing                                                                                 o
                                                                                                                            70
or customary hunting, fishing, breeding, and
gathering activities continue to be important.
                                                                                                                                 o

Third, much consumption, in particular public                                                                               60



services, is supported by transfer payments to                                             Arctic circle
                                                                                           Arctic boundary: AMAP                                Compiled by W.K. Dallmann,
regional governments and individuals from cen-                                             Arctic boundary: AHDR                                Norwegian Polar Institute




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     Gross Product. Circumpolar Arctic, regions and countries, 2001                                              leading oil producer and exporter. It approaches
     (Millions of $US-PPP, 2002)                                                                                 the value of Belgium’s entire economy, and it
     Circumpolar Arctic                                                                                          equals the entire economy of the Russian
     (230,156)                                 153,647 Northern Russian
                                                       Federation
                                                                                                                 Federation. It surpasses that of Sweden, a coun-
                                                                                                                 try whose demographic weight is similar to that
                                                                                                                 of the entire Arctic area and is among the most
                                                                    28,581   Alaska                              industrialized countries in the world.
                                                                     1,106   Faroe Islands                          What does this result mean? First and fore-
                                                                     1,003   Greenland                           most, it means that the Arctic production is of
                                                                     8,097   Iceland
                                                                                                                 significant scale. It is based in large part on the
                                                                     4,308   Northern Canada
                                                                                                                 intensive exploitation of the vast natural
                                                                    12,201   Northern Finland
                                                                                                                 resources in the Arctic, and the formal economy
                                                                    10,170   Northern Norway
                                                                    11,045   Northern Sweden
                                                                                                                 of the Arctic revolves around these large-scale,
                                                                                                                 capital-intensive activities.


                                                                                                                    $US-PPP – a definition
                                          tral governments. After placing the Arctic econ-
                                                                                                                    The data used to describe and analyze the for-
                                          omy in a global context, this section describes                           mal economy come in different currencies and
                                          the different sectors of the Arctic economy.                              concern different years. To allow for compara-
                                                                                                                    bility, two conversions must be made: the first
                                          A global view                                                             one converts the national currencies into a
                                          Considered as a whole, the production created                             common currency and the second one has the
                                          in the formal Arctic economy amounts to over                              data refer to a common year. In other words,
                                                                                                                    the data must first undergo a conversion in
                                          $US-PPP 230,000 million. This would be the
                                                                                                                    space, followed by a conversion in time. The
                                          gross domestic product of the circumpolar
                                                                                                                    PPP makes it possible to obtain conversion
                                          Arctic. The following comparisons make it pos-                            rates between currencies that eliminate differ-
     Industrial Distribution              sible to assess the Arctic’s significance in the                          ences in price levels between countries (6). The
     of Gross Product, by                 world economy.                                                            method for calculating the PPP basically con-
     sectors. Circumpolar
     Arctic, regions and                     This production is equivalent to one-quarter                           sists of collecting data on the price of a repre-
     countries, 2001                      of the entire Canadian economy and 80% of the                             sentative basket of goods and services for a
     (Millions of $US-PPP)                entire economy of Saudi Arabia, the world’s                               specific country and to compare it with a refer-
                                                                                                                    ence basket. If, for example, the reference bas-
                                                                                                                    ket costs 100 US$ in the United States in 2000
      primary
      secondary
                                                                                                                    and 947 Swedish kronor in Sweden, the PPP
      tertiary                                                                                                      conversion rate is then 9.47 Kronors per US
      non-specified
                                                                                                                    dollar PPP. By convention, published data are
                                         Alaska
                                           0%                                                                       expressed in $ US PPP. After “moving” all of
                                              22%                                                                   the data to the United States, a common year
                                                8%                                                                  is obtained by using the GDP Deflator, which
                                       70%
                                                                                                                    measures the price variations for all of the
               Northern    0%                                                                                       goods and services that are produced and used
               Canada           19%
                                                              Northern                                              in the economy of a region or a country.
                                 13%
                                                              Russian 10%
                       68%                                   Federation   30%
                                                                      51%  9%
                                                                                                                 Large-scale resource exploitation is
                                                                                                                 central to the Arctic economy
                                           0%8%                                                                  Arctic regions have long been considered vast
                              Greenland                o
                                                      80  Northern
                                                 29%       Norway
                                                                                                                 reservoirs of natural resources by the countries
                                       63%                  1%                                                   that encompass them. First exploited for fish,
                                                               17% 3% 7% Northern Finland
                                              0%                 8%       27%                                    whales, and furs, these regions revealed sub-
                                   Iceland       14% 70o
                                                        74%        63%
                                                   20%           1%                                              stantial diversity and enormous quantities of
                                          66%                       19%
                                                    0%                 6%                                        other resources, such as minerals and fossil
                                   Faroe Islands       28% 74%                                                   fuels. Today, the economic activity of Arctic
                                                       o
                                                        60
                                               62%     10%     Northern                                          countries is characterized by the large-scale
                                                                Sweden
                                                                                                      Source:    exploitation of metallic minerals, precious met-
                Arctic circle                                                   Arctic Map by W.K. Dallmann,
                AHDR Arctic boundary                                                 Norwegian Polar Institute   als, hydrocarbons, and precious and semi-pre-



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                                                                                                                                                             Chapter 4
cious stones, as well as fish from the coastal                            autonomous basis and have practically no eco-
seas. Primary extraction represents $US-PPP                               nomic impact on the permanent communities
60,000 million. This is equivalent to the value of                        in the vicinity. In this situation, the entire eco-
almost all of Saudi Arabia’s exports, or the total                        nomic activity, as well as the extractive and sub-
value of Brazilian exports.                                               sidiary activities, brings benefits exclusively to
   The large-scale exploitation of minerals and                           the rest of the world. The phenomenon of eco-
hydrocarbons is central to the national economy                           nomic decoupling, also characteristic of
of several Arctic countries. This is especially true                      ‘resource frontier regions,’ represents the
for Russia, where the Arctic regions have vast                            extreme case but is nonetheless not unusual in
reserves of gold (Magadan, Chukotka), nickel                              the Arctic.
(Murmansk, Krasnoyarsk), tin (Sakha,                                         Large-scale resource exploitation has consid-
Chukotka), and diamonds (Sakha). Also, petro-                             erable impact on the local natural and human
leum and gas exploration is massive, especially                           environment. Examples are toxic discharges
in the Yamalo-Nenets and Khanty-Mansii                                    from gold and nickel mining operations, which
Autonomous Okrugs (7,8).                                                  have caused problems that have yet to be
   In Canada, there is major exploitation of min-                         solved. In those cases where the residents
eral resources and hydrocarbons in the                                    inhabit or use land that borders on exploitation
Northwest Territories, Nunavut, and Nunavik.                              areas, which is common in Alaska, the
Mineral exploitation is also a central economic                           Canadian North and northern Russia, the
activity in Finnmark in Norway, and Norrbotten                            effects on the human environment are multiple
and Västerbotten in Sweden. Alaska extracts                               and often poorly documented (11, 12, 13). These
considerable quantities of oil from the Beaufort                          include poor health related to industrial dis-
Sea and has one of the world’s biggest zinc                               charges, as well as the subordination of local
mines.                                                                    governments and authorities of civil society
   While the industrial-scale natural resource                            (unions, associations). They can also entail
exploitation creates considerable wealth, these                           forced changes in how people move over land in
activities are mainly carried out to supply mar-                          fishing, hunting or trapping areas and can
kets outside the Arctic regions. Moreover, the                            diminish the productivity of such traditional
resources generally belong to sources of capital                          activities when the land is disturbed (14, 15, 16,
outside the Arctic, which control the activities                          17). Socially, there are often disparities in stan-
and profits. A few large corporations dominate                            dard of living and social status between employ-
the extraction activities, and some of them are                           ees of the industrial sector and the rest of the
present in several Arctic countries. This fits well                       population, often correlated with ethnicity.
with the concept of “Resource frontier regions,”                             In summary, the way in which large-scale
(9,10) where the massive riches are destined for                          resource exploitation is currently organized in
export and only a fraction of the income and                              the Arctic is characterized by outside control
profits remains.                                                          and resources moving out of the region.               Industrial Complex Nickel,
   Sometimes, the resource exploitation gener-                            Generally, there is not much overlap with local       Kola Peninsula, Russia.
ates economic spin-off effects in local areas and
regions (see also Chapter 8. Community
Viability). In such cases, these large-scale activi-
ties represent the very core of local and regional
economies, around which a vast set of sub-
sidiary activities gravitate, including the con-
struction and operation of infrastructure (roads,
ports, and airports) and the organization of
services (transportation, retailing, and housing).
Thus, even under these conditions when neither
the direct income from sales of the extracted
resources nor the profits remain in the affected
region, there are still significant economic con-
sequences.
                                                       PHOTO G. DUHAIME




   In other cases, these large-scale activities are
totally separated from the regional socio-eco-
nomic environment. They are carried out on an



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     Arctic Human Development Report




                                 and regional economies, and it appears unlike-              and all of northern Russia. For example, practi-
                                 ly that these activities will create economic               cally every coastal Norwegian town or village
                                 alternatives that can enable the local communi-             has its own fishing port. Furthermore, lake and
                                 ties to survive after the extractive activity is fin-       river fishing is practiced everywhere in the
                                 ished. It is thus difficult to see how they can             Arctic, and is significant to local economies. For
                                 contribute to sustainable development in the                instance, both commercial and customary fresh-
                                 region.                                                     water fisheries have been and still are important
                                                                                             among the Dene nation in the Canadian
                                 Fisheries remain a backbone of the                          Northwest Territories.
                                 economy                                                        Fisheries may be organized according to
                                 In almost all coastal and island areas of the               many distinct systems of exploitation. Industrial
                                 Arctic, fisheries form one of the backbones of              fisheries, based on factory ships, demonstrate
                                 the economy. In the Faroe Islands, this is the              many similarities with large-scale extraction of
                                 most important industry, comprising more than               mineral and hydrocarbon resources and can
                                 a fifth of the gross national product. The catch is         involve importing both the capital and work-
                                 diversified and includes a substantial whale har-           force from abroad, and taking both resources
                                 vest. Fisheries are likewise very important and             and revenue out of the region. In such cases, the
                                 equally diversified in Greenland, whose shrimp              generation of local economic wealth can be ten-
                                 catch makes Greenland the second largest                    uous at best. In several Arctic regions, regional
                                 exporter of shrimp in the world. Around                     authorities or entrepreneurs do own the factory
                                 Iceland, warm and cold currents come together               ships themselves, and consequently can retain
                                 creating particularly rich fishing opportunities,           the benefits (or what is called the “rent”) with-
                                 and fisheries have long been important to the               in the region, and hence favor the regional
                                 national economy of Iceland. In Greenland and               workforce as well.
                                 Iceland, the production of the primary sector is               Fisheries can also be organized in a way
                                 largely based on fisheries.                                 where the captain-owner of a ship hires a small
                                    Coastal fisheries assume considerable eco-               crew or takes care of all the work himself, some-
                                 nomic significance in Alaska, northern Norway,              times with family members. This labor-intensive



      Benefit sharing agreements: a trend in Arctic big business
      Red Dog Mine, the world’s largest producer of zinc concentrate,          opment of the deposit. Under the agreement, Cominco financed,
      is located in the DeLong Mountains of Alaska’s Brooks Range,             constructed and now operates the mine and the mill, in addition
      approximately 144 kilometres north of Kotzebue and 88 kilome-            to marketing the concentrates produced. NANA receives an
      tres from the Chukchi Sea. First discovered in 1953, initial mine        annual royalty in the form of a payment, which is equivalent to
      development began in 1986 and by November 1989 construction              4.5% of the annual production value. This rate will remain in
      was complete. Operations and production began in December                effect until Cominco recovers its capital investment with interest.
      1989. With an open pit, truck/shovel operation, Red Dog has a            Thereafter, NANA will receive a share of the mine’s net profits;
      production capacity of over 600,000 tons per annum of zinc con-          this share will be 25% and will increase by 5% per five-year peri-
      tained in concentrate. Facilities were expanded in 1998 and again        od, up to 50%. Moreover, the agreement includes provisions for
      in 2001. In 2003, it produced 579,300 tons of zinc concentrate           training and hiring NANA members, and first preference on all
      and 124,900 tons of lead concentrate. Concentrate from the mill          Red Dog jobs goes to qualified Natives in the NANA region. As
      is trucked to a port facility at tidewater where it is stored prior to   a result, more than 50% of the 365 jobs are held by NANA mem-
      loading onto vessels. Given its Arctic location, Red Dog has a           bers. The agreement also includes provisions for contract and
      summer shipping season of 100 days, during which the concen-             purchasing preferences, subsistence resources protection as well
      trate ore is shipped to markets in North America, Asia, and              as various consulting and approval mechanisms.
      Europe.                                                                     This is one of the first benefit-sharing agreements known in
         The interest in Red Dog Mine does not merely lie in its size, in      the Arctic and illustrates an increasingly common way to maxi-
      its integration with large corporations or in the spatial distribu-      mize benefits of resource development for Arctic residents rather
      tion of its operations. Rather, the interest lies in the relationships   than continuing with the “decoupling” model of development. It
      between the mine and the Northwest Alaska Native Association             is also used to attenuate negative impacts of resource develop-
      (NANA) Corporation. Native Alaska land claims against the                ment, including making provisions for the bust cycle at the end
      United States were settled in 1971. The NANA Corporation is              of the mine’s life. Among other tools, such as environment and
      one of the corporations created in connection with the Alaska            social impact assessments, this is one way to improve resource
      Native Claims Settlement Act. Cominco and NANA agreed in                 development from the perspective of increasing benefits for
      1982 to a land lease with wide-ranging terms regarding devel-            Arctic residents (18).




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                                                                                                                                                                Chapter 4
G. DUHAIME AND A. MORIN




                          system, widespread in the circumpolar North, is       activity is limited. This sector has atrophied in   Fishing trawlers in Nuuk,
                                                                                                                                    Greenland
                          of the utmost importance not only economical-         some areas and was never established in oth-
                          ly but also from a social and political point of      ers. In places where it remains important, it is
                          view. It involves a significant number of jobs        usually not very diversified. For example, in
                          (more than 20% in Greenland, around 5% in             Iceland and Greenland, it is primarily concen-
                          Iceland and northern Norway). It entails mak-         trated in fish processing, most of which is
                          ing arrangements, negotiations and compro-            exported. In some areas in northern Russia,
                          mises between actors, such as commercial dis-         mining activities have lead to a primary refin-
                          cussions with local suppliers, local buyers and       ing of the minerals.
                          processing plants, participation with municipal,         One of the few manufacturing activities in
                          regional and national governments, concerning         the Arctic area is the electronics industry
                          regulations etc. And in contrast to industrial        around Oulu in northern Finland. This sector is
                          fisheries with factory boats, these fisheries con-    very dynamic in development and production,
                          tribute to local food supplies. Moreover, as long     and includes companies such as Nokia that
                          as fish stocks are not over-harvested, they pro-      provides more than 3,000 jobs in the region.
                          vide a guaranteed long-term activity. However,        This is more than 5,000 jobs in the electronics
                          the depletion of fish stocks is beyond the control    industry, which represents some 10% of jobs in
                          of the local fishermen and this activity, estab-      the secondary sector (31, 32, 33). This situation
                          lished for generations, is also subject to external   is exceptional. The Oulu region is one of the
                          influences that may even threaten its survival        few that has managed to overcome the difficul-
                          (19, 20, 21, 22). For further discussion of fish-     ties of creating a manufacturing industry in the
                          eries, see Chapter 7. Resource Governance and         Arctic. Due to the geographical isolation of
                          Chapter 11. Gender Issues.                            most Arctic regions, production costs are high.
                                                                                While specific raw materials can be found with-
                          Manufacturing is very limited                         in the region, technology, qualified labor, and
                          Aside from customary harvesting and food              capital have to be imported most of the time.
                          from commercial fisheries and reindeer herd-          Transportation costs not only impact produc-
                          ing, most food and other products consumed            tion itself; they also affect costs for getting
                          in the Arctic are imported. Manufacturing             products to their markets which tend to be



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                                located outside the Arctic. As a result, costs are        other regions, excluding northern Russia, where
                                often too high to successfully compete with               it constitutes slightly more than half of the gross
                                non-Arctic manufacturers who have more                    domestic product.
                                access to resources (including cheaper trans-                Retail and transport activities account for
                                portation systems). It is therefore difficult to          about 12 to 25% of the service sector. Within the
                                generate sufficient economic benefits to sustain          service sector, transport has an important place
                                commercial activities.                                    in the Arctic economy. It creates from 5 to 12%
                                  In general, the role of the circumpolar North           of the production value, depending on the
                                in the global economy is asymmetrical: it                 region. Facilitating long distance mobility, the
                                exports raw materials on a large scale to devel-          transport sector is important in exporting local
                                oped regions and imports most finished prod-              products and for importing goods on which
                                ucts for its own domestic consumption. Only a             northern consumers depend. It also encourages
                                part of the food supply is locally produced.              northern tourism.
                                                                                             Tourism is well developed in a number of
                                The service sector is dominated by                        regions and is of growing importance in the
                                public service                                            Arctic economy. It is almost impossible howev-
                                The service sector is strongly developed in many          er, at the present stage of economic statistics, to
                                parts of the Arctic. This includes activities in          put a number figure on this service industry. A
                                fields such as retail, transport, and tourism as          decade ago, and excluding Russia, the number
                                well as education, health care, and administra-
                                tion in the public sector. This so-called tertiary        Tourists
                                sector represents almost three-quarters of the            Circumpolar Arctic, regions and countries, selected years

                                economy of northern Sweden and Norway and                 Country or Region                                     Number of Tourists
                                approximately two-thirds of the economy of                Alaska                                                     1,074,800
                                                                                          Greenland                                                      6,000
                                                                                          Iceland                                                      129,000
                                                                                          Northern Canada                                              224,820
      Subsistence activities still play a role                                            Northern Scandinavia                                         529,000
      Biological resources are also harvested in small-scale subsistence activities.      Source: Margaret E. Johnston. Patterns and Issues in Arctic and Sub-Arctic
                                                                                          Tourism. In Hall, C.M. and M.E. Johnston. Polar Tourism. Chichester, Wiley,
      In particular, rural and indigenous populations reinforce traditional prac-         1995, p. 31
      tices outside the formal economy, which include fishing, hunting, and trap-
      ping, as well as gathering fruit, mushrooms and wild eggs.
                                                                                          of visitors was estimated at 1.9 million, of
         This customary harvesting forms a significant part of the dietary intake of
                                                                                          whom half were in Alaska and 500,000 were in
      households and communities in some parts of the Arctic (23, 24, 25, 26). In
      Alaska, recent studies indicate that rural villages have an annual production       northern Scandinavia (34). There is no indica-
      that generally varies between 69.5 and 301.8 kg per capita (27, 28).For the         tion that this industry has decreased in the last
      Canadian Arctic, the annual harvest in edible weight varies between 84 and          decade. On the contrary, some regions are giv-
      284 kg per capita (29).The latter value would be equivalent to the produc-          ing high priority to tourism development. This
      tion before other sources of food were available. In Greenland, a majority of       is the case in Iceland and Finland for instance,
      the households eat food of this type five times or more per week. The daily         and in almost all regions where it is less devel-
      quantity consumed is estimated at 0.33 kg/day/person on average. When
                                                                                          oped, efforts are being made to build up the
      “commodity production” intended for the market is taken into account, the
                                                                                          industry.
      quantities produced in traditional harvesting activities vary from 1.21 to 3.50
      kg/per capita/day, depending on paid employment and the level of involve-
                                                                                             Nonetheless, public services account for the
      ment in the harvest (30).                                                           majority of the service sector. This includes pub-
         Customary harvesting practices are not only culturally but also economi-         lic administration, health care, and education.
      cally important locally, though their role varies by region, ethnic group,          Altogether, public services comprise the second
      urban or rural setting, and generation. This harvesting is important for its        largest industry in all the Arctic regions, and
      contribution to food production and consumption. Food from the land is              they represent a share of the gross domestic
      one of few substitutes to imports in the Arctic, and in several regions, its        product that ranges from 20 to 25% (in regions
      contribution to food intake is central. It is also important for its contribution
                                                                                          such as Alaska), up to 40% in Canada and
      to the meaning of life, because customary activities create links both
                                                                                          Fennoscandia (35) (see box next page).
      between past and present and between people living together. They are
      termed customary, because they reproduce the past practices of the people
      living in the Arctic; but similarly and more generally, they are clearly
                                                                                          Theme summary
      embedded into the modern world, as they put together heritage with capi-            Three characteristics set the economic situation
      tal, modern technology, present-day know-how, and government regula-                of the Arctic apart from other regions of the
      tions.                                                                              world. First, the Arctic has been used as a large
                                                                                          reservoir of resources to meet the energy needs



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                                                             The spatial distribution of




                                                                                                                                                Chapter 4
of developed countries. Its formal economy is
mainly based on large-scale exploitation and
export of minerals, hydrocarbons, and marine                 the Arctic economy
resources. Much of the remaining part of the                 Overall economic characteristics differ across
formal economy revolves around these activi-                 the Arctic, with significant variations in both
ties. In contrast to the Arctic countries, there is          size and structure of the economy from one
little manufacturing industry in the northern                region to another. This section makes some
regions.                                                     international and internal comparisons between
    Secondly, much consumption, in particular                regions. It tries to assess the regions’ contribu-
public services, is supported by transfer pay-               tion to the circumpolar economy as a whole,
ments to regional governments and individuals                and the difference between each northern
from central governments. However, the trans-                region and the countries they belong to. It sug-
fers are small in comparison to revenues from                gests ways for analysis of flows between the
regional production, and if the Arctic regions               Arctic and the rest of the world.
had the political power to collect taxes from the
large-scale exploitation of the Arctic’s natural             Regional variation in total production
resources, the level of dependence on transfers              The Russian Federation produces about two-
would likely be different.                                   thirds of the total wealth created in the circum-
    Thirdly, family-based commercial fishing or              polar Arctic. This share exceeds by far the con-
customary hunting, fishing, breeding, and gath-              tribution of all other countries and regions. The
ering activities continue to be important, both              Russian North is the widest area in the circum-
for the economy and for the identity of those                polar world, and the most populated one. The
involved. These activities are inextricably linked           industrial exploitation of large non-renewable
to the monetary economy. Therefore, the means                resource reserves has been carried out on a very
used to carry them out, their efficiency, and their          large scale throughout the area for decades, and
distribution methods are important for people’s              is a backbone of the Russian overall economy.
income and their standard of living.                            Iceland, northern Norway, Sweden, and



   Public administration as an industry
   The tertiary sector accounts for between one-half and three-           ical decision-making as it concerned their own affairs. The
   quarters of the total economic production in the Arctic, and           restructuring and growth of the public administration ensued
   dominating this sector is public administration. In several            from subsequent agreements: the Alaska Native Claims
   regions for which the data is available, public administration         Settlement Act (ANCSA-1971), James Bay and Northern Québec
   services account for more than one fifth of the formal economy.        Agreement (JBNQA-1975), Northeastern Québec Agreement
   In some regions, the majority of all paid jobs belong to this sec-     (NEQA-1978), Greenland Home Rule (1979), Inuvialuit Final
   tor, which can legitimately be called an industry.                     Agreement (IFA-1984).
      This “over-development” of public administration compared              The story is not altogether different in northwest Russia.
   to other sectors has a history that goes back at least 50 years. In    Geological exploration carried out at the start of the 20th century
   Alaska, northern Canada, and Greenland, it can be explained by         revealed the abundance of the region’s ore deposits (36). The
   the policies of nation states to move the Inuit population into        building of mining towns between 1900 and 1930 within the con-
   permanent settlements. These policies were especially promi-           text of the centralized Soviet system led to major public expendi-
   nent during two different time periods. The first was with the         tures. However, the indigenous peoples did not have the same
   militarization of the Arctic during World War II and the following     influence as in North America. Saami and Komi reindeer breed-
   Cold War period which brought to the world’s attention the             ers gradually saw some of their pasturelands transformed, either
   material distress afflicting the Inuit, which followed the sharp       by the building of mines, cities and roads, or by the pollution
   decline in the fur trade after 1929. States took responsibility for    affecting the natural environment, forcing them to change areas
   building permanent villages and for assuming the recurrent             and, in some cases, economic activity. The Komi were constituted
   operating costs. The second time period coincides with the fran-       in a district in 1921, then in a Soviet socialist republic in 1936.
   tic growth in consumption in the 1960s, and the oil crisis of 1973.    Since the fall of the Soviet Union in 1990, this jurisdiction has
   These developments fueled North America’s appetite for the             taken on the name of the Republic of Komi. As for the Saami,
   Arctic’s fossil fuel resources. However, at that time, the indige-     they are spread out across the northern countries (Norway,
   nous peoples opposed other’s claims to these resources. They           Sweden, Finland), as well as in the Russian Barents region.
   wanted guaranteed access both to the territory and to the use of          In summary, the size of the public administration within the
   the resources, as well as compensation for the losses resulting        Arctic economy is linked to the development of resources and to
   from the exploitation. They called for a significant place in polit-   concerns raised by their exploitation.




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     Gross Product. Circumpolar Arctic, regions and countries, 2001                                                              in the polar world and globally, with economic
     (Millions of $US-PPP and %)                                                                                                 diversification being the most advanced in these
     Circumpolar Arctic                                                                                                          areas. On the whole, these regions make an
     (230,156)
                                                                                                                                 important contribution to the entire economy of
                                                                                                                                 the circumpolar North, amounting to almost
                                Alaksa: 28,581
                                       (12.4%)                                                                                   one fifth of the total.
                                                                                                                                    In North America, the contribution to the
                  Northern                                                                                                       total Arctic economy varies considerably across
             Canada: 4,308                                                                                                       the regions. Alaska has the second most impor-
                    (1.9%)                                                                                                       tant contribution on the circumpolar scale. This
                                                                                  Northern Russian
                                                                               Federation: 153,647                               is due to the massive oil extraction and trans-
                                                                                            (66.8%)                              portation from Prudhoe Bay south through the
                                                                                                                                 Alaska pipeline, and to a diversified economy,
                                                                                                                                 particularly in the southern and urban part of
                                                                                                                                 the state. By contrast, the contribution of the
                          Greenland: 1,003                            80
                                                                           o
                                                                                                                                 Canadian North to global circumpolar wealth
                                                                            Northern
                                    (0.4%)                                                                                       creation is much more modest, with its popula-
                                                                      Norway: 10,170
                                                                               (4.4%)    Northern                                tion widely dispersed through vast territories,
                                                                        o
                                                                      70
                          Iceland: 8,097                                          Finland: 12,201                                and with regional economies much less diversi-
                                  (3.5%)                                      Northern (5.3%)                                    fied than those in northernmost Europe.
                       Faroe Islands: 1,106                             Sweden: 11,045
                                     (0.5%)                           60
                                                                           o

                                                                                 (4.8%)
                                                                                                                                 Disparities among and within
              Arctic circle
              Arctic boundary: AMAP                                                          Arctic map by W.K. Dallmann,        countries
              Arctic boundary: AHDR                                                          Norwegian Polar Institute

                                                                                                                                 When looking at GDP relative to the per capita
                                      Finland are the most densely populated regions                                             GDP in the different regions, some significant
                                      in the Arctic. Together, they represent three                                              contrasts do appear. While northern Russia
                                      quarters of the Arctic population outside of the                                           makes up more than 66% of the total GDP of
                                      Russian Federation. They display a number of                                               the circumpolar Arctic economy, the per capita
                                      common characteristics. For example, their                                                 GDP in Russia is very low, in fact, uniquely so.
                                      communication networks, transportation infra-                                              At the other end of the spectrum, the Alaska per
                                      structures (including extensive road systems),                                             capita GDP is the highest among the Arctic
                                      commercial and personal services, and public                                               regions, and far above the circumpolar average.
                                      services are remarkably advanced. Indeed, their                                            Canada, whose contribution to the global Arctic
                                      tertiary sectors are among the most developed                                              economy is modest, has the second highest


                                      Per Capita Gross Product. Circumpolar Arctic, regions and countries, 2001

                                                             50,000
                                                                                    45,107
                                                             45,000
                                                                                                                                     39,915
                                                             40,000
                                      $US-PPP (per-capita)




                                                             35,000

                                                             30,000                                                         28,404

                                                             25,000                           23,532
                                                                                                                                                          21,939     21,577
                                                             20,000                                                                             18,893
                                                                                                           17,877
                                                                        15,127
                                                             15,000                                                                                                             12,327

                                                             10,000

                                                              5,000

                                                                 0
                                                                      Circumpolar Alaska       Faroe     Greenland Iceland           Northern   Northern Northern   Northern    Northern
                                                                         Arctic               Islands                                Canada      Finland Norway     Sweden      Russian
                                                                                                                                                                               Federation




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                                                                                                                            Chapter 4
Gross Product. Circumpolar Arctic, regions and countries, 2001
(% of national GDP, and per capita difference)

Country or region                Gross product as percentage   Difference between GDP per capita
                                    of national GDP, 2001.      of the region (or country) and the
                                    (% of national GDP in              national level, 2001.
                                           $US-PPP)                   ($US-PPP per capita)
Circumpolar Arctic                          1.87                                n.a.
Alaska                                      0.29                             10,787
Faroe Islands                               0.71                             -5,468
Greenland                                   0.65                            -11,123
Iceland                                   100.00                                  0
Northern Canada                             0.51                             12,785
Northern Finland                            9.63                             -5,537
Northern Norway                             7.61                             -7,681
Northern Sweden                             5.14                             -2,603
Northern Russian Federation                14.95                              5,227
Notes: n.a.: not applicable


GDP per capita. These differences are the result                    opment relative to population size. Specifically,
of multiple factors, including the scale of the                     the per capita GDP is higher in northern Russia
Alaskan resource exploitation relative to popu-                     than in the federation as a whole, and the situa-
lation. In Russia, the large population and the                     tion is similar in northern Canada and in Alaska.
generally poor economic situation, including                        Northern territories can be seen as wealthy
low prices are largely responsible.                                 places relative to the national situation, and in
   More interesting are the internal differences                    fact, some of them with large-scale resource
that may be extracted from these statistics. The                    exploitation are often perceived as such.
economy of Northern Russia represents a sub-                           What the statistics do not reveal are the sig-
stantial proportion of the economy of the                           nificant disparities that exist between regions of
Russian Federation. This proportion greatly                         the same country. Within Russia for instance,
exceeds the Arctic part of the economy for other                    massive economic activities are highly concen-
Arctic nation states (except Iceland, which is the                  trated in certain regions: the Tyumen Oblast cre-
only country which falls entirely within the                        ates as much wealth as the seven other Arctic
Arctic region). This supports the conclusion pre-                   regions of the Russian Federation combined,
viously drawn about the importance of the                           and the Krasnoyarsk Krai creates as much
Russian economy in the circumpolar and global                       wealth as the State of Alaska. Within Canada
economies, and importantly, highlights the                          the economic indicators vary widely between
great role of the North in the overall Russian                      regions with substantial large-scale mineral
economy.                                                            exploitation, such as the Northwest Territories,
   The economy of the northern regions of                           and regions where this sort of development is
Fennoscandia also represents a substantial pro-                     more limited, as in Labrador. This suggests
portion of the economies of each of these coun-                     severe regional disparities that should be prop-
tries. This may be seen as evidence of the key                      erly analyzed with more disaggregated data.
role of some specific industries to the respective
national economies (e.g. minerals and fisheries                     Import and export
in northern Norway, manufacturing and com-                          The balance between imports and exports is
merce in northern Finland, etc.). It is also a sign                 poorly documented. However, it is still worth
of economic diversification and the fact that the                   examining from an explorative point of view.
service sector is comparatively well developed.                       As discussed earlier, the Arctic is exporting
Moreover, the northern parts of these countries                     raw materials, such as minerals, gas and oil, fish,
are much more integrated in their national                          and sea food, in order to satisfy the energy
economies. In other parts of the Arctic world,                      needs of industrial development and mass con-
the contribution to the country’s national econ-                    sumption. The presence of extractive industries
omy is much more humble, even though it may                         on a large scale in several Arctic regions gener-
be strategically very important, for instance as                    ates considerable wealth. It also increases geo-
part of the nation’s resource supplies.                             graphical differentiation: regions where it oper-
   When calculated on a per capita basis, the dif-                  ates are generally wealthier, and regions with-
ferences between countries reveal another aspect                    out such resources (due to insufficient quantities
of the Arctic economic reality, namely the high                     or exhaustion from previous exploitation) are
value of production in large-scale resource devel-                  generally poorer. Finally, it increases social strat-



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                                                 ification between well-paid workers and con-                  own demands, by virtue of its own food indus-
                                                 tracting entrepreneurs in these export sectors,               try. The Arctic imports petroleum products for
                                                 and less-paid workers in other sectors.                       machinery and motors even in regions produc-
                                                    In this type of industry, not only resources but           ing crude oil, and electricity even in regions pro-
                                                 also benefits are exported. Most of the time,                 ducing hydroelectricity. It imports capital and
                                                 these enterprises are subsidiary companies of                 technology for all purposes, including for some
                                                 national or transnational corporations, which                 customary herding, hunting, and fishing prac-
                                                 provide them with the capital, technology, and                tices. Such activities are therefore embedded in
                                                 know-how that ultimately lead to sales on the                 the market logic. The extent of this is so signifi-
                                                 world market. They generally pay royalties and                cant that the withdrawal of state support for
                                                 taxes to central governments in whose jurisdic-               reindeer herding generated a dramatic setback
                                                 tion they operate. Finally, they pay dividends to             in northern Russia. In general, the geographical
                                                 the shareholders.                                             isolation brings higher costs for producers and
                                                    In sharp contrast, and because of limited                  consumers, as transportation and work force
                                                 manufacturing activity, the Arctic imports goods              costs are higher in the Arctic. Importers use
                                                 and services on a large scale to meet internal                south-north channels in a way that links the
                                                 demands. Food is one of the few commodities                   northern economy of a given country closely
                                                 where the Arctic is sometimes able to meet its                with the metropolises. Consequently, most


      The gaps between standards of living are significant throughout the Arctic
      The standard of living is uneven throughout the circumpolar                                Arctic regions. According to Syrovatski (37), a reindeer herder’s
      Arctic. In the following paragraphs, the formal incomes of indi-                           salary is usually less than 600 US$ a year. In other words, the
      viduals are compared, whether from paid jobs, transfer pay-                                gaps between incomes in different economic domains are espe-
      ments, or investments.                                                                     cially significant, and the majority of the population have lower
                                                                                                 incomes than the national or the Arctic average elsewhere. The
      Personal Income and Personal Disposable Income                                             economy of a few other regions, such as the Yamal-Nenets and
      Circumpolar Arctic, regions and countries, 2001                                            Khanty-Mansii Autonomous Okrug, is driven by mega-scale oil
      Country or Region                                 Personal income     Disposable Income    and gas exploitation. In these regions, personal incomes are
                                                      ($US-PPP per capita) ($US-PPP per capia)   about four times the average personal incomes in the poorest
      Circumpolar Arctic                                       n.a.                 n.a.         regions of Russia.
      Alaska                                                31,027               27,099             The situation is somewhat different in Fennoscandia, in
      Faroe Islands                                            n.a.                 n.a.
                                                                                                 Iceland and in Greenland. In a circumpolar comparison, the
      Greenland                                             14,802               10,547
                                                                                                 personal incomes fall in the middle range. The standards of liv-
      Iceland                                               18,068                  n.a.
      Northern Canada                                       26,166               21,253          ing in Iceland and in Greenland are higher than in Russia.
      Northern Finland                                         n.a.                 n.a.         Generally in these regions, the standard of living is also indi-
      Northern Norway                                       22,171               14,608          rectly supplemented by considerable contributions from public
      Northern Sweden                                          n.a.              11,448          services. This is however less the case in the Russian North
      Northern Russian Federation                            5,843                  n.a.         nowadays, which may help explain the widening gap between
      Note: n.a. : Original data not available                                                   the different regions of the Arctic. However, regional disparities
                                                                                                 do exist in Fennoscandia as well. Some central areas provide
         The Russian standard of living is the weakest in the Arctic.                            highly paid jobs, while salaries in the northern periphery are
      Moreover, some regions of northern Russia have much lower                                  generally lower (38). Differences between urban centers and
      personal incomes than the national average, and dramatically                               rural areas are also important, both there and in Greenland,
      lower than the circumpolar average. This is the case for the                               with large contrasts between the big municipal centers and the
      Republic of Karelia, and the region of Arkhangelsk, the Taimyr                             small settlements (39).
      Autonomous Okrug, as well as the regions of the Far East:                                     The standard of living is the highest in the North American
      Kamtchatka and Magadan, and the districts of Koryak and                                    Arctic with Alaska ranked top. Here again, significant differences
      Chukchi Autonomous Okrug. Even in regions that are relatively                              internally do exist. For instance, in the Canadian Northwest
      rich in mineral resources, such as the Republic of Sakha, the                              Territories workers get high salaries from the mining industry,
      average personal income may fall below the average for the rest                            and, as a result, the income per capita is quite high. In Nunavut,
      of the Arctic. Although salaries are generally high in the extrac-                         the best paid jobs are in the government sector, and the average
      tive industry, these are only enjoyed by a small segment of the                            is lower than elsewhere in the Canadian Arctic. In Nunavik,
      population. In the Republic of Sakha for instance, about 16% of                            recent work from Chabot (40) shows that more than 55% of the
      the workforce is employed in the mining industry where the                                 Inuit households, representing 68% of the total population, were
      salaries are higher. For the vast majority of workers in other                             living below the low-income threshold. Longitudinal studies
      industries, salaries are lower when compared to the mining                                 have shown that the Nunavik Inuit earn less than the non-Inuit
      industries, and most of the time, lower when compared to other                             workers in this region, but the gap is very slowly narrowing (41).




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                                                                                                            Chapter 4
investments in the Arctic result in spin-offs fur-
ther south, since they generally generate new
                                                      Trends and forecasts
imports.                                              With increasing connections between the Arctic
   This disequilibrium between exports (of raw        and the rest of the world, the future of the Arctic
materials, as well as economic rents) and             economy is highly dependent on global eco-
imports, is a new element of the asymmetrical         nomic and political trends. These include the
relations between the Arctic and the rest of the      continued importance of mineral and hydrocar-
world. One of the main implications is that it is     bon resources, as well as the increasing influ-
almost impossible for the regions themselves to       ence of private ownership.
cover the costs of public services given the limi-
tations of their fiscal capacity. Most of the time,   Continued role as reservoir of
they cannot benefit from large corporate profits,     resources
because the corporations are outside of their         Most of the economic characteristics of today’s
jurisdiction. Also, in Arctic regions with limited    Arctic were already apparent in 1978 when
or no large-scale resource exploitation, costs of     Armstrong, Rogers and Rowley (42) published
public services must be covered by the capital        their work on the geography, politics and eco-
regions.                                              nomics of the circumpolar region. For example,
   Transfer payments are another kind of import,      there was resource exploitation and export on a
which in many cases are an indispensable              large scale, and this had been the case for a long
source of funding needed in order to maintain a       time in many regions. Sugden’s historic model
minimal level of public services. This is the case    of development in successive waves based on
in the Russian Far East for instance. In certain      one key product (43, 44) also continues to be
cases, however, this is the price to be paid for      pertinent. The two major types of regions he
maintaining the capacity for exploitation of          described, “Resource Frontier Regions” and
resources of a given territory. This is the situa-    “Downward Transitional Areas,” are still visible
tion in certain areas where large scale resource      today (45). These economic phenomena consti-
exploitation has generated substantial profits,       tute basic trends in the Arctic and are insepara-
and where the central powers wish to maintain         ble from the role of the region and its resources
jurisdiction over the territories. Transfer pay-      in the global economy. Therefore one can confi-
ments also exist in places where the democratic       dently predict that they will persist.
setting allows the residents to assert their rights      Furs and whales are still used in customary
to be part of the deal. Negotiations of so-called     economy to a great extend, but they are no
“benefit-sharing agreements” would fall under         longer the most sought-after resources. For
this category.                                        more than a century, the vast quantities of min-
                                                      eral resources, especially hydrocarbons, have
Theme summary                                         taken over that role in the Arctic. This exploita-
Overall, economic characteristics differ across       tion is likely to continue in years to come, sub-
the Arctic with significant variations in both size   ject to the conjunction of three principal factors.
and structure of the economy from one region          Firstly, the exploitation would be contingent on
to another. While the Russian contribution to         the rising prices of metals that are abundant in
the circumpolar economy is the highest, the           the Arctic, such as nickel and gold, which would
population’s standard of living there is the low-     render exploitation of distant deposits prof-
est. In Fennoscandia, the economy is generally        itable, notwithstanding generally high costs of
more diversified than in other parts of the           production and transportation (46). This pre-
Arctic. Across North America, the contribution        supposes that, in the long run, the demand for
to the circumpolar economy is highly variable.        these metals should remain strong.
The greatest concentration of relative wealth is         Secondly, despite the weak increase in
in Alaska. The gaps between wealthy and poor          demand for petroleum over the past few years,
regions appear everywhere but are most                economic and geopolitical factors have given
extreme in Russia and North America. Finally,         non-OPEC countries a new role in production.
the asymmetrical relations between Arctic             In particular, supply is rising in Russia (which
regions and the rest of the world should be sta-      has become the second largest exporter in the
tistically documented, in order to support defi-      world), in Canada, and in the United States (47).
nite conclusions.                                     A considerable portion of the reserves under
                                                      development is situated in the northern parts of



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                            these countries: in Western Siberia, in the            nomic turmoil of the 1990s, especially in the Far
                            Northwest Territories and the Mackenzie River          East, many villages, abandoned by public
                            Delta, in Alaska, and in the Beaufort Sea.             authorities, were deserted and became ghost
                               Thirdly, world gas consumption has been             towns (50).
                            growing. In the coming decades, more new gas              The implementation of privatization policies
                            pipeline projects transporting this fuel from the      has had a profound effect on the economic
                            Arctic to markets, including southern Canada,          practices of many communities, in particular in
                            the United States, Western Europe, and the very        the northeastern regions, including Yakutia,
                            fast growing market of China, would intensify          Chukotka, Magadan, and Kamchatka. These
                            this type of exploitation. Taken together, these       communities specialize in breeding reindeer. As
                            trends, if realized, will perpetuate the Arctic’s      a result of the central government’s disinvest-
                            global economic role as a vast reservoir of            ment, the domestic reindeer population fell by
                            resources.                                             more than one-third between 1991 and 1999,
                                                                                   from 2.2 million head to 1.4 million (51). One
                            Privatization will affect the form of                  result of the reduction of this economic activity
                            economic development                                   has been a more settled way of life, instead of
                            Privatization is a general trend that also             following the reindeer.
                            applies to the Arctic. This trend in itself will not      When the supply networks that supported
                            alter the Arctic’s economic structure.                 production and ensured distribution were cut
                            Nonetheless, it will affect the forms of eco-          off or became intermittent, people also had to
                            nomic development taking place, including              make greater investment in hunting, fishing and
                            those in the metal and energy sectors. This is         trapping activities. (52, 53). Among the Dolgan
                            especially true for Russia but it also applies to      and the Nganasan, more isolated now than in
                            other parts of the Arctic.                             the past thirty years, the main source of protein
                               Since the break-up of the Soviet Union in           comes from subsistence hunting, fishing and
                            1991, northern Russia has undergone profound           harvesting (54). Prior to the dismantling of the
                            changes. From a political perspective, territorial     Soviet Union, reindeer and fish were obtained
                            restructuring and the pushing by republics and         through local markets, state businesses, and
                            regions have led to an evolution of the union          stores in urban centers. Nowadays the impor-
                            towards a confederate system (48). The                 tance of the domestic and community informal
                            increased power in the regions and republics           sectors has increased, and non-market distribu-
                            has laid the groundwork for dynamically devel-         tion of food products has developed. As local
                            oping regional economies. Yet, at the same time        residents no longer have money for modern
                            privatization of the economy has led to signifi-       technology, the diversity of prey has increased
                            cant economic declines in northern regions. For        while the distance covered has declined (55). In
                            example, in less industrialized cities, the sale of    short, activities that comprised the major
                            state enterprises to private interests was used as     exploitation of biological resources amongst
                            an opportunity to shed social responsibilities         indigenous peoples in the past have re-
                            inherited from the former regime. This led to          emerged.
                            privatization expanding even further to also              Privatization does not only affect northern
                            include services, such as healthcare and daycare.      Russia. Greenland has proceeded with a
                            These services were seriously affected, if not         restructuring of its state company in the food
                            completely abandoned. These phenomena                  distribution sector, for instance. The operations
                            imposed new burdens on the citizens and                of the Greenland state company formerly called
                            harmed their quality of life.                          KNI, Kalaallit Niuerfiat or Greenland Trade,
                               Many cities in northern Russia experienced          were dismantled, and two distinct enterprises
                            waves of emigration, an exodus of hundreds of          were created in which private interests will be
                            thousands of people (49) (see also Chapter 2.          heavily involved from now on. One is expected
                            Arctic Demography). Such was the case in               to supply key market centers. The other, which
                            Murmansk, for example. Some of the richest             is responsible for supplying less populous com-
                            cities were affected. This emigration was partly       munities, will receive financial subsidies. The
                            supported by the central government, whose             government-supported policy of uniform pric-
                            new political framework favored freedom of             ing throughout Greenland, aimed at diminish-
                            movement and was no longer aimed at prevent-           ing regional disparities due mainly to distance,
                            ing such emigration. In the midst of the eco-          has been modified (56).



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                                                                                                            Chapter 4
   Other aspects of neo-liberal policies have            Social stratification can increase both within a
affected northern regions across the Arctic. For      community and between communities and
example in the Canadian North, restrictions           regions, however, depending on who benefits
have been imposed on employment insurance             from development and who does not (see
and social assistance. There have also been cuts      Chapter 8. Community Viability for further dis-
in governmental services such as healthcare,          cussion). Also, the economic activity encour-
education and subsidized housing. As a result,        aged by this apparent convergence increases
places such as Nunavut and Nunavik have been,         competition for resources. In regions lacking
and still are, experiencing a severe shortage of      independent political power, local vulnerable
proper housing. In coastal regions where sea-         populations will feel the effects of competition
sonal fishing provides the bulk of monetary           more keenly. Examples of such situations may
income, the tightening of admissibility criteria      be the Saami reindeer breeders, faced with
for social benefits is having significant conse-      severe competition from the forest industry in
quences. In other words, forces that promote          Finland, and the mining industry in Murmansk.
globalization by means of privatization and           Another is the Nenets reindeer breeders facing
neo-liberal policies are affecting the Arctic today   competition from the petroleum and gas indus-
and will influence future development.                try in Arkhangelsk.

Partnerships and competition
The North is experiencing diversification of the
                                                      Conclusion
economy, particularly in Iceland, Fennoscandia,       Considered as a whole, the formal economy of
and in parts of Alaska, where the economies are       the Arctic is of fundamental geo-political
not as centered on large-scale exploitation of a      importance. Indeed, it permits the production of
single resource. Examples include tourist devel-      raw materials that contribute to meeting the
opment, especially ecotourism or “green               needs of the industrialized world.
tourism,” where the north of Finland and                 However, the natural resources are distrib-
Iceland serve as models.                              uted unevenly in the circumpolar area and the
   A significant diversification is taking place      conditions of their exploitation vary greatly. In
among agents involved in the northern econo-          regions that are rich in mineral resources and
my, where privatization has opened up                 where civil society exerts a real influence in the
resources to new investors. International part-       public arena, exploitation activities are super-
nerships, for example between Russian and             vised. For example, big companies must guar-
Norwegian enterprises in the energy sector, are       antee through tangible measures that the envi-
more numerous than ever.                              ronmental impacts will be minimized or that the
   In certain regions residents have concerned        economic spin-offs for the local populations will
themselves in development and are receiving a         be maximized.
portion of the accrued profits, or at least some of      However, this type of supervision is recent
the benefits. This is particularly true in regions    and does not exist everywhere. On the contrary,
that are rich in resources and have enough            there are numerous large-scale mineral and
political power to enable residents to defend         hydrocarbon production operations that have
their demands with respect to planned develop-        been carried out – and that continue to be car-
ment. This phenomenon can be observed in the          ried out – with little concern shown for the nat-
region of Yamal-Nenets and Khanty-Mansii,             ural and human environment. These situations
where political reforms and the abundance of          are most common in regions where local resi-
strategic energy resources have allowed for the       dents have little say vis-à-vis central govern-
emergence of regional power. Similarly, this has      ments or big industry, for example in one-
been witnessed in regions where large compa-          industry towns where the dominant industry’s
nies have reached agreements with local and           considerable power allows for the virtual impo-
regional authorities, usually in terms of a bene-     sition of conditions on employees, their families,
fit-sharing agreement. In some cases, the local       and other residents.
authorities or residents’ associations themselves        Another conclusion from reviewing the eco-
become investors or entrepreneurs. This active        nomic systems of the Arctic is the central role
local participation limits the most adverse           played by the state. Accounting for the greatest
effects of exploitation, because residents’ con-      number of jobs in several regions, the state is a
cerns are taken into account.                         very important economic agent. The state also



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                            plays an important mediation role between pri-        results. Such an initiative could be beneficial to
                            vate interests and civil society, for example to      Arctic regions that are experiencing economic
                            ensure that the expectations of civil society are     and social changes, where few models exist for
                            reflected in the practices of enterprises. State      comparison. A major research initiative should
                            intervention has occasionally been decisive in        be launched to help shed light on the wide
                            allowing Arctic residents to play a larger role in    range of practices available. This could be a spe-
                            the market economy, not only as employees, but        cific focus for a follow up AHDR. One complica-
                            also as entrepreneurs.                                tion in undertaking such an endeavor is the dif-
                               A global trend reflected also in the Arctic is     ficulty of acquiring the appropriate data sets.
                            state withdrawal and privatization. In can be            Indeed, difficulties in acquiring statistical
                            drastic as in Russia after the fall of the Soviet     data sets for the Arctic region that would allow
                            Union or partial as in Greenland. In many cases,      for rigorous comparisons have been experi-
                            the withdrawal has divided residents and con-         enced in creating this report. The AHDR would
                            tributed to making the Arctic’s economic future       have benefited significantly from a proper
                            more uncertain. Social policies may need to be a      access to circumpolar statistics. Our capacity to
                            priority in order to counterbalance this uncer-       deepen our understanding of the economic and
                            tainty.                                               social situation in the different regions of the
                                                                                  Arctic is highly limited by the non-availability
                                                                                  of statistics.
                            Gaps in knowledge
                            Resource developments in the Arctic are based
                            on a wide variety of practices. Some are based
                                                                                  Chapter summary
                            on a pure market ideology, while others make          The formal economy of the Arctic is mainly
                            room for social and environmental concerns.           based on large-scale exploitation of natural
                            The scope of this chapter did not allow for an        resources (e.g. mineral, oil and gas, and fish),
                            in-depth analysis of different practices of their     most of which are exported. The service sector is
                            importance in the Arctic world. This should be        well developed in many parts of the Arctic,
                            one of the topics for a follow-up of the AHDR.        whereas manufacturing plays a relatively minor
                               In most regions of the Arctic, economic devel-     role. Public services are often supported by
                            opment is viewed as the best way to promote           transfer payments from central governments
                            social advancement. However, relationships            but overall, more money is flowing out of the
                            between economic and social development are           Arctic than into the region.
                            not a given, nor automatic or unidirectional. In         The large-scale exploitation of Arctic
                            some regions for instance, the domination of a        resources is important to the national
                            market ideology has created major social prob-        economies of several Arctic countries, as well as
                            lems, be it in decreasing social programs, or be it   in the global economy. This is especially true for
                            in harming the social and natural environment         the Russian Arctic.
                            of the Arctic residents. There is a clear need to        The size and structure of the economy differ
                            deepen the relationships between economic             between and within countries. The gaps
                            development and human development in the              between wealthy and poor regions appear
                            Arctic, rather than to assume that what is good       everywhere but are most extreme in Russia and
                            for companies is good for societies. This model       North America.
                            should be challenged empirically within the con-         The Arctic is likely to continue to play a role as
                            text of the Arctic, and by jointly analyzing data     a reservoir of resources for the rest of the world.
                            sets on both economic and social development.         New trends are privatization of resources and
                               In some regions, economic rents from               new forms of economic partnerships.
                            resource exploitation are so important that they
                            could cover the costs of public services, if only
                            regional authorities could control the rent. In       References and notes
                            other regions, economic rents have been re-
                                                                                   1. T. Armstrong, G. Rogers, G. Rowley, The
                            directed toward regional authorities, but few
                                                                                      Circumpolar North (Methuen, London, 1978).
                            assessments have been made of the results of           2. S. Chatuverdi, The Polar Regions (Wiley, New
                            such arrangements. Research initiatives should            York, 1996).
                            be launched to analyze this, and to study the          3. O. R. Young, Arctic Politics (Univ. Press of New
                            regional government arrangements and their                England, Hanover, 1992).




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                                                       Economic                                                          83




                                                                                                                         Chapter 4
4. In such a geographic area, where varying political            chain. The informal economy data come from a
   systems and diversified economic practices can be             broad range of scientific literature and mono-
   found, it is necessary to employ a number of                  graphs, since the transactions of the informal
   sources and complementary methods. The sys-                   economy have not given rise to any systematiza-
   tem of national accounts measures transactions in             tion on the circumpolar scale.
   the formal economy, namely legal currency trans-         6.   P. Schereyer, F. Koechlinn, Parités de pouvoir
   actions subject to taxation. The system is useful             d’achat: mesure et utilisations. Cahiers statistiques
   for it enables us to describe very meticulously the           OCDE (Organisation de coopération et de
   size and structure of transactions and economic               développement économiques, no. 3, March
   flows, as well as compare the standard of living              2002).
   that may differ considerably amongst countries.          7.   T. Armstrong, G. Rogers, G. Rowley, The
   The application of the system of national                     Circumpolar North (Methuen, London, 1978).
   accounts to the Circumpolar Arctic has never             8.   J. Newell, The Russian Far East (Daniel & Daniel,
   been done before and constitutes a major compo-               McKinley Ville, 2004).
   nent of this chapter. The data dealing with the          9.   J. Friedman, Regional Development Policy (MIT
   formal economy have been taken from national                  Press, Cambridge, MA, 1966).
   statistical organizations. They were processed to       10.   D. E. Sugden, Arctic and Antarctic (Barnes,
   make them rigorously comparable: they were                    Totowa, 1982).
   converted into 2001 US$, and modified to reflect        11.   Arctic Monitoring and Assessment Programme,
   purchasing power differences (which is referred               AMAP, Human Health in the Arctic, http//www.
   to as PPP, Purchasing Power Parity).                          amap.no/ (2002).
5. The informal economy represents all of the eco-         12.   Arctic Monitoring and Assessment Programme,
   nomic activities that are not encompassed in the              AMAP, The Influence of Global Change on
   national accounts. It includes four activity sec-             Contaminant Pathways, http//www.amap.no/
   tors. The domestic and community sector produces,             (2002).
   distributes and consumes goods and services, in         13    Arctic Monitoring and Assessment Programme,
   the home or in the community, without resorting               AMAP, Arctic Pollution 2002, http//www.amap.no/
   to monetary transactions. It is characterized by a            (2002).
   limited number of intermediaries and a set of           14.   J. L. Jernsletten, K. Klokov, Eds., Sustainable
   tacit rules based on the underlying motivation                Reindeer-Husbandry (Centre for Saami Studies,
   and ties that unite people involved in a transac-             Univ. of Tromsø, 2002).
   tion. The actual informal sector, is often associated   15.   A. Pika, Neotraditionalism in the Russian North
   with traditional activities, (C. Godfroy, Thesis,             (CCI Press, Edmonton, 1999).
   Université Montesquieu-Bordeaux (1997)),                16.   Human Role in Reindeer/Caribou Systems
   the activity of a single producer, or of micro-               Workshop, Proceedings of the Human Role in
   enterprises involved in the production of goods               Reindeer/Caribou Systems Workshop, Rovianemi,
   or services, commerce, transportation or pro-                 Finland, 10-14 February 1999 (Norwegian Polar
   curement. This sector’s transactions are not                  Institute, Tromsø, 2000).
   included in the national accounts; nevertheless,        17.   T. Tuisku, in Social and Environment Impacts in the
   they all employ currency, and hence are legal or              North, R. O. Rasmussen, N. E. Koroleva, Eds.
   simply tolerated (C. Michaud, Thesis (MBA),                   (Dodrecht, Kluwe, 2003), pp. 449-461.
   Laval University (1994)), or encouraged (A.             18.   Shared Values, Common Goals, Exceptional Results.
   Portes, M. Castells, L. A. Benton, Eds. The                   The Red Dog Mine Story. (Northwest Alaska
   Informal Economy (Hopkins Univ. Press,                        Native Association & Cominco Ltd., n.d), 26p.
   Baltimore, 1989)). The irregular sector and the               Myers, Heather. Changing Environment,
   criminal sector are characterized by the failure to           Changing Times. Environmental Issues and
   comply with existing state regulations. Because               Political Action in the Canadian North. In
   this study is based on available data and is                  Environment (43 (6), 2001) pp. 32-44.
   attempting to achieve a systematic analysis, it         19.   G. Duhaime, R. O. Rasmussen, R. Comtois, Eds.,
   does not refer to the irregular and criminal sec-             Sustainable Development in the North (Gétic, Laval
   tors of the informal economy. Moreover, it does               Univ., Québec, 1998).
   not focus on all of the activities of the actual        20    L. C. Hamilton, in Arctic Economic Development and
   informal sector, or the domestic and community                Self-Government, G. Duhaime, N. Bernard, Eds.
   sector. Indeed, available data concerning the                 (Gétic, Laval Univ., Québec, 2003), pp. 49-61.
   informal sector and the domestic and communi-           21.   C. Neil, M. Tykkyläinen, Eds., in Local Economic
   ty sector generally deal with food-producing                  Development (U. N. Univ. Press, Tokyo, 1998), pp.
   activities, the production, distribution and con-             309-317.
   sumption of food associated with hunting, fish-         22.   E. Varis, in Local Economic Development, C. Neil,
   ing, trapping, breeding and gathering; they only              M. Tykkyläinen, Eds. (U. N. Univ. Press, Tokyo,
   exceptionally concern activities such as women’s              1998), pp.154-170.
   domestic work, including their role in this food        23.   I. Krupnick, Polar Research 19, 1 (2000).




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                            24. J. P. Ziker, in People and the Land, E. Kasten, Ed.   45. D. E. Sugden, Arctic and Antarctic (Barnes,
                                (Verlag, Germany, 2002), pp. 207-224.                     Totowa, 1982).
                            25. V. Golovnev, G. Osherenko, Siberian Survival,         46. A. Belkaï, in L’État du Monde, S. Cordellier, Ed.
                                (Cornell, Ithaca, NY, 1999).                              (Boréal, Montréal, 2003), pp. 78-82.
                            26. L. Granberg, L. Riabova, in The Snow Belt Studies     47. J.-M. Martin-Amouroux in L’État du Monde,
                                on the European North in Transition, L. Granberg,         S. Cordellier, Ed. (Boréal, Montréal, 2003), pp.
                                Ed. (Kikimore publ., Helsinki, 1998), pp. 171-            75-78.
                                198.                                                  48. C. Urjewicz in L’État du Monde, S. Cordellier, Ed.
                            27 R. A. Caulfield, in Sustainable Food Security in the       (Boréal, Montréal, 2003), pp. 540-544.
                                Arctic, G. Duhaime, Ed. (CCI Press, occ. pap. ser.,   49. L. Granberg, in The Snowbelt, L. Granberg,
                                Univ. of Alberta), 52, 75 (2002).                         Ed. (Kikimora Publications, Helsinki, 1998) pp.
                            28. R. C. Wolfe, paper presented to the Institute of          231-264.
                                Medicine, National Academy of Sciences                50. G. Smirnov, M. Litovka, D. Naumkin in The
                                Committee on Environmental Justice, 13 August             Russian Far East, J. Newell, Ed. (Daniel & Daniel
                                1996.                                                     Publishers, McKinleyville, California, 2004), pp.
                            29. M. Chabot, thesis, Laval University (2001).               300-307.
                            30. R. A. Caulfield, Greenlanders, Whales, and Whaling,   51. K. B. Klokov in Proceedings of the Human Role in
                                (Univ. Press of New England, Hanover, 1997).              Reindeer/Caribou Systems Workshop: Rovianemi,
                            31. H.     Ylinenpää,      http://www.ies.luth.se/org/        Finland, 10-14 February 1999 (Norwegian Polar
                                Rapporter/al2001-48.pdf (12 September 2001).              Institute, Tromsø, 2000), pp. 39-47.
                            32. A. Kasvio, http://www.info.uta.fi/winsoc/engl/        52. E. Varis, in Local Economic Development, C. Neil,
                                lect/REGION.html (8 December 2000).                       M. Tykkyläinen, Eds. (U. N. Univ. Press, Tokyo,
                            33. A. Kasvio, http://www.uta.fi/~ttanka/finland.htm          1998), pp.154-170.
                                (9 May 1997).                                         53. K. B. Klokov in Proceedings of the Human Role in
                            34. M. E. Johnston, in Polar Tourism, C. M. Hall, M. E.       Reindeer/Caribou Systems Workshop: Rovianemi,
                                Johnston, Eds. (Wiley, Chichester, 1995).                 Finland, 10-14 February 1999 (Norwegian Polar
                            35. Except in Iceland, were they are third, after per-        Institute, Tromsø, 2000), pp. 39-47.
                                sonal and commercial service                          54. J. P. Ziker, Research in Economical Anthropology 19,
                            36. Regina and Kozlov, 2000: 37.                              191 (1998).
                            37. D.I. Syrovatsky, Organizatsia i ekonomika             55. E. Varis, in Local Economic Development, C. Neil,
                                olenevodcheskogo proizvodstva (Organization and           M. Tykkyläinen, Eds. (U. N. Univ. Press, Tokyo,
                                Economy of the Reindeer Husbandry Production)             1998), pp.154-170.
                                (Yakutsk, 2000, quoted in Sustainable Reindeer-       56. G. Winther, Ed., Arctic Research Journal 1, 1
                                Husbandry, J. L. Jernsletten, K. Klokov, Eds.             (2001).
                                (Centre for Saami Studies, Univ. of Tromsø,
                                2002)).
                            38. A. Kasvio, http://www.uta.fi/~ttanka/finland.htm
                                (9 May 1997).
                                                                                      Acknowledgements
                            39. Statistics Greenland, Greenland 1998 Statistical      Statistics on the formal economy and data on the
                                Yearbook (Greenland Home Rule Government,             informal sector have been extracted from ArcticStat,
                                Nuuk, 1999).                                          the core infrastructure of the Canada Research Chair
                            40. M. Chabot, Kaagnituuruma! As long as I am not         on Comparative Aboriginal Conditions, Gérard
                                hungry. Socio-economic status and food security of    Duhaime chair holder. Their compilation and pro-
                                low-income households in Kuujjuaq (Nunavik            cessing were made possible thanks to the financial
                                Regional Health Board of Social Services &            support of the Canada Research Chairs Secretariat,
                                Corporation of the Northern Village of Kuujjuaq,      the Louis-Edmond-Hamelin Chair and the
                                Kuujjuaq & Pontiac 2004). M. Chabot in The            Department of Indian and Northern Affairs Canada.
                                Canadian Review of Sociology and Anthropology, 41,    The authors are grateful to Pierre Fréchette of Laval
                                2 (2004).                                             University, Eric Guimond of the Department of
                            41. G. Duhaime, P. Fréchette, V. Robichaud, The           Indian and Northern Affairs Canada, Finn
                                Economic Structure of Nunavik Region (Canada):        Christensen of Statistics Greenland, Rein Billström
                                Changes and Stability (GÉTIC, Université Laval,       and Eva Lundström of Statistics Sweden, Ulla-Maarit
                                1999), http://www.chaireconditionautochtone.          Saarinen of Statistics Finland, Heidi Ryan of the
                                fss.ulaval.ca/extranet/doc/73.pdf (2004).             Newfoundland Statistics Agency, and Heather Tait,
                            42. T. Armstrong, G. Rogers, G. Rowley, The               Marc Pagé and Robert Aubé of Statistics Canada.
                                Circumpolar North (Methuen, London, 1978).
                            43. Arctic Monitoring and Assessment Programme,
                                AMAP, Human Health in the Arctic, http//www.
                                amap.no/ (2002).
                            44. D. E. Sugden, Arctic and Antarctic (Barnes,
                                Totowa, 1982).




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