“The global demand is a very strong driver affecting the Arctic economy”

Could you give us a brief introduction to the economy of the Arctic – what does it entail?

There are big gaps in our knowledge about the Arctic economy, because it is so different from other regions of the world. The Arctic is very large in geographical terms but not so many people live there, yet it is home to Indigenous peoples and other inhabitants, and nature-based livelihoods are very important for the economy and the culture. Thus, there is a large tension between the global demand for the natural resources in the Arctic and an intact environment as basis for local and Indigenous livelihoods.

As regional statistics are often not the most prioritized, it is sometimes a “treasure hunt” to find regional information. The gross domestic product (GPD), one of the main economic indicators, is regionalized by the national statistical offices, and we can also find other regional statistics, but not enough to get a complete picture of the livelihoods and living conditions in the Arctic. This is why we need this comprehensive report, in order to capture the many different economies in the Arctic – from the large-scale petroleum and mineral extraction industries to the local livelihoods.

What are some of the key challenges and drivers affecting the Arctic economy?

The ECONOR reports have documented that the global demand for resources is an important driver for the Arctic economy. The Arctic is rich in natural resources, including fish and wildlife, with renewable natural resources as well as extractive natural resources. The world looks to the Arctic to extract these valuable resources, the petroleum resources and, as more nations call for less usage of fossil fuels and demand alternative energy technologies, there is higher demand for the Arctic’s minerals. The increasing population of the world also looks North for fish and other marine food resources. This global demand is a strong driver affecting the Arctic economy.

Then, we can see how climate change impacts all levels of the economy. It is getting increasingly difficult for Indigenous peoples relying on seal hunting, to hunt from the ice edge which is retreating further and further. Sámi reindeer herders in turn experience how winter precipitation shifts from snow to rain, which creates an ice layer that makes it difficult for the reindeer to find food. In addition, the economic activities in many areas in Canada and Alaska are relying on ice roads for transportation but these are affected by the thawing permafrost – a serious threat to local communities and infrastructures.

It is a very important premise for the economy of the North that climate change happens twice as fast in the Arctic as in the rest of the world. For many people it is hard to grasp how severely the Arctic economy is affected and that is what we are trying to show with the report.

Does the ECONOR report focus on any specific branches of the Arctic economy?

We try to cover the whole span. On the national level, we look at the Gross Domestic Product (GDP) that measures the extent of economic values created in the society. For regions we can find this information in the regionalized statistics, and on this regional level we call it gross regional product (GRP), it’s a downscaled version of the GDP.

Then, we also focus on the income of the residents of the Arctic, how much we earn as individuals and families. This is what statisticians call household income. However, to understand the Arctic economy, we have to understand the nature-based livelihoods of Indigenous peoples and other local people, and these subsistence activities are increasingly intertwined with the money economy.

We try to highlight that there is not only one economy, one that we can find from reading statistical reports, but that we need to go out there and find case studies of peoples´ livelihoods and how they are impacted by global and climatic drivers.

Increasingly we also try to pay attention to new economic developments, such as tourism, entrepreneurship, how to create new types of jobs in the Arctic, the development of an urban Arctic, emergence of high-skill jobs and so on. We try to span the juxtaposition between traditional lifestyles and the developments rendering the Arctic a part of the modern world.

In your previous report you state the gross regional product (GDP) does not reflect the reality of livelihoods and living conditions in the Arctic – why is that so and what would be more suitable indicators?

To get the bird’s eye perspective, we start out with a familiar indicator, the GDP. However, one needs to keep in mind that in many cases large companies operating in the Arctic have their headquarters in southern regions, and a large share of the income generated from resource extraction could leave the Arctic. Thus, the GPD does not provide us with an accurate picture of the economy of the Arctic.

So, what should we focus on then? Household disposable income, the income we have at disposal for our own consumption, tells us more, but in the Arctic, even household disposable income is not the full picture of the consumption possibilities, whereas nature-based activities, such as fishing, are an important part of livelihoods. There is a strong tradition in the North for harvesting from nature and thus, the possibility for consumption also depends on nature.

Yet, when we talk about the standard of living we cannot only look at the economic indicators, and the harvest of nature, such as the fish, the meat, and the berries, we also need to look at social indicators. Gérard Duhaime has in his research on Indigenous communities in Canadian North emphasized that persistent structural challenges need to be portraited to give a picture of the living conditions. For example, we need to look at the demography, life expectancy, infant mortality, how many people working are supporting the young and elderly, how many jobs exist compared to how many people are unemployed, the education level, and especially the female proportion to population. While there is typically a fifty-fifty ratio between men and women, in the Arctic many young women leave to get an education and may not come back. So, there is an gender imbalance there, which is threatening for the social sustainability. These demographic and social data are presented as social indicators.

To sum it up, there is nothing wrong with the GDP as economic indicator, but it captures only a limited part of the economic and social reality, and to get a more complete picture of the economy of the North, we need several types of indicators. In the ECONOR reports we focus on four types of indicators: GPD, household disposable income, nature-based harvest, and social indicators.

The first ECONOR report was released in 2006, the most recent one in 2015. What are some of the main changes you have seen over the years?

The broad picture given by the ECONOR reports so far seems to be persistent over time. We think this storyline needs to be told again and again to create an awareness of how global drivers affect the Arctic economy while people living there do their best to maintain their livelihoods.

When the financial crisis hit, we made an interesting observation in the third ECONOR report. For each of the Northern regions of the eight Arctic countries we could observe a dip in production after the financial crisis – but then we learned something unexpected. Usually, you would think that a region that is dependent on natural resources has a more unstable economy, dependent on fluctuating prices. Yet, this was not the case in the Arctic. The Arctic regions of Sweden and Finland that have the largest share of manufacturing were also hard hit during the financial crisis. Thus, we need to study the Arctic regions in their own terms and see what characterizes these regions.

In addition, an interesting feature is the growth in tourism. In the third ECONOR report, for the first time we had a special chapter on tourism – which we will also have in the new report. In Northern Norway for example we see how winter tourism is taking off, people coming from far away to see the Northern lights. Many tourists also travel North to come and see the ice before it melts.

Do you expect any significant changes between the most recent report and the upcoming?

We are curious about the changes we will see – but it is too early at this stage to say more. What we can say is that we will introduce some new topics – and these could give more nuances to the description of the Arctic economy. Gérard Duhaime is leading a large initiative in Canada called “Wealth of Arctic Group of Experts” (WAGE). He plans to launch a large research project to go more deeply into the socio-economic issues. We will not get results from this project for the upcoming ECONOR report, but we cooperate with the network. We connected with Alexander Pelyasov and Nadezhda Zamyatina from the Lomonosov Moscow State University, and they suggested to look at the research they have done on entrepreneurship, to establish new businesses on transportation and resources in the Russian Arctic. This will be very helpful for the new ECONOR report.

The “blue economy” is another new issue. We will not have time to go in depth with this large issue, but we will report on the importance of aquaculture and fisheries for the Arctic economy.

Moreover, we have established a cooperation with Business Index North based at Nord University in Bodø, Norway. They do short-term monitoring of the economy, which is much in demand by businesses and others that need more rapid information on what the situation of the Arctic is right now. While ECONOR looks back and makes an overview of what has happened over the past few years, Business Index North looks at the present and near future.

How is the ECONOR report developed? (what is the process, who is involved, what sources are included?)

It’s fair to say, it’s on the initiative of the editors, motivated by positive feed-back from far and near. We write a grant proposal to the Norwegian Ministry of Foreign Affairs, the main funder, and a proposal to the Nordic Council of Ministers, co-funding ECONOR. We much appreciate their support for the ECONOR projects. This time, the process was more involved because we had to involve all the countries to find new partners to co-fund the ECONOR IV report through contributions of their own work. We contacted the national statistical offices of all Arctic countries and asked them to help us to dig more deeply into the data to interpret the data. That was a long but also learning process, building new cooperation.

Then, we start looking for information, data and case studies everywhere. For example, nature-based livelihoods are not in the statistics, only in Alaska can we find this as available statistics. In Alaska, it is mandatory that the State of Alaska shall make surveys of nature-based livelihoods. They send out researchers and statisticians to all local communities and ask them how much fish they caught, how many moose they have hunted, how many berries they harvested. For the other Arctic regions, we use our network and search for researchers who have explored the nature-based livelihoods and have knowledge expressed in numbers. In ECONOR IV we will continue to develop the platform on presenting available information on the traditional nature-based economy.

What are the main objectives of the updated ECONOR report?

The objective is to continue to give attention to the Arctic economy and its special features. This is useful for the Arctic regions themselves, the Arctic Council, and also to raise awareness in general. Documenting economic activity shows that there are people living in the Arctic. Ever so often, we hear that there is so much space in the Arctic, why don’t we put wind turbines there – but people live there with lifestyles that are spread out across the vast areas of land and sea. It is the ambition of ECONOR to give attention to the economy and livelihoods of the people living there and to show that the economy of the Arctic is much more complex then the top level of statistics suggests. The GDP is like the tip of the iceberg – but to understand sustainable development, we need a more comprehensive picture of the way of life and livelihoods of the Arctic.

From your experience from e.g. the global financial crisis in 2008, can you anticipate which impacts the current health crisis will have on the Arctic economy?

It is difficult to compare the financial crisis with the current pandemic. The corona crisis is much more severe and threating. Again, it is like starting by looking at the tip of iceberg: We can see how tourism is shutting down. Many communities that plant their hopes in tourism, whether large scale or more sustainable tourism, immediately see the economic impacts and large uncertainties.

What we have learned from studies of sustainable development and the precautionary principle is to emphasize diversity, to not have all the eggs in one basket. We need to be more aware of the importance of local resources, to secure a local basis to fall back on, and to protect natural, cultural and economic diversity.