Posted on 05/02/2005 5:55:33 PM PDT by Leifur
Few Iraqis have heard of the "resource curse," the scholarly term for the economic and political miseries of countries with abundant natural resources. But in Tayeran Square, where hundreds of unemployed men sit on the sidewalk each morning hoping for a day's work, they know how the curse works.
"Our country's oil should have made us rich, but Saddam spent it all on his wars and his palaces," said Sattar Abdula, who has not had a steady job in years.
He proposed a simple solution instantly endorsed by the other men on the sidewalk: "Divide the money equally. Give each Iraqi his share on the first day of every month."
That is essentially the same idea in vogue among liberal foreign aid experts, conservative economists and a diverse group of political leaders in America and Iraq. The notion of diverting oil wealth directly to citizens, perhaps through annual payments like Alaska's, has become that political rarity: a wonky idea with mass appeal, from the laborers in Tayeran Square to Iraq's leaders.
American officials have projected that a properly functioning oil industry in Iraq will generate $15 billion to $20 billion a year, enough to give every Iraqi adult roughly $1,000, which is half the annual salary of a middle-class worker.
No one suggests dispensing all of the money - and some say the government cannot afford to give up any of it - but there have been proposals to dispense a quarter or more.
The Progress Report observes -- That is false. Many wise people, including economists, do indeed suggest distributing all the money. If natural resource value belongs to the people, then none of it should be stolen from them.
Leaders of the American occupying force have endorsed the oil-to-the-people concept and said recently that they plan to discuss it soon with the Iraqi Governing Council.
The concept is also popular with some Kurdish politicians in the north and Shiite Muslim politicians in the south, who have complained for decades of being shortchanged by politicians in Baghdad.
"Giving the money directly to the people is a splendid idea," said one member of the Governing Council, Abdul Zahra Othman Muhammad, a Shiite from Basra who leads the Islamic Dawa party. "In the past the oil revenue was used to promote dictatorship and discriminate against people outside the capital. We need to start being fair to people in the provinces."
When oil wealth is controlled by politicians in the capital, one result tends to be the resource curse documented in the last decade in academic works with titles like "The Paradox of Plenty," "Does Oil Hinder Democracy?" and "Does Mother Nature Corrupt?"
Among the many researchers have been Jeffrey Sachs of Columbia University and Paul Collier of Oxford University, both economists, and Michael L. Ross, a political scientist at the University of California at Los Angeles.
The studies have shown that resource-rich countries in the Middle East, Africa and Latin America are exceptionally prone to authoritarian rule, slow economic growth and high rates of poverty, corruption and violent conflict.
Besides financing large armies to fight ruinous wars with neighbors, as in Iraq and Iran, oil wealth sometimes leads to civil wars over the sharing of the proceeds, as in Sudan and Congo. "Governments tend to use mineral revenues differently from the revenues they get from taxpayers," said Dr. Ross, who found an inverse relationship between natural resources and democracy. "They spend more of it on corruption, the military and patronage, and less of it on basic public services. Oil-rich governments don't need to tax their citizens, and taxation forces governments to become more representative and more effective."
Steven C. Clemons, executive vice president of the New America Foundation, a centrist research group, has proposed using 40 percent of Iraq's oil revenue to create a permanent trust fund like the one in Alaska, which has been accumulating oil revenue for two decades. That capital is invested and each year a share of the income is distributed - more than $1,500 to each Alaskan in recent years.
"A fund like Alaska's is the best way to prevent one kleptocracy from succeeding another in Iraq," Mr. Clemons said. "It would go a long way to curbing the cynical belief that Americans want Iraqi oil for themselves, and it would give more Iraqis a stake in the success of their new country. It would be the equivalent of redistributing land to Japanese farmers after World War II, which was the single most important democratizing reform during the American occupation."
In America, Mr. Clemons's idea was quickly embraced by many foreign aid experts, editorial writers, and even some Bush administration officials and politicians. Some experts, though, have faulted the trust fund, saying it would be expensive to administer and would pay out small dividends at first, perhaps only $20 per Iraqi adult, until more capital was amassed.
As an alternative, some have suggested skipping the individual payments in the early years and dedicating the money to economic development or social programs. Money could be invested in a long-term pension program, as Norway does with some of its oil revenue.
Another alternative would be to make bigger payments up front by giving the money directly to citizens instead of putting it into a trust fund. Thomas I. Palley, an economist at the Open Society Institute, proposed dividing a quarter of the oil revenue each year among all adults in Iraq. That could amount to $250 per adult, assuming that the administration's hopes for oil production prove accurate.
Oil companies would not be directly affected by an oil fund, since they would be paying the same taxes and fees no matter what the government did with the money. "The oil industry likes working in countries with dedicated oil funds and transparent accounting, because there's less loose money to corrupt the government," said Robin West, chairman of PFC Energy, an American consulting firm to the oil industry.
"Corruption is bad for business," Mr. West said, "because it creates instability. In places like Alaska and Norway, people support the oil industry because they see the benefits. In places like Nigeria, they see all this wealth that doesn't benefit them, and they start seizing oil terminals."
The Progress Report observes -- despite West's coverup, it is the oil companies themselves who refuse to publish what they pay for access to oil in Nigeria and other countries. No one is stopping them from coming clean.
Even Iraq's latest non-elected leader, Paul Bremer, has praised the idea of sharing "Iraq's blessings among its people," and suggested that the Governing Council consider some kind of oil fund. Iraqi politicians, of course, have no trouble understanding the appeal of handing out checks to voters.
The chief argument against an oil fund is that Iraq's government cannot afford to part with any oil revenue for the foreseeable future. It faces a large budget deficit this year, and sabotage to the oil industry has reduced oil production far below projections.
"There isn't that much money now, and we need every penny for rebuilding the country," said Adnan Pachachi, a member of the Governing Council and former foreign minister of Iraq.
"Giving away money would be politically popular," he said, "but we should not gain popularity at the expense of the long-range interests of the country. By giving away the money you may sacrifice building more schools and hospitals."
Some have suggested letting the government keep all of the revenue until oil production increases well beyond current levels, then putting the extra money into a fund.
But the oil-to-the-people advocates say that now is the time to at least establish the framework for the fund, before a permanent government gets addicted to the revenue. If experience is any guide, that government would probably not be devoting the money to schools and hospitals.
"There is a direct proportional relationship between bad government and oil revenue," said Ahmad Chalabi, the current chairman of the Governing Council, leader of the Iraqi National Congress, [and fugitive who fled Jordan rather than face trial]. "If the government performs well or badly it doesn't matter, because the oil revenue continues to flow. The government will use the oil revenue to cover up mistakes."
Mr. Chalabi pointed to a precedent: a trust fund that existed in Iraq during the 1950's, when part of the oil revenue went not to the government's budget but to a development fund whose disbursements were directed by Iraqi and foreign overseers.
"The fund worked very well," he said. "Iraq's economy in the 1950's and 1960's was relatively good."
Back then, Mr. Chalabi said, oil revenue was a relative pittance, adding up to less than $10 billion in the four decades preceding the Baath Party's rise to power in the late 1960's. But then came the resource curse. During a single decade, the 1980's, Iraq's oil revenue amounted to more than $100 billion.
"What happened to it?" Mr. Chalabi asked. "Iraq was a much better country in every aspect before it got that money."
I like those ideas put forward in this article, and I brush of the criticism of the government needing the money, f.e. to build schools and hospitals. If those were privatized, schools and hospitals would be bought for the money the oil will provide regular Iraqis with, as they will continue to buy for this service, but now just do it directly.
"...distributing the oil revenues to each and every Iraqi."
Have I wandered into CommunistRepublic.com?
He has also put forward ideas elsewhere that the government could tax the money given to the people as every other income and thus get moeny to pay for what they run. Thus the government would be more responsible to the citizens, like in normal countries. I have posted about this idea from him before here:
http://www.freerepublic.com/focus/f-news/1353317/posts
As to the oil, maybe Iraqis would see more incentives in helping secure the oil bussiness if they saw it benefitting them directly.
Communism is when all revenues that are created within the country go to the government that uses them to run all kinds of services directly. If every Iraqi got their share of the revenues directly like they do in Alaska, they could buy all that directly from private companies, f.e. health and schooling and even security.
" If every Iraqi got their share of the revenues directly like they do in Alaska...."
Alaska has a severence tax on its resources. The tax overfilled the State's coffers and therefore provided a tax refund.
15 to 20 Billion/year ...?
Seems like a meager amount of income...I'd have though it
would be a lot more.
That must be less than what is spent on cat food in the US.
Everyone always talks like the oil producing countries are pulling down a gazillion dollars a year.... they better start
producing something other than oil soon because they are just one scientific energy breakthrough away from living in tents and burning Camel poop to stay warm.
Sometime in the next 50 years or so I think oil's value will crash.
Sell stock. Pay employees of the now dangerous business partially in stock. IMHO it would work but I think perhaps that this is the last thing that A**hole Chalabi intends. Why some sensible person hasn't shot him, I don't know. Seems like they have shot most everyone else or at least tried..
Is the oil the only resource? It does not seem to be much money they are getting from it these days, so I suspect most of their money now comes from international aid, most notably from the US, am I not right? That could of course also be dangerous, the Egyptian government is not accountable to their people because they get all that money from the US, wich the government then uses to buy their power. But yeah, if they build their society on capitalistic grounds instead of the communism they have been having during the last decades, they could become and industrial and economic powerhouse of the region, thus pressuring reforms even harder in their neighbouring countries.
The oil has of course some problem flowing due to security reasons these days, but that will change, f.e. as Iraq has one of the biggest undeveloped oil fealds in the world. If the oil revenues were put into individual accounts for each and every Iraqi (living in the country) to be used at will (or have some limits on what they can spend of it) they would see incentive in helping the oil to flow, by providing more security and information about the terrorists.
Thus, little by little, when the oil revenues will go up, and the aid will go down, Iraqis will get more and more money to buy themselves daily services, like health care, schooling for the children (and others), life, disability and pension incurences and so on. In the same time, the government could little by little reduce what they pay directly for those services, f.e. by making the hospitals and schools financially independant, and then little by little reducing what they pay for each and every individual directly, and in turn, what each and every Iraqi, with their increased individual oil revenues, paying more and more and eventually they would pay all (or most) things directly. Then the government could sell the hospitals and the schools to their employees and others, who would then compete in providing Iraqis the best service and the cheapest prizes.
Yeah, some day oil will be cheap, that is if we can get another power source that is cheap enough to make energy be plentiful. Then demand for oil will drop, and thus oil prizes will drop, maybe this will happen within the next 50 years, hopefully, imagine what we could do with enough cheap energy.
Of course that would be ideologically the optional solution, but as I beliewe Bush once said, all politics are local, and there will not be enough political support among the Iraqis in selling their only wealth, in wich they have great hope and have depended on. That day will maybe come, if excluding the oil company, the society can become capitalistic enough by privatizing most other aspects of it and thus essentially economically strong. Thus little by little they will be able to get other sources of revenue, and by diversifying the economy thus the oil will maybe become that unimportant selling it will not be opposed as much as it will be now.
I am not going to judge Chalabi until I can see what he will do with his newfound power, but he has at least shown resiliance, as the Iraqi nation can partly thank him for the liberation of Iraq, for wich he has been a strong champion for during many years.
Good point money isn't needed for schools or hospitals if you just let them be free market ran. The only real point I can see from the oil money is government investment in physical infrastructure. Like power lines, sewers, highways, etc..
Err government spending of the oil money.. As opposed to the much better fund solution, where money goes directly to the Iraqi people.. not through big brother middle men.
I know, I was not sure if I should mention Alaska, as your answer would be the logical answer. But look at it this way. If the oil revenues will be distributed, similarly to the voucher programs many US conservatives (and others) are championing for as their (ours) wet dream, the Iraqi government will become more accountable to their citizen, as they will have to tax their citizens income, including the oil money, like in all stabil democratic countries. That has not been the case in most oil rich dictatorships, where the governments have used it as their personal fiefdoms, buying support with all kinds of socialistic programs and divide and conquer their citizens with the oil money.
Creating capitalism by such an aproach is not communism, although it is more socialistic than the ideal situation. Please read what I have answered others about this in this thread and comment on it.
Actually those could also be privatized...or made the responsibility of lower levels of government who would have to tax the Iraqi´s income, weather from the oil or their work, to pay for such infrastructure, specially the roads and sewers and such at least. But that could also be privatized with user fees similar as higways in many countries.
Good point, give the Iraqis the money directly. Then let them figure out what level of taxes they want, which at first at least quite a lot would be driven by the oil money they are getting.
That will make the government more accountable.. And I agree with you most of the infrastructure could be done locally. And electricity personally I still believe at least generation can be done privately. Although countries always seem to regulate them to death.
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