Seeker Blog

Back on 8 May 2003 I wrote:

Oil wealth has been a curse for most countries who have it - particularly the Arab Gulf states. Where the revenues flow directly into the ruling government’s coffers, corruption and missapplication are the norm. Since meaningful general taxation isn’t required to fund the government, you loose one of the pilars of democracy: vigilant taxpayers.

Given the opportunity to design from scratch how the Iraqi oil assets are managed, we hope that the Iraqis can devise a scheme that avoids the “resource curse”. The core concept that appeals to me is to transfer ownership of all (or most) of the oil assets directly to the people - a variation of the State of Alaska structure. Then the new Iraqi government must tax the people for the funds to run the government, thereby inverting the usual wealth relationship in such states.

In the following pair of articles the authors propose a very interesting scheme, based in part on an idea from economists Terry Anderson and Vernon Smith (who won the Nobel Prize for Economics in 2002). In brief this scheme transfers ownership of the oil reserves directly to the Iraqi people by means of transferable certificates:

An Oil-for-People Program, by Susan Lee

Iraq’s oil: for sale, to the highest bidder, by M.A. Adelman

Michael Barone was promoting the revenue-sharing Alaska Permanent Fund concept at least as early as April 2003. Michael spoke on the trust fund proposal this week on 21 September 2005 at a New America Foundation conference. Barone’s summary of the key benefits is excellent:

It seems to me that an Iraqi Permanent Fund would have several good effects.

It would reduce the flow of oil money to the state. In most oil-rich states, that money has become a source of corruption and an incentive for greedy men to seize dictatorial control of the state.

It would give every Iraqi citizen a form of property. Future fund dividends could be the collateral for loans to set up small businesses. The payments would not be so large as to be a serious disincentive to work.

If the fund reduces the flow of oil money to the state sufficiently, it would require the Iraqi government to impose taxes–and to be held accountable for spending. This is the essence of democratic government.

A permanent fund would refute the charge that America and its coalition partners fought a war for oil. It would be clear that the United States wanted no more than the opportunity to buy oil at market prices–and that the profits, or some large part of them, would go directly to the Iraqi people.

It would set an example for other oil-rich countries. People there might start to ask why they should not get a share of oil profits directly rather than have them monopolized by dictatorial or authoritarian governments.

Ahmed Chalabi has been steadily promoting this concept all along, as I wrote in this 17 August post on the Iraq constitution: a constitutional right to share in the oil wealth.

See also this John Tierney op-ed from 10 September 2003 (via Michael Barone’s post today), and this analysis by Jim Lacey from 5 June 2003.

More Iraq oil trust fund references can be found at the end of this New America Foundation piece Powell Endorses Alaska Trust Fund Concept for Consideration in Iraq.

This Cato Institute paper on Property Rights: Key to Economic Development is an excellent summary of the necessary conditions for growing a modern economy.