Last week, in a December 22th Wall Street Journal op-ed, Ibrahim Bahr Al-Uluom, a former Iraqi oil minister and current member of the Iraqi National Alliance (a political party), lamented the recent Iraqi oil lease auctions and suggested transferring as much of Iraq’s oil wealth directly to its citizens in the form of shares in an Iraqi National Oil Company. He’s not the first to do so (Nancy Birdsall, of the Center for Global development, suggested something similar in 2004) although he’s open that he seeks political advantage.
The idea that natural resource development must benefit the people (especially financially) is a great one, an essential one. The question is how to do it right. But is handling over shares of a national oil company the best way to enrich the people of Iraq?
I’m building a scorecard to see if the pros outweigh the cons.
PRO
1) Enriching the average citizen means they have more money to work with to improve their lives as they see fit.
2) They can start or develop a small business, which will help develop the economy on a grassroots level.
3) They can enhance their own living standards.
4) They can enhance their children’s well-being through health improvement (if necessary) or education
5) They can save money for a rainy day. Financial security is one of the greatest feelings in the world.
6) It can provide a floor for the poor financially.
7) If done right, it will theoretically force the government to be more responsive, the way corporations are supposed to be to their shareholders. It could offer a measure of control over how the oil is extracted (Shareholders unite!) to protect local interests, it prevents the divorce of government behavior and non-tax-paying citizens.
8) It would force the issue of transparency as the government would have to open its books for auditing.
9) Spreading out the oil money would also have the salutary effect of appeasing and integrating the Sunni population, which have less oil on their traditional lands that do the Kurds or Shiiites.
CONS
1) The oil of Iraq is political and the Sunnis have less of it than anyone. It’s not terribly political science-y to say this, but people in oil regions feel its their oil, and they should control and profit from it, and they don’t like anyone else telling them that it’s got to be different. This is a stick in the eye in Iraq, where the Kurds are determinedly hanging on to independently developing and selling “their” oil, and the Shiites are not far behind (even if less politically separatist). Anyone with a brain can see that oil money distribution in Iraq, for historic reasons, cannot be purely share-and-share-alike.
2) People waste money. Once, when I proposed individual dividends from extraction resources, a woman (who shall be nameless) at the World Bank shouted at me, “Do you know what happened when they tried that in Ghana? The people wasted the money. Like this one guy who started a taxi service and then found out the town didn’t have a mechanic to fix the car when it broke down!” I am not sure this qualifies as wasting money — it just sounds like a failed small business attempt to me. But people do waste free money, especially when they think it is theirs by right. What benefit they could develop gets piddled away, and Iraq might not be better off in the end.
3) A greater threat is that people begin to count on the money and the problem for everyone, country and people alike, is that you never know from year to year how much money you’ll be actually getting. It invariably leads to massive debt, and boom and bust cycles.
4) Just handing out money does not necessarily help politically. Just ask Iraq’s neighbors when the government does distribute (in different ways) oil wealth. Just ask Saudi Arabia.
5) It doesn’t address the problem of the Dutch disease — as the oil is extracted, Iraq’s currency will strengthen, goods will cost more and the increase in money may become moot. Of course, the Dutch disease is possible even without people getting more of the money, and then they would be worse off.
6) Is a cash dividend the best way to distribute the money? Would the Alaska model work, with local corporations as in Alaska and a tax rebate? Would a sovereign wealth fund like Chile’s set up to help the poorest Iraqis offer an acceptable safety net? Would local credit unions and microfinance offer better possibilities of developing alternative economic activities?
7) How will this protect the Iraqi environment or the people living in the way of its petroleum industry?
8) It will give incentive to the general public to develop the oil even when it is not in the best interest of the local people.
9) It will horrify the big oil companies (private and state-owned) — although I am not sure if that’s pro or con.
