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The Flag of the World

-G. K. Chesterton, Orthodoxy

This here blog is a glimpse or two or three at the condition of the 'fortress of our family' through the eyes Timothy Goddard, a Christian writer with an unhealthy interest in politics living in the Puget Sound area.

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Monday, April 07, 2003


When it really is about oil
Michael Barone, Michael Feroli and the New York Times are discussing oil, and each have come to the same conclusion, with input from rather disparate sources, and examples from remarkably disparate parts of the world. Barone says:
In the New Republic, John Judis points out that oil wealth in almost every country has produced an overlarge and corrupt state apparatus and has hindered the development of a vigorous private sector and civil society. There are alternatives. The Alaska Permanent Fund each year pays a dividend of 20 percent of the state's oil profits to every citizen--$1,540 per person in 2002. The rest of the money is invested, to provide a permanent income when oil revenues decline. Alaskans regard this as personal wealth; in 1999, 83 percent of Alaska voters rejected a proposal to use Permanent Fund revenues for state government spending. A similar fund could be created for Iraqis.
Feroli says
If a general were to take over, say, Denmark or Delaware, what wealth could he extract from either of those sandy spits of land if the people did not accept his rule? If this same general seized control of a Gulf oil state, he could expect to profit handsomely, the people's consent be damned. It is this prospect of easily realized gain that has cursed resource-rich nations with an unending series of kleptocracies.

This logic, learned painfully over the past fifty years, is now informing the development of the oil reserves in the central African nation of Chad. Two years ago the World Bank, working with the democratic government of Chad, implemented a plan for the management of Chad's yet-to-be-developed oil resources so that the future revenue from Chad's oil benefits the people of Chad rather than just a privileged few. The core of the plan is legislation that sets aside 80% of the oil profits for spending on basic social services, primarily health and education... There are two good reasons to think a Chad-style oil revenue plan would be good for a post-Saddam Iraq: democracy and development.
And, the NY Times points out
A recent report by Human Rights Watch found that oil money usually subverts democracy by making a country's leaders unaccountable to its citizens. The United States could work with Iraqis to disclose the sources of oil revenue and the awarding of contracts, the report said. The group also encouraged independent auditing of the oil company's books, and the creation of a trust fund, similar to a system Norway has for investing a portion of the profits to benefit future generations.

"A postwar Iraq could become a model for other petroleum economies," said Arvind Ganesan, director of the business and human rights program at Human Rights Watch. It could prove, Mr. Ganesan said, "that it is possible to benefit from oil wealth without sacrificing human rights, democratic freedoms, or fueling massive corruption."

When you hear three completely different people with completely different perspectives come up with the exact same answer on a question such as this, it ought to give you pause. It certainly does me. Reading Fransisco Toro convinced me a while ago that the last thing the world needs is another Venezuela-style petrostate. Not for the exact same reasons as the three above bring up, but similar. Toro's main problems with the petrostate are the patron-client corruption that it breeds and the state of mind that, because of all the oil money, the government "can, and should, bankroll the needs and desires of the entire society."

The main problem with that statement--in Venezuela, at least--is the "can," as Toro revealed showed a couple weeks ago, when he explained what would happen if Venezuela adopted the exact plan suggested above. The answer? One whole dollar a day. Uno. The problem with Venezuela is that it doesn't have the money it thinks it has--so the question is, is this a problem unique to Venezuela. If Feroli's quick numbers are to be believed (and they seem sensible), Iraqis could expect $1000 a year, around three times Venezuela (unless Toro is speaking of Venezuelan dollars, as opposed to US, in which case, it would be a good deal more than that). The two countries have about the same population. But the problem is less that 1$ a day is so very little--I certainly wouldn't mind a $365 check from the government every year--but the Venezuelan mentality which considers the country far more wealthy than it is. A Chad-style system, saving the money for "basic social services" as opposed to cold cash in the hands of the people, seems more likely to cause that sort of mentality than the Alaskan or Norwegian plans. But the system in Chad sounds like it will be well managed (i.e., the UN is not involved) and I can't imagine the people of Iraq, after 12 years of Saddam-induced poverty, suddenly expecting the government to be Daddy Warbucks.

But the good free-market capitalist in me shies away from all of these plans, especially Chad's--I don't trust the government to provide basic social services very well. But despite my misgivings, this sounds like a very good idea. The best way it could be done, from my standpoint, is to set up a Iraqi national oil company that is not tied to the government, but that counts every Iraqi as a shareholder. This would be the best way to get the oil profits to the people who deserve them--the Iraqi people.

(As an aside, the NYT article is absurdly naive about how the Arab world will react if the US does indeed put such a system in place.)
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