One of the benefits of being “antique” in the blogging world, is that very few issues are new. But once in a while old ideas are repackaged and given a more coherent outlook which warrants a second look. This appears to be the case with World Bank's Marcelo Giugale take on what could solve Africa's 'resource curse' - which involves putting resource wealth revenues in people's pockets directly :
Would putting money in Africans' pockets, rather than in their governments' treasuries, really reduce corruption? It probably will, for three reasons. First, it would intensify social monitoring. If you know your government is giving you ten percent of its new oil revenue, you will surely be interested in what it does with the other ninety percent. You will also want the company that explores, exploits and exports your natural resources to be managed competently -- if it fails to find, extract and sell, you lose money. You will be less patient with the public monopolies that usually control those resources and behave as self-serving, unaccountable, states-within-the-state. In fact, you will begin to wonder whether your country should get rid of those public monopolies all together, and hire experienced, private operators to work for you.
Second, direct dividend transfers would make politics more contestable. There is no question that the transfers would be popular. Social programs that deliver cash to the poor have survived presidential transitions everywhere -- for example, in Chile, where the recent political alternation went from left to right, and in El Salvador, where it went from right to left. But incumbent governments may be reluctant to give up part of the easy revenue that comes from commodities -- less money, less power. Democracy would take care of that, as politicians in opposition can only gain by proposing to give people real access to their nation's wealth -- "Vote for me and the oil is yours."
And third, alternative ways of transferring natural resource wealth are worse. Governments in resource-rich countries are always under political pressure to be seen as passing some of the "dividends" to the population. The usual means have been to give out tax breaks, sell fuel or food below their cost, or give away jobs in the civil service. All this has in practice been captured by the rich and the connected. (Rule of thumb: the average developing country spends more on subsidizing public college education for the rich than on primary schools for the poor). If anything, giving people a direct stake in their country's riches can be an opportunity for -- and can be funded by -- the abolition of other inefficient, inequitable and morally-questionable transfers. You get a dividend, but you accept to pay full price for what you consume.
Those that have been on the road with us for a while will recognise this as the much discussed "Alaskan model". The state of Alaska takes a quarter of the money it makes on oil leases and royalties and puts it in an investment portfolio. This portfolio then pays a dividend, each year, to every Alaskan citizen. Alaska set up this fund 30 years ago, and it now more than $36 billion in assets. In 2007, the annual dividend was over $1,100 for every adult and child. But is this the solution to Zambia's mining problems?
The "entitlement" argument is certainly powerful. In theory handouts should certainly give people a sense of ownership which could have significant spillover effects in other areas. All of sudden, the idea that they are owners of state property like the public media wont seem so alien. The evidence from Zambia's ongoing experiment with conditional cash transfers does appear to suggest that such mechanisms properly targeted can have some impact on poverty, though scaling issues remain. Dividends in the Alaskan manner presumably would have the same effect - all things being equal, which is highly unlikely for reasons set out below. Separately, empirical evidence from cash transfers on entitlement is also missing.
I suppose the main problem with this proposal is that it is too vague and missing important nuances such asthe scale of “corruption” in question. For example, there’s an inherent assumption made by the author that revenue theft is rampant in the mining industry and it is most likely unmanageable. This is far from clear for many countries. For example in Zambia, though corruption in the sector is rampant (due to state capture by mining companies through campaign finance), the mechanism of corruption has not worked itself through explicit theft of funds but through maintaining a strategically poor fiscal regime (a legitimate way of stealing from the people). In that sense the big question is whether Zambians would demand a better taxation regime (and presumably kick out corrupt guardians) if they were directly entitled to the revenue. In short, is it because we think any new mining revenue will just go into people's pockets, the reason why we are so quiet about demanding for higher tax revenues? If the answer is yes, then perhaps the author has a point.
But even if corruption happened through direct mismanagement of significant mining tax revenues, the question still remains whether the "Alaskan model" would be better than other alternatives (e.g. communal based tax transfers which culturally may sit better). Part of answering that question requires clarity on the scale of what is proposed. Would this be all the revenues or just part of it? If all the money is dished out the macroeconomic effects may well be negative depending on where the money is spent by consumers (clearly in the tradeable sector - though this could be managed over time). If only part of the money is dished out then the question would be how much? Presumably enough to stimulate rural activity but not to turn people into a welfare estate! But that also raises another difficult - haven't we been told such mechanisms breed perpetual dependency?
Then of course there are legitimate questions regarding likely behavioural response from government. Would central government simply raise taxes? Presumably it would still need to find other sources of revenues. Or may be it would cut down on public goods? That question also highlights the issue of “economies of scale” and "free rider" resolutions. Believe it or not but one of the reason we all give money to government is that it achieves greater efficiency in some areas than if we kept all the money. This is the basic rationale for public provision (and why government exists). Dividends in your pockets won't translate in a road we all need – unless of course, I collected enough dividends and built one and started charging you for using it, but then again how long would that take? And yes, there are laws against such things!
But the idea should not be dismissed off hand because we must remember that underpinning it is simply the idea that unless people develop a sense of entitlement about their resources it becomes very difficult to get government to act on their behalf. You must first realise all these things we talk about (freedom of press, mineral wealth, right of assembly, justice, accountable government, transparency) are not alien ideas but things that belong to you. There's no reason why government should not maximise revenue from its natural resources. There's no reason why you should not expect a neutral public newspaper! And we can go on and on.