New York Times September 10, 2003
by JOHN TIERNEY
BAGHDAD, Iraq, Sept. 9 - 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
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
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
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.
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
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
On April 9, the day Saddam Hussein's statue was toppled in Firdos Square, a
plan to end Iraq's resource curse was published by Steven C. Clemons,
executive vice president of the New America Foundation, a centrist research
He 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, Bush administration officials and politicians of
both parties. 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. But they could benefit indirectly if citizens eager for
higher payments pressed the government to increase production and open the
books to outside auditors.
"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
Iraq's civilian administrator, L. Paul Bremer III, 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
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
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
and the leader of the Iraqi National Congress. "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
"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."