One of the interesting but un-noticed thing about world affairs is that, for all the wealth that traffic in oil is able to generate, the nations that produce it are not high up on the list of nice places to be. Not many people consider Saudi Arabia, Iran, Nigeria, or Russia to be desirable places to go for a holiday, never mind live. In an odd twist to the old folks tale that ‘money won’t make you happy’, it is pretty clear that oil wealth is not particularly useful in solving the problems of a nation.
Nancy Birdsall and Arvind Subramanian did notice it however and wrote a 5,000 word essay on the subject, with Iraq in mind, for Foreign Affairs magazine (preview here) What they noted was that oil wealth tends to corrupt the state, and since it has an easy stream of revenue at its disposal, it does not have to work so hard at gouging its citizens. So it also has no incentive to promote property rights as a way of creating wealth. And those that control the state, control the wealth.
Therefore, you get the distressing sight of the President of Chad spending the first instalment of his country’s oil wealth on a new Presidential jet for example. More recently, in Russia we see President Putin using state power to attack the oil-enriched oligarchs. And Nigeria seems to have been actively impoverished by its oil wealth, as the ‘Pirates in Power’ have skimmed $100 billion over the years. Oil wealth is not particularly healthy for democracies, either.
How to escape the curse? Merely privatising the oil sector does not work very well in states where the concept of ‘property rights’ is a shaky one at best (see Russia). Another attempt has been to create special ‘oil funds’ with constitutional restrictions on the way the money is used. This has been used in many different places. But again, the strength of the rule of law is the decisive thing. Chad had a ‘oil fund’ but the President still got his airplane.
Birdsall and Subramanian instead advocate the novel idea of distributing the oil wealth directly to the citizens. This means that every citizen of the nation gets an annual cheque from the oil company. For Iraq, this idea has many wonderful features. In the first place, Iraqi citizens get a real stake in their government, and will be not inclined to support Islamist or separatist groups who wish to smash the state for their own nefarious purposes.
Secondly, all Iraqis get the same cut. A struggling farmer, a Mad Mullah, or an educated doctor- each of them get the same thing. No complaints about the system getting rorted in favour of one ethnic group or another.
And best of all, ordinary Iraqis will get prosperous at the expense of the government. There will not be rivers of gold for a class of local ‘social planners’ to waste, and the government will have to work hard to sell the need for tax increases to fund their operations. This means that citizens can look the state in the eye. And tell it where to get off, too.