On Iraqi Oil, Readers Say
I Didn't Go Far Enough


My column last week suggesting a fund that would distribute proceeds from Iraqi oil directly to the people didn't satisfy some readers, who thought my vision was far too limited. Since they made so many good points, the subject seems worth a follow-up, elaborating some of their views.


One view we all share is that getting oil policy right will be crucial to the chances for turning Iraq into a peaceful, democratic society. Saddam used the country's $20 billion annual oil revenues to build palaces and buy arms. The United Nations' "oil-for-food" program was corrupted almost from the beginning and should be scuttled as soon as possible. A way must be found to fulfill George W. Bush's solemn promise that the revenues from Iraqi oil be a direct benefit to the Iraqi people.


Although there are any number of government-run funds around the world in which citizens have individual accounts, perhaps the closest parallel to what I proposed for Iraq is the $22.5 billion "Permanent Fund" operated by the State of Alaska. Set up in the 1970s when the state reaped a North Slope oil bonanza, it is funded from oil royalties and last year provided a dividend check of $1,541 to every bona fide Alaskan. Something similar could be done in Iraq, with sufficient political backing.


But Alaska also demonstrates how such a big money pot is a never-ending temptation to politicians, who maneuver constantly to get better control over it and use it for other purposes of their own choosing. Last month, for example, Alaska's Republican Speaker of the House, Pete Kott, said the fund was one of the worst mistakes the state ever made. It needs to be changed from "a sacred cow" to a "cash cow for the state," he said.


Prying fund dividends out of the hands of Alaskans won't be easy. They look forward to those annual payments. But Mr. Kott's remarks suggest the political pressures that are created when a big pile of money is placed under government supervision, even when the principal is constitutionally protected from legislative discretion. That's why some of my correspondents argue that the only good solution in Iraq is to privatize the oil and give Iraqis direct ownership.


Reader Isaiah Cox proposes that Iraq's oil resources be divided into from five to 15 pieces, forming a company around each piece, with property rights defined in law. Foreign firms would be invited to bid on management contracts, but the shares in each company would be distributed equally to the Iraqi people. "Every man, woman and child would receive 10 shares of each company." He estimates that per capita dividend income could reach $1,000 by the end of five years.


"The side benefits are that OPEC would become meaningless as each company seeks to independently maximize their volume," Mr. Cox argues. "Most importantly, it takes a critical asset out of the hands of a central Iraqi government, which will inevitably become corrupted by owning assets such as these."


Drew Kanaly of Houston would go even further. He proposes putting all of Iraq's publicly owned assets in trust, including power plants, pipelines, water rights and whatever, "with the adult population the divisor of the income." This would lessen what is likely to be a major problem in new Iraq, regional rivalries. "Territorial issues are diluted with even distribution of the single largest sources of wealth. Regions would not control wealth, therefore the value of a given region (Kurds in the north and Shiites in the South) would be diminished."

Mary Carol Maxam, who describes herself as a 39-year-old "stay-at-home mom" from Bozeman, Montana, spotted some flaws in last week's column, and I must confess that I left the obvious problems she raises unaddressed. "If each and every Iraqi were to have a guaranteed payment from the oil sales, this would act as a disincentive to further work and development of a diverse economy," she wrote. Touche!


"Perhaps a better way to accomplish this would be for a percentage of the oil revenues to be set aside for a low- or no-cost business loan and development fund. This would have an incentivizing effect on work. Furthermore, we should be encouraging a plan which emphasizes a corporate/shareholder structure for the oil resources." In short, Ms. Maxam also favors privatization, for reasons similar to those cited by Mr. Cox and Mr. Kanaly.

Economics professor Mohammed Akacem of Denver directed me to an article he and economist Dennis D. Miller of Ohio authored in February for the Washington Times: "Consider the impact, both psychological and strategic, once average Iraqis learned that after Saddam's departure they would enjoy freedom for the first time in more than a quarter of century, but also a personal share of Iraq's vast oil wealth."


Freedom has now been delivered by coalition troops, and the process of selecting an interim government is well under way. What my readers recognize -- and what I didn't address in last week's column -- is the need to accompany political freedom with economic freedom. That requires the legal protection of property rights. A new constitution can offer property rights protection; but the only way to ensure that those protections will endure is to broaden ownership and thus give all voters a stake in property rights.


This has the additional merit of fostering a market economy in which private firms compete for consumer favor. Presently, competition in Iraq, and in most Arab countries, is limited by the concentration of wealth in the hands of a privileged few and the government itself.


To be sure, the creation of a new political economy will be fraught with great difficulties. Even after the purging of the Baath party, political elites and factions will remain. The U.S. is committed to working with these elites. There is seldom among such people a strong impulse toward dividing up the wealth of the nation. So it can be argued that the proposals above are politically unrealistic and beyond the capabilities of even an occupying power. But nation-building requires boldness of thought. The readers quoted above offer such boldness.

Updated April 22, 2003