Alaska oil model could work for Iraq

By CHRISTIAN BOURGE, UPI think tanks correspondent

WASHINGTON, May 14 (UPI) -- A post-war reconstruction plan that distributes a percentage of Iraq's petroleum revenues directly to Iraqi citizens will help rebuild the country's economy and instill in Iraqis a sense of involvement in their new government, say think tank policy analysts in Washington.

The idea of modeling a program that redistributes the wealth accumulated from Iraq's oil sales on the Alaska Permanent Fund, which dispenses a portion the state's oil revenues directly to each citizen every year, was first proposed by Steven Clemons, the executive vice president of the centrist New America Foundation. Since he made the proposal in April, the idea has received increasing attention from analysts and policymakers, including Secretary of State Colin Powell.


"It is terrific that people on both the right and the left think this kind of approach is appealing," Clemons told United Press International. "It is refreshing to see people who aren't just concerned with notions of empire and really want to see some critical participation of the (Iraqi) people in their country."


Oil sales are viewed as Iraq's only viable means to develop a stable post-war economy. The country sits atop the second largest petroleum reserves in the world, which remain the only significant source of revenue for the Iraqi government and economy in the near-term. Trade in other products was largely destroyed by years of United Nations-enforced economic sanctions on Saddam Hussein's regime.

Iraq's need to rely on oil revenues to rebuild its economy presents some difficult questions about its future economic viability and the prosperity of its citizens. Resource-rich developing nations tend to have terrible economies because there is little incentive for corrupt elites -- who typically siphon off a large portion of proceeds -- to diversify into other industries and trading sectors. Under the reign of Saddam, the proceeds from Iraq's government-controlled oil program went entirely to the government and funded the lavish lifestyle of the dictator and his supporters.

Clemons said that American officials in Iraq should encourage a redistribution of oil wealth similar to the redistribution of land held by the Japanese aristocracy in post-World War II Japan. He added that most successful revolutions that have produced stable democracies involved expanding the average citizen's stake in the economy.


Analysts specializing in the Middle East, economic development and natural resource policy issues expressed interest in and support for the idea. They agreed that such a fund would be a good way to give everyday Iraqis a stake in the political process while providing reinvestment into the country's economy.

Jerry Taylor, director of natural resource studies at the libertarian Cato Institute, said that revenue sharing offers a good chance to address many needs.

"Short of a privatization effort, the real issue addressed by the Alaskan model is who should get the revenue," Taylor told United Press International. "It would be dispersed in a large part directly to the Iraqi people, which is a positive both politically and economically. It would certainly be an improvement on the standard model of OPEC oil management."

Under the Alaskan model, proceeds from the state's oil leases are invested, with financial gains used to improve state infrastructure. A portion of the money is also provided as a yearly dividend for every resident of the state. Payouts average about $8,000 annually.

In Iraq, investment of some portion of the country's estimated $20 billion in annual oil revenues would provide payouts for individuals in a place where the average annual household income is around $2500. Clemons said the payouts would also provide badly needed reinvestment into the Iraqi economy.


In addition, he said that an oil fund would help prevent the ruling class from being the only beneficiaries of the country's vast oil resources. It would also help instill a belief in the rule of law among Iraqis, a key facet of democratic government.

"I don't think you are going to deliver more stakeholders in Iraq's (political) future unless you have some of these kinds of reforms in Iraq," said Clemons. "It also helps demonstrate what good transparency is and what good governance is, so you don't just establish a new kleptocracy."

Ariel Cohen, a research fellow at the conservative Heritage Foundation, said that although he supports in principle the concept of distributing Iraq's oil wealth directly to its citizens, sales must be handled by private entities to ensure that government corruption is minimized.

"Iraqi oil has to be privatized," said Cohen. "Only privatization will ensure the influx of Western capital, technology and management experience to ensure economic growth."

The privatization of Iraq's oil resources is considered by many to be a long shot in the near term. Taylor noted that there been almost no talk of such a move from the Bush administration.

There are other proposed models for some form of national oil trust in Iraq, with proceeds to be spent only on specific social needs, such as health care and education. The World Bank has such a pilot program in the oil rich African nation of Chad.


Powell has called Alaska model "interesting" and indicated that it was under consideration by the Bush administration because the approach would allow the Iraqi people to make choices about how the wealth of their nation is used. Although the Bush administration has stressed that decisions on such matters would be up to the future government of Iraq, the policy analysts agreed that an American-aligned Iraqi government would take a favorable view of Washington's endorsement of the idea.

Clemons said he was shocked by Powell's recognition of the plan but that White House support for the proposal is not assured given that the Department of Defense does not like the idea. A State Department spokesman told UPI that she was unaware of any new developments on the issue since Powell's original comments.

Even those who support the idea admit that it is not without its faults. Clemons noted that the proposal raises the specter of a possible welfare-like dependence of the Iraqi people on the fund in the future. Nancy Birdsall, president of the Center for Global Development, said that although the concept is a good one, a government must be developed in Iraq that would be capable of acting on such a plan.


"We know that this sort of thing isn't easy and it doesn't always fly if you don't have the appropriate government set up, a regulatory mechanism, and standards for how you deal with markets," said Birdsall.

The attempt to privatize Russian industries showed the potential pitfalls of attempting to reform state-run programs and companies without first having adequate economic reforms in place. The end result was mass corruption with a few key players in Russia reaping all the benefits of the process, and everyday Russians left out in the cold.

"I think this is a great idea," said Birdsall. "But somebody needs to sort out how you translate this endpoint vision into real steps."

Philip K. Verleger Jr., a consultant and expert on international energy and petroleum issues, said that he is frustrated with the recent talk of reforming the Iraqi oil industry because it is premature. He said it is important to recognize that the Alaskan revenue fund was established in a democratic society with a history of codified regulations and standards.

Verleger added that such a program might be possible in Iraq five to 10 years from now following adequate civil reforms, but that any effort to reform the Iraqi oil program prior to such efforts would result in a giveaway to the ruling class of Iraq.


"This will just enrich those in power," said Verleger. "Once you have established a strong government, then you can do things like that. It is too early, far to early, and it is the wrong idea. It just will not work."

Cohen said that balancing Iraq's need to rely on oil to develop its economy with the need for economic reform would be a tricky process. U.S. influence in promoting best practices, transparency, private property rights, and other free-market principles could help ensure that Iraq would not continue to fall prey to the traditional ills that beset developing countries with resource-based economies, he said.

"It is as much about communications as it is about economics," said Cohen.

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