15 February 2013

Avoiding the Resource Curse with Lessons from Alaska

The great state that gave us Sarah Palin also provides lessons on what to do with oil money. Tina Rosenberg provides fine reporting in the NYT Fixes blog and highlights the book by Todd Moss that covers the topic.
Todd Moss, a senior fellow and vice president for programs at the Washington-based Center for Global Development, believes they might. He points to an unlikely source of inspiration: Alaska. The state of Alaska is bound by law to put at least a quarter of its revenues from oil into the Alaska Permanent Fund, which was established in 1976. The money is invested and each year, every resident of Alaska gets a share of the dividends; for consistency, the amount is calculated using an average of the fund’s earnings over the past five years. The dividend check is considered taxable income. Last year, the check was for $878. In 2008, the high point, every Alaskan got $2,069. 
These payments stimulate the economy and reduce income disparities. They have contributed (pdf, p. 12) to a large reduction in poverty in Alaskan Natives, the state’s poorest group. 
But the fund has other benefits. “I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity,” wrote Jay Hammond, Alaska’s governor at the time. Governments often try to save for lean years by paying a portion of oil revenues into a walled-off, legally untouchable fund. Unfortunately, temptation is often more powerful than the law. Venezuela’s oil fund, for example, has been raided (pdf, p 16) by Hugo Chavez, dropping from $6 billion to $3 million in the last decade — during a time of record-high oil prices. 
The dividend, by contrast, protects the Alaska Permanent Fund. Hammond’s achievement was to “protect against its invasion by politicians by creating a militant ring of dividend recipients who would resist any such usage if it affected their dividends.” (See herefor a quirky summary of criticisms of the fund. )
She is careful to mention that oil-for-cash programs are challenging and relatively new. However, the evidence of cash transfer programs does show that the provision of money can help to reduce poverty.
This is the big advantage of cash payouts — they are much easier for an ill-governed country to do well, and there are fewer opportunities for politicization or corruption. There isn’t a long track record with oil-to-cash programs, but more than 40 countries have some kind of cash transfer programs for the poor. The best known ones, likeBolsa Familia in Brazil and Oportunidades in Mexico, make recipients meet conditions — they need to have their children in school and take their families for regular health checkups to get the money.