THE DISCIPLINE OF TAXATION:

The real curse of oil: Venezuela, Saudi Arabia, Nigeria…oil is curse not blessing for developing nations. Its real impact is to intensify corruption, civil conflict, and political patronage. A solution requires practical cures not conspiracy theories. Iraq is the place to start. (Tim Harford, 10/16/2003, Open Democracy)

There is an approach which would go a long way to saving Iraq from the curse of oil. As the Iraqi governing council drafts the country’s new constitution, it should give all adult Iraqis an inalienable right to a proportionate share of public oil revenues. Direct transfers of oil money are rarely seen, although Alaska is a notable exception. Iraq, with its constitution a blank slate, is an ideal candidate for the policy. (It was proposed for Nigeria by economists Xavier Sala-i-Martin and Arvind Subramanian, but sadly the Nigerian government has no reason to give up control of its oil revenues.)

Direct transfers of all oil revenue to citizens would solve a number of problems. Individual citizens are likely to spend their own money more wisely than weak governments would - it is hard to imagine their clubbing together to build an Iraqi version of the Ajaokuta steel mills, for instance. Individuals are also less likely to raid the cookie jar when times are good: most people understand the value of savings.

Direct transfer would undercut the politics of patronage, because Iraqis would have an automatic right to oil money, defensible in the courts. Possibilities for corruption would not go away, but they would be limited.

To raise revenue, the Iraqi government would have to behave the way serious governments do, setting up an efficient system to tax its citizens. Broad taxation is more likely to lead to better governance, because it requires an accountable relationship between government and people.

No one should understand better than Anglo-Americans the manner in which the government having to ask the people for tax dollars can serve to discipline authority.

Posted by Orrin Judd at November 7, 2003 5:46 PM