THE ALASKA PERMANENT FUND: A Model of Resource Rents for Public Investment and Citizen Dividends by Alanna Hartzok, Scotland, PA (Copyright Nov. 14, 2001; reprinted with permission from
McKeever Institute of Economic Policy Analysis and the
author. Posted at http://www.mkeever.com/hartzok.html
by Alanna Hartzok
SUMMARY
Wars are often fought over the ownership and
control of land and natural resources. Inequitable
ownership and wasteful, unsustainable use of the earth's
resources are root causes of both the unjust wealth gap
between the rich and the poor and the depletion and
collapse of our natural resource base. This paper
describes the form and function of the Alaska Permanent
Fund as a model governmental institution for collection and
distribution of natural resource rents, particularly oil,
and makes suggestions for improvement of the Fund. It also
presents an analysis of fundamental issues regarding
natural resource and territorial claims and urges the
establishment of a Global Resource Agency to collect and
distribute transnational resource rents.
ALASKA PERMANENT FUND
If you were a third grade student in the state of
Alaska, one day in school you would play a game called
Jennifer's Dilemma. The game tells the story of a little
girl who has discovered a box of valuable coins. Her
dilemma is deciding what to do with an unexpectedly large
amount of money. It is a way for young children to learn
about their own yearly windfall fortunes from the Alaska
Permanent Fund. In the year 2000, each one received a
dividend check for nearly $2,000. The Alaska Permanent
Fund is a case study in a new concept of the role of
government - that of agent to equitably distribute resource
rents to the people, thereby securing democratic common
heritage rights to land and natural resources. Purchased
from Russia in 1867, Alaska became the 49th state in 1959.
Under the Alaska Constitution (Article VIII. Section 2.
General Authority) all the natural resources of Alaska
belong to the state to be used, developed and conserved
for the maximum benefit of the people. Ten years after statehood the first Prudhoe Bay
oil lease sale yielded $900 million from oil companies for
the right to drill oil on 164 tracts of state-owned land.
Compared to the 1968 total state budget of $112 million,
this was a huge windfall.
By legislative consensus, the original $900 million
was spent to provide for basic community needs such as
water and sewer systems, schools, airports, health and
other social services. Although the oil fields were
proving to be the largest in North America, Alaskans came
to agree that a portion of this wealth should be saved for
the future when the oil runs out. In 1976 voters approved
a constitutional amendment, proposed by Governor Jay
Hammond and modified by the legislature, which stated that
"at least 25% of all mineral lease rentals, royalties,
royalty sale proceeds, federal mineral revenue-sharing
payments, and bonuses received by the State shall be placed
in a permanent fund, the principal of which shall be used
only for those income-producing investments specifically
designated by law as eligible for permanent fund
investments." The Alaska Permanent Fund was thus
established as a state institution with the task of
responsibly administering and conserving oil and other
resource royalties for the citizenry.
There are two parts to the Fund: principal and
income. The principal is invested permanently and cannot
be spent without a vote of the people. Fund income can be
spent, decisions as to its use being made each year by the
legislature and the Governor. The Fund was established as
an inviolate trust, meaning that the principal of the Fund
is to be invested in perpetuity. The Fund thereby
transforms non-renewable oil wealth into a renewable source
of wealth for future generations of Alaskans. Oil started
flowing through the Trans-Alaska Pipeline in 1977, at the
time the world's largest privately financed construction
project. In February of that year, the Fund received its
first deposit of dedicated oil revenue of $734,000. All
income from the Permanent Fund was to be deposited in the
state general fund unless otherwise provided by law. What
to do with the earnings generated and how they would best
benefit the present generation of Alaskans engaged Alaskans
in debate for the two decades following the establishment
of the Fund.
Like Jennifer with her box of coins, the dilemma
was what to do with the growing income from the Fund.
Would it best be saved for the future or managed as a
development bank for Alaska's economy? After a four year
debate the Alaska State Legislature decided in 1980 in
favor of a savings trust for the future. The Alaska
Permanent Fund Corporation was created to manage the assets
of the Fund. The same year the Legislature also created
the Permanent Fund Dividend Program, retroactive to January
1, 1979, to distribute a portion of the income of the
Permanent Fund each year to eligible Alaskans as a dividend
payment. By the end of 1982, after a couple years of
wrangling with the U.S. Supreme Court over constitutional
details, all residents of Alaska - every woman, man and
child - who applied for and who were found eligible (must
be at least one-year resident) received their first
dividend which was $1,000. This was the historic beginning
of an annual program paying to Alaskan citizens a fair and
equal share of the wealth from publicly owned resources.
In 1987 the Permanent Fund Dividend Division was
created within the Department of Revenue to consolidate
responsibilities for the administration and operation of
the dividend program. Through the dividend distribution
program, the Fund puts more new money into the state's
economy than the total payroll of any industry in Alaska
except the U.S. military, petroleum and the civilian
federal government. Compared to the wages paid to Alaskans
by basic industry, dividends make a greater contribution
than the seafood industry, construction, tourism, timber,
mining and agriculture.
For a considerable percentage of Alaskans, the
dividend adds more than 10 percent to the income of their
family. This is particularly true in rural Alaska. Those
who received dividends each year from 1982 - 2000 have
received a total of $18,511. There were 582,105 citizens
who received a total of $1,143,172,725 in dividends in the
year 2000, which amounted to an individual dividend of
$1,963 per person. Overall, the dividend program has
dispersed more than $10 billion into the Alaskan economy.
The principle of the Fund was nearly $26 billion as of June
19, 2001. There is strong citizen interest in the Fund's
operation and investment activities. Earnings of the Fund
undergo special public scrutiny since any expenditure of
such earnings must be subject to the legislative
appropriation process.
Beautifully designed and printed literature is
available which describes in detail the various components
of the Fund. An Annual Report is distributed each year.
Under the policy guidance of the Fund's six trustees and
the executive director and staff selected to execute it,
there has developed an extensive accountability program and
open meetings with opportunity for citizen participation.
The Alaska Permanent Fund Corporation website
(www.apfc.org) keeps current all investment and
distribution activities of the Fund. The history of the
development of the Fund, its incorporation, details
concerning its management, along with up-to-date
information on the Fund portfolio and dividend pay-out
amounts can all be found on the website. Also posted
therein are lesson plans that can be downloaded for
teachers to use in their classes such as Jennifer's
Dilemma, other teaching stories, and puzzles and games to
further education and interest in the Fund.
From the website one can email any questions and
receive a direct reply from a knowledgeable Fund trustee or
employee. The Alaska Permanent Fund is a well-managed,
transparent and democratic institution. It is a remarkable
pioneering model of a fair and effective way to secure
common heritage wealth benefits for the people as a whole.
While undoubtedly an institution worthy of replication
worldwide, there are, however, aspects of the Fund which
upon close examination reveal the beginnings of another
dilemma.
Charlie's Challenge and the PrudentInvestor Rule
Let's call this dilemma "Charlie'sChallenge." Imagine now that Jennifer has given Uncle
Charlie some of her valuable coins to invest in the best
and safest way possible. Jennifer trusts Uncle Charlie to
do a good job because he is an expert investor. Charlie
invests in a diversified portfolio of stocks, bonds and
other securities, including real estate. Having carefully
explored potentially good deals for real estate investments
in "the lower 48", Charlie selects several properties,
including one in the City of Philadelphia. Philadelphia
has low property taxes, state and federal monies pouring
into the city and "free enterprise zones" so land values
will surely be rising. Real estate in this city looks like
a good investment for Jennifer.
However, unbeknownst to Charlie, there is a growing
citizens movement in Philadelphia that is set on capturing
for the people of that city the equivalent of Alaska's oil
wealth - the value accruing to a different type of valuable
natural resource - the surface land sites of Philadelphia.
Charlie's Challenge is this: when he becomes aware that
the citizens movement for land value taxation in
Philadelphia will cut into profits for Jennifer's dividend
investment fund, what will he do? Will he try to keep the
resource rents of Philadelphia flowing into Jennifer's
portfolio or might he decide to help the citizens of
Philadelphia establish their claim to the resource rents of
their own territory? Or will he simply withdraw funds from
real estate investments that may not be so profitable once
land values are recaptured by the city for the benefit of
its citizenry?
Charlie's Challenge is quite literally the
situation that is emerging for the Alaska Permanent Fund
Corporation and its Board of Trustees. The Fund now owns
investment property in the city of Philadephia. There is
indeed a growing citizen movement in that city to shift
taxes onto the value of land sites, thereby recapturing
resource rents as a common heritage right for the citizens
of the territory of this municipality. Keep in mind that
the Fund is now so enormous ($26 billion) that it has the
power to grab significant amounts of resource rents from
anywhere on earth. Within established foundation
guidelines of the "prudent investor rule" the Trustees'
goal is to earn slightly better-than-average rates of
return with slightly below-average levels of risk. In
other words, the Fund is managed under normal investment
procedures and criteria. And under normal investment
rules, there are no established ethical criteria for
socially responsible investing. In fact, the Fund makes a
special point that it minimizes risk and within that
constraint maximizes investment yield and does NOT engage
in "social" or "political" investing.
In other words, mandated by law to secure the
continued prosperity of the citizens of Alaska now and into
the future, the Fund is in the position to make substantial
profits from land and natural resources from people all
over the world via Fund investments in real estate and
stocks, as profits from the latter also include substantial
amounts of land and resource rent. Thus the Fund faces
this ethical challenge of global dimensions. Established
to secure common heritage rights to rents and royalties
from the oil and natural resources of Alaska for the
citizens of Alaska, it is now beginning to extract resource
rents from other territories. Unbeknownst to people
elsewhere who have not secured their own rights to common
heritage resources is the fact that Alaskan people are
"stealing" their resource rents through perfectly legal,
"responsible" and yes "prudent" investment mechanisms.
From this perspective, Charlies Challenge is a dilemma of
monumental proportions. As people all over the world begin
to awaken to and indeed demand their rights to the rents of
common heritage resources, investment portfolios will never
again be the same.
The Alaska Permanent Fund and all other public and
private investment funds will have to look elsewhere to
generate profits - maybe to investments in renewable energy
technologies which could help ALL of us when the oil runs
dry. Viewed holistically, and as a fundamental paradigm
shift in property rights ethics, the Alaska Permanent Fund
opens yet other important dimensions of inquiry. The state
of Alaska receives federal money for substantial federal
military installations. The military is established to
protect the territory of the United States and this
protection secures the rights to US land and resources for
the people of the US as well as non-nationals who have
legal title to American lands. The military, paid for by
US citizens out of federal income taxes, is protecting
Alaskan citizens' rights to the resource royalties they are
now collecting through the Fund.
Through providing protective services, all US
citizens are contributing to the value of Alaska oil
resources and thus to the dividends paid to Alaskans, but
getting no value in return, as the federal government is
not taxing Alaskan oil wealth. Additionally, the Fund is
now so large that it is a major source of loans to the US
government via US savings bonds. So not only are US
citizens from the other 49 states contributing through
their tax dollars to the value of Alaska oil resources via
military expenditures, they now have to pay interest on the
federal debt to the Fund out of their own hard-earned
income taxes. And where, one might ask, are the Alaska
Permanent Fund equivalents for the other oil producing and
mineral mining states? Many large corporations owning
these oil and mineral lands sometimes pay no taxes
whatsover. They engage in other ventures such as
agribusiness at a loss, write the loss off against their
oil profits, and end up with no "profits" on the books to
be taxed.
Resource Rights and Territorial Claims.
Let us deepen our inquiry concerning property rights in
land and natural resources as it relates to the Fund,
checking in again with Jennifer and Uncle Charlie. What
would Jennifer do if she met up with another claimant to
her valuable coins? What if someone informed Jennifer that
the box of coins was originally theirs, because they had
found the box first, and had simply put it on the shelf
where she had found it? Now they had returned and wanted it back. Here we confront issues of the establishment of rights to territory by discovery and priorclaim. Jennifer "discovered" the coins but someone elseclaims them as originally theirs. If Jennifer refuses to
surrender her coins to the prior claimant, the situation
could deteriorate to violence and bloodshed, mayhem and
murder, or even a lawsuit. Uncle Charlie better supply
Jennifer with some really big guns or funds for an
extensive court battle. Claim could then be determined by
force in the former or cunning in the latter. There is a
miasma of problems with trying to establish territorial
rights by any of these methods, either discovery or prior
claim, by military force or by current legal mechanisms.
The persistent conflict in the Middle East comes readily to
mind, as do indigenous land issues and the wounds of
historic land grabs still festering throughout Latin
America.
Less well-known are the raw realities of the
concentration in the ownership and control of land and
resources in the United Kingdom, Scotland, and the United
States, all first world countries where a few individuals
or corporations own massive amounts of natural wealth. And
now back to Alaska with the really big question.
Upon what basis is the exclusive claim of the
people of Alaska to the oil resources of Alaska? Let us
consider the history of this claim. The state takes its
name from the Eskimo word "Alakshak." The "prior claim" by
original occupancy would appear to be exclusively that of
the indigenous people. Russia claimed Alaska by right of
discovery after it was sighted by Vitus Bering in 1741.
Purchase was negotiatied by the US government's Secretary
of State William H. Seward who bought Alaska from Russia in
1867 for $7.2 million, about two cents an acre. Was the
purchase by the United States and thus the transfer of
rights to exclusive claim legitimate on the basis of
Russia's prior claim by discovery? World War II had a
substantial impact on Alaska as the United States sent
thousands of workers there to build defense installments
and the Alaska Highway. In 1942 the Japanese occupied
several Aleutian islands, the only part of North America
that was invaded during the war. "Might makes right"
enables an exclusive claim to be secured and maintained and
frequently is the origin of the claim itself. But does the
ability to maintain a territorial boundary through military
protection stand up as an appropriate basis for exclusive
claim?
Is the exclusive claim of the people of Alaska to
the oil resources of Alaska theirs by right of that state's
constitutional law? Legally, yes, a legality that was put
in place well after United States Federal and State
Constitutional law was established for the "lower 48"
states, and much later than the land of North America was
grabbed by force of conquest from indigenous peoples. That
a state constitution and a democratic vote of the people
established a basis and a mechanism for equal rights to
natural resources is a phenomenal and profoundly important
human rights achievement and should be acknowledged as
such. Nonetheless we must question whether democratic
process itself is a sufficient basis for an exclusive claim
to natural resources by people residing in a particular
territory. If that territory contains resources essential
for the well-being of everyone else on earth, then the
absolute control of that resource by the people of that
territory, no matter how democratic the internal politics
may be, would give those people undue and unjust power and
control over the people of the rest of the world.
Thus we see that the basis upon which the citizens
of Alaska stake their exclusive claim to the oil and
natural resources of Alaska is a complex historical weaving
of territorial claims by discovery, purchase, military
might and democratic law. Interestingly, the land right
due to occupancy or "prior claim," negated as a way to
secure an exclusive claim of indigenous peoples to the
territory by the several ensuing methods of claim by
newcomers, finds its mirror in the Alaska Permanent Fund
requirement that an individual must reside in Alaska for at
least twelve months in order to qualify for the Fund
dividend payments. Time-determined occupancy is certainly
one way to stake a claim to the benefits of natural
resources in a territory, reminiscent of earlier US
homesteading approaches to land rights. But here again, we
must ask if this is a sufficient ethical basis for an
"exclusive" claim?
The essential question then is this: Is it fair
and just to exclude people from everywhere else in the
world from benefiting from the extremely valuable, nature
created oil deposits of Alaska because of any of these
territorial rights rules and negotiations? Are any of
these methods of claiming territory more moral and ethical,
more in alignment with truth and justice, than others? In
other words, is there a moral and ethical hierarchy, if you
will, of territorial claims, some being more "right" than
others? We must conclude that while some of these means to
claim may be more just or fair than others, the exclusive
claim of the people of Alaska to the oil royalities of
Alaska cannot be made on the basis of either prior claim,
discovery, purchase, ability to maintain and secure
possession, constitutional law, or length of residency.
Ultimately, the only rational, supportable, moral,
just and ethical basis upon which the citizens of Alaska
can assert a claim to the oil resources of Alaska is by
birthright to the gifts of nature. And that cannot be an
exclusive claim. The claim by birthright can only be
legitimate if it is acknowledged that all other human
beings have an equal claim to land and natural resources.
The deepest ethical dimension of territorial rights
recognizes that humanity is one and indivisible in its
fundamental claim to the earth as a birthright of all.
People from the rest of the world, with no oil in their
territories, can only establish the right to oil by
purchase or force. If they are dependent on oil to develop
and advance their economies, but only are able to purchase
and not profit from oil, then these people will remain in a
subservient and mendicant relationship to the controllers
and claimers of oil rich territories until the oil runs
dry. By then the Alaska Permanent Fund will have an even larger investment portfolio by which
to extract land and resource rents from people elsewhere.
This is the fundamental moral and ethical
contradiction of the Alaska Permanent Fund and its modus
operandi as a "prudently" managed investment trust. If the
Fund trustees and the citizens of Alaska were to deeply
consider this common heritage rights basis for their claim
of oil royalties and the profit on Fund investments they
would certainly come to realize the need for a broader,
global, humanitarian role for the Fund - that of assisting
people in other parts of the world to secure their own fair
share rights to resource rents.
For instance, Africa now accounts for 14 percent of
U.S. oil imports, a number that could grow to 25 percent by
2015. Many African countries with oil wealth do not
publish their oil revenue in the national budgets. These
nations are rife with strife, civil war, corruption and
poverty. Humanitarian organizations and many African
citizens are calling for transparency and accountability in
the management of oil funds and for the use of oil wealth
for overall economic development. The Alaska Permanent
Fund could play an important role by helping to establish
similar funds in these nations. Additionally, the Fund
could develop a screen for its investments which would go
beyond even currently established criteria for socially
responsible investing. It could decide NOT to invest in
land and resource securities and instead TO invest
primarily in (1) the development of renewable energy
technology; (2) strictly goods and services businesses and
industries; and (3) in places and in ways that would
support the emergence of forms of governance holding
principles aligned with the primary task of the Fund, i.e.,
the collection of resource rents as a common heritage right
for all people on an equal and democratic basis.
It would be a big step in the right direction if
people all over the world awakened to their claim to the
land and resources of the earth as a birthright and
demanded that this right be written into their
constitutions as did the Alaskans. But based on nation
state boundaries, this would be insufficient to secure
justice in land rights worldwide. Nation states were
formed in a number of ways, but primarily through force of
conquest. Consequently, some nation states are large and
well-endowed with land and resources, while others are
small or lack natural resources.
Furthermore, former colonial states now independent
did not thereby automatically gain control of their
resources for their own people.
Global Resource Agency. There is an urgent
rational, ethical and democratic imperative for the
creation of a Global Resource Agency which would function
in some ways similiar to, but much more extensively than,
the Alaska Fund. The Global Resource Agency would be
responsible for (1) monitoring the global commons (e.g.,
the ozone shield, global forest reserves, fish); (2)
determining rules for access to transnational resources
(like the oceans, electromagnetic spectrum and satellite
orbital zones); (3) issuing use permits;
and (4) collecting resource royalties and revenues. The
Global Resource Agency could also assume substantial
authority for equitably distributing fees collected from
common heritage resources worldwide as calculated by
formulas based on population, development criteria and
currency purchasing capacity. For example, a percentage of
the oil rents from the Alaska Permanent Fund would be
collected by the Global Resource Agency and either
distributed directly to citizens in regions with no oil
resources in a kind of dividend sharing program or made
available as interest free loan funds for sustainable
development projects in those areas.
The Global Resource Agency (GRA) could fund
institutions and activities needed for global environmental
protection, justice, and peacekeeping, such as the World
Court and the International Criminal Court. This would in
turn contribute to a better and more secure quality of life
for the citizens of Alaska and elsewhere who would pay a
portion of their resource rents into the GRA. The
principle that the earth is the birthright of all on an
equal basis would also guide legal decisions made by the
courts in determining just solutions to territorial
disputes. The emergence of such an institution is
essential if we are to create a world that works for
everyone. However it would take years for it to be
accepted and created.
In the meantime the responsibilities listed above
could be assumed by diverse existing United Nations
agencies and other intergovernmental institutions and
mechanisms. While some nation states which are strongly
controlled by vested interests who profit from the current
system might balk at the idea of a Global Resource Agency,
others would offer their endorsement if it were truly
capable of promoting stability and economic fair play for
their people. Seed funding and technical assistance from
the Alaska Permanent Fund could be provided to work
together with these nations and worldwide networks of
humanitarian non-governmental organizations to establish
and coordinate the various components which would then be
brought together to form the Global Resource Agency.
Some people might object to the idea of a Global
Resource Agency out of fears that it would add another
top-heavy level of bureaucracy to an already governmentally
burdened world. But those advocating strengthened global
governance ask us to imagine the shape of the emerging
world as a pyramid with three basic levels: a small tier
at the top for global institutions, a greatly slimmed down
second band of national governments, and a vast sturdy base
of local government, with a primary role of governance on
each tier to collect and redistribute land and resource
rents and royalties as common heritage funds for the
benefit of all. Thus much of the resources raised,
decisions made and benefits provided would be at the local
level.
CONCLUSION
The object of the 4000 year old oriental game of GO
is to gain control of territory by capturing enemy stones on a board. You win by forming
walls with your stones that surround more territory than do
your opponent's stone walls. One of the oldest games
known, GO is based on the concept that if you possess
land or territory, you have an area to base life on. You
then have liberty and freedom. Without land or territory,
you do not have anything to base life on and are considered
without life, or dead. Chess, probably invented in India
in ancient times, was widespread in Europe in the 16th
century when the rules were definitively stabilized. A
more directly confrontational and combative game than GO,
chess exhibits the same theme of territorial conquest and
control as a life or death affair.
Both are games of metaphor which mirror real life
militarized territorial goals. Consider for a moment that
for thousands of years and millions of hours trillions of
brain cells have been trying to take, expand or hold
territory in the face of the "enemy." We now live in an
age when defining the "other" as "enemy" can lead to the
annihilation of both. "Winning" by taking away the
territory of the "other" now has a boomerang effect, as
numerous intractable civil wars attest. Time, attention,
energy and money devoted to securing or maintaining
exclusive claim to particular territory now needs to be
redirected to save the earth, all of humanity and other
lifeforms from the current threat of overall ecosystem
collapse. The spirit of our age, with the image of the
earth as seen from space emblazoned in our mindscape,
insists that the circle now be drawn to include all, each
and every one of us, as equal claimants to the whole earth
itself. This quantum leap worldview can and surely will be
the basis for profound changes in institutions of
governance, economics and law.
The right to the earth itself as a right by birth
is the most fundamental human right of all. The Alaska
Permanent Fund, based on the democratic constitutional
equal right to natural resources, though not a perfect
model, is nonetheless one of the most enlightened
governmental "works in progress" at this time on earth.
-------------
Hartzok is United Nations NGO Representative for
the International Union for Land Value Taxation. She is
also the Director, Earth Rights Institute (see separate
article in this GroundSwell.) She may be contacted via
mail: Alanna Hartzok, Box 328, Scotland, PA 17254 USA;
Email: earthrts@pa.net Website: www.earthrights.net