by Alanna Hartzok
Scotland, PA
This paper was presented in the U.S. Basic Income Guarantee
Network (USBIG) track of the Eastern Economic Association
30th Annual Conference held February 20-22, 2004 in
Washington, DC.
[Abstract: Citizens of Alaska have been receiving
individual dividend checks from an oil rent trust fund
since 1982. Norway's citizens receive substantial social
services and invest oil rents in a permanent fund for the
future. Nigeria has yet to establish a similar fund for
its oil revenue stream. This paper explores the oil rent
institutions of Alaska, Norway and Nigeria with a focus on
these questions: Are citizen dividends from oil rent funds
currently or potentially a source of substantial basic
income? Are oil rent funds the best source for Citizen
Dividends or should CDs be based on other types of resource
rents?]
The paper recommends full use of information and
communication technologies for transparency in extractive
resource industries, that resource rent from non-renewable
resources should be invested in socially and
environmentally responsible ways and primarily in the
needed transition to renewable energy based economies, and
that oil and other non-renewable resource rent funds should
transition towards capturing substantial resource rents
from surface land site values (ground rent) and other
permanent and sustainable sources of rent for possible
distribution of citizen dividends.
ALASKA
The Alaska state constitution claims common
heritage rights of ownership of oil and other minerals for
the people of the state as a whole. Citizen dividend
checks are distributed every year in Alaska out of the
interest payments to an oil royalties deposit account
called the Alaska Permanent Fund (APF) created in 1976
after oil was discovered on the North Slope. The APF is a
public trust fund - a diversified stock, bond and real
estate portfolio - into which are deposited the oil
royalties received from the corporations which extract the
oil from the lands of Alaska. The first citizen dividend
check from the interest of the APF was issued in 1982 and
was for $1000 per every person for everyone in Alaska who
had resided in the state for at least one year. Annual
citizen dividends have been issued every year since then,
for a total of more than $23,000 per person.
In 2003, each of the nearly 600,000 Alaska US
citizens (residents of Alaska for at least one year)
received a check for $1,107 from the APF. The total amount
dispersed was $663.2 million. The $25 billion investment
fund's core experienced stock market losses which led to
the dividend's decline this past year compared to the
several previous years. The amount was $433 less, a 28
percent drop from the 2002 pay out of $1,540, and a 44
percent decrease from the all-time high of $1,964 in year
2000. The amount changes based on a five-year average of
APF investment income derived from the bonds, stock
dividends, real estate and other investments.
Alaska relies on oil for about 80 percent of its
revenue and has no sales or income tax. Alaska state
government is mandated to invest 25% of its oil revenue
into the APF while the other 75% of oil royalty revenue is
dispersed to other government funds to finance education,
infrastructure and social services. If 100% of Alaska's
oil royalties had been deposited into the APF, it is
conceivable that the CD this year could have been about
$4,400 or $17,600 for a family of four. But then there
would have been no funds for roads, education and other
public services and no funds available to run the state
legislature - a libertarian dream fulfillment or a social
and economic disaster, which one we will never know. If
state services were to have been maintained while 100% of
oil royalties were deposited in the APF, there would of
course have been the need for income, sales and other taxes
on wages and production.
At the end of the 2002 fiscal year, the state of
Alaska had a deficit of nearly $400 million. State
lawmakers frequently debate whether the APF should be used
to help run state government, but the Fund is protected by
law from being used for government expenditures. Rather
than cutting into the Fund and citizen dividends, others
are proposing an increase in oil rents and royalties from
oil corporations.
On February 5th of this year of 2004, several
Democratic Representatives filed legislation to help
Alaskans recover a fairer share for their oil. That same
week former Alaska Governors Jay Hammond and Wally Hickel
stated that it is time to review the fairness of oil tax
exemptions contained in a 1989 law known as "the ELF", or
Economic Limit Factor. Their viewpoint is that ELF gives
unjustified tax exemptions. The Alaska Fair Share bill
would redress the Economic Limit Factor and meet the
constitutional obligation to make sure Alaska's oil
provides "the maximum benefit to the people" as mandated by
the state constitution.
Because of the ELF statute tax breaks, Alaska's oil
production tax rate has plummeted from 13.5% in 1993 to
7.5% today, and by 2013, it would be down to 4% if the law
is not changed. Also because of ELF, 11 of the last 14
fields developed since 1989 pay none or almost none of
Alaska's 15% Production Tax. While the state's share for
Alaska oil has fallen, corporate oil profits have soared.
BP and Conoco Phillips reported net earnings of $9 billion
and $7 billion respectively last year. According to the
Department of Revenue, at recent oil prices of $30 per
barrel the annual share corporations receive for Alaska oil
would exceed total state oil revenue by $1.2 billion.
The Alaska Fair Share bill establishes a modest
minimum production tax of 5% and would raise an additional
$400 million in revenue this year. That approximates the
current state budget gap. The bill raises more at higher prices per barrel, and an
additional $100 million at average prices, according to the
Department. The bill also lets the state share in profits
above $20 per barrel by slowly increasing the severance tax
above that price. To encourage development, the Alaska
Fair Share bill reduces the severance tax rate at low
prices, when companies face the prospect of reduced
profits, and possible investment losses.
Passage of the bill would alleviate state
government expense shortfalls, and would possibly result in
higher citizen dividend payments as more funds would be
deposited into the APF. We cannot predict this for
certain, however, as the CD's come from the investment
portfolio interest, are averaged over a five year
investment period, and determined by the portfolio
performance.
We do know that due in large part to the citizen
dividend payments combined with the happy consequences of
no state income or sales taxes, Alaska is the only state in
the United States where the wealth gap has decreased in the
past decade. The citizen dividends from the APF are an
important and significant source of income, especially for
rural families maintaining more land based subsistence
lifestyles.
NORWAY
Norway, one of the world's richest economies, is a
model of prudent economic management of resource wealth.
So states the IMF 2000 Article IV consultation with Norway.
Norway is the top non-OPEC oil exporter, the world's
third-largest exporter of oil, and pumps about 3.2 million
barrels per day. Norway's oil and gas industry underpins
the economy, providing up to 25% of the country's gross
domestic product. This country of nearly four and one
half million people has a steady growth rate, almost no
poverty, and negligible unemployment. Norway has a diverse
economy based on agriculture, forestry, fishing and
manufacturing, among other things, and its oil industry has
developed amid much planning, bargaining, and public
debate.
The most recent U.N. Human Development Report ranks
Norway the number one place in the world to live, based on
a cocktail of indicators about health, wealth and social
outlook. Nearly 1% of GDP is spent each year to fight
global poverty and enhance peace. Oslo often plays a
mediating role in foreign conflicts, from efforts to
reconcile North and South Korea to the now foundering
Middle East peace process. Norway has created an economy
that retained its progressive tax structure, re-invested
its oil profits throughout the economy, and saved money to
cushion future market shocks.
Norway struck oil in the North Sea in the 1960s.
Norwegians' best defense against the decline of the
industry that has made it the world's fourth-wealthiest
country is the State Petroleum Fund which is managed by the
national Norges Bank. Parliament created the oil fund in
1990, but the state had its first budget surplus only in
1995. Until then, oil income was used to pay down Norway's
staggering foreign debt from the tough years before North
Sea riches could be exploited. A substantial amount of the
profits from the exploitation of a resource that is viewed
as belonging to all Norwegians, not just the current
generation, is invested in foreign stocks and bonds. The
state-owned fund guards against spending too freely on
public sector services in boom years so as not to lay off
droves of state workers when the economy goes bust.
The Petroleum Fund is an instrument designed to
prevent Norway's substantial oil profits from being taken
too rapidly into the economy. State bank officials and
government leaders believe that dispersing oil revenues
directly would overheat the Norwegian economy and suppress
private sector growth. Their view is that the resource
rent collected from the sale of their natural wealth of oil
should be conserved.
Norway has extracted only about 30% of its known
oil resources in the three decades and reserves are
expected to last 40 more years. But the oil that's left is
mostly in depths, distances and quantities that make its
extraction less likely to produce profits of the magnitude
to which the country has become accustomed.
From the perspective of some, Norway focuses more
on how to administer and distribute the assets already
acquired than on how new value is to be created. There are
generous benefits for both men and women of eight weeks'
vacation, liberal sick leave and day care that is reliable
and inexpensive. Three-year maternity leaves, broad
part-time opportunities and creative application of
telecommuting help keep women in the work force. State
assistance to single mothers is so generous that there is
no need for a father's income.
Norway's State Petroleum Fund is now worth about
$60 billion. Many of Norway's citizens fail to see why
they should pay some of Europe's highest tax rates when
Norway's crude output is worth about $7,000 a year for each
citizen, about one fourth of per capita GDP of $28,433. If
the $60 billion is invested for a rate of return of 10%,
then each Norwegian citizen could receive $1333 as an
annual CD. The state's priority instead is to conserve
and build the Fund and funnel fund revenue into social
benefits.
NIGERIA
Two thousand years ago, Pliny the Elder wrote that
the two greatest curses of civilization were the discovery
of silver and gold. Perhaps oil and gas should be added to
the list of natural wealth that ends up damaging more then
helping people in many parts of the world that are rich in
subsoil resources. This has certainly been the case in
Nigeria.
There have been 28 wars waged in Africa in the past
three years over the control of mineral resources, many of
them in West Africa. Conflicts in Nigeria have been
ongoing since oil was first discovered four decades ago.
Nigeria is Africa's most populous nation - home to more
than 130 million people, or one-sixth of the population of the African continent. The giant of
West Africa, Nigeria has half the area's population and
one of its most highly educated workforces. Nigeria is the
fifth-largest supplier of oil to the United States. The
Bush administration has recognized African oil as a key US
strategic interest as the country seeks more stable sources
of petroleum outside the turbulent Middle East.
Nigeria is potentially Africa's richest country.
As the world's sixth largest producer of crude oil, with
huge reserves of mineral and agricultural riches and
manpower, it should be enjoying some of the highest global
living standards. But it has some of the lowest living
standards in Africa. Surveys conducted by Nigeria's
Federal Office of Statistics show that in a 16 year period
between 1980 and 1996, Nigeria's poverty level rose from 28
to 66 percent. GDP per person in 1982 was $860, in 1996 it
as $280, and now reported to be $290. Numerically, while
17.7 million people lived in poverty in 1980, the
population living on less than US $1.40 a day, rose to 67.1
million by 1996.
Northern and southern Nigeria are essentially two
different countries. Some view the oil producing region of
the Niger Delta in the south as a sort of internal colony
of Nigeria. Home to 15 million impoverished people, the
Niger Delta region produces 90 percent of Nigeria's wealth.
Under the swamps and mangroves of one of the world's
richest ecosystems lie vast reserves - an estimated 40 more
years of crude and a century of natural gas. The first oil
was produced here in 1956. After 40 years of production,
there are rutted roads, decrepit schools, few health
clinics, no conduits for running water, and polluted creeks
and farmlands. There have been dozens of oil spills and
gas flares spew carbon dioxide 24 hours a day. The Niger
Delta is one of this country's poorest regions, despite its
oil wealth. Most people are struggling to survive on less
than $1 a day. Away from the main towns there is no real
development, no roads, no electricity, no running water and
no telephones.
Most of the oil that has earned Nigeria close to
US$340 billion since production began over four decades ago
has come from the Niger Delta onshore sites. Some put the
number at $300 billion with about $50 billion "disappeared
overseas" meaning stolen by corrupt officials. Shell and
other western oil companies extract oil worth an estimated
$150 billion a year in recent years from the area. A rough
estimate is that Nigeria earns some $10 billion every year
from oil.
Based on Nigeria's 1988 population of 100 million,
if Nigeria had distributed the entire $340 billion it has
received in oil exploration up until year 2000, over a
forty year period, the citizen dividend per person per year
would have been about $85. Based on the figure of $10
billion that Nigeria earns every year from oil and a
current population of 130 million, distributing the full
amount as citizen dividends would yield about $77 per year
per person. Based on oil extraction worth of $150 billion
a year from the area, and a resource rent of 10% (or $15
billion) charged by the Nigerian government, the annual
citizen dividend would be about $115 per person per year.
As noted earlier, GDP per person in 1982 was $860,
in 1996 it had fallen to $280. Based on the current GDP of
$290, adding the $115 dividend, would bring the income per
person per year to $405. For a family of four, that would
be $1620 per year with the dividend ($1160 without the
dividend). Based on the GDP per person in 1982, a family
of four would have earned $3440. That same family in 1982
with the dividend of $85 added would have had $3780. While
a citizen's dividend in Nigeria would mean a significant
increase in annual income, one must note the vastly more
substantial decrease in GDP from 1982 up until this time.
After the discovery of oil and with the high
exchange rate of US petrodollars compared to Nigerian
nairas, palm oil, ground nuts and other previous export
products of Nigeria were for the most part eliminated.
Nigeria's economy had been mostly subsistence agriculture
and fishing, and with the collapse of their few export
commodities, the economy took a nosedive for most
Nigerians.
What has become of Nigeria's oil wealth? Nigeria
was rated the world's most corrupt country (out of 52) by
Transparency International's Corruption Perception Index.
Much has been made of the fact that money generated from
Africa's oil reserves has been lost in corruption,
mismanagement and violent conflict. In Nigeria, an
estimated $4 billion in government funds was stolen by the
dictatorship of General Sani Abacha in the 1990s. Some
estimate that as much as $50 billion in oil revenue has
been stolen since Nigeria first began production.
Faced with severe balance of payments problems in
the mid 1980s, the then military ruler, General Ibrahim
Babangida, adopted International Monetary Fund and World
Bank advised structural adjustment programs. The key
objective was to ensure that Nigeria serviced its external
debt of US $28 billion and maintained macro-economic
stability, while cutting back on social spending. Starved
of funds, social service institutions began to decay and
service delivery in schools and hospitals sharply declined.
The World Bank estimates that public spending per capita on
health is less than $5 and as low as $2 in some parts of
Nigeria, contrary to $34 recommended for low-income
countries by the World Health Organization. Infrastructure
and utilities began to collapse.
Comparing the $4 billion stolen by Abacha to the
$28 billion in external debt that Nigeria was forced to pay
by the IMF/WB advised structural adjustment programs, it
seems that a case could be made that the greater crime can
be found in the neoliberal economic system. As has
happened to many other third world resource rich countries,
government leaders were urged to use the oil and mineral
wealth royalty payments to secure loans for their countries
and to buy military equipment and other foreign made
commodities. Then the accumulated debt was called in on
the backs of the people as a whole.
The IMF and WB could have insisted that a
transparent oil rent fund similar to the Alaska Permanent
Fund be established as a condition for loans. The fact
that the international banking institutions did not act in a responsible manner by
promoting transparent public finance institutions and
socially just structural adjustments programs but instead
put countries into odious debt lends credence to the
position that these institutions were established to
maintain the predominance of the US dollar as the major
global currency over and above any humanitarian or even
good governance objectives.
What might happen to the people of Nigeria in the
years ahead? President Obasanjo and his administration
intend to increase Nigeria's oil reserves to 50 billion
barrels by 2010 and to raise its production capacity to
five million barrels per day by 2010. Confirmed offshore
oil deposits have increased from about 30 percent of the
country's total reserves in 1997 to about 50 percent today.
As Nigeria moves closer to the reserves and production
targets set by Obasanjo, this percentage is likely to
increase to more than 70 percent. Since oil production for
Nigeria is set to move increasingly offshore of the Niger
Delta, people in the region are concerned that they will be
left behind once again with no share of the federally
controlled oil wealth. Nigerians would be wise to revamp
and diversify their economy sooner rather than later.
Given the extent of the corruption, violence,
destruction and environmental devastation, perhaps the
people of the Niger Delta should make a hard push for the
federal government and the oil companies to repair and
restore their land and water and then look forward to a new
day of sustainable development based on renewable sources
of energy and their own capacity for self-directed
development. Any oil resource rents that they can draw
down from the federal government or finagle directly from
the oil companies might better be directed towards capping
and tapping the dozens of natural gas flares to provide an
energy source for the region that will help it transition
to renewable energy of wind, solar, and microhydropower.
Additionally, transparent, interest free (perhaps a
2% management fee only) revolving loan funds for ecovillage
and sustainable development projects could be established
with the oil revenue, either managed on the federal level
or via separately mandated funds on the state level. Thus
the oil revenue would be used for internal development
projects, not invested externally as is the case with the
Alaska and Norwegian permanent funds. As these projects
proceed, and the economy gently expands, land values will
rise and these funds could then transition towards a
surface land rent and distribution fund. A portion of
these funds could then be distributed as citizen dividends.
Let us note here that land based taxes and land
value recapture policies are recommended in the 1996 Action
Agenda of the United Nations Center for Human Settlements,
a document agreed to by all UN member states. The approach
was also strongly promoted by ecological economist Herman
Daly of the University of Maryland in a very important
speech that he gave to the World Bank on April 30, 2002.
Although Professor Sala-i-Martin at Columbia University
recently wrote a paper advising the World Bank to help
establish a fund in Nigeria similar to the Alaska Permanent
Fund, those of us who have been advocating for a Niger
Delta Fund are now thinking that a sustainable development
focus would be better than using the oil revenue for
citizen dividends in terms of overall wealth creation for
the region.
Nigeria newspapers earlier this week gave us some
positive and hopeful stories. President Olusegun Obasanjo
has fully endorsed the Extractive Industries Transparency
Initiative (EITI) and has inaugurated the National
Stakeholders Working Group, a 28-person team which will
work to publish all payments made by and to its
multi-billion dollar oil industry. Obsanjo wants to hold
to account the Nigerian National Petroleum Corporation and
its international partners, including Chevron Texaco and
ExxonMobil, the Anglo-Dutch major Shell and France's Total.
President Obasanjo also said that whatever
resources the country gets from extractive industries
should be invested in "renewable and non-depleting aspects
of our national economy. What we should, of course, not do
is, advertently or inadvertently, waste these resources
because...they are not renewable." He further stated that
"apart from being non-renewable, I have said on a number of
occasions that what God has put in the soil for Nigerians
are put in the soil for past, present and future
Nigerians... therefore, those of us who are managing it
must manage it for all Nigerians - past, present and
future. And we cannot do that unless we are
transparent..."
Other good news out of Nigeria this past week is
that Obasanjo signed into law the Allocation of Revenue Act
2004 which abolishes the dichotomy between onshore and
offshore oil production in respect of the principle of
derivation for the purposes of allocation of oil revenue
accruing to the Federation. This announcement was received
with jubiliation in the Niger Delta states where state
officials described it as a victory for the "down-trodden
people of the Niger Delta."
All of this is also very good news for those of us
working to secure resource rents for the people worldwide
and to underpin our political democracies with earth rights
democracy ethics and policies.
As the world turns, in a case being investigated by
the US Justice Department and the FBI, it is alleged that
Halliburton paid over $100 million to bribe Nigerian oil
ministry officials and $200 million to bribe government
officials surrounding the award of the Nigeria Liquefid
Natural Gas project between 1995 - 2002. A Halliburton
spokesperson said the company has handed over documents to
the Justice Department but insisted that the company did no
wrong. She said that Halliburton always maintains the
highest ethical business standards.
CLIMATE CHANGE AND OTHER ENVIRONMENTAL CONSIDERATIONS
Some environmentalists raise the concern that
citizen dividends and social services based on petroleum
and other nonrenewable resources rents makes it that much
more difficult to shift to renewable sources of energy.
Alaskan representatives frequently have voted to open up the Alaska National Wildlife Refuge
and other areas for more oil drilling. This writer's first
response to this concern is that if citizens do not get a
rightful share of these resource rents, then corporations
will capture even greater amounts of surplus profits.
While this is true, we need to look at the issue in a
holistic way.
From the vantage point of a planetary civilization,
we clearly need to shift to renewable energy sources.
There is clear and compelling scientific evidence of global
warming. Climate change is one of the most pressing
environmental problems of our time. Carbon dioxide and
other gases released by fossil fuel consumption and
deforestation is trapping heat in our atmosphere for 100
years or longer, with devastating environmental
consequence. It is time to go full throttle in addressing
this enormous challenge.
We need to use oil resource rents to shift to
renewable energy and sustainable economies. Both the
Alaskan and Norwegian petroleum funds invest in stocks,
bonds and real estate. Interest from these investments are
distributed as citizen dividends in Alaska and for social
services Norway. The priorities of the fund portfolios
need to be scrutinized and revamped. Currently the
investment portfolios are mandated to follow the "prudent
investor rule" meaning that managers must find the balance
point between highest profits and lowest risks. Fund
investments are not based on or screened for socially
and/or environmentally responsible criteria.
Furthermore, those of us working for a full range
of resource rents as the basis for earth rights democracy
view oil rent fund investment in real estate worldwide as
an expropriation of surface land resource rents from other
nations and thus are not a just source of interest income
for the citizens of oil rent fund countries like Alaska and
Norway.
The Alaskan and Norwegian funds, and the Nigerian
fund if it is established, needs to have socially and
environmentally responsible criteria. Investments should
be made in renewable energy - wind, solar, green hydrogen,
microhydropower - and in reforestation and other
environmental restoration activities. A portion of the
funds should be made available as interest free (suggested
2% - 3% management fee) revolving loan funds to people in
developing nations to help finance their efforts for
sustainable development. A criteria of the loans should be
that the communities receiving the loans begin implementing
surface land value (ground rent) recapture in their towns,
regions and nations. Land value based resource rent funds,
if full ground rent is collected for the people as a whole,
promotes land reform and affordable land access for current
and future generations in addition to generating funds for
public benefits and citizen dividends.
In the US about one half of corporate profits comes
from real estate related activities so we know that
resource rents from surface lands could be a substantial
source of funds for basic income and citizen dividends. In
addition to land sites, rents from the electromagnetic
spectrum, water power points and satellite orbital zones
should be sourced for citizen dividends in the future.
KEY RECOMMENDATIONS
In concluding this consideration of oil resource
rents as a basis for citizen dividends and basic income
payments, here are three key recommendations:
- Full use should be made of information and
communication technologies for total transparency in
revenue raising and expenditure on the part of both
government and extractive resource industries, as modeled
by the Alaska Permanent Fund and promoted by the Extractive
Industries Transparency Initiative;
- Resource rent from non-renewable resources
should be invested in socially and environmentally
responsible ways and primarily in the needed transition to
renewable energy based economies; and
- Oil and other non-renewable resource rent funds
should themselves transition towards capturing substantial
resource rents from surface land site values (ground rent)
and other permanent and sustainable sources of rent, such
as hydropower points, electromagnetic spectrum and
satellite orbital zones.
--------------------
Alanna Hartzok is Co-Founder and Co-Director of
Earth Rights Institute, Vice President of the Council of
Georgist Organizations, and UN NGO Representative for the
International Union for Land Value Taxation. Other
published articles of hers are posted at
http://www.earthrights.net
Contact info: earthrts@pa.net or 717-264-0957