Via Owen Abroad, I discovered this interesting “wonkcast,” hosted by Lawrence MacDonald, in which he interviews CGD fellow Todd Moss on a new working paper on protecting Ghana from the natural resource curse, given that they’ve recently found oil.
Moss’s solution? Look to Alaska: rather than bending over backwards to design a transparent system and institutions for the government to handle the oil revenue, distribute the profits equitably among the Ghanaian population as directly as possible. The argument is that as all Ghanaians will be deeply concerned with this new income source, the natural process of citizen oversight will kick in.
Initially, I was a bit sceptical (surprise!). Several studies have shown that just giving cash to the poor is quite effective (many, including the critical folks at Aid Watch, consider it the benchmark for judging aid interventions). But while getting cash directly to the people is clearly welfare enhancing, and leads to all sorts of great outcomes at the micro level, those benefits haven’t been shown to extend past the micro-level. Wealthier people are not necessarily any more likely to get past the collective action problems that obstruct the provision of the sorts of public goods conducive to development. Also, bypassing government means that government system lose out on “learning-by-doing.” It also does little to enhance the more basic accountability link between governments and people.
However, about half-way through the talk, Moss and MacDonald start talking about these things, and conclude that getting the money to the people opens up a more tantalising opportunity: let the government tax the people even more (either directly, or through a VAT). Now the governments have to work hard to earn their revenue from the people, which is what governments should be doing. When the government takes a hunk out of our salary (or, in this case, our oil-allotment), we’re more likely to care about how that money is spent.
This sort of idea combines the best of both worlds: it allows government free access to (a portion) of a large windfall of resources, which in the short term is fully fungible (a good thing), but in the long term subject to the accountability link that is fostered by the taxation of the population!
Large-scale, equitable government policies may have another benefit: by distributing money more or less equally, a government can signal that it is moving beyond ethnic or regional favouritism. Malawi, a country with a history of ‘super-ethnic’ regional cleavages, recently had an election where (for the first time) voters largely ignored the regional dimension. I attribute this to five years of the (mostly) equitable government policy of fertiliser subsidy distribution. Similar policies using oil revenue might help other governments send similar signals (although Ghana seems to have already avoided the perils of ethnic politics).
Another question remains: why don’t we consider this process for aid? I’m a big proponent of general budget support, but have linger qualms about how completely free windfalls of aid will undermine the tax-driven accountability link I’ve talked about. We want governments chasing local money, not foreign money. Maybe we should give the foreign money to the people on the ground first, and then let governments tax them at a reasonable rate, while determining their own development policies?