Baseball Crank
Covering the Front and Back Pages of the Newspaper
April 17, 2003
WAR: Iraq's Oil

The Bush Administration has promised (see also here, with remarks from Colin Powell) that Iraq's oil (presently the property of a government-run oil company, if I recall correctly) should be 'held in trust for the Iraqi people'. Commentators on the Left have now joined a battery of those on the Right (last link for Wall Street Journal subscribers only) calling for such an outcome and fretting over the possibility that it will be undermined, perhaps by the State Department.

George Melloan, in the Wall Street Journal, asks the first threshold question - why should we even be the ones to make that decision, rather than leave the distribution of the country's resources to the Iraqi people's elected representatives, if we're serious about democracy? After all, distribution of the otherwise poor country's vast oil wealth is a huge question about the shape of Iraqi society. I think Melloan's right, though, that we're in Iraq to help build institutions that support democracy, not just democracy itself, and spreading the oil wealth around is a good way to encourage less government corruption and more entrepeneurship (particularly since a broad distribution will ensure that people get income but not necessariy enough that they won't want to work for more). That may sound like redistribution, but most conservatives have no trouble redistributing wealth away from centralized government control.

But what of the structure of such a project? I know little enough about how the Alaskan model (which most everyone cites) works, but it seems to me that we need to make sure that, while the resulting structure passes on the benefits of the oil rights, someone with a profit motive remains in charge as the administrator of such rights, if we really want to make sure that the beneficiaries get full value from this. For example: will Iraqis actually be shareholders in a state oil company, with shares freely transferable? (Upside: people can cash out. Downside, as we saw in Russia: people can get swindled or extorted out of their shares). Will the oil industry remain Iraqi-operated, or will we just be distributing the proceeds from selling the businesses to foreign companies, who may be able to operate the wells more efficiently? I don't have good answers, except that we should not leave operation of the oil industry in the hands of some big government monopoly (like the Mexican model, for example) that will wind up as a big, sluggish jobs program with undue influence over the country's politics. And we also have to recognize that there will be tensions, at this level, between our interests in giving Iraqis the blessings of oil wealth and our own interests in maximizing the efficient production of low-cost oil.

I await Jane Galt's analysis, as promised.

Posted by Baseball Crank at 7:39 AM | War 2002-03 | Comments (0) | TrackBack (0)
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