by Karl Widerquist | May 16, 2018 | Opinion, The Indepentarian
This essay was originally published on Basic Income News in February 2012.
The resource curse, as I see it, comes in three different forms. Alaska has avoided the first two, but whether it avoids the third remains to be seen. The first-stage resource curse occurs when resource exports drive up the nation’s exchange rate and drive other industries out of business. The phrase “Dutch Disease” was coined to refer to this kind of resource curse. The second-stage resource curse occurs when the influx of cash from resource exports fosters corruption, graft, and sometimes dictatorship, so that all or most of the oil revenue is used against the people rather than for their benefit.
The third stage of the resource curse occurs when the resource windfall creates temporary prosperity for all or most of the people, only to lead to depression and economic deprivation as soon as the resource revenue disappears. A large number of factors can contribute to the third-stage resource curse. It can happen if the resource-exporting community invests in an infrastructure suited only to resource exports and is either too large or the wrong kind of infrastructure for the economy that will need to be in place when the resources are gone. Probably the most important reason for a third-stage resource curse is too much spending on immediate needs and not enough savings.
The first two forms of the resource curse will be apparent during the boom, and clearly Alaska has escaped them. But we cannot know for sure whether it has escaped the third stage until the resource is gone. How well is it doing to avoid the third-stage resource curse?
Three strategies to avoid this third kind of resource curse are savings, investment, and the hope that resource revenue will never end. Although Alaska oil production has been slowly and steadily declining for twenty years, the hope remains that natural gas, newly discovered oil reserves, or some other resource discovery will replace what is being lost. This hope will never die, but it can substitute for cautious preparation.
Alaska has made some good investment spending on schools and infrastructure, and it has managed to save some money. According to Commonwealth North, Alaska has saved $66 billion dollars: about $40 billion in the Alaska Permanent Fund (APF), $10 billion in the Constitutional Budget Reserve (CBR) and the rest in other funds and saving mechanisms. Compared to most other U.S. states, struggling with budget deficits, these saving figures are impressive, but they’re not as impressive compared to other resource exporters. After exporting similar amounts of oil, Norway has amassed a fund of $560 billion dollars.
Instead of saving the bulk of its oil revenue, Alaska has devoted almost all of it to current spending. This decision has put Alaskans at risk of the third kind of resource curse. If the state government had to draw on the interest of its savings to make up for a shortfall in oil revenues, all the funds together could not be counted on to cover even one-fourth of the state’s annual budget, and most of the interest on Alaska’s savings (after inflation-proofing and reinvestment) is already rightly dedicated to paying dividends. If and when oil exports come to an end, Alaskans will need and deserve the returns to their savings more than ever.
The Alaska Permanent Fund (APF) and Dividend are working just as intended. They are Alaska’s best savings plan. They constitute a model that other places should be following. When savings are most needed, the state shouldn’t abandon that model; it should build on it. If the fund was large enough, the interest on it could support both a substantial dividend and some or all of the state’s regular spending. The solution for Alaska is to save more money now, while oil prices are high and production is healthy and to treat more of its resources the way it treats oil. The state can’t save more for the future without making some sacrifices in the present, but I want to show you that a much larger fund is feasible.
First, let’s consider what might have been. When oil revenue started flowing into Alaska, one proposal was to save all of it and spend only the interest. Of course, we can’t change history now, but it is valuable to look back with the benefit of numbers that weren’t available looking forward. According to Gregg Erickson and Cliff Groh’s chapter in Alaska’s Permanent Fund Dividend: Examining Its Suitability as a Model, the state received a total of $103.5 billion in oil revenue by 2010 (adjusted for inflation). It invested $19.1 billion (18.2 percent of its oil revenue) in the APF. Most of the remaining $84.4 billion (81.8 percent) went to the general state budget. Even though the APF has paid 30 years of dividends, the principal has increased by a total of 217 percent to about $40 billion.
Suppose, for the sake of argument, that Alaska had saved all of its oil revenue into the APF, using half of it for regular revenue and half of it for the PFD. If this larger fund did just as well as the actual fund has over the last 35 years, the APF would now be worth about $225 billion. It would have $9 billion available this year. Suppose it used half dividends and half for spending. If all 700,000 Alaskans applied for the PFD, $4.5 billion would finance a dividend of more than $6,000 per person, or more than $24,000 for a family of four. The remaining $4.5 billion dollars would cover about 43 percent of the current state budget of $10.5 billion.
But this is not all that might have been. According to Erickson and Groh, oil produced in Alaska has generated more than $300 billion in total revenue, two-thirds of which has gone to oil companies. Although fees, royalties, and taxes on Alaska oil have recently been increased, they have historically been very low by world standards. Some nations capture as much as 80 percent of oil revenue. Even though the oil was discovered by state geologists on state land, and the oil companies were brought in only as hired help, the state has let the oil companies walk away with most of the profits. Had the state captured two-thirds of oil revenue instead of only one-third, and saved all of that, Alaska could now have an APF of $434.8 billion. It would have $17.4 billion available this year, $8.7 billion for the general budget and $8.7 billion for dividends. The share going to the state budget would cover 83 percent of state expenditure. The state would only need to raise only $1.8 billion in taxes to cover all other current spending. Assuming the population of Alaska remains unchanged at 700,000 (which is admittedly a very big assumption at such a large dividend level), every Alaskan would receive a dividend of more than $12,000 per year. Poverty would no longer exist in Alaska, and everyone, rich or poor, would have a large springboard for opportunity.
The figures could be even higher if the state had treated more resources the way it treats oil, but I think you get my point. Even if the state needed to spend some of that money as it came in on badly need projects, it has much greater capacity to save than it has taken advantage of. It could have waited to get rid of the income tax until was replaced by permanent returns to the state’s savings (rather than temporary oil revenue). It could have driven a harder bargain with the oil companies. And it could have treated more resources the way it treats oil and mining. It would now little to fear from the coming decline in the oil revenue.
We can’t change the past; where can we go from here? Alaska has increased taxes and fees on oil companies in recent years, and it needs to resist oil company pressure to reduce them. Several proposals on the table right now would increase the APF. Senator Johnny Ellis proposes moving $2 billion from the CBR to the APF, and Representative Mike Doogan proposes $10 billion. These proposals are a start, but it is not enough simply to protect some of the savings Alaska has accumulated. Alaska needs to save more — a lot more.
The state government takes in about $9 billion in oil revenue per year. Suppose the state saved $8 billion of that each year for the next 10 years and its investments do as well over those years as the APF has on average in the past. If so, by 2022, that savings alone would accumulate to more than $90 billion. The APF would grow to $50 billion, or $62 billion dollars with Rep. Doogan’s additional $10 billion were moved from the CBR. Combining that savings would make the APF balance $152 billion. It would produce $6 billion dollars of returns ready for use. If all of that revenue were devoted to the PFD, each Alaskan would receive a dividend of more than $8,000. If half of it were devoted to the PFD, it would have $3 billion dollars per year of permanent income to relieve pressure on the state budget, and it would still be able to pay dividends of more than $4,000 per person per year.
Such an ambitious short-term savings plan is probably not politically possible, but it is possible to move in that direction. Continuing to live off temporary revenue will leave the state vulnerable to the third-stage resource curse. Even $1 billion a year in additional savings would be a good start in protecting Alaska’s future.
by Karl Widerquist | May 2, 2018 | Opinion, The Indepentarian
This essay was originally published on Basic Income News in May 2011.
In March 2011, Brazilian Senator (and tireless campaigner for BIG), Eduardo Suplicy told me and other members of the USBIG and BIEN Committees that he would soon be meeting with President Barak Obama at a dinner during the President’s visit to Brazil. Suplicy asked me to draft a letter to President Obama on behalf of the two organizations. With a lot of help from the committee members and from Alfredo de Romaña and other volunteers, we completed the following letter (see below). Suplicy delivered it on March 19, 2011. According to Suplicy, “[Obama] said that I could be sure that he would read it.”
The full text of the letter to President Obama
Karl Widerquist, Georgetown University-Qatar
Co-Chair (along with Ingrid Van Niekerk), the Basic Income Earth Network
Newsletter editor, the U.S. Basic Income Guarantee Network
March 18, 2011
Barack Obama
President of the United States of America
Dear Mr. President,
I am writing you on the occasion of your visit to Brazil—the first country in the world to approve a law authorizing the phase-in of a full Unconditional Basic Income to the whole population. The law (n. 10,835/2004) was passed by consensus of all parties in the National Congress and sanctioned by President Luiz Inácio Lula da Silva on January 8, 2004. According to the law, Basic Income will be introduced step-by-step, starting with those most in need, through the Bolsa Família Program.
Basic Income is the simple idea of a small, government-ensured income for all citizens. It exists today only in one place: the State of Alaska. For the last 28 years Alaska has distributed a dividend, financed out of oil revenues, to every man, woman, and child in the state. Alaska’s “Permanent Fund Dividend” usually varies between $1000 and $2000 per person per year. It has become one of the most popular state government programs in the United States. It has helped to give Alaska the highest economic equality and the lowest poverty rate of any state in the United States.
Many opportunities exist to introduce a similar program at the federal level. The Cap-and-Dividend and Tax-and-Dividend approaches to global warming include a small Basic Income. The inclusion of this dividend can help counter the argument (used against the Cap-and-Trade approach) that taxes on carbon emissions will hurt average American families.
While in Brazil, you will have the opportunity to exchange ideas about Basic Income with President Dilma Rousseff and the author of the law that created the Citizen’s Basic Income, Senator Eduardo Matarazzo Suplicy. He can discuss how the Bolsa Família might be expanded into a true Basic Income and how it might help to attain the main aim of President Rousseff to eradicate absolute poverty and to promote more equality and justice.
I believe that you can improve on the success of the Bolsa Família and the Alaska Dividend by moving toward a Basic Income in the United States. The University of Alaska-Anchorage will hold a workshop entitled “Exporting the Alaska Model” on April 22, 2011. Several researchers will discuss how programs of this type can be introduced and improved. I invite you to send a member of your team to participate in that workshop.
Sincerely,
Karl Widerquist
The U.S. Basic Income Guarantee Network Committee:
Michael Howard (chair), University of Maine; Eri Noguchi, Columbia University; Michael Lewis, Hunter College; Almaz Zelleke, New School; Steven Shafarman, Income Security Institute; Al Sheahen, Author; Fred Block, University of California-Davis; Dan O’Sullivan, RiseUpEconomics.org; Karl Widerquist, Georgetown University-Qatar; Jason Burke Murphy, Elms College.
The Basic Income Earth Network Executive Committee:
Ingrid Van Niekerk (co-chair), Economic Policy Research Institute, South Africa; Karl Widerquist (co-chair) Georgetown University-Qatar; David Casassas, Universitat Autònoma de Barcelona, Spain; Almaz Zelleke; The New School, USA; Yannick Vanderborght, Facultés universitaires Saint Louis in Brussels, Belgium; Louise Haagh, University of York, United Kingdom; James Mulvale, University of Regina, Canada; Dorothee Schulte-Basta, BIEN-Germany; Pablo Yanes, Secretary of Social Development, Mexico City, Mexico; Andrea Fumagalli, University of Pavia, BIN-Italia, Italy. Honorary co-presidents: Eduardo Suplicy, the Brazilian Senate; Guy Standing, the University of Bath; Claus Offe, Hertie School of Governance, Germany. Chair of the International Advisory Board: Philippe Van Parijs, Université catholique de Louvain, Belgium.
by Karl Widerquist | Apr 25, 2018 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in October 2010.
The political climate in the United States has gotten increasingly unfriendly toward the Basic Income Guarantee (BIG). Since 1990s, Democrats and Republicans have agreed that any politically viable approach to poverty must involve forcing the poor to work. But it is not only cash assistance to the poor that is nonviable in the current political climate. It is not only progressive social policy. Left or right, it seems to be that the government lacks the ability to employ any ambitious strategy.
America was once a very ambitious country: the New Deal of the 1930s, the G. I. Bill of the 1940s, the interstate highway system of the 1950s, the space program and the Great Society of 1960s were all hugely ambitious goals pursued with ambitious strategies. More than a century ago, when an earthquake hit San Francisco or a fire hit Chicago, we rebuilt those cities better than ever within a couple years. Today, five years after the engineering failure that caused the flood in New Orleans, large parts of the city lie vacant while the government struggles to get the levees back only to where they were before they failed.
It would be wrong to say that the U.S. government has not taken on any ambitious goals in the last 30 years. It has ambitiously pursued tax cuts for the most privileged Americans, but by doing so it has hampered its ability to ambitiously pursue most other goals it has taken on. Under the Bush administration, the U.S. government took on the incredibly ambitious goals of invading and occupying two foreign nations. But the government has pursued those goals largely with the strategies of long-range missiles in the air and bribes for warlords on the ground, rather than committing resources to stabilize and rebuild those countries. Under the Obama administration, the U.S. government has taken on the ambitious goal of establishing universal healthcare coverage, but it plans to do so by mandating that individuals buy insurance, often from for-profit companies. Whether these goals are good or bad, the ambitiousness of the strategy does not match the ambitiousness of the goal. Meanwhile, we don’t even have the ambition to properly maintain the public transportation systems, highways, and other infrastructure left to us by earlier generations.
And in this climate, BIG supporters want to talk about this hugely ambitious idea to eliminate poverty with an unconditional payment to all citizens. How can this be worth talking about here and now?
One important reason to keep pushing for a big ambitious change is that we must not mistake a current political mood for the permanent political reality. The political mood changes for the better and for the worse, and it can change abruptly and unexpectedly. In the 1850s, no one, not even Abraham Lincoln himself, had a good reason to believe that the United States was within 10 years of outlawing slavery. In the 1920s, no one, not even Franklin Roosevelt himself, had a good reason to believe that the United States was within 10 years of introducing old age pensions, unemployment insurance, a national minimum wage, and so on.
The political mood is only a mood. It can change abruptly because most people do not hold firm convictions about politics. True believers on all sides of any political issue might dominate the debate, but most people’s political positions are tentative and subject to change. I cannot predict when and how the political mood will change, but I know that a major change takes people pressing for it, and it takes people being ready with well thought-out new ideas to take us in another direction. We need to talk about BIG now if we want to make it viable later.
The outpouring of enthusiasm for the vague ideas of “change” and “hope” in the 2008 election indicates that the appeal of the ambitionless philosophy that has been dominant for the last 30-years is declining. The most active resistance to the Democrats over the last two years has been made out of the minority who voted against them to begin with. But a significant part of the frustration that might swing the upcoming election is motivated not by some belief that the Democrats have gone too far but by the belief that they have not done enough. It is a sign of continued frustration at the bipartisan lack of ambition that continues to handicap the U.S. government.
I wish I could say with assurance that we are on the verge of a major shift in political mood in the direction of BIG. I cannot say that. I cannot see the future, and neither can those people who confidently pretend they can. But I can point to indicators that things are moving in the direction of BIG and small things we can do here and now to push things in that direction.
As I see it, there are four parts to the BIG model: (1) it’s in-cash; (2) it’s enough to meet a person’s needs; (3) it’s universal; and (4) it is understood as a human right or a right of citizenship. Anything that establishes even one element of this model moves in the direction of BIG.
Looked at in this way, the United States is not as far away from the BIG model as it might appear. Some of the most successful and popular elements in U.S. social policy are cash-based: refundable tax credits; unemployment insurance, Social Security, Supplemental Security Income, and so on. The Food Stamp program functions almost like a cash grant (although with a paternalistic twist), and it is clearly motivated by the idea that everyone ought to have access to food. Social Security—as imperfectly as it works—is clearly motivated by the belief that all people ought to have a financially secure retirement. Despite all the shortcomings of the health care reform law, it helps to establish the idea that all people should have access to health care.
The public school system is an enormous in-kind universal benefit that is not even limited to citizens. Although the system has great inequities, the ideal of universal education is strong. A fully market-based educational system would offer no more than the faith that all parents will somehow find a way to purchase adequate education for their children. It’s not such a big change in mindset to go from the realization that we can’t assume every parent can provide an adequate education for their children, to the question of what makes us so confidently assume every parent can provide adequate food, shelter, and clothing for their children.
Looking beyond U.S. federal government policies, there is an increasing trend worldwide toward the use of in-cash benefits. Alaska’s Permanent Fund Dividend, Mexico’s conditional cash transfer program, Brazil’s Bolsa Familia, and South Africa’s pension system are just a few examples of how well cash grants can work and how popular they can be. All of this experience provides lessons for U.S. federal policies big and small.
There is nothing good about the current recession. But sometimes good things arise out of bad. This recession has reminded many Americans that they are not so different from people in need. Unemployment did not rise from 3 to 10 percent because people suddenly became lazy; the foreclosure epidemic was not caused by a sudden increase in the number of deadbeats. The government has put most of its effort into bailing out the economy from the top down, but there is growing belief among the American public that we should be aiming our policy from the bottom up instead.
What can we do? Two things: we can be on the side of big ambitious change and small incremental changes in the right direction. The world has big problems; we can be on the side of the ambitious strategy necessary to build a better world in the face of those problems. At the same time, there are small policy issues and many, many opportunities to nudge policy in the direction of a universalistic, rights-based, or cash-based strategies to meet human needs. Efforts to expand refundable tax credits and the cap & dividend approach to global warming are two small steps in that direction that are under serious consideration right now.
-Karl Widerquist, Portland, Oregon, October 2010
by Karl Widerquist | Apr 11, 2018 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in February 2010.
This issue, Volume 11, Number 55, marks the tenth anniversary of the USBIG Newsletter. The USBIG Network began over breakfast at the Kiev dinner in New York City in December 1999. Five people attended the first meeting: Fred Block (a sociologist at University of California-Davis), Charles M.A. Clark (an economist at St. John’s University), Michael A. Lewis (sociologist, then at State University of New York-Stony Brook, now at Hunter College), Pam Donavan (sociologist then at City University of New York-Graduate Center, now at Bloomsburg University) and me, Karl Widerquist (then an economist at the Levy Institute of Bard College, now a philosopher at Georgetown University-Qatar).
Pam Donovan, Michael A. Lewis, and I had been graduate students together at the City University of New York. We used to meet weekly to discuss our work. Usually, we ended up arguing about politics. One day we discovered that the one policy we could all agree on was the basic income, and so Michael Lewis and I decided to write a paper about it. We gradually got involved with the Basic Income European Network (BIEN), which had been providing a forum for dialogue on basic income in Europe. There were several natural networks in Europe at the time, but there was no equivalent in the United States. Through BIEN we got in touch with Fred Block and Charles M.A. Clark, who had both been doing research on basic income in the United States.
When Fred Block was in town for a conference, we all decided to meet for breakfast. There was no agenda or anything, but the next thing I knew we had decided to create a network, and I had volunteered to write its newsletter. Ten years later, I’m still writing that newsletter. It began with a circulation of about 30 people, including the five of us from the meeting. Since then it has grown to nearly a thousand people.
We called the new organization “the U.S. Basic Income Guarantee Network,” (The USBIG Network or just USBIG for short). We chose that name partly because “basic income guarantee” (BIG) as a generic term that includes various specific versions, such as “basic income,” “negative income tax,” and “guaranteed income.” Also, it makes a nice acronym and the domain name www.usbig.net was available. We took on only one goal: to increase discussion of the basic income guarantee in the United States.
We started the network with a small seminar series in New York City in 2000, and in 2002 we began holding yearly conferences. We are now preparing for our ninth conference, which will be our first joint conference with the new Canadian basic income network, known as BIEN Canada.
Over the last ten years, interest in the basic income guarantee has grown steadily around the world. The Basic Income European Network expanded to become the Basic Income Earth Network, and USBIG became one of its first non-European affiliates. More books and articles on BIG are published each year. Basic Income Studies has become the first academic journal focusing entirely on basic income. Palgrave-MacMillan is now preparing an entire book series on BIG. The first books in the series are expected to be released in 2011 or 2012.
The USBIG Network has chosen to remain a nonpartisan discussion group, but there are political action groups in the United States that are pushing for basic income as part of their agenda.
BIG occasionally springs up as a live political issue in surprising places. The only existing BIG in the world, the Alaska Permanent Fund Dividend, continues to be an enormously popular policy. Two members of the U.S. House of representatives signed on to the idea in 2006; several other members of Congress have endorsed it in roundabout ways—by endorsing a cap-and-dividend or an oil dividend for Iraq. There are senators pushing for it in Canada and Brazil. More than two-dozen members of the German Bundestag are committed to the idea. A Namibian organization has just completed a two-year pilot project on BIG. And so on. And so on.
Writing the USBIG Newsletter has been an interesting experiment. At first I didn’t think there could possibly be enough news about BIG to report in regular issues, but instead I quickly became overwhelmed by how much activity is going on in the world. Somehow, I’ve managed to condense a significant portion of it into the Newsletter. Thanks to the miracle of the internet I’ve been able to work on the USBIG newsletter in New York; New Orleans; England; the far north of Sweden; Hong Kong; Brazil; Qatar; and I can’t even remember where else.
On the whole I think I’ve kept my reporting accurate, but I can recall a few embarrassing errors—such as the time I identified a British MP as being from Australia. I’ve enjoyed reporting on the progress of BIG movements around the world. I’ve enjoyed meeting all the interesting who work on this issue. I’ve suffered through writing obituaries for friends I’ve gotten to know in the movement.
I hope when I look back ten years from now, I’ll remember reporting on the introduction of the world’s second basic income guarantee, somewhere in the world.
-Karl Widerquist, in flight over the Atlantic, February 24, 2010 (revised, March 15, 2010, Doha, Qatar)
by Karl Widerquist | Mar 28, 2018 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in September 2009.
Many people believe that the Alaska Permanent Fund Dividend is an idea ready to export—a model that should be copied around the world. Two U.S. Senators have gotten the idea that the Alaska model is ready to be copied, not by the country over which the U.S. Senate has jurisdiction but by Iraq instead.
Last January, John Ensign (Republican-Nevada) introduced the “Support for Iraq Oil Trust Act” of 2009. According to the official summary of the bill, it would force the U.S. State Department to present a plan for an oil trust fund (based on the Alaska model) to the Iraqi government, and it threatens to reduce U.S. aid to Iraq if the U.S. Secretary of State fails to do so.
The bill picked up one cosponsor, Senator Evan Bayh (Democrat-Indiana). No further action has been taken on the bill since it was referred to committee in January, and probably the bill will die in committee.
But the bill has received negative attention from press in the Persian Gulf region. Saadallah Fathi, writing for GulfNews.com (based in Dubai) sees the bill as an effort to pressure the Iraqi government to adopt a policy that is not well-suited for Iraq’s situation.
Whatever the value the Alaska model might have for Iraq, this bill is probably the wrong way to export the idea. The U.S. government could make a greater effort to lead by example. If the Alaska Permanent Fund is a model to be copied, the Senate might consider copying the model itself by creating a Federal U.S. Permanent Fund. Copying the model yourself seems much more reasonable than trying to influence someone else (a sovereign foreign government) to copy the model.
The United States is resource-rich. It has the potential to create a very large Alaska-style fund using taxes on resource exploitation, such as mining, drilling, forestry, carbon emissions, and real estate. If the senators are right that the Alaska-model is ready to be copied, they might consider implementing it first in their own jurisdiction.
-Karl Widerquist, Doha, Qatar, August 2009
For Saadallah Fathi’s article in the Gulf News, go to:
https://www.gulfnews.com/business/Comment_and_Analysis/10322760.html
