Oiling the Way to Stability.

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Author: Forbes, Steve

"With all thy getting get understanding"

WHEN IRAQ GETS A NEW GOVERNMENT, ONE OF ITS FIRST TASKS should be turning over the country's oil assets--only Saudi Arabia and Iran have oil reserves greater than Iraq's--to its citizens. The Sunni areas of Iraq have few oil reserves, which is exacerbating already tense ethnic rivalries.

Imagine what a calming balm to the country's violent politics it would be if each Iraqi citizen directly owned shares in various Iraqi oil companies. Economist Charles Wolf Jr. of the Hoover Institution has proposed that the Iraqi government privatize its oil assets by turning them over to private companies and give equal shares in each to every Iraqi citizen. Instantly people would own shares worth thousands of dollars, this in a country in which per capita income is currently around $1,000 a year. The government would receive money from taxing corporate profits and dividends. But the fact that people had a direct stake in these companies would prevent the government's going overboard in laying levies on these entities.

The Sunnis would no longer feel a grievance because the country's oil is concentrated among the Kurds and Shiites. Their individual cuts of this manifold pie would be equal to those of their neighbors.

Another idea would be to emulate the Alaska model. Alaska gets billions of dollars each year in royalties from oil companies. About one-fourth of these proceeds go into an entity called the Permanent Fund. The assets are managed professionally, being invested in stocks, bonds, hedge funds and the like. About half of the revenue stream is distributed to the state's citizens each year; the other half is reinvested. Last year every man, woman and child resident of Alaska received $845 from the Permanent Fund.

Either approach for Iraq would be enormously beneficial, politically and economically. It would also reduce, if not eliminate, the possibility of the kind of government corruption that is convulsing Nigeria.

We should also urge the Iraqi government to enact Western-style mineral property rights. In other words, individual Iraqis should be allowed to own not only land but also the minerals beneath that land. In the U.S., if oil is discovered in your backyard, you'll get a very nice royalty. In Mexico, however, if oil is discovered by an individual it is quickly seized by Pemex, the national oil company. It's no wonder that there's little of the wildcatting or extensive oil exploration in Mexico that we see in the U.S. Instituting individual mineral rights would help foster a positive entrepreneurial spirit among the Iraqi people.

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By Steve Forbes, EDITOR-IN-CHIEF