The Demand Side of Transparency—or Why EITI, PWYP, and Oil to Cash Are Complementary

As we’ve shared the idea of Oil to Cash—that a portion of resource revenues be given directly to citizens in a regular, transparent, and universal dividend—we’ve heard a lot of concerns, such as that it’s impractical or that it’ll make people lazy. We deal with the ten most common objections in this working paper, which previews Chapter Five of our book, Oil to Cash: Fighting the Resource Curse through Cash Transfers. The book, which I’m writing with Stephanie Majerowicz and Caroline Lambert, is due out in 2014. (If you’re reading this you’ll be getting an invitation to the launch party!)

We are very happy to engage those who’d like to help us think through concerns, design issues, and potential effects. But one of the unexpected sources of skepticism has been from some quarters of the transparency community.  More specifically, I have been surprised by the number of people who seem to view Oil to Cash as a competing alternative to the Extractive Industries Transparency Initiative (EITI), Publish What You Pay (PWYP), establishing sovereign wealth funds, or other efforts to engage citizens in promoting transparency and good governance in the extractive sectors. I’m surprised since I always viewed a direct dividend as fully complementary to these other (terrific) ideas. And I don’t mean that in the sense of ‘we all have the same goals so let’s just be nice to each other.’ I think of Oil to Cash as working on both the supply and demand for information and good governance in resource income—and thus supportive of transparency initiatives. Here’s why:

EITI makes publicly available data on resource revenues flowing into public coffers. PWYP does a similar thing for the other end of these transactions, funds flowing out of oil and mining companies. These initiatives are huge leaps forward from the bad old days when no one knew anything about resource flows.

But while EITI and PWYP provide public information as a supply response, on their own they can only do so much to create demand for that information or its use (which they often do through support for civil society organizations). It’s wonderful, for example, that Liberians can go to this website to see mining contracts and payment information. But how many Liberians actually do this? And if they did, then what is supposed to happen? And what about citizens that live in countries with even fewer mechanisms to make their voices heard?

Here’s where Oil to Cash is potentially complementary. If citizens know that their government’s decisions and actions on resource revenues (i.e., Who gets concessions? What’s the price structure? Are the payments received correct? What’s happening with the money?) will directly affect the amount of cash they receive in their pockets, they have a greater incentive to pay attention. They aren’t just doing a public service, but lobbying for their own wallets. In short, a dividend should create a broader and stronger constituency for sound management. This will likely include people who may want to support abstract notions of good governance or fairness, but feel too busy (or are too poor) to act on it.

Indeed, this is exactly what’s happened in Alaska. The Alaska Permanent Fund dividend, which pays each state resident an equal share of half of the fund’s five-year average profits (it was $900 in 2013), has created a tremendous amount of public discussion and attention on fiscal affairs. This was Governor Jay Hammond’s vision when, over many of the same objections we hear today about Oil to Cash, he launched the dividend in 1982.

In the developing country context, we hope that an Oil to Cash-like dividend will give citizens a concrete reason to utilize EITI data and a sharp motivation to push for better use of national wealth. If things go badly, if, say, the dividend falls from $50 to $25, this should force some tough questions  and require a clear explanation. If a government sets up a sovereign wealth fund or other ring-fenced account (which is ideally an integral part of the Oil to Cash model), the dividend should embolden citizens to want to know what the fund is doing with the money. Absent any mechanism like Oil to Cash, there’s little to stop governments from setting up paper structures, raiding the account, or simply changing the rules as they like (see, e.g., Chad’s pipeline escrow account, Nigeria’s excess crude account, Angola’s sovereign wealth fund, etc.).

EITI, PWYP, and other efforts have created, in many countries, a vitally important window into the black box of the budget and the workings of the oil sector. Oil to Cash creates a reason for regular citizens to look inside that window and to speak up if they don’t like what they see. For the troops already fighting the good fight over resource governance against hugely powerful political and commercial forces, we hope that a dividend will not march against them but will instead swell their ranks.