Oil-to-Cash Lessons from Alaska—Or Why Anchorage Isn’t So Different from Accra

Followers of this blog should hopefully by now know all about Oil-to-Cash, our initiative to encourage a country facing the dilemmas of an oil or gas boom to consider distributing a portion of the proceeds directly to citizens. For the 4-minute summary, see my jellybeans video here.

As part of our exploration of this idea, I recently returned from three glorious days in … Alaska. While this is an unusual destination for a CGDer who mostly thinks about African finance, I had three missions. First, I was presenting the first Oil-to-Cash Reader, The Governor’s Solution: How Alaska’s Oil Dividend Could Work in Iraq and Other Oil-Rich Countries at the University of Alaska at Anchorage’s Institute of Social and Economic Research. (Thanks to my host Scott Goldsmith).

Second, I wanted to bring a copy of the book to Bella Hammond, the widow of Jay Hammond who was Governor and chief architect of the Alaska Permanent Fund Dividend, which in 1982 started to pay a portion of the state’s oil wealth to each resident (more precisely, 50% of the five-year net earnings on the state’s sovereign wealth fund, which is in turn financed by 25% of incoming oil royalties). Hammond’s unfinished account of the dividend, Diapering the Devil, is the core of The Governor’s Solution.

Lastly, I spent time with some of Hammond’s contemporaries, like former Alaska Senate Presidents Clem Tillion and Rick Halford, to learn how they made it all happen. I thought, perhaps, that Alaska’s experience might hold lessons for today. Here are my three take-aways:

1. Alaska’s public policy challenges were not that dissimilar to those faced today by countries like Ghana, Venezuela, and Timor Leste. The key issues in 1970s Alaska were a huge demand more infrastructure, concerns about corruption in public spending projects, and a vigorous debate about how to keep an oil windfall from swamping the political and economic life of the state. These would sound pretty familiar in Accra, Caracas, and Dili. Many of the original objections to the Alaska dividend (the cash will be wasted on beer, we have other more pressing needs, the politicians have better ideas how to spend the money) also ring true today.
2. Alaskans are a funny bunch—and they sure do love to talk about fiscal policy. Although my sample was certainly skewed by hanging out with some ex-politicians, the general level of public discourse on state finances is unquestionably high. People were anxious to debate oil and mining contracts, state budget issues, and management of natural resources. I’m sure that the rugged pioneer culture plays a role here too, but I don’t think it’s a stretch to conclude that the dividend, which pays each Alaskan about $1000 per year, is part of that story. The dividend seems to have has succeeded in creating and sustaining public interest and scrutiny over normally mundane and abstract issues of public finance.
3. Good ideas need great champions to make them happen. Jay Hammond was obviously a beloved politician in Alaska and, by all accounts, a terrific guy. (I’m only sorry I never had the chance to meet the man.) He took the crucible of an idea—that the wealth of a community belonged to the people, a notion that he found in the fishing villages of Bristol Bay—and kept at it until he (by his account, accidentally) became Governor in 1974. He then worked for years with a small group of dedicated allies to bargain, cajole, and—as Clem “The Hammer” Tillion told it—even occasionally threaten to finally get agreement from a skeptical legislature that had other ideas.

Hammond didn’t get everything he wanted for sure. (He called abolishing the state income tax, which was a piece of the final compromise, “the most stupid thing we could do.”) But Jay Hammond certainly left a tremendous legacy for future Alaskans. The Permanent Fund’s assets are now up to $46 billion. The success in saving that money is—Alaskans certainly believe—in part due to the dividend.

So, is there a Jay Hammond in Abuja, Ulan Bator, or Tripoli?