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November 10, 2010
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An intriguing new paper from Paul Segal at the University of Sussex kicks off with a great quote from Mr Getty “The Paul Segalmeek shall inherit the Earth, but not its mineral rights”. Segal wonders what might happen if governments defied that prediction, and just handed over the income from oil, mining etc directly to poor people as unconditional cash transfers to all citizens (i.e. a universal benefit).

He calls the scheme the Resource Dividend (RD) and actually it may not be that crazy or utopian – Alaska has been doing it for years, handing over $600-$1500 a year to every Alaskan citizen, and Iran is currently considering introducing such a system to pay out $60 per person per month. When Britain first discovered North Sea oil, two FT journalists, Samuel Brittan and Barry Riley wrote, “The simplest and also the wisest answer to the question ‘What should we do with the state’s oil revenues?’ is ‘Give them to the people’”.

Why now? Segal argues that ‘two developments make its more general application particularly relevant today. First, resource nationalism and resource ownership rose in importance amid the dramatic rise in resource prices up to mid-2008. Second, the first Millennium Development Goal, adopted by the United Nations in 2000, is to halve global poverty at the $1 a day line from its 1990 level by 2015. I estimate the global impact of the policy on poverty and find that if enough poor countries were to adopt the RD then it would be sufficient to achieve the first Millennium Development Goal: extreme global poverty would be cut by half.’

Segal calculates the impact using World Bank data on resource rents and $1.25 a day poverty, for two different cases. In the first, governments simply replace the lost revenue with taxes on non-poor people. In the second, everyone, including those below the poverty line, pay taxes proportional to their post-RD incomes (so the impact on poverty is slightly reduced). The overall results are shown in the table.

Segal table

He sets out the advantages of an RD scheme:

“First, it would substantially reduce poverty. Second, by being levied only on rents, the scheme implies none of the economic distortions or efficiency loss that other redistributive schemes may risk. Third, it provides an incentive to informal workers and individuals with little or no formal interaction with the state to register with the fiscal system. Finally, there is a moral and legal argument that by the nature of rents, no individual has a special claim to them, so the only morally defensible distribution is an equal distribution.” Universal benefits are also relatively simple to administer (no means testing) and the RD has an automatic stabilizer quality, as food prices tend to vary with oil and minerals, so the increased RD would cushion people during food price spikes.

In volume terms, the RD would come in at under 6% of GDP in most countries – less than the cash benefits in the EU15 (6.6%). It’s like a jump start to a welfare state.

He contrasts the simplicity and ready-to-go nature of the RD with the complexity of boosting economic growth – the standard recipe for reducing poverty. The RD scheme does not require growth, or even new taxes – merely the redirection of existing resource rents to poverty reduction.

Interestingly, even countries not known as major commodity exporters would benefit. India, where poverty now affects nearly half a billion people despite high growth rates, would see poverty fall from 42% to around 20%, even though its RD would amount to just $2.90 per person per month.

The obvious flaw is political – why would governments do it, especially if they have to replace the lost revenue with more unpopular taxes? Segal briefly considers this, arguing that “Incumbent governments are likely to be reluctant to give up an easy-to-collect source of revenue. One can imagine it being proposed in a democracy by an opposition party in order to get elected, or by a government (democratic or not) that decided that such a popular measure may increase its chance of political survival.”


  1. Heh – I’m particularly intrigued by the prospect of this being used by totalitarian governments with lots of resources to maintain their power – direct transfer of economic power in order to avoid the transfer of political power. Links back to Soviet ideas of prioritising economic rights over political rights, and a hot topic in China and South and East Asia. Maybe we should pass the paper to my neighbours in Myanmar!

  2. I am of the opinion that we are again walking into a definition problem. The question for me still is: “what is poverty?”. Poverty is, as I see it, not the absence of money, if it was then every entrepreneur that went bankrupt would have been in poverty. Most of these went on to make huge fortunes even starting with nothing.

    Poverty, I think, is a state of mind where everyone expects that somebody will provide what they need. The government, aid organizations, working family or whoever else will provide – without any requirement that I do anything to provide for myself.

    Thus, to alleviate poverty requires that those that “live in poverty” do something to change their way of life, it is not to give money of whatever nature. Poverty alleviation requires “sweat capital” from the people “living in poverty.”

  3. @Robert Bradfield. Bravo, Bravo!!!!

    I have been asking for years for development people to provide a definition for ‘poverty’. I have lived in 8 different Sub Saharan African countries over the past 40 years, and have seen things go from bad to worse, if money is the defining criterion.

    In Zimbabwe an NGO provided small assistance to a community by repairing their water collection dam. One of the women said ‘thank you, you may go now, poverty no longer lives here.’

    We would still consider that community ‘poor’, barefoot children, swollen stomachs, rubble everywhere. But they didn’t consider themselves poor.

    And if not, why should we?

  4. I agree with Robert, however many entrepreneurs who “went on to make huge fortunes even starting with nothing.” did in fact have a great deal. I am not talking about “sweat capital” or even the right attitude. Many people who succeed in obtaining money (which according to Robert would help people magically get out of poverty) have things like, education or good health, be it an MBA or a drivers licence. This single thing helps many to “get ahead”. It is my understanding that a great deal of those in poverty do not even have this, in fact, many living in poverty do not even have the basic education gained from having two parents who would teach many of the ideas which people high in “sweat capital” have.
    I think this is where organizations and aid are able to make a big difference, helping the poor to learn how to get out of poverty and make choices that will keep them out of poverty.
    Obviously both Robert and I have not included the problems associated with western imperialism and colonialism as components of global capitalism which in my opinion contribute to keeping poor people in poverty. But who wants to talk about that anyway. -kyle

  5. Thank you for your comments. My contention is not that money leads to the lessening of poverty, whatever the definition. What I have observed in many countries are that one needs that special driving force: “I will do things myself.” About entrepreneurs that failed, some had all those special qualifications or privileges, most however did not and they still made a success. One can say the exception proves the rule but I have not seen many people with qualifications or whatever else make it in business, most find themselves in aid agencies, government service or selling “snake oil” to developing countries.

    Kyle have fallen into the trap that most if not all development agencies have fallen into: how do we define poverty? Unless we arrive at an acceptable definition we will waste a lot of resources on experimentation with little or no effect except to create a greater dependency on foreign aid, technology, skills and so on. Maybe we should try and find an acceptable definition which is not linked to some hypothetical $x a day measure but something more measurable, especially if we want to be able to help countries in the so-called developing world to achieve this illusive poverty alleviation.

  6. Robert, i am very intrested to learn more about this problem of defining poverty (or identifiying those that need help “poor” or not?)

    I agree that “we” will waste a resources without understanding what poverty should be.

    Can you recommend anything i might be able to read which relates to the work being done in this area?

    What are some of the more cutting edge definitions or the problems associated with current definitions or ideas like relative or absolute poverty?

  7. Kyle, you are asking the confused to give you guidance on measuring poverty. I am of the opinion that there is no consistent definition that includes everything that need to be measured. Development economists are surely the ones that should be able to define poverty because they usually are the ones that talk about it.

    The definition might have to include measures such as access to basic services, democratic government, food security – whatever that means, production of needed goods, research in appropriate technology, access to social services. You can add about everything, within reason, to this list as we must remember that we are are not dealing with Europe, the USA or any “developed country.” To my mind no individual has all the knowledge to put such a definition together that is why I would suggest that such a definition should be the result of a corporate effort including input from developing countries.

    Does this answer your question, definitely not, but it might eventually lead to a more acceptable definition if we continue to investigate it. I have just shown you how easy it is to “pass the buck.” Please do not hold that against me as I am mostly confused by the so-called experts do.

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