Stiglitz- Lifting the Resource Curse

Stiglitz Natural Resource Extraction Proposals:

1. Natural resource wealth dependent countries should have progressive income taxation. Since those profiting off natural resources are selling a country’s raw material, there is not as much of a concern over the incentive to work.
-I agree, the loss in incentives doesn’t seem as much of a concern. Since most of the rich are profiting off selling public resources, others should get some of those profits back. However, the country shouldn’t go overboard with progressivity.

2. Windfall Profits Tax for oil, gas, and other natural resource companies. If the costs of extraction and marketing remain constant, any increase in the price of a natural resource is pure rent and should go to the government.
-I’m not so sure that higher prices are pure rent. If there is a greater demand or reduced supply, it seems that the company should get some of that increased profit. Keep in mind the extensive investment that companies put in to purchase rights, maintain operations when prices fall, and explore for the resource, in addition to the extraction itself. Windfall profits provide companies with the incentive to explore for new reserves and make up for losses when prices are low.
-Perhaps a tax on windfall profits that allows both the company and the government to have a portion of the windfall profits would be alright.

3. Extraction Tax should not have deductibles. This makes it harder for companies to cheat.
-An extraction tax makes sense. The company should pay for removing a valuable resource from a country. If the tax low enough there should be no need for deductibles.
-There was a proposal for an extraction tax in California, but the writers of the initiative, wanted it to be a constitutional amendment that could not be amended itself, and added all of these complex details that made the initiative over 20 pages long, it failed, with good reason. An extraction tax should remain simple.

4. All countries should forbid their firms from bribing foreign governments, and conduct fair auctioning of publicly owned rights. This ensures the most efficient company gets the job providing the most revenue to the government.
-I can’t believe that as recent as the 1996, other developed countries allowed their companies to bribe foreign nations, and that they would be reluctant to enact such legislation. Bribery goes flagrantly against the concept of rule of law. An efficient market must not have bribery, and in this case should have a workable auctioning process. Maybe the WTO should have all its members agree to forbid its companies from bribing foreign governments. Ending such bribery is in the world’s best interest, improving the efficiency of world market.

5. Natural resource rich developing countries should nationalize oil and mining. They are often equally efficient and provide more revenue.
-If a country has a somewhat efficient uncorrupt nationalized oil or mining company, then it should keep it so the country can gain extra revenue. However, if the country has already privatized, it should only nationalize if it respects the contracts that the government has agreed to.

6. Renegotiate contracts to ensure government receives a fair share of value for its natural resources. For example, Botswana renegotiated its diamond contract with De Beers to increase its share of the business from 15% to 50%.
-Again, a country should try to renegotiate for a higher share of revenue for its natural resources, but should maintain respect for contract law throughout the process.

7. Stabilization Funds should be established to invest government revenue from natural resource extraction and purchase any necessary imports. The prices of natural resources are often volatile, which results in volatile revenue levels, so the stabilization fund will help prevent price shocks. In addition, converting natural resource revenue into domestic currency results in appreciation of the domestic currency, so the stabilization fund would protect against appreciation of the currency that could harm other export industries.
-ie. Norway, Chile, Botswana
-This would be a interesting way to maintain stability of the economy, while still profiting off natural resource extraction.
-Of course some profits would still go to spending I presume. Maybe this would allow the country to maintain low interest rates.

8. IMF should reform accounting frameworks to use the Green Net National Product (Green NNP) in determining the growth of countries in a way that omits scarce resource sales and includes environmental degradation. IMF should reform its accounting of deficits to not consider deficit reduction by use of revenue from scarce resources.
-I’ve never heard of Green NNP. How is it calculated to incorporate resource use and environmental degradation?
-This might help resource-rich countries focus on sustainability.

Stiglitz 7 Proposal Action Agenda for the International Community:

1. Extractive Industries Transparency Initiative- all countries should agree not to give any tax deductions to extractive industries for payments to foreign governments unless they fully disclose what was paid and how much of the resource was extracted to help end corrupt practices in the extractive industries.
-How effective will this really be? Might this just add paperwork for extractive industries, increasing their costs? It would be worthwhile if it’s actually effective at stopping corrupt practices.

2. Reducing Arms Sales- international community should impose a heavy tax on the sale of arms and check the source of the money paying for arms. The acquisition of arms should be made more difficult and put under greater scrutiny to prevent armed conflict over natural resources.
-certainly reducing the arms trade is important, but this shouldn’t overly inhibit NATO members for instance from trading with each other.

3. Certification- Diamond certification is already required for the sale of diamonds by the United Nations and enforced to a certain extent. Marine Stewardship Council (MSC) Certified Fish or similar certification requirements would help ensure sustainable fishing practices. Forest Stewardship Council (FSC) Certified Hardwood or similar certification requirements would help ensure sustainable logging practices and prevent deforestation.
-Certification requirements definitely should be implemented to ensure sustainable practices. If the international community refuses, then the US should ban the sale or purchase of non-certified hardwood (and fish) in its country.

4. Targeting Financial Assistance- developed countries should refuse to provide aid to a developing country unless the condition that the developing country is collecting its full share of the profits from resource extraction.
-Wait. Stiglitz advocating for Foreign Aid tied to Conditions?! Weird. I guess there are always some conditions for aid, and as he says, the foreign aid should be just given to more responsible developing countries, not kept by the developed countries.
-But just what is a country’s fair share of the profits?

5. Setting Norms- The World Bank or some other international body should ensure extractive industries treat developing countries fairly, develop auction procedures to improve likelihood developing countries get larger fraction of value, design model contracts that ensure fair treatment of developing countries, and determine what fraction of value a developing country is receiving for a resource.
-Wow! That sounds wonderful. Could the World Bank really do all that successfully? Maybe if Stiglitz was President of the World Bank he could do this.

6. Limiting Environmental Damage- all developed countries should guarantee that any environmental damage will be fully repaired with clear and high standards for what that means.
-This isn’t already in place? Countries should address this at the next summit meeting.

7. Enforcement- Trade Agreements should authorize sanctions against companies and countries that engage in unfair trade practices including failure to subscribe to extractive industries transparency initiative and other anti-bribery measures.
-if the extractive industries transparency initiative is an effective means at curbing bribery and other corrupt practices, it obviously needs some enforcement. Could trade agreements really work to enforce it?