Liquid Freedom

11.11.2004 | Lenny Glynn | International Affairs, NP | 34 Comments
The Prussian theorist Carl Von Clausewitz famously defined war as “politics by other means.” That formula applies even more crucially to insurgencies than it does to conventional campaigns. People, not territory, form the center of gravity in such wars. And the key to victory lies not just in winning “hearts and minds” but in driving as powerful a wedge as possible between the insurgents and the people they claim to be fighting for — and whose support they need to win. Given the centrality of politics to guerilla war, the most distressing aspect of the struggle in Iraq today is the near absence of any serious political strategy, other than elections themselves. Perhaps it’s time for President Bush to send Karl Rove to Baghdad.

Because there is, in fact, a war-winning weapon close to hand that the Allawi government could use — with support from allies and from both Democrats and Republicans. This weapon could, at a stroke, put flesh on the bones of formal democracy, change the dynamic of the insurgency, begin to win the confidence of the Iraqi people and create a powerful, growing force for stability, national unity and economic development. The weapon, of course, is oil — and the huge flows of cash it generates.

The way to deploy it is straightforward. Iraq’s new government should simply announce that as of a date certain, it will establish a new national investment fund — call it The Iraqi People’s Freedom Trust — which will be credited with a major share of all future Iraqi oil earnings. A popular real world model might be the Alaska Permanent Fund, which grants a share of that state’s oil revenues to every citizen. Revenues directed to Iraq’s Freedom Trust  could be invested in Iraqi government bonds, keeping a small cash reserve to provide for cash withdrawals from the Trust by individual Iraqis.  

All 27 million Iraqis — men, women and children — would be eligible for an equal, personal account in the Freedom Trust simply by proving Iraqi birth and pledging their allegiance to the government. With assistance from coalition allies, registration for ownership shares in the trust could go hand in hand with registering citizens for the upcoming national elections. Any adult citizen of Iraq would then be free, at any time, to ask for a calculation of their account’s value and withdraw up to their full balance — no questions asked.

The immediate effect would be electric. But the Trust’s real power would compound over time. For the first time in the history of Iraq, indeed of oil nations generally, the new government would be offering each and every citizen a real, guaranteed ownership share in an asset that has been long since nationalized and regarded as a public patrimony. Establishment of the Freedom Trust would dispel the fantasy that this war was waged by the U.S. to somehow steal Iraqi oil. The Freedom Trust would instantly offer a stark contrast with the Saddam regime’s practice of stealing and wasting oil revenues on weapons, palaces and luxuries for a tiny elite of privileged cronies.

Revenues credited to the Freedom Trust would not go directly to the public as cash payouts. They would, instead, be invested, initially at least, in new Iraq government bonds. This would give Iraq’s new bond market a huge jump start — actively leveraging the central government’s financial power. But legal ownership of shares in the Trust should be vested in each individual Iraqi, not the patriarch, the husband, tribe, clan, or regional power-broker. The goal would be to “personalize” oil revenues streams, empower women, give democracy a material base — and give all Iraqis a stake in the survival and stability of their new democracy.

Offering all Iraqis an equal, permanent — and possibly rising — future income stream would rapidly move resources out to remote regions and jump-start broad-based entrepreneurship and local development more efficiently than any centralized aid scheme. Instead of having to wait for political officials and aid workers to design, approve and deliver on projects, poor and rural Iraqis who have never seen a dime’s worth of their nation’s oil wealth would have a strong incentive to come to town, register for accounts in the Trust and claim a share of their own nation’s wealth.

Word of the first cash redemptions from the Trust would spread like wildfire, build its credibility and create a strong, growing interest among all groups and tribes in ensuring their nation’s future stability.

We’re not talking small money here. Even amid ongoing war and sabotage, Iraq today pumps over 2 million barrels of oil a day — roughly $100 million a day or $36.5 billion a year at $50 a barrel. A more stable Iraq could pump 5 million barrels a day or more — which would be nearly $45 billion a year at even $25 a barrel. Crediting, say 50% of these future revenues to Iraq’s Freedom Trust would ensure each person in the country a wealth stream worth hundreds of dollars a year — this in a country whose per capita gross national product is less than $1500.

And the Trust’s very existence would provide the promise of a real, predictable financial future for Iraq’s young people. Their holdings would grow steadily until they come of age.

By adopting such a policy, the new Iraqi government could have the same impact on the de facto civil war it is waging against Ba’athists and terrorists as Lincoln’s emancipation proclamation did on the domestic politics and international diplomacy of the American Civil War. With that one move, Lincoln effectively redefined America’s civil war from a struggle over regional power or “states’ rights” to a moral, even revolutionary, struggle over slavery.

Creation of the Freedom Trust could have the same kind of profoundly moral — and revolutionary — impact. Every Iraqi would, at a stroke, have not just a shot at freedom, in the abstract, but the money to enjoy it, while seeing wealth build up, over time, for their children. The conflict would be redefined — accurately — as one between the common interests of all Iraqis and the special interests of insurgent groups who are running what may be the first “National Re-enslavement Front” in history.

Ba’athist dead-enders are, in essence, fighting to regain the power to steal fellow Iraqis’ wealth — and kill anyone who objects. Their terrorist allies would also be hurt by the creation of the Freedom Trust. The commonsense justice of giving Iraqis a personal stake in their own oil wealth would undercut terrorists’ appeal to Iraqi youth. These “militants” would suddenly find themselves defined as fighting to steal young Iraqis’ future, while Iraq’s Army and National Guards would be fighting to defend that future. .
It is deeply disappointing that the Bush Administration, which is advancing the virtues of an “ownership society” in America has not advanced any creative ideas for using Iraq’s oil to benefit its people directly. Nor has the Allawi government laid out any path away from the regional tradition of state-centered oil paternalism and public clientelism. Yet it is difficult to conceive a policy action that could better clarify what it means to “liberate” Iraq, empower its people, and create real common ground for a national rebirth. Reform in the distribution of oil revenue is as critical to “winning the peace” in Iraq as land reform was to fostering democracy in post-war Japan.

By sharing some of Iraq’s vast oil wealth with its people, a new Iraqi government could foster the rise of a broad-based, democratic middle class. It could turn black gold into liquid freedom, the fuel for democracy and the engine of development. The Freedom Trust would give the Iraqi people, and their new police and Army, a future to believe in — and fight for. This single move would do more than any other initiative to help secure a lasting peace, grounded in justice. And such a peace may be the only outcome that could, in some small measure, redeem the sacrifices that Americans and Iraqis are now enduring.

Boston-based writer Lenny Glynn has written for BusinessWeek, Global Finance and Institutional Investor and served as a speechwriter for Governor Bill Clinton’s 1992 presidential campaign.

Finally, an idea! And not a bad one at that. People earning wealth from the private use of resources they hold in common. Imagine!

We would do well to try something similar with the resources on our public lands, including oil reserves, and our airwaves which are currently licensed to broadcasters at no cost. Make 'em pay to advertise to us, not the other way around!

I won't be holding my breath, but its pretty to think about nonetheless. Thanks for putting it out there.
11.11.2004 | Joshua
What's remarkable to me is how few ideas of this sort -- managerial, intelligent, and not immediately idological -- have oentrated our over-heated political climate.

To go off topic for a mimute, I think the present intellectual rigidity goes back to the Dems losing the South, which allowed the parties to overlap with ideology to an unprecedented extent.

Most significantly, Glynn's proposal has the virtue of returning us to the point of the mis-named war on terror, namely creating better political arrangements in a part of the world completely absent of a middle class or a tradition of debate, in a way that at once improves the lives of its citizens and reduces the threat of radical Islam for America. Let's hope to see more such ideas proposed and even executed.
11.11.2004 | Daniel Stern
Bonus: A policy like this would finally prompt an end to the use of the overly-simplistic and ill-conceived "No Blood For Oil" anti-war catch phrase.
11.11.2004 | Robert
Not a new idea, actually. As Lenny pointed out, there is a model in Alaska, and there are others.

I don't recall when I first heard the suggestion of applying this to Iraq, but I suspect someone thought of it before the invasion.

That it hasn't been implemented yet is, I assume, because the holders of power don't think it is in their interests, not because no one thought of it.
11.11.2004 | David Tomlin
This is a good idea. The point of tying the trust to Iraqui bonds and as it is tied to oil it is then tied to the dollar will provide incentive to each Iraqui to protect the oil. Two things, the terrorists indigenous to Arab countries such as the house of Saud will try to brak the Iraqui oil industry and the Sierra club terrorists will try as well!
11.11.2004 | Tim Tweedy
Glenn Reynolds talked about the suggestion from a friend of Lou Dolinar of News Day first here: It was then picked up by Michael Barone (as linked by Instapundit here:").
11.11.2004 | TXBueller
Norway has a variation of this, except I don't think that Norweigens have individual claims on the trust fund. With few exceptions, having the oil revenues go into a nation's general fund has proven a disaster, look how many oil nations in Africa are basically broke. Even Mexico and Vensuela's oil revenues seem to beneift the poor's just a source for governmental largese, patronage and corruption.

It's a pity that our Federal timber and mineral wealth royalities aren't paid to the Social Security Trust Fund, rather than the general fund.
11.11.2004 | Ted B.
I think the Onion had this first; something like America to Give Each Iraqi Four Thousand Dollars, Wait For Free Market To Do The Rest

It was funnier there, though. Here, it's just appalling.
11.11.2004 | Bonnie Glaze
The implementation of this idea would do more for democracy in the Middle East than all the politicians and and the coalition forces combined.

The question is how to go about to get it implemented.
11.11.2004 | Elizabeth Zarali
Nice to see an original and interesting idea. It's theirs. (Better than Getty Oil get it, no?)

Bonnie - why not return to your Onion haunts lest you miss any laffs? :)
11.11.2004 | Steveo'Brien
I love the idea and it's been around since before we invaded in think tanks like the Heritage Foundation and AEI. The more appropriate analogy, however, is not the Emancipation Proclamation but the "40 acres and a mule" proposal during Reconstruction. It's very, very hard to convince politicians to antagonize the power structure this way.
11.11.2004 | wayne
I think this is great idea. I'm also just as convinced that it will never happen. This idea goes 180 degrees against the failed dream of the neocons for Iraq. Reference this article:

11.11.2004 | brad
I like the idea -- just don't let the Dep't of Interior manage the trust fund.
11.11.2004 | Rob
Interesting idea.

Here's another free market solution:
The American government signs over all the money they would otherwise spend keeping the army in Iraq to the Iraqi government. The Iraqi government is free to either hire the Americans back to take care of their security needs or outsource them to other governments or companies. Or use the money to bribe potential opponents so they won't need to spend as much on security.
11.11.2004 | ed
The Wall Street Journal proposed this idea back in April of 2003, shortly after the initial invasion.
11.11.2004 | Ben
It's so crazy, it just might work! I love it.
11.11.2004 | t rogers
Now, I'm no oil economist, but...

I don't know where you have acquired your figures from, and I question your presentation of them: quote - "We're not talking small money here. Even amid ongoing war and sabotage, Iraq today pumps over 2 million barrels of oil a day -- roughly $100 million a day or $36.5 billion a year at $50 a barrel. A more stable Iraq could pump 5 million barrels a day or more -- which would be nearly $45 billion a year at even $25 a barrel. Crediting, say 50% of these future revenues to Iraq's Freedom Trust would ensure each person in the country a wealth stream
worth hundreds of dollars a year -- this in a country whose per capita gross national product is less than $1500".

Your assumptions are:
- production is 100% every day of every year;
- production can be ramped up to 250% of todays levels;
- 50% of sales, which you call revenues, to accrue to the people, with the other 50% to go to repair, development, corporation taxes, profits to western partners, paying off debt...

and you don't offer any evidence, convincing or otherwise, to support these assumptions.

Equally, you seem to contradict yourself here:"Any adult citizen of Iraq would then be free, at any time, to ask for a calculation of their account's value and withdraw up to their full balance -- no questions asked." ..."Revenues credited to the Freedom Trust would not go directly to the public as cash

Eh? Can they ask for their money, NQA, or are the revenues squirrelled out of sight for their own good? Can't be both, can it? The population of Iraq is about 25 million. At your calculations, 50% of $45billion / 25 million = $1,800 pa., per person. Remember - a huge proportion of Iraqis are 15 or under - but they will be reaching seniority soon enough.

I say that unless you can provide evidence that your calculations and assumptions are valid, that the premise will be explained better than this, and that the overall effects on the internal Iraqi economy is considered (inflation, anybody?), it's a crock.

And a transparent crock, at that.
11.11.2004 | johnny dee
Wouldn't this raise the birthrate considerably?

11.11.2004 | Owen
Go with my henchman (my holy block captain) to withdraw your share of the trust and give it to me (donate it to my party/mosque!) , or I will kill your wife, your child, your mother, and blow up your house.

Lots of stuff that's a great idea when there's RULE OF LAW isn't such a great idea when there AIN'T.

Could we please work on that prerequisite first?
11.11.2004 | a mean kangaroo
Sorry, it is a fine idea in theory, but I am afraid is of the same order as all those fine ideas that the CPA had.

That is, to be clear, it does bloody understand the Iraqi default point of view, mistakes American social priorities and values as universal, and ignores the lack of Iraqi capacity to actually effectively implement.

So, you're proposed (and the idea is not new, I heard it when I was working on an investment fund for Iraq last year) presuming a resposne based on your own values.

As a point of fact(i) most Iraqis were raised and retain 'Arab Socialism' based values. (ii) Most Iraqis regard the government as being (in theory) the entity holding the oil in trust for them already, which they expect to receive through direct government services and support. (iii) Most Iraqis deeply distrust Western motives in this connexion, and insofar as the Allaouie government is seen as a puppter (which it largely is), the plan is unlikely to be met in with a positive response.

In short, this is a navel gazing fantasy.

I note, by the way, that in making the above points, I am not arguing nor do I wish to imply that the Iraqi (dominant) point of view is factually correct, the way things "should be" or analytically supportable. In fact, I would say that the Iraqis (or the majority view I find among them) are... objectively wrong.

However, the one thing one should learn from the CPA fiasco is that one does not magically transform attitudes, and policies made on the presumption of the way "things should be" are not going to have the effect (the navel gazing) policy maker thinks. Often quite the opposite. I draw attention to the whole privatization fiasco - noting I am strongly in favor of privatization but also in favor of pragmatic policies that work - which quickly disappeared into the sands of policy disaster.

As a final matter, I add that the comment by Johnny Dee is correct: actually sadly the Oil sector is not the free bonanza everyone, including Iraqis seems to think it is. The sector is badly degraded and needs massive investment - meaning reinvestment of oil proceeds - in a thorough going capital replacement program, never mind upgrades. The money is not really there.

I also not that "mean kangaroo" also gets it right in noting that the accounts model presumes a robustness of administration that is simply and utterly absent. Again, policy making by navel gazing, by assuming ipso facto that the necessary human capital is there to make this work. It is not. Period.
11.12.2004 | collounsbury
your concept would of course require the U.S. to acknowledge fully and finally that we don't want to control their oil--which is precisely why this could never happen under Bushwatch.
11.12.2004 | Bruce K
Nobel prize winner Vernon Smith picked up this theme in WSJ Dec 2003. See his well stated case at,,SB107205686739003900,00.html
11.13.2004 | JC
Of the 20 plus responses to this idea, only 3 or 4 show any thoughtfulness about the difficulties of near-or-medium-term implementation in the context of Iraq's socio-economic and institutional situation -- and indeed of the counterproductive consequences of this idea when it hits the ground.

The rest of the responses express naive delight at the "sheer genius" of the idea or dark scepticism that "the evil Mr. Bush and his rapacious handlers" would ever allow it.

An interesting vignette of the quality of public discourse.

11.13.2004 | AZM
My observation of this proposal (and I've seen it many times in the last few years from various sources - mostly libertarian) is that it was too Populous for the Old-Boy network from State that populated the CPA after Bremer took over.

If this idea is too radical to break through the history of Arab socialism/fascism, I guess the concept of "Micro-Banking" would never work in the socialism of the Indian Sub-continent (Oh! My Bad! That actually works.). This idea can work just because the Arab world has been kept in a tribal paternalism. The concept of actually owning something of substance, in common with your neighbors, is the jolt that can break these people out of the 12th Century.

It is an idea that needs to be taken seriously, and discussed at length. And, if it is so bad, what alternatives do you offer to counter it? And, do they work? Most of the economic fantasies of the late 19th, and most of the 20th, Century were dismal failures that cost the lives of untold millions.

This arguement is about the future of an entire area of the world and millions, if not a billion or more, people. This is not some sterile, academic workshop where the only downside is that someone's feelings might get hurt (but then, that's why we have PC rules, isn't it?).

11.13.2004 | DK
The ownership of oil should be used to further the goals of Iraqi society rather than distributed like free peanuts to kids at the circus. For instance, shares could be accrued by service in the National Guard, police force, teaching, medical work, etc., whatever efforts the government wanted to promote. Shares would not begin to pay off for 15 years, assuring that only forward-looking, loyal citizens with adult responsibilities would be collecting on them. This would also give the government some time to invest in infrastructure.

I believe that this process would provide no incentive for excess reproduction. Limiting distribution to the lower ranks and providing for a single distribution rate could be used to curb corruption.
11.15.2004 | jj
See...these ideas are all brought up with one major flaw...
You think democracy works.
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