Yesterday’s Financial Times featured an interesting proposal from Martin Sandbu and Nicholas Shaxson, aimed at evading the so-called ‘Dutch disease‘, in which high rents from valuable natural resource extraction can seriously undermine domestic manufacturing and agricultural sectors, as well as encouraging corruption. The proposed solution is that governments in developing countries should divvy up any revenues between the citizenry. According to Sandbu and Shaxson, this should mean that:
instead of fighting each other for oil rents, political elites would have to bargain with the people for tax revenues. If the government did not tax everything back, direct distribution would dramatically transfer wealth to the poor. This has nothing to do with privatisation: the government could still get funds for roads and schools – but with pressure to spend the money well.
Now, to me, that sounds like a pretty solid and progressive idea. But I’m not so great at spotting potential unintended consequences in the long-term. I’m (rather pessimistically) assuming there must be some. That being the case, perhaps this should be thrown open in the comments section – can any readers spot possible flaws with this plan?
