The CGD Podcast: "Curing the Resource Curse" (June 9, 2015)

Host: Rajesh Merchandani (A)
Guest: Todd Moss (B), Chief Operating Officer at CGD and author of "Oil to Cash: Fighting the Resource Curse Through Cash Transfers"

Overview

This episode of the Center for Global Development Podcast dives deep into the "resource curse"—the paradox in which countries, often developing, receive massive revenues from natural resources but don’t see these translate into improved living standards for most citizens. Todd Moss discusses his new book and introduces the "Oil to Cash" concept: distributing resource revenues directly to citizens through transparent, rules-based cash transfers as a remedy for the governance and development issues caused by resource windfalls.

Key Discussion Points and Insights

The Resource Curse Explained

• Definition: Countries blessed with abundant resources like oil, gas, and minerals often struggle with economic and political problems, with wealth failing to improve ordinary lives.
• Analogy: Rajesh likens the dilemma to a lottery winner who, due to mismanagement or external pressure, ends up worse off, not better.

  "[Winning the lottery] could ruin your family relationships, could undermine your happiness... a lot of lottery winners turn out worse off. Not just wasting their money, but worse off than before."
  — Todd Moss [01:04]

Real-World Examples & African Context

• Many African countries are experiencing major natural resource discoveries but face the challenge of managing these windfalls responsibly.

• Issues faced include corruption, difficulties delivering services, and the struggle to fight poverty with influxes of foreign exchange.

  "Virtually every African country is either producing oil or actively looking for oil in the last five or six years."
  — Todd Moss [02:20]

• Tanzania is highlighted as a current case, grappling with the future of its vast natural gas reserves.

"Oil to Cash" Concept

• Basic Idea: Each citizen becomes a shareholder in a national fund that collects resource revenues, receiving regular, transparent dividends.
• Benefits:
  • More direct impact on citizens' lives
  • Potential to build a functioning tax base
  • Fosters a sense of ownership and incentivizes good governance

    "The idea of oil to cash is that the money would go into a special fund. Every citizen would be essentially a shareholder of that fund and would receive a portion of that benefit in a regular, transparent, and rules based payout."
    — Todd Moss [03:42]

The Role of Taxation and the Social Contract

• Taxation creates a bond between government and governed; resource-rich countries often lack this, relying instead on large companies or foreign donors.
• Without taxation, there is little accountability or expectation for governments to deliver services.

  "When you get your income from ExxonMobil or British DFID and you don't have to tax your citizens, that creates all kinds of negative dynamics... that whole feedback loop between a population and its government kind of starts to break down."
  — Todd Moss [04:53]

Steps to Implement "Oil to Cash"

• Three Essentials:

  1. Resource funds are ring-fenced upon entering the country.
  2. Regular, universal, transparent payouts to all citizens.
  3. A portion of payments is taxed back to reinforce accountability and the social contract.

     "The basic principles of oil to cash are this three step process..."
     — Todd Moss [07:26]

• Implementation details will vary based on country size, wealth, and institutional capacity.

Addressing Governance and Corruption

• Oil to Cash can be designed to minimize risks with biometric ID systems, mobile money, and potential third-party management.
• Outsourcing management and oversight could increase transparency and efficiency.
• Even if not perfect, this system may outperform the current models plagued by inefficiencies and leakages.

  "If oil to cash can just beat that, it will be more efficient than what we've currently got."
  — Todd Moss [09:31]

Existing Models and International Examples

• Alaska Permanent Fund: Direct dividends from oil to Alaskan citizens—a key inspiration for "Oil to Cash."

• Other Examples:

  • Brazil and Mexico: Large national cash transfer programs, though not directly tied to resource revenue.
  • India: Electronic cash subsidies for cooking gas, underpinned by a cutting-edge biometric ID system.
  • Mongolia: Child benefit program funded by mining revenues—stopped and restarted due to implementation issues.
  • Bolivia: National pension scheme partially contingent on natural gas receipts.

• None yet fully match the "Oil to Cash" ideal, but global trends show countries moving closer to this model.

  "We're sort of edging closer to the ideal oil, oil to cash model, but we're not quite there yet."
  — Todd Moss [12:36]

Broader Development Finance Implications

• The approach relates to the Financing for Development agenda: If implemented alongside technologies like biometric ID and mobile banking, these systems could leapfrog traditional governance hurdles.

• Could also help transition countries away from international aid dependence by building domestic resource management capacity.

  "This kind of system where you have biometric ID, you have mobile, you have electronic bank accounts, people are receiving cash and then they're paying money out... is exactly the kind of technological leap that countries can make."
  — Todd Moss [13:34]

Notable Quotes and Memorable Moments

• On Taxation and the Social Contract

  "Taxes can create a bond, a contract between citizens and government."
  — Rajesh Merchandani [04:31]

• On Program Design vs. Reality

  "Would oil to cash be 100% squeaky clean? Probably not. But relative to other kinds of spending, would it be better off? That’s what I think is the question for policymakers."
  — Todd Moss [09:04]

• On Learning from Alaska

  "He [Governor Jay Hammond] wanted every citizen to receive a dividend so that it forced them to pay attention to what was going on."
  — Todd Moss [10:58]

Important Segment Timestamps

• 00:05–01:36 — Introduction, the lottery analogy, defining the resource curse
• 02:09–03:42 — African countries’ experience and the specific case of Tanzania
• 03:42–04:31 — What is "Oil to Cash" and how does it work?
• 04:31–06:19 — The importance of taxation and the citizen-government contract
• 07:26–08:22 — Detailed steps for implementing Oil to Cash
• 08:22–10:14 — Tackling corruption and operational challenges, transparency through technology
• 10:14–12:36 — Global examples and how close countries are to the Oil to Cash model
• 13:05–14:59 — How Oil to Cash links to broader development financing and possible ways forward

Conclusion

Todd Moss and Rajesh Merchandani frame "Oil to Cash" as a bold, yet practical mechanism for addressing the root causes of the resource curse through transparency, direct citizen benefit, and the reconstruction of accountable governance. The episode provides a hopeful outlook on leveraging technology, innovative policy design, and international experience to finally turn resource wealth into widespread national prosperity.

Learn more: cgdev.org