 My name is Ribbon Gilpin. I head the USIP's work on sustainable economies. Thank you very much for joining us for today's discussion titled Natural Resources, Plunder, or Peace. I'm sure we're all familiar with varying discussions of the resource curse, the paradox of plenty, Dutch disease, and many other investigations into the use and abuse of natural resources in various countries across the world. Competition for control of natural resources has contributed to the outbreak of conflict in many cases. In other cases, revenue from natural resources have fueled and sustained violent conflict. And power derived from control of natural resources in many cases has also made it difficult for peace and mediation efforts to be successful. We could turn to countries like Cambodia, where timber and gems were an issue, Angola, where it was oil and diamonds, Ache, where it was natural gas, or the Democratic Republic of the Congo, where we had and still have a broader area of natural resources that make both conflict pervasive and peace more elusive for most people. In most cases, revenue from these resources has been plundered to benefit a few, while millions are impoverished and disenfranchised. This dynamic undermines prospects for stability and sustainable economic development. Estimates of revenue losses from the abuse of natural resources on an annual basis runs into billions of US dollar equivalent. And the question being asked over and over again is, how can these resources be redirected in a manner that doesn't end up in plunder, but ends up in promoting both sustainable economic development and peace for all? This morning, we're particularly honored and glad to have both Paul Collier and Nancy Birdsell to help us think through some of the more difficult aspects of this dynamic. Their bios are available outside, so I wouldn't go into much detail, but suffice to say that Paul Collier needs very little introduction. He's made significant contributions to our thinking about the relationship between economic issues and conflict, which started during his and became most prominent during his tenure at the World Bank. Whether you're thinking about his work on greed versus grievance or his publications, including the bottom billion, one thing is clear. Whether you agree with Paul Collier or disagree with him, one thing is undeniable, that he forces you to rethink assumptions, and he has contributed greatly to a lot of the improductive research into this dynamic in recent years. Nancy Birdsell is president of the Center for Global Development. Under her leadership, the Center has become one of the foremost think tanks in areas including international development, economic development, and the role of natural resources in the development process. We are particularly pleased to have her here and look forward to her contribution. We're going to have a couple of presentations from Paul and Nancy in that order. And following their presentations, we'll have comments and the first questions going to Judy Asuni and Patricia Velazquez, who are Jennings Randolph Fellows here at USIP. And after that, we would open the floor for a moderated Q&A session. We would place cue cards on your chairs, and we would ask you to write your questions. And before Q&A starts, we would we have able people around who are going to collect them. And we'll find time to pose as many questions to both Paul and Nancy as we could. But before I ask Paul to come and give his presentation, which is based on his new book, The Plundered Planet, I'll ask if you kindly do what I call the silencing of the cell phone ceremony. And it's basically if it buzzes, vibrates, rings, things, or chimes, please silence it for the duration of this program. And I'm sure that we'll be able to have a blackberry break at the end of this session so we could all catch up with the important things that we have missed. And so without much ado, join me in welcoming our first speaker, Professor Paul Collier. Well, thanks very much, Raymond, and thanks to USIP for inviting me back. I must say, looking around, an awful lot of people in its audience, I know or knew. So it's nice to be here. The broad subject is the subject of natural assets and, indeed, natural liabilities. And I'm going to immediately cut down to one group of natural assets, which is subsoil assets, natural resources, the stuff that's taken out from under the ground. And I'm going to start with a very simple but I think quite dramatic figure. I think it's a figure you'll remember. If you take the average square kilometer of the OECD, the OECD is all the rich countries in the world, the average square kilometer of the rich countries of the world, the value of subsoil assets is around $120,000. If you take the, now let's move to Africa. And we'll take the average square kilometer of Africa. And we take that same concept, the value of subsoil assets in that average square kilometer of Africa. And remember the earthquakes and the schools that collapsed because they were shoddily built? And ordinary Chinese citizens were able to communicate on the net fast enough to discover why their schools were collapsing, why their children had been killed, and who was responsible, and then to come out in the streets and protest. And there's a wonderful picture of a Chinese local government official on his knees before a crowd of angry parents begging forgiveness. Now, if that is possible in China, which is one of the most authoritarian societies in the world, building a critical mass of informed opinion in most of the resource rich countries should now be feasible. That's what my little book, The Plunder Planet, says. You won't be able to read it because it's not coming out till April. Thank you very much. Well, thank you very much, Ray. It's a great pleasure to be here. It's the first time I've had this opportunity to speak at the US Institute of Peace. And it reminds me that there's still too much siloization of the development community and the peace, security, conflict community. I think we should thank Paul for beginning to bring us together. He said he knew a lot of people in the audience. I know fewer. That's the fact. So I think it's a great opportunity for me to speak to people who are not in the development silo. What I want to do is I think I'll be complimenting a lot of what Paul said. I'm going to describe the problem as a development economist from development theory, the fundamental problem that I see with the natural resource curse. Where did it come from? Why have so many countries suffering from it? Then I'm going to flog one simple idea. Well, let me say about the first thing I'm going to bring up specifically what I would call the problem of the 19th century notion of sovereignty in a 21st century global system. Then I'm going to flog one particular idea that's been written about by a number of economists, especially in the last five or 10 years, and that my colleague Todd Moss, who's here, is now working on it assiduously for the case of Ghana. And it is direct distribution of the net income from a country's natural resource patrimony to people on a per capita basis. It's more than building a critical mass of informed opinion. I think it might contribute to the salience of informed opinion in the political process. And then I'm going to say something about one implication for the international community, which goes beyond rules and goes beyond the charter to how to give the people of a country the potential to enforce a mechanism like direct distribution of the net income from natural resources. So let me start by just as background for any of you who haven't thought about it, I don't know. There's a lot of countries, so many developing countries subject to this curse. It's not just Nigeria, Equatorial Guinea, Ghana. It's now Uganda. It's not just Africa. It's Azerbaijan. It's Venezuela that I think maybe we'll hear about. It's Bolivia. It's Yemen right now. So we're talking about a really big issue from a development point of view. So let me go back and start with development theory, how development economists in particular are thinking about this issue. The development tistas have gone over the last four decades through various stages in trying to understand what to do in order to ensure that countries grow and grow with democratic, open, accountable institutions of government. The first stage was physical capital, building on the success of the Marshall Plan in Europe. Some people called it the two-gap model. Poor countries need foreign exchange, and they need savings, and they have to come from outside. So we'll go in and we'll build bridges, ports, dams, and so on. And that worked reasonably well for a while, but then came a second stage in the 1980s when a lot of developing countries got into trouble. And that stage was we need liberalization of economic policies. We need sensible fiscal arrangements. We need openness to trade. We need foreign direct investment. We need a reduced role of the state, privatization, what people came to think of as the Washington consensus. And that worked somewhat, but it didn't really seem to put countries on a sustainable growth path. In some cases, it helped at the margin for a few years, helped countries get out of debt in Latin America in particular. Although even about that, there's controversy. Then in the 90s came a phase of, well, we're not really reaching poor people, trickle down growth, even where there is growth isn't working. So we're going to invest heavily in education and health and reduce poverty directly. I'd say around the turn of the century, and these are crude generalizations, of course, development economists got obsessed with what you could call the software of development, which is boils down to something that many of you in the room have thought a lot more about for decades. And that is political institutions and institutions in general. The customs laws, social cohesion, social capital, the software of an economy. Trust, which channeled, say, Chinese investment in Malaysia when there weren't property rights, there weren't contractual arrangements, but there was a kind of trust on the part of the Chinese diaspora with local investors. So institutions have emerged, particularly in the last decade, as a fundamental constraint, apparently, to development in many places. But we're all puzzled about it. Nobody really understands what you do about building, how you build institutions, certainly in the development community that's concerned with foreign aid. There's been a lot of talk about ownership that many of you may have heard of. And the idea there is that only the local people can build their own institutions. And some people feel that aid, like natural resources, is a kind of rent that may actually undermine the local self-discovery that is needed to build organically in some elusive process, these institutions that we don't understand how they emerged in the rich world. We have many different theories about it. My theory on the US is something to do with 60 acres and a plow, simple things like that. So now we come to oil and other natural resources, particularly non-renewables. There's a lot of discussion, and Paul referred to some of it, that the problem with these natural resources for development is that prices are volatile. They introduce Dutch disease. I won't go into that. But fundamentally, the problem boils down to the way they seem to undermine these political institutions that are so important to the broader process of development. And that's because they bring along these rents that Paul talked about, which are rewards that are far in excess of any effort by anybody. But most of all, they bring corruption because the rents are so attractive. They bring authoritarianism. They bring concentrations of wealth. And of course, what happens quite often is that a few people who are insiders, particularly if they have access to public office, actually take control of the natural resource. And once they have that control, they lock in their access to public office itself. So you have this vicious cycle of ownership or seizure of the public office which controls what should be the people's asset. And you have the fundamental problem that the government no longer needs to tax its citizens. And in a reversal of the famous saying, no taxation without representation, the issue is you don't get representation which is a form of responsive government without a tax system. Taxes are the mechanism that enables citizens to hold their governments accountable. So that's the simple description of the problem from a development point of view. The violation of the people's sovereignty that Paul referred to, which involves this stealing from, as he put it very nicely, stealing of a few from the many and stealing from the future. The interesting thing about the stealing from the future, the way I think of it is that governments, many, many people, many institutions are in effect myopic, nearsighted. And they care more about the near term than the far term and that's actually quite natural. There's a sense in which governments and particular administrations are far more myopic than the average person. Indeed, the Congress even in the US, which is a sophisticated political entity, doesn't seem to be able to think past the next election, whereas I'm sure many people in the room like myself, like I, are quite good at thinking about the welfare of our children and our grandchildren. So let me come to the second point and that's flogging this idea. One straightforward idea of what to do that I think needs to be firmly put on the international agenda, including at USIP. And that is, as I said, direct distribution of income, of the net income to people. Now let me make a comment first to sort of background to this. Much of what Paul said can be summarized, at least in my mind, if you think of there are two contracts around the exploitation of natural resources. One is the contract between a government and the producer. And all the issues Paul, several of the issues Paul raised about the discovery process, the problems with the discovery process, for example, have to do with that contract. And he has and has raised many good ideas about helping governments that are weak governments, in effect, in weak states, strike good deals with producers, despite the fact that it's inherently difficult if you're a weak government because you don't have this commitment technology, you can't make a credible commitment. And those of you who know about Bolivia, about Venezuela, can recognize right away that even a fairly sophisticated democracy like Venezuela, going forward, even a post-Chavez government is going to have a lot of trouble striking a reasonable deal with potential producers about exploitation of its oil because why would any producer assume that a contract would be honored? And this is really bad because it gives incentives for any producer once in, as with the gold in, where was it in? Mongolia. Right, Mongolia to maximize the rate of extraction, even if that doesn't otherwise make sense, in order to get in and get its goods and then get out before the government renecs on the contract or before there's violence street demonstrations, which upset the apple cart. But I want to talk about the second contract, which is between the state or the government and its own people. And it's the lack of clarity about that contract, which fundamentally undermines the first contract. So the idea of direct distribution of the net income to people is that it helps to lock in this second contract between a government and its people. So let me say a little bit about it. Some of you will know that Alaska does this in a slightly different form and the Alberta province of Canada does this. And some of you may also know that recently came the idea that in Nigeria some portion of the net income from oil would be ring fenced and distributed in some complicated form, I think, to people in the Niger Delta. Maybe Judy's going to take us back to that issue. The general point is that it keeps the windfall revenue or the rents out of the hands of public officials. In most of the countries that people have looked at, I did a paper about this for Iraq some years ago and I'll come back to that in a minute. We're not talking about more than a 10 or 15% increase in the income of people. I think Todd suggests in his paper on Ghana that there might be something like $50 annually distributed per capita in Ghana. Per capita income is $450. So even if only half were distributed, we're just six or 7% increase in people's income. That's a lot because we know from psychologists that it's the change in your expected income that people notice. And once people have that expectation, if they don't understand why it's taken away because there's loss aversion dominates people, you feel worse when you lose something that you thought you had than when you gain an equivalent amount unexpectedly or temporarily. So these things politically operate to help create a kind of firm up the contract between the government and the people. Now there are a lot of objections particularly from economists to this approach and I'll mention them very quickly. One is that it prevents the country from doing something that setting aside some of these resources in the case of a macroeconomic shock or some other external shock like the financial crisis, for example, in the last couple of years. And that's true, I suppose some could be set aside but then we have to look at the case like Venezuela where there was legislation to set aside some of the oil income in order to reduce macro instability and basically it was seized when a non-democratic government wanted to seize it. There's the argument that these resources could be put into infrastructure or into social funds. This was the idea in Chad when the World Bank said we'll lend you the money for the pipeline but we're gonna set up these NGOs and civil society and ring fence some of this money that will go indefinitely into education and health. People didn't know about it. The people of Chad didn't get it. They didn't see it and within a couple of years the government reneged on the deal. So that's the argument about we could do better if we used it for investing investment for the future as a collective instead of giving it to people. The fact is that people know and one way to think about this is that the government could tax back. In fact, sometimes that's the counter argument why pass it out and then have the costs the transactions costs of taxing it back. But the logic is twofold. One is that process, as I said, is important in itself for locking in a social contract between government and people. And the second is that you might actually instigate greater focus on local taxation and on local revenue raising capacity and authority which in most developing countries doesn't exist. Most developing countries have extremely overly centralized tax systems and that makes it very difficult for people to hold accountable their school principal or their mayor. So you could have with this distribution some complimentary effort to allow for local revenue tax raising. So let me go to a third objection and maybe a fundamental one. How am I doing on time? Three minutes? Three minutes, okay. Which is the political resistance by current that, why would this happen any more than all the other good ideas? Judy has a long list of good ideas that could be done in the Niger Delta and I'm quite skeptical that any of them can be implemented because the government is weak, et cetera, et cetera. So why would this happen? And here I think I come to my third point which is about enforcement and international rules and I want to go back to this issue of the people's sovereignty. We live in a world where we still have this 19th century idea that sovereignty is about the government. I think we have to start thinking more about sovereignty in the form of the people's sovereignty in a particular country. One of the former IMF economists, Raghout Rajan had this very interesting idea. He's a financial, a finance guy but he had this interesting idea that he never published the paper that in a post-conflict setting, say Sierra Leone or Liberia some years ago, why not allow in the campaign that a non-national would run for head of state for one interim term? So for example, you would have Nelson Mandela on the, what do you call it? As a candidate for the election. And it's interesting to think that in the case of Sierra Leone, maybe 10 years ago or whenever, people might have voted for the outsider on the grounds that he would be a truly disinterested representative of the people. So that's the general issue that I think we have to keep in mind, that to do the direct distribution might require that the people call on the international community to enforce this distribution, to monitor it, to report on it. For in the case of Iraq with my co-author, we suggested it be built into the Iraqi constitution if it had been in 2004, say for 10 years, we would now not still have the terrible question on the agenda in Iraq of the distribution of these oil revenues between the Kurds and the Sunnis and the Shia, et cetera. We wouldn't have the problems in Kirkuk. We wouldn't have the problems you're reading about. That would require somebody, the United Nations, some other organization to take responsibility. My general point though, which is really, I think Paul is moving in this direction on a number of issues, is lock in the social contract and think about a new idea of sovereignty which would give people the right to say we want some international, we the people want some intrusion in order to protect our own sovereignty in the future. Think of it as analogous to when Kofi Annan made the statements about the need for responsible intervention to prevent genocide. Why can't we move in the direction of responsible intervention to protect the potential of poor people to have better lives? Thank you very much. Thank you very much, Nancy. If you have a question, now is a good time to write it down on your cue card and we'll have people coming around to collect them. But while you're doing that and while the collection is going on, I invite our Jennings Randall Fellows who are working on issues related to national and natural resources and conflict. I think we'll have Patricia Velasquez-Pascas go first and then Julia Suni second. Thank you. Thank you very much. I may have a problem with identity, so that's why I wanted my name correct. Thank you very much for giving me the opportunity of giving this presentation. Basically, what I thought I was going to do is in a very few minutes give a summary of what my project here, my study project here is at USIP. But before I do that, I thought I would make a couple of comments to something that Nancy just said on Venezuela and Bolivia and about basically the fact that in countries like Venezuela there isn't a solid basis for attracting investments due to problems with the government, there's no solid legal structure, et cetera. I would argue that in countries like Venezuela, there's a little bit of an exception in terms of companies' interests in moving into that country in spite of all these problems just because it's a country that offers some of the largest oil reserves still undiscovered in the world. It's a country that offers some of the cheapest oil. Developing oil is about $1, $1 or $2 per barrel in the Orinoco basis. And so all this is a way of reducing risks for companies and in spite of all the problems, in spite of the resource curves that Venezuela may be in, I think that the fact that it's such a rich country in terms of oil reserves and gas reserves that are still not developed may be an exception in terms of attracting investments. The same old to a lesser extent with Bolivia where if the country manages to find solid buyers of its natural gas into the future, then companies may be willing to come in to strike deals for 20, 30 years to be able to develop the Bolivia's natural gas and sell that to Argentina, to Brazil, where the country is already selling, but they just need and could develop more longer term contracts. Having said that, I would like to explain in a very few minutes what my project here is about and it's basically about the social conflicts that are related to the development of oil and gas projects in Latin America. With the increase in the price of oil in the past years, Latin America has seen a proliferation of oil and gas developments throughout the region. This was basically because oil companies saw a good opportunity of moving into an area that has still a lot of undiscovered reserves and the high price of oil helped reduce the potential risks of moving into a risky area. On the side of the governments, they saw an opportunity of attracting these investments to areas that would have otherwise been too costly to develop and the high price of oil made it cheaper now to develop. So investments started pouring in, especially into Peru and Colombia, which offered the best investments incentives. Now, together with these investments also came an increasing opposition to the way these gas and oil developments were being carried out. Basically people opposed to the negative externalities from these investments. And my study will focus on the fact that unless addressed properly and timely, these conflicts that have started to come up more and more in Latin America in the past years could pose a threat of destabilizing the region. Why? Because they touch right into still unresolved problems in Latin America. Problems that have to do basically with economic inequalities, with weak governance, with ethnic marginalization. And I argue that if not addressed rapidly, the situation could lead into chronic social, economic and political violence with serious consequences for these new democracies. Because we have to realize that Latin America has gone a long way in consolidating democratic governments. But at the same time, there is still a long way to establish the institutional and social structure they will need to absorb this new wealth coming from the oil and gas developments. And I will quickly address some of these social conflicts that I'm talking about that are starting to appear. They're mainly in most cases, these conflicts have indigenous populations at the center. Why? Because the oil and gas reserves that are being developed are in their territories. So we have already seen many indigenous communities in Peru and in Ecuador staging massive demonstrations in a position to these developments. What they're really opposing in most cases is the way these developments are being carried out without consulting them first. So we're also seeing disputes in terms of inefficient delegation of new revenues, of the new revenues coming from the oil and gas developments. And we're starting to see also cases of the beginnings of an organized indigenous movement in the region in a position to these developments. And I'm asked here to go directly to ask questions to our panelists. So I'll leave you with the rest of the presentation for us to discuss maybe later on for sake of time. And my question to our panelists is actually a two-part question. The one of them has to do with a proposal by the government of Ecuador who the president of Ecuador suggested not to develop the country's largest oil reserve which lies in the Yasuni National Park which is about one billion barrels of reserves. He made this proposal to the international community in exchange for a yearly payment for to make up for the opportunity cost of not developing these reserves. So my question to you is if you think this would be a valid way of in the long term avoiding these conflicts and at the same time reaching economic development for these countries. And the second part of the question is a bit related to what Paul was talking about in terms of the rights over assets. There's one of the big debates about the development of oil and gas in Latin America today is around the autonomy that regions should have, that populations living with oil and gas is should have in terms of the management of these assets. This in replacement of weak government and replacement of governments that have showed corruption, et cetera that Paul has talked about. So I was wondering if you could comment on this idea of increased autonomy for these regions if you thought it was a good idea or not, whatever your comments are. Thank you very much. Thank you. I will take Judy's brief comment before we turn to the panel. Thank you. I'm delighted that Paul is here. I spent about six months last year chasing him around to England. So when he agreed to accept our invitation I was really delighted. My name is Judy Essuni. I've worked for many years in Nigeria and specifically in the Niger Delta. I can say that I am part of the bottom billion because I've lived in Nigeria since 1971, taken citizenship and I have seen a number of the traps that you talk about in the bottom billion. Conflict, natural resources, bad governance, that is classically Nigeria. And those of us who have seen a number of elections in Nigeria have also seen the wars, guns, and votes, which is the Paul's book that followed the bottom billion. Now that we've heard about the plundered planet I can see they were also there as far as a few stealing money from the many. We certainly see that in the Niger Delta. We also see things like no social contract and the government not being responsible, I for one, have never paid taxes in Nigeria. So the concept that tax base is actually a form of accountability to the people is an interesting one. My project here in the Niger Delta, in USIP, focuses on the Niger Delta, where I worked for since the early 90s. And I worked with the various stakeholders, including the government, the oil companies, the communities, and particularly the militants that members of the armed groups. So the project I'm looking at is how resource abundance in the subsoil high value resources, such as oil and gas in the region, can be used constructively. I'm trying to look at other countries, particularly in Africa, where there are not many case studies success stories, I'm afraid, to see how the resources of the Niger Delta could be used more constructively. I think it's indicative of the state of the situation that we actually have a whole link in the chain named after the Niger Delta. Doesn't that tell you something? So that's my project, trying to see how this could be done more effectively. Now I'm intrigued by Nancy's idea of the sovereignty issue and that when a government does not protect its citizens or does not distribute the revenues to the benefit of most, that they can call upon the international community. And Paul, I've been reading a number of your suggestions as to how to deal with resource abundance. I'd like some comments from both panelists as to how you think the international community can actually intervene to help people in a country like Nigeria, where not only do they not receive the financial benefits, but their safety is actually at risk. What role can the international community play in a situation such as this? Thank you. Thank you very much, Julie and Patricia. So I'll ask the panelists to respond. I'll start with you Paul and then Nancy. Yeah, thank you. So first of all, the Ecuador idea. I think there is some scope for this sort of approach of leaving assets in the ground. I should say quite generally, unless all the links in the chain hold, the natural assets are better left in the ground. And so one way I would like to see the natural resource charter or something like it develop is as of a, in a way, a test for complicity in plunder. Because if that chain does not hold, then the exploitation of natural assets will lead to one or other form of plunder. And so participating in the extraction of natural assets when the chain doesn't hold is complicity in plunder. And so I would like to see that emerge gradually in effect as a new way of getting an international convention from the bottom up, which then holds to account the private actors in resource extraction. It's not enough to my mind to have, to say, well, we've got legal authority from the government. If this chain is clearly broken, then the government is reneging on its obligations as a custodial agent of defending the future or defending the many from the future. The one area in which the Ecuador type of plunder approach could be generalized is coal. And the problem of carbon emissions, that there's a lot of unexploited coal in low income countries. In effect, now we understand the damage done by carbon emissions, the social value of that coal has collapsed. And so there's a tension between the returns to the nation and the returns to the global community. And it's probably not a bad idea to think in terms of some compensation from the global community to the nation to leave the coal in the ground. So that would be a sort of generalization from the Ecuador case. There are some obvious difficulties in working out what is a reasonable payment, annual payment. And there's also difficulties in credible commitment to that payment. But those difficulties might not be insurmountable because after all, if the payment stopped, the country could always just dig the stuff up. So I think it's an interesting idea. The second question was about increased regional autonomy. And I've got ambiguous feelings here. Nancy's point about if only you distribute, distribution of households as the sort of limiting case of distribution to regions. If you split regions up small enough, you get the households. And there are some big advantages in that. There are some disadvantages. In Nigeria, where you've got half the money distributed to the states, to the 36 states, there are two disadvantages. One is that the level of scrutiny at the level of the state is even weaker than the scrutiny at the level of the Federation. So for example, you have a federal level competitive procurement requirement. And you have a federal level fiscal responsibility requirement. Only seven of the 36 states have passed a fiscal responsibility act applying to their state. And none have passed a competitive procurement. So decentralizing can be actually a movement to worse governance. The other problem with decentralizing is that, and this is reflected in Nigeria to a bizarre extent. I said 36 states share the money, but actually only 35 because there's one state, which doesn't get any of the oil money, and that is Lagos. And the argument there is, oh, Lagos has already got tax revenues from activities in Lagos. So why give it the oil money? And the answer why it should get the oil money is that Lagos is already half of the non-oil economy of Nigeria already. When the oil runs out, Nigeria's future economy is going to be predominantly in Lagos. And so in building the future of the Nigerian economy, most of the investment of the oil money needs to take place in Lagos and its arounds. At the moment, the distribution system immaculately denies any investment of the oil money in the state, which is actually Nigeria's future. And of course, the future won't just be benefiting the children of the people who are currently living in Lagos. Around Nigeria, future children are going to move to Lagos. So it's going to become a legacy. So that's the problem with autonomy, that you sort of freeze the allocation. Let's have the power to tax locally. And he said, I noticed that the worst, they've all corrupt the governor. The lower was the local taxation. Basically, they decided to forego the small revenues from local taxation in order to get away to escape scrutiny. So that was kind of clearly, very much in the spirit of what Nancy was saying. What international interventions can help in Nigeria? Let me close with an example of what I think is probably one of the most powerful international interventions that Nigeria's ever benefited from, and it was completely inadvertent. This is the neat thing that we didn't even mean to help Nigeria, and it was a fallout from 9-11. It was a fallout from 9-11, and it was the financial action task force, which was a very non-representative task force put together to try and prevent the financing of terrorism. And it just produced a list of countries, not countries which were financing terrorism, but countries where the financial system was not sufficiently robust to be able to ensure that terrorism wasn't being financed. And Nigeria was on that list. And President Oversanio, previous president, to his considerable credit, his mission life was to try and restore Nigeria's reputation. That was what he wanted as a legacy. And so he said, whatever else happens, we've got to get ourselves off this list. And so he got through the legislation to create a unit, which is called the Economic and Financial Crimes Unit, to prosecute crooks in Nigeria. And the head of that unit, a friend of mine, Nuhu Ribadu, and Nuhu then decided a fish rots from the head, and so he went for the big fish. And he arrested the president of the Senate. To my mind, it's probably the most fun thing he did was to jail his own boss, the Inspector General of Police, who he discovered had, I believe, $150 million, carefully saved from his salary. So there's an example of where an international standard that we didn't even mean to help Nigeria actually empowered this financial action, this Economic and Financial Crimes Unit. And Nuhu told me, he said, my power came entirely from this international standard and the need to get Nigeria to meet this standard. So my closing remark is if we could be that useful with international standards, when we didn't even mean to, think what we could do if we actually tried. Well, nice questions. On the Ecuador president's suggestion, my guess is that what he's talking about is protecting the forest. And there's now lots of interest because of climate change in protecting the forest. So he's feeding right into what was discussed, that's one of the good things about Copenhagen that adding to the Kyoto Protocol that the idea was on the table that forests are worth protecting and being paid for. So I think, yeah, absolutely, even if there weren't forests, if you could get the international community to pay a country that is in a premature state, it's not Norway, it's not the UK. It's in a premature stage, it's an immature system. Then I think you could go on and on sort of about optimality and the rate of extraction of the rent relative to the interest rate. But frankly, I think this is a satisfying issue from a development point of view. So I like the idea very much. And if in addition to protecting the forest, it avoids some conflict, that's a byproduct that's a happy byproduct. It is interesting that, just going back to Paul's five decision points, the Extractive Industry Transparency Initiative addresses two of them, I would say. It doesn't deal with the question that President Morales is raising. I think of it as he's calling the bluff of the global community. And so let's see what happens. I hope that it works frankly and that the international community doesn't back off because there's a lot of talk about well, the donors doing good things. In fact, building on what the point Paul made on climate change and the coal, I'm worried that we're building up a lot of political resistance in this country. We should be prepared in our own interest to pay the Chinese to leave the coal in the ground. We should be prepared to subsidize tremendously their closing down coal plants when they're politically ready to do that, even though those plants commercially, if you don't take into account the social costs of the pollution would still have a viable life. But it's very worrisome frankly. So this idea that there's a logic in our global self-interest to taking steps. I hope more and more ideas like those that you referred to are put on the table. The question Patricia asked about autonomy of local citizens, she put it as over management of the assets. And I think Paul, you interpreted as over control of the rents. Yeah, I guess right. And I'm not sure exactly what Patricia had in mind, but again, I would say, yes, as with so many issues that it's easier to imagine accountability when it's a more local process. But I wouldn't agree that you want to have all the rents or all the income accrue at the local level for all the reasons that Paul raised. Then Judy asked about the international community, how could it intervene? And I think Paul actually covered the issue beautifully. There is, in the last 10 years, the EITI, the Kimberley process, the blood diamonds. The Foreign Corrupt Practices Act, we have some papers on our website about the failure to enforce that. International arbitration, if that ex-anti-building into legal contracts. International arbitration that would be monitored. That would help governments, that would be a kind of commitment technology for weak governments. Nuhu Ribadu right now is a visiting fellow at the Center for Global Development and he's writing a report about the Financial Action Task Force. The thing that I wanted to mention is that he's not in Nigeria. He's actually wanted in Nigeria. He's wanted in Nigeria. You're harboring a criminal. Yeah. So. I was harboring the criminal. You were too, yes, I think that's right. We both shared in helping to generate the global public good of having Nuhu Ribadu's safe and writing. I just want to go back to the point that it isn't enough. This information and disclosure, it just may not be sufficient. I think we have to be more creative. And we have to hope even in the case of Ghana, even if two thirds of the expected permanent revenue stream, two thirds has been already allocated. But let's work on minimizing the risk that the other one third are not invested or spent well for the benefit of the people of Ghana by pushing hard now. We're also looking at the idea of direct distribution in Papua New Guinea. There's a group in Bolivia that's been thinking about this for several years, held numerous fora. So it is not an easy idea to push within a particular country. There needs to be kind of the sort of moral suasion that the United Nations can bring, that the international community can bring, civil society can bring. And then there needs to be the recognition that even if it's something like that were to get started in a country, it won't be sustainable in the beginning. It will need some sort of enforcement, I believe, from outside. Thank you very much. We've had a number of questions and that address the points that you've made. There's two broad questions for you, Paul. And the first is that a lot of your discussion mentioned the actions of governments in plundering natural resources. What about instances where the plunderers come from outside the national borders? Could you comment on this? And particularly the context of your five points. The second question, broad question for you relates to governance. A lot of the success of the critical mass is dependent on their relationship with a strong and capable government. What practical solutions could you offer for countries that have long histories of weak governance? And what have we learned or what do we need to learn about measures to facilitate the emergence of capable governments in such countries? Two broad questions for you Nancy. The first relates to direct distribution, surprise, surprise. A number of questioners have mentioned the fact that financial systems in most of these countries are very weak and fragile. And so how do you ensure effective and efficient distribution? That's one. And are you worried that this would actually lead to productive expenditures within these countries? Could it become counterproductive in some way? The second broad question relates to responsible intervention. A couple of questioners are a little worried that the development community and the donors are yet to demonstrate sustained interest or effectiveness. And so how would they be interested in responsible intervention in your model? I think we'll go with you first of all and then Nancy. Yeah. So the first question was about the plunder coming from outside the country. And the obvious foreign participants in plunder are the resource extraction companies. And what I try to sketch, not in the talk, but in my remarks subsequently, is that this notion of complicity, that I would like to get to a state in which there was an international convention which kind of established what constituted the conditions under which plunder could be avoided, which is basically this decision-sharing being in place. And which then different organizations rate at different aspects of the decision-sharing so that you could tell whether a country, in a particular country, the decision-sharing held or not. And then resource extraction companies that participated in resource extraction where the chain was broken would be deemed to be complicit in one or other of these forms of plunder. So I think that the concept of plunder needs to be rooted in this one or other of these notions that I've given, the stealing by the few from the many or the stealing by the present from the future. And now, because of that stealing of the present from the future, it's not enough for the resource extraction company to say that we've got a legal agreement with the government, we're paying money to the government. If the government is spending that money only on consumption, then it's a plunder of the future. Plunder by the few of the many is kind of easier to see that it stings, if the minister of mines is sticking all the money in foreign bank accounts, then resource extraction companies are obviously complicit. That wouldn't be controversial. It's the plunder of the future, which is kind of more controversial. But I think ethically we have to recognize that natural assets and natural liabilities are not things that belong to us, the present generation. The future has rights too. If you don't believe that, then the whole climate change agenda becomes kind of unintelligible because with climate change it's the, that we don't have the rights to run up future liabilities. That is the sort of ethical foundation for the whole action against climate change. And sorry, before you move on, could you comment on the issue of militias crossing border? Well, that's, in a way, that's a sort of, that's a very clear cut case of plunder through violence isn't it, and of course it's right. I was just talking to one of your Sierra Leonean colleagues who was saying, well, I'm very worried about, I better not say which neighbor, right? You know? That's it. And so yes, the, let me say one final thing about foreign companies, which is that I think a good institutional device for reducing the scope for foreign companies to plunder is to sell resource extraction rights through auctions. And I would like to see the auctions internationally verified as being up to standard. I think auctions are a very good way of leveling the playing field. There's an asymmetry of information between the government and the company. The companies have much better information on what the asset is worth. And the way to get around that asymmetry of information is to make companies compete against each other so that inadvertently they reveal true value. And that's what a properly conducted auction does. How do you build a sort of strong and capable government? Well, first of all, let's get real. In a lot of these environments, as you say, you don't have a strong and capable government. Building a strong and capable government takes years. Now, one implication may be that you go rather gently on resource extraction. That might be one implication that you leave some of the stuff in the ground. What else can you do? First, and this is the key thing of the resource charter, is if most things are not gonna work very well, make sure you get the key things right. And that's why I keep emphasizing that the critical decisions, the chain of absolutely essential things that have to be got right. The tax system has to be got right. The savings decision has to be got right. Building the capacity to invest domestically has to be done without that. Avoiding the Niger Delta has to be done. Otherwise, far from harnessing these assets for building prosperity, you risk the opposite. So that's one, focus on the few things that really matter. Second thing is use the role models of other countries that have successfully gone through transformation from poverty to prosperity. And there are lots of them now. After all, most countries in the world have gone through that process by now. The countries that are still stuck at the bottom are actually now a minority. And so there are lots of examples of countries which over the last 30 years have gone through a rapid development process. Mike Spencer's little report, the growth commission just tried to extract what have the 13 countries that have sustained a generation of very fast growth got in common, and that's a sensible start. It's also a sensible way, I think, to guide investment selection. The Rolls Royce version of investment selection is cost-benefit analysis. These countries haven't got the skill base within the civil service to do cost-benefit analysis. So a much quicker and politically easier way is to say, well, let's just look at what some other countries that have been through this process, what did they prioritize? And you can't go too far wrong if you follow a success model. Third idea, and final idea, is that I think a lot of countries, really poor countries, have locked themselves into the imitation of the Europe of the 1950s. The Europe in the 1950s was a very peculiar time. It had just come out of Second World War. There's a lot of national spirit. The war machine in Britain had been a very effective state enterprise. You've got a lot of public spiritedness within the public sector. And so the public sector worked well. And so the idea that you would deliver public services through a national health service, through a national education ministry, this was a good idea. And it worked in 1950s Britain. It still works in Scandinavia. It doesn't work any longer in Britain, but it still works in Scandinavia. But Scandinavia's bloody peculiar, right? It's wonderful. If you could turn Sierra Leone into Scandinavia, do it, right? If you could turn Britain into Scandinavia, I'd do it, right? But get real, we can't. And so trying to imitate that European model of the 1950s, which Africa has done for 50 years, and kept failing unsurprisingly, because it's so demanding. It was such a peculiar set of circumstances. I think it's time to move on and say what other ways are there in which government can ensure good basic service delivery? Can spend money well? What architecture would be appropriate for context? And in an environment like Sierra Leone, it won't be a monopoly ministry of health doing everything and a monopoly ministry of education doing everything. Nor will it be the total bypass which the donors are doing at the moment. Let's fund UNICEF and the NGO, right? You need some architecture, which to my mind combines decentralized service delivery at the bottom where you use whatever you can find, social enterprise, NGOs, local communities, whatever. But centralized funding of those services at the top within the public sector. And that architecture has been unexplored territory because African governments have kept this sort of holy grail of Europe in the 1950s and the donors just keep doing the same damn thing time and again. So developing an architecture of institutions which works in context, liberating yourselves from the imitation of the colonial inheritance. That will be my final suggestion. Thank you very much. Nancy? I do want to say something about, I think it's the big sort of central issue is the question about plunder from the outside. What can the outside world do to advance development, reduce plunder, but in the broader sense, advance development? I just did want to say that as Paula suggested, there is a lot more that could be done than it has been done so far because we tend to have had in the development community a very country focused approach. You know, the World Bank and AID, they have country programs. So we do have at the center right now a task force looking at the question of whether the, is there a way for the international community would name regimes as odious that are either acquiring debt but they're not using the resources to advance the cause of their own people or are selling assets? The question, you know, it's come up about the Chinese in Sudan, for example, buying assets. Is there a way to, in a practical sense to have in the courts, say in London and New York, certain arrangements? Let me go to the questions to me. First is, are the financial systems too weak and fragile? No, I mean, I don't think that the direct distribution needs to rely honestly on financial systems. You need to have the money go out through the banks but I don't know, I was in Malawi in December and unfortunately they're still passing the cash to pay teachers, you know. So that's the way it's still done in a lot of developing countries every week. The cash comes out and that has to be addressed but it's being addressed in more and more settings. So I don't think that's a fundamental barrier. We have in Honduras and Nicaragua that are very low income countries, we have conditional cash transfer arrangements. The World Bank has been advocating poverty mapping. There's most countries, Nigeria is an exception, actually have succeeded at least once in doing a census. So these are things that it's possible, it's possible. It might not happen right away but it ought to be tried and there will be some fits and starts. That's the position I would take. Of course, the good reason why Nigeria is the country which didn't have the sense of oil. Right, that's many, many oil, right. Well, no, no, I think even before there were reasons of ethnic rivalries. Before oil was a problem in itself. So that's a deeper, and I think, you know, let's hope there is a good census in 2010. I think there's a good possibility in many countries that there will be. Would it be counterproductive? No, absolutely not. I mean, I think I feel sort of like a Jeffersonian sometimes. The people know what to do with the money, frankly. There is this idea, well, if we distribute the resources to the people, it'll be like remittance income. They'll use it for consumption instead of investment. Well, of course, if you're really poor, consumption smoothing is a good thing to do. That is welfare enhancing. And a lot of what is sometimes called consumption by economists is anyway investment in children, in better nutrition and so on. So I'm not worried about it being counterproductive at all if all the net income, all of it, went on a per capita basis to households. And I like the idea that some households who have children would get on a per capita basis more. It would be like trying to give children a vote, which I think would be a good thing in many countries. Give the mothers the right to vote, the extra votes for the children they have. We wouldn't have the bias that we have right now, at least in this country, that is penalizing children compared to all people in use of collective resources. That's another issue. There was a question, would the donors stick to monitoring enforcement of direct distribution of net income? Yeah, I think that it could be done. It could be done. I would put it in the hands of a multilateral organization, not in the hands of a particular bilateral donor. But the donor's problem with thickleness and volatility is about the money coming from the capitals. This is not about money coming from the capitals. This is about money coming from the extraction and the sale of the natural resource. I wouldn't associate the problem of donors' unpredictability and thickleness with the potential ability of the donor community, as with UN peacekeeping, to step in when it's endorsed, when it is the norm, and when a country's people ask for it. Thank you, Paul, and thank you Nancy. We have clearly not answered all the questions, but we have certainly advanced the argument some. And one thing that's clear from both Paul and Nancy is that there are a number of very good analyses and solutions, but each one is hostage to the weakest link problem, and that you need a number of things working at the same time to advance this agenda. We've also discussed a number of creative and innovative ways to reduce or eliminate plunder, and these include creation of a critical mass of informed people, direct distribution of resource rents, responsible intervention, paying to keep the resources in the ground when it's prudent to do so, reconnecting the state and its people, rethinking sovereignty, and the list goes on. We hope that this is a debate we would continue, and we look forward to a lot more research and collaboration in this area. Before we go, there's a few people who'd like to recognize. This event is a brainchild of Julia Suni who worked assiduously to make it happen, and join me in thanking her. And it's a collaboration between my center, the Center for Sustainable Economies and the Jennings Randall Fellowship Program, and we have Chantal Udratz, the Vice President to thank for that. I'd also like to recognize both Michelle and Katie, who are in the back, for working so hard to make this happen, and also thank the people in the overflow rooms, particularly the participants in the ongoing economics and conflict cause of the USIP Academy. Thank you all for joining us, and thank you for the Nalcy once more.