The revolutionary principle of full citizen’s rights to public assets–in the form of tradable shares–should be placed at the forefront of the world debate on the future of Iraq. The process would begin with the government issuing shares or “land scrip” to all qualified citizens. These shares would be listed on world stock exchanges. Government auctions of any asset from wells to exploration rights would require all bids to be denominated in these scrip-shares.
If Iraqi scrip is currently trading at $100 per share, an investor who wants to bid 1,000 shares ($100,000) for some government property at auction must therefore buy–or obtain an option for–1,000 shares of scrip. If his bid wins, he tenders the scrip to the auction authorities, and it is retired. The investor obtains the property, and the monetary value of the property goes not to the government, but directly to those citizens who elected to sell some of their shares. Shareholders would be free to buy and sell scrip at any time, and winning bidders would be free to resell any equipment, property or exploration rights purchased at auction.
This may sound pretty commonsensical, but it has in fact never been tried before. One way or another, governments find a way to pocket the auction money. Properties privatized in Russia–also a state, like Iraq, with a history of state domination of key industries–were captured by party members, or government or business insiders. In the 1980s New Zealand used proceeds from privatization to reduce the government’s debt. It can be argued that the government, now less restricted by debt, has been predictably tempted to increase debt-financed spending.
The historical lesson is clear and disheartening. Without directly tying the sale of public assets to individual ownership, myriad institutional problems and unintended consequences arise. The auction process should be as orderly as possible, allowing people to plan in advance by drawing up a multiyear, even multidecade, auction schedule. Early auctions could sell equipment and producing properties, moving on later to rights for exploration and development. Stretching out the sales also allows people time to gather information, and to learn from previous auctions.
Many of these recommendations emerge from my work in experimental economics, which has been fine-tuning auction designs since the 1960s. One of our more recent innovations is the combinatorial auction, which allows the rights for sale to be either combined or separated, depending upon the preferences and willingness to pay of the bidders. In Iraq, a combinatorial auction would make it possible to combine or subdivide land rights for bidding, letting those who want, for example, to combine surface and subsurface rights to enter all-or-nothing bids for both.
Auctions are ancient. The conquering Roman Empire auctioned captured goods and resources to pay the Army. Now, exponential advances in auction technology can facilitate large-scale auctions of publicly held goods–such as in Iraq. Despite its simplicity, the idea of selling off public assets through scrip-shares is by no means easy, as demonstrated by the failed half-efforts around the world. The many practical hurdles to implementing a scrip-claims system in countries like Iraq include the lack of census data to identify qualified citizens. But failure to distribute oil assets equitably will leave citizens with a strong sense of disenfranchisement, undermining free institutions and democracy. Controlled by a dictator who had unlimited drawing rights on the national wealth, Iraq has never known the power of private ownership and investment. The authorities in Iraq now have a historically unique opportunity to provide Iraqis with a true share of their nation’s wealth. But they’ve got to get the bidding right.
