One of the greatest sources of corruption arises when politicians allocate mining rights for natural resources (NRs, e.g., oil, water, lithium, etc.) to their cronies. Such a system is corrupt due to the presence of “rents” — the arbitrary value associated with access or control of a scarce good.
In principle, the politician can sell access to the NRs in an open auction, where prices will get close to the rents that the winner gains access to.
Example: An oil field with 20 million barrels of oil of capacity and a cost of extraction of $300 million (fixed) and $10/bbl (variable). If oil is worth $100/bbl, then that field has an estimated revenue of $2 billion and costs of $300MM (fixed) + $200MM (variable), so a profit of $1.5 billion.
If the politicians give it to a friend for a “friend’s price” of $100MM, then the friend gets rents of $1.4 billion. Maybe that friend will thank the politician with a “gift” of a $100MM yacht or campaign contribution? Even still, fat profits.
An honest politician would have an open auction for the “exploitation rights” that might bring in $1.2 billion from the top bidder, meaning $300MM of profits to them (I’m ignoring risk and time, ofc.) and $1.1 billion MORE for the government — and the people.
And that where this post gets interesting. I think that politicians everywhere should directly pay citizens for their share of the value of the NRs that the politicians are managing on behalf of citizens. Alternatively, the politicians can give each citizen their share of the rights to the NRs, and citizens can decide to sell their share (getting paid) or not (leaving the oil in the ground or the trees standing) — both actions that are compatible with property rights.
The implications are clear: Higher prices and lower utilization would mean that NRs would cost more and last longer. Citizens would pay more attention if they were owners of NRs. Some may just take the money to live a better life, but others might say “you know, I don’t think I need $20 as much as I want to leave 200 trees intact.” (Forest concessions — in fact many NR concessions — cost very little!)
My one-handed conclusion is that citizens would better manage their NRs than the politicians who claim to work for them.
hi David, these are tempting ideas. A related thought experiment:
It should be feasible to classify all for-profit activities in society in two categories. Those that make profit because they
A) have access to some natural resource (including land) that is scarce
B) have access to some know-how that is scarce
Of course some businesses can be a combination (e.g. a farmer).
Wouldn’t the world be better off potentially, if profit from A-activities are taxed higher than from B? And wouldn´t that make a lot of sense?
Hi Johannes — Yes, indeed. Both activities have rents, but the rents in “A” can go to anyone, whereas those in “B” are either given (natural gifts) or acquired (education, who you know), and thus not easily transferable. That characteristic (transfer) means that the rents can be bought and sold in markets, which ALSO means that an objective value can be established…and taxed.
Taxing land rents is an old (Georgian) idea that I support: https://kysq.org/aguanomics/2009/08/optimal-taxes-property-tax/