Free version of the book, “Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model” available for the first time

An early version of a book, Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model, is now available for free download on my personal website. A summary, from the first chapter of the book (2012), is reprinted below. If you want to cite or quote it, please see the published version:

Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model, edited by Karl Widerquist and Michael W. Howard. New York: Palgrave Macmillan, 2012

Every year, every Alaskan gets paid. Every man, woman, and child receives a dividend as a joint owner of Alaska’s oil reserves. In 1956, Alaska ratified a constitution recognizing joint ownership of unoccupied land and natural resources. In 1967, North America’s largest oil reserve was discovered in publicly owned areas on Alaska’s North Slope. In 1976, the state government voted to dedicate a part of its yearly oil revenues to a state investment fund, called the Alaska Permanent Fund (APF). In 1982, the state government voted to distribute part of the returns from that fund as a yearly dividend, called the Permanent Fund Dividend (PFD), sometimes called “the Alaska Dividend.” In 2008, the dividend reached a high of $3269,[1] which comes to $16,345 for a family of five. More often in recent years, the PFD has been between $1000 and $1500 per person, which comes to between $5000 and $7500 for a family of five.

The Alaska Dividend is one of the most popular government programs in the United States. It has helped Alaska attain the highest economic equality of any state in the United States. It has coexisted with, and possibly contributed to, the state’s growing and prosperous economy. And, seemingly unnoticed, it has provided unconditional cash assistance to needy Alaskans at a time when most states have scaled back aid and increased conditionality.

The Alaska fund and accompanying dividend seems to be a model worthy of imitation and adaptation. This book examines whether and how the Alaska Dividend is a model that can and should be imitated and adapted for circumstances elsewhere. It is an “edited volume” with authors who differ in their level of enthusiasm for (or skepticism of) the Alaska model. But we believe that the evidence provided by this book shows that the combination of policies we call the Alaska model is worthy of examination by other states, nations, and regions.

What is the Alaska model?

The “Alaska model,” as we use the term here, does not refer to the whole of Alaskan state government policy, nor to even to the whole of its oil revenue policy. It refers only to elements in the combination of APF and PFD. Although the APF is the source of revenue for the PFD, the two are different programs created at different times by different kinds of legislation. The APF is a Sovereign Wealth Fund (SWF)—a pool of assets collectively owned by the members of a political community usually invested into interest-generating assets. It was established by a constitutional amendment that did not specify what was to be done with the returns to the fund. The PFD is the policy of devoting the APF’s returns to a dividend for all Alaskan citizen residents. It was created by a simple act of the state legislature. Many nations and regions have SWFs, but only Alaska’s SWF pays a regular dividend to citizens. Many nations and regions provide some form of cash benefits, but so far, only Alaska pays a regular cash dividend to all of its residents.[2] The APF and the accompanying PFD link a resource-revenue-management policy with a progressive social policy. As an SWF, the APF helps to ensure that the state will continue to benefit from its oil after its reserves are depleted. As a dividend, the PFD helps every single Alaskan make ends meet each year without a bureaucracy to judge them.

We call this unique combination the Alaska model. It consists of three elements: (1) resource-based revenue (2) put into an SWF or some other permanent endowment, (3) the returns of which are distributed as a cash payment to all citizens or all residents. The extent to which a policy has to contain all three of these elements to qualify as following the Alaska model is not so important. But we will discuss the importance of each of these elements separately.

(1) Resource revenue.

The argument for the Alaska Dividend is simple and powerful: the oil, by right, belongs to all Alaskans. The PFD is an efficient and effective way to ensure that every single Alaskan benefits from it. If that argument works for Alaska’s oil, why not Maine’s fisheries, South Africa’s diamonds, Hong Kong’s real estate, Oregon’s forests, America’s broadcast spectrum, or the world’s atmosphere? Governments have allowed private, for-profit exploitation of these and many more resources, claiming that we will all benefit from the jobs and economic activity they create. But do we? Does a homeless person in Denver benefit from the gold being mined in Colorado? Does a shanty dweller in Johannesburg benefit from the diamonds being mined in South Africa?

The PFD has made sure that every single Alaskan has benefited from the state’s oil industry. Whatever benefit they might or might not get from more jobs or increased economic activity, every Alaskan can point to the dividends they’ve received since 1982 and say, I got this benefit from the state’s decision to exploit its oil reserves. Not many other programs do that, but many more could.

The case for taxing natural resources is at least as good, and probably far better than the case for taxing any other source of wealth. Resource taxes have the benefit of discouraging overuse of scarce resources. If properly employed, they can be an important part of a green environmental management strategy, giving people the incentive to reduce their consumption of scarce resources to sustainable levels. Yet, few if any countries in the world employ resource taxes in this way. Resources are often given away by governments to individuals and corporations who sell them back to the public with value added, but the sellers capture not only the value they add but also the natural resource value along with it.

A resource tax is literally a user fee. Anyone who takes possession of a resource makes it unavailable for others. The tax represents a payment for the burden imposed on others. This justification for resource taxation is more closely associated with “left-libertarianism,” discussed in chapters of this volume by Ian Carter, Alanna Hartzok, and Gary Flomenhoff. But as we will argue in a later chapter resource taxes are also consistent with liberal-egalitarian, utilitarian, and other theories of justice.

Of course, not every country has as much oil as Alaska, but one of the key lessons of this book is that a country does not have to be “resource rich” to have a resource dividend based on the Alaska model. We make this argument fully in the final chapter of this book. Here we preview only a small part of that argument.

One reason we know that a country does not have to be resource rich to have a resource dividend is that every country and every region has valuable resources. Later chapters of this book will show that the total value of natural resources (including not only mining, fishing, and forestry but also land value, the broadcast spectrum, the atmosphere, etc.) is surprisingly high even in areas not thought of as being resource rich. Gary Flomenhoft (this volume) shows that even “resource poor” states, such as Vermont, can create a substantial resource dividend.

Another reason we know that a country does not have to be resource rich to have a resource dividend can be seen from what a small part of Alaska’s resource wealth actually goes to supporting the fund. Alaska has many valuable natural resources, but the APF is supported almost entirely by taxes on oil. These taxes are extremely low by international standards, and only about one-eighth of the state’s total oil revenue goes to supporting the APF. Thus only a tiny fraction of Alaska’s resource wealth is used to support the PFD.

(2) A permanent endowment

Alaska introduced the APF largely because Alaskans knew that oil drilling would provide a very large but temporary windfall. They wanted to extend the period in which that windfall would benefit Alaskans by putting some of it away into a permanent fund. The APF was one of the first SWFs. Today many resource-exporting nations have them. Some nations have funds more than 10 times the size of the APF.

We see the essence of the Alaska model as a strategy to make sure that the system functions as a permanent endowment, but an SWF is not the only mechanism that can do so. To some extent treating resource taxes as user frees does so on its own. Some resources are capable of producing a permanent stream of revenue from user fees. These include land, the broadcast spectrum, and renewable resources. Such resources do not need to put revenue into a fund to function as a permanent endowment, and the Alaska model can be employed with only the first and second elements. Other resources produce only temporary resource streams. No nation can produce oil forever. Pollution taxes will hopefully discourage pollution. For revenue from sources like these to produce a permanent endowment, a mechanism such as an SWF is necessary.

(3) A cash payment to all citizens

To some extent the dividend was a way to sell ordinary Alaskans on the idea of a permanent fund. But to some extent the motivation for the fund was to support the dividend. Some of the lawmakers who created these programs, particularly Governor Jay Hammond, were influenced by the movement for what is now known as a “basic income”—a small unconditional income for every citizen to help them meet their basic needs. At the time, the policy was best known as the “guaranteed income” or the “negative income tax.” It was widely discussed by policymakers in the United States in the 1960s and 1970s. Hammond had unsuccessfully proposed a similar policy on a local level when he was a mayor of Bristol Bay Borough, and he very much saw the APF as an opportunity to create a basic income.

Basic income is a widely discussed topic in the academic literature in social science and philosophy. Researchers have examined the political and economic feasibility of the idea, its likely effects, and the ethical arguments for and against it. The United States and Canadian governments have conducted five social science experiments to see how a very similar policy would work. The Indian government will soon begin its own experiment. Basic income comes and goes in political popularity. It has recently appeared on the political agenda in Germany. It has considerable grassroots support in southern Africa today, and the Brazilian government is officially committed to phasing it in, although no timetable for moving beyond the first stage of the phase-in has been set. It is currently popular with Green and left-leaning parties in Europe, but its support (much like the support of the Alaska Dividend) often cuts across party and left-right divides.

As we will see in later chapters, not everyone agrees about the extent to which the Alaska Dividend fits the definition of a basic income. Usually, a full basic income is defined as an unconditional income, large and regular enough to meet a person’s basic needs. The Alaska Dividend is neither regular in size nor large enough to meet a person’s basic needs. But it is regular in timing and unconditional. So, it constitutes only a partial, irregular basic income. But it is the only version of basic income currently in practice in the Western industrialized world.

We (the editors of this book and the authors of this chapter) became interested in the Alaska model because of our interest in basic income. We’re excited to see an idea—so controversial in theory—has proven to be effective and extremely popular in the one place it has been tried. The Alaska model shows not only how basic income works, but also how the unique attributes of the Alaska model can be designed to work well elsewhere. The Alaska model is not perfect, but it is a successful strategy on which to build something better.

Employing the Alaska Model

By endorsing the Alaska model, we do not mean that governments should replace everything they do with the combination of a resource taxes, fund and dividend. We mean only that they should examine it as a possible addition to their toolkit. It’s only being used by one government, but it has proven to be more popular and more effective than many things that governments all around the world are doing. Certainly, it’s a policy that other governments should take a look at.

A preview of the book

The three parts of this book evaluate the Alaska model and discuss whether and how it can be adapted for other areas.

Chapters in Part One provide the background necessary to evaluate the Alaska model. Cliff Groh and Greg Erickson examine the unlikely history of the APF and the PFD and explain how the two programs work in practice. Scott Goldsmith discusses the impact of the dividend on Alaska’s society and economy.

Chapters in Part Two examine the ethical and political case for using the Alaska model as a tool for social justice. Jim Bryan and Sarah Lamarche discuss the political consequences of linking natural resource wealth and basic income, and how this policy combination can serve justice for future generations. Ian Carter presents the resource dividend as a left-libertarian economic policy. Christopher Griffin discusses the PFD as a practical application of the theoretical idea of Stakeholding. Stakeholding is a variation of the universal, unconditional grant idea. It differs from basic income in being delivered as a large lump sum grant rather than as a steady flow of smaller payments. Almaz Zelleke criticizes the extent to which the Alaska model, structured as a resource dividend, can be thought of as the practical implementation of basic income or even a step toward it. Jurgen de Wispelaere and David Casassas argue that the Alaska model, as it stands, is of limited value in promoting Civic Republican objectives. Steve Winter criticizes the Alaska Dividend for making recipients complicit with the oil industry. In the final chapter of Part One, we (Widerquist and Howard) respond with a chapter addressing the concerns of the authors in this section, and a discussion of why the link between resource taxation and basic income is important for different theories of social justice.

Chapters in Part Three discuss empirical questions about how the Alaska model can be adapted to be used most effectively in other states, nations, and regions. Gary Flomenhoff provides a detailed empirical investigation of the resource tax revenue available in the state of Vermont. He finds that even the resource-poor state of Vermont can raise $2000 (and possibly much more) for each resident each year. Michael Howard looks at the cap-and-dividend approach to global warming as a version of the Alaska model applied to pollution control. Karl Widerquist proposes personalizing the Alaska model into what he calls “Citizens’ Capital Accounts.” Alanna Hartzok argues that any dividend program based on an SWF has a strong responsibility for socially responsible investing, and presents evidence the APF currently fails to live up to that goal. Michael A. Lewis addresses the issues of fund and risk management, which will be important if the Alaska model is to further economic security of recipients. Angela Cummine discusses whether other existing Sovereign Wealth Funds (particularly in the Middle East) should move toward an Alaska-style dividend. Greg Erickson and Cliff Groh discuss the challenges to the APF and PFD in Alaska today and the extent to which the model can be expanded and improved within Alaska.

In the concluding chapter, Howard and Widerquist respond to the concerns of authors in Part Three and discuss six lessons they take away from the Alaska experience.

[1] Including a one-time supplement of $1200 from that year’s state government budget surplus.

[2] Iran is currently in the process of phasing in a regular dividend.

Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model, edited by Karl Widerquist and Michael W. Howard. New York: Palgrave Macmillan, 2012