Iraq's economic disaster
Iraqi economic failure greater than military letdown; shock therapy the wrong approach
When the American and British armies toppled Saddam Hussein's regime in Iraq, they found an Iraqi economy based on the Soviet economic model: Centralized, nationalized, corrupt, and backward. Four years later, as a result of hasty legislation and ideological coercion, the Iraqi economy indeed shifted to a model of a free and competitive market – yet became much more corrupt and backward.
The American military failure in Iraq is much debated: Perhaps the failure is merely success that has not yet materialized? Yet the economic failure is not debated: It's blatant, conspicuous, and depressing. The Iraqi economy is in a dire situation. Factories are deserted, commercial centers are empty, and infrastructure has been destroyed. Economic assistance mostly came in the form of erasing some of Iraq's debt.
The International Monetary Fund recently issued a new report about Iraq, which in fact serves to expose the IMF's weaknesses: While the standard of living in Iraq today is dozens of percent lower than what it was during Saddam Hussein's days and unemployment is close to 50 percent of the workforce, IMF economists praise the Iraqi government for its budget surplus and tax cuts.
Saddam's economic model was indeed rotten and immensely ineffective: It made close associates of the Hussein family, senior Baath party officials and military leaders wealthy, while leaving the rest of the population poor. Yet it somehow functioned, at least until economic sanctions were boosted in the second half of the 1990s. The black market complemented the government system and an average Iraqi citizen found ways to get by, while getting used to making do with little without feeling the shortage.
All of this collapsed after the war. Production means that in the past were owned by the government and/or party were shut down on the orders of coalition forces' headquarters. A total of 200 government factories closed their gates and 500,000 employees, as business magazine Fortune reported in a critical article from Baghdad, found themselves on the street.
Factories were offered up for privatization, yet nobody wanted to buy them. The few that were indeed privatized were handed over by the Americans to private ownership in contradiction of the law. Moreover, the Bush administration thwarted in advance the intentions to rehabilitate Iraqi industry and infrastructure, which were nationalized in the past. Up until very recently it was forbidden to divert civilian aid budgets to this end, and coalition forces' commanders were banned from buying products from Iraq's nationalized industries.
Economy key to fighting terror?
Fortune recounts the story of an energetic businessman called Paul Brinkley, a former senior high-tech figure, who arrived in Baghdad with a sense of mission to revive its economy. On his own he managed to fight the US administration's tough resistance and was able, using almost superhuman forces, to reopen some closed factories. Yet we're talking about a drop in the ocean: Thus far, only about one percent of unemployed industrial workers went back to work.
While the Americans wait for an economic miracle in Iraq, tens of thousands of unemployed Iraqis joined terrorist armies. At the same time, they receive from the coalition administration unemployment payments that are about 40 percent of what they got during Saddam Hussein's era (about $70-$80 a month.)
American experts, who decided to turn Iraq into a heaven of capitalistic market economy with one hand gesture, based their plans on shock therapy: Immediate release of the entire Iraqi economy from any government supervision. This method was tried in several eastern European countries after Communism collapsed there in 1989-1990: In Poland, the Czech Republic and the Baltic states the move mostly succeeded, even though it caused suffering and exacted quite a few social victims: In East Germany, in order to get it back on its feet, its western sister transferred support and subsidies to the tune of $1,500 billion – over 18 years.
The shift of eastern Europe to capitalism took almost an entire decade, under conditions that cannot be compared to those prevalent in Iraq today. The Americans in Iraq attempted to do all this hastily, and totally failed. However, they have an excuse, which can be found in the International Monetary Fund's report and was also prominent in the last Congress appearance of the US forces' commander in Iraq: Forget about the economic situation at this time, the security situation is to blame for everything. Once terror attacks in Iraqi cities end, Iraq's economic deterioration would end as well.
But perhaps, ladies gentlemen, the opposite is true?
