More on Iraq, again from DevNews:
L. Paul Bremer, chief civilian administrator in Iraq, writes in the Wall Street Journal Europe that Iraq faces unique problems, but we have the experience of formerly socialist countries, as well as analysis of successful capitalist ones, to inform our perspective, While the ultimate future of Iraq’s economy will be determined by the Iraqis themselves, economic growth will depend on the birth of a vibrant private sector. And this will require the wholesale reallocation of resources and people from state control to private enterprise, the promotion of foreign trade, and the mobilization of domestic and foreign capital”.
Put diplomatically, the experience of formerly socialist countries is that programmes of economic liberalisation designed in Washington do not necessarily offer the best blueprint for progress.
Asking a private sector composed of undeveloped local companies and huge foreign corporations to ‘allocate resources to their most productive uses’ in a country characterised by grinding poverty and great oil wealth is a recipe for disaster. At best it’s a case of crossing your fingers and hoping for the best, at worse it will involve bringing into being the kind of ‘mafia capitalism’ and its associated rises in crime and drops in living standards and life expectancies that we saw in Russia after a similar ‘big-bang’ liberalisation programme (though the liberalisation programme was obviously not the only factor at work).
There is near-total market failure in Iraq at the moment, but laying the foundations for a thriving private sector is about more than slashing state subsidies and securing property rights. It’s about nurturing the economic, cultural and infrastructural dimensions of local companies so that they can actually compete and create functioning markets when the time comes. That requires state-led investment on a large scale.
Bremer, however, thinks domestic Iraqi companies should look forward to the imminent arrival of global competition, as it’ll give them the ‘market discipline’ needed to ‘become more productive’. It will never be a fair fight, though, as Iraqi companies will be competing against global giants who are not only more powerful in capital terms but also in the political sense - an effect that will be exacerbated if political control in Iraq remains in American rather than Iraqi hands.
By the way, Bremer says that “Following a disciplined, market-based approach will require difficult decisions and entail near-term sacrifices”. Always be wary of this kind of talk. It marks Bremer out as an omeletteer - he wants his omelette, and if he has to break a lot of eggs to get that’s just the way it has to be. The ends justify the means.
But wait, there’s more. “For this program to be successful”, concludes Bremer, “it must be endorsed by the Iraqi people”. So there you have it. Either the US administration has pledged to not tinker with Iraq’s economic and trade policies before a legitimate Iraqi government can make the decision, or it just doesn’t expect its tinkering to be ’successful’.
But don’t believe me: Adam Smith himself argued (quote reported on the Third World Network) that sudden abolition of trade barriers could lead to serious unemployment especially if labour mobility was low. “Humanity may in this case require that the freedom of trade should be restored only by slow gradations”, he said, “and with a good deal of reserve and circumspection”.
