23 September 2003 17:21
Leading article: Iraqi economy: Say no to privatisation
America's plan to privatise the Iraqi economy is a mistake that needs to be corrected before it is implemented.
The huge sell-off programme, tax breaks and virtual elimination of tariffs on imports is designed to attract foreign
investment and revive Iraq's moribund industries. But recent evidence suggests Washington's radical
prescription is doomed to fail. The last big socialist, centralised economy that opted for such sudden and drastic shock
therapy was Russia in 1992. The result was economic devastation, rampant corruption and the rise of a powerful class of
businessmen, the oligarchs. Clearly a case of all shock and no therapy - and Iraq could go the same way. In reaching for
such extreme measures, Paul Bremer, the American running Iraq, has exposed the limitations of Washington's efforts
at nation-building.
Reconstructing the country needs cash - which thanks to George Bush's "America-alone" policy over Iraq
has not been forthcoming from friends or alienated allies. Iraq's oil production, which should have paid the bills,
has not materialised thanks largely to US failure to keep the peace. It is also clear that the Bush administration
underestimated just how dilapidated Iraq's infrastructure has become - thanks to Saddam's neglect and
sanctions imposed after the last Gulf war. America's taxpayers, who went to war without being told about the costs
involved, are understandably angry about being being asked to pick up a large part of the tab, some $150bn. To share the
burden, the occupying powers decided to court foreign, private sector capital and opted to lower taxes and put a large
"For Sale" sign over Iraq.
This is where the problems begin. First, these plans have no popular mandate. It would have been better to wait for
an elected Iraqi government to produce a national economic plan rather than get a US-appointed Iraqi finance minister to
rubber stamp them. Second any dreams of a rapid transition to a free market in Iraq must be tempered by the fact that
most of the population is dependent on state handouts. Not only is the state Iraq's biggest employer but the Iraqi
people depend on a heavily subsidised system of inputs to industry and the inexpensive goods and services that result.
In privatising Iraq's industries, one would expect businesses to become profitable - by raising prices or cutting
costs and staff. The outcome could be unemployment and inflation, a recipe for chaos. Third, there is no effective legal
system and Iraqi state institutions are still not functioning - both of which the Russian experiment showed were needed
for big structural reforms.
It is true that Iraq's vast oil reserves, the world's second largest after Saudi Arabia's, will remain
in government hands. But Washington is inflicting on Iraq what it would never accept itself. The US protects its
airlines and media with foreign ownership restrictions, heavily subsidies its farmers and is prepared to slap import
duties on steel. The US-inspired tariff-lowering and tax-cutting regime for Iraq is clearly inappropriate - especially
when there is a clear need for revenue to finance the health and eduction needs of 25 million Iraqis. What the US is
planning in Iraq is presumably what the world would look like if no one dissented. But they do - that is why the trade
talks in Cancun failed. In adopting a neoliberal economic orthodoxy, the US falls into the trap of believing that the
state has only to be removed from the sphere of the economy to see a vibrant free market appear. History suggests this
process has to be managed by a stable, home-grown government. Iraq deserves to get one before enacting such major
changes. In imposing free trade and removing the right to set tariffs, America has written its own unequal treaty with
Baghdad. Washington should tear it up, before it is torn up by events.
[UKIR [UK & Ireland Intelligence Wire]] |
RUSSIA IN FACTS
