Say "No" to privatisation in Iraq

Say no to privatisation
Leader
Tuesday September 23, 2003
The Guardian

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.