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Solutions in Iraq?

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Liquid Freedom
Posted on 11.11.2004 by Lenny Glynn in International Affairs | 26 Comments
The Prussian theorist Carl Von Clausewitz famously defined war as "politics by other means." That formula applies even more crucially to insurgencies than it does to conventional campaigns. People, not territory, form the center of gravity in such wars. And the key to victory lies not just in winning "hearts and minds" but in driving as powerful a wedge as possible between the insurgents and the people they claim to be fighting for ?- and whose support they need to win. Given the centrality of politics to guerilla war, the most distressing aspect of the struggle in Iraq today is the near absence of any serious political strategy, other than elections themselves. Perhaps it's time for President Bush to send Karl Rove to Baghdad.

Because there is, in fact, a war-winning weapon close to hand that the Allawi government could use ?- with support from allies and from both Democrats and Republicans. This weapon could, at a stroke, put flesh on the bones of formal democracy, change the dynamic of the insurgency, begin to win the confidence of the Iraqi people and create a powerful, growing force for stability, national unity and economic development. The weapon, of course, is oil ?- and the huge flows of cash it generates.

The way to deploy it is straightforward. Iraq's new government should simply announce that as of a date certain, it will establish a new national investment fund ?- call it The Iraqi People's Freedom Trust ?- which will be credited with a major share of all future Iraqi oil earnings. A popular real world model might be the Alaska Permanent Fund, which grants a share of that state's oil revenues to every citizen. Revenues directed to Iraq's Freedom Trust could be invested in Iraqi government bonds, keeping a small cash reserve to provide for cash withdrawals from the Trust by individual Iraqis.

All 27 million Iraqis ?- men, women and children ?- would be eligible for an equal, personal account in the Freedom Trust simply by proving Iraqi birth and pledging their allegiance to the government. With assistance from coalition allies, registration for ownership shares in the trust could go hand in hand with registering citizens for the upcoming national elections. Any adult citizen of Iraq would then be free, at any time, to ask for a calculation of their account's value and withdraw up to their full balance ?- no questions asked.

The immediate effect would be electric. But the Trust's real power would compound over time. For the first time in the history of Iraq, indeed of oil nations generally, the new government would be offering each and every citizen a real, guaranteed ownership share in an asset that has been long since nationalized and regarded as a public patrimony. Establishment of the Freedom Trust would dispel the fantasy that this war was waged by the U.S. to somehow steal Iraqi oil. The Freedom Trust would instantly offer a stark contrast with the Saddam regime's practice of stealing and wasting oil revenues on weapons, palaces and luxuries for a tiny elite of privileged cronies.

Revenues credited to the Freedom Trust would not go directly to the public as cash payouts. They would, instead, be invested, initially at least, in new Iraq government bonds. This would give Iraq's new bond market a huge jump start ?- actively leveraging the central government's financial power. But legal ownership of shares in the Trust should be vested in each individual Iraqi, not the patriarch, the husband, tribe, clan, or regional power-broker. The goal would be to "personalize" oil revenues streams, empower women, give democracy a material base ?- and give all Iraqis a stake in the survival and stability of their new democracy.

Offering all Iraqis an equal, permanent ?- and possibly rising ?- future income stream would rapidly move resources out to remote regions and jump-start broad-based entrepreneurship and local development more efficiently than any centralized aid scheme. Instead of having to wait for political officials and aid workers to design, approve and deliver on projects, poor and rural Iraqis who have never seen a dime's worth of their nation's oil wealth would have a strong incentive to come to town, register for accounts in the Trust and claim a share of their own nation's wealth.

Word of the first cash redemptions from the Trust would spread like wildfire, build its credibility and create a strong, growing interest among all groups and tribes in ensuring their nation's future stability.

We're not talking small money here. Even amid ongoing war and sabotage, Iraq today pumps over 2 million barrels of oil a day ?- roughly $100 million a day or $36.5 billion a year at $50 a barrel. A more stable Iraq could pump 5 million barrels a day or more ?- which would be nearly $45 billion a year at even $25 a barrel. Crediting, say 50% of these future revenues to Iraq's Freedom Trust would ensure each person in the country a wealth stream worth hundreds of dollars a year ?- this in a country whose per capita gross national product is less than $1500.

And the Trust's very existence would provide the promise of a real, predictable financial future for Iraq's young people. Their holdings would grow steadily until they come of age.

By adopting such a policy, the new Iraqi government could have the same impact on the de facto civil war it is waging against Ba'athists and terrorists as Lincoln's emancipation proclamation did on the domestic politics and international diplomacy of the American Civil War. With that one move, Lincoln effectively redefined America's civil war from a struggle over regional power or "states' rights" to a moral, even revolutionary, struggle over slavery.

Creation of the Freedom Trust could have the same kind of profoundly moral ?- and revolutionary ?- impact. Every Iraqi would, at a stroke, have not just a shot at freedom, in the abstract, but the money to enjoy it, while seeing wealth build up, over time, for their children. The conflict would be redefined ?- accurately ?- as one between the common interests of all Iraqis and the special interests of insurgent groups who are running what may be the first "National Re-enslavement Front" in history.

Ba'athist dead-enders are, in essence, fighting to regain the power to steal fellow Iraqis' wealth ?- and kill anyone who objects. Their terrorist allies would also be hurt by the creation of the Freedom Trust. The commonsense justice of giving Iraqis a personal stake in their own oil wealth would undercut terrorists' appeal to Iraqi youth. These "militants" would suddenly find themselves defined as fighting to steal young Iraqis' future, while Iraq's Army and National Guards would be fighting to defend that future. .

It is deeply disappointing that the Bush Administration, which is advancing the virtues of an "ownership society" in America has not advanced any creative ideas for using Iraq's oil to benefit its people directly. Nor has the Allawi government laid out any path away from the regional tradition of state-centered oil paternalism and public clientelism. Yet it is difficult to conceive a policy action that could better clarify what it means to "liberate" Iraq, empower its people, and create real common ground for a national rebirth. Reform in the distribution of oil revenue is as critical to "winning the peace" in Iraq as land reform was to fostering democracy in post-war Japan.

By sharing some of Iraq's vast oil wealth with its people, a new Iraqi government could foster the rise of a broad-based, democratic middle class. It could turn black gold into liquid freedom, the fuel for democracy and the engine of development. The Freedom Trust would give the Iraqi people, and their new police and Army, a future to believe in ?- and fight for. This single move would do more than any other initiative to help secure a lasting peace, grounded in justice. And such a peace may be the only outcome that could, in some small measure, redeem the sacrifices that Americans and Iraqis are now enduring.

http://www.newpartisan.com/home/liquid-freedom.html

There seem to be a lot of advantages to a solution such as this one.

Do you think we could make it happen?

What would the obstacles be?

How do we make this happen?

Thanks

Cycloptichorn

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Type: Discussion • Score: 1 • Views: 877 • Replies: 9

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Noone, eh?

We discuss problems much more easily than we discuss solutions....

Cycloptichorn

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I read this, went hmmm... it seems highly improbable to me that it would work, but I'd have to do a lot of research to say anything other than "it seems highly improbably to me that it would work."

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Strangely enough, it seemed highly probable to me that a system like this one could work.

Worked in Alaska, after all. There are other examples worldwide of such systems in use.

Cycloptichorn

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Cycloptichorn wrote:

Strangely enough, it seemed highly probable to me that a system like this one could work.

Worked in Alaska, after all. There are other examples worldwide of such systems in use.

Cycloptichorn

Despite superficial similarities, Iraq is not Alaska.

A plan like this might work in the future, but as a means of "pacifying" Iraq and turning it into a neo-conservative vision of an "ownership society" in the near run, it is wildly unrealistic.

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What exactly about it would you say is 'wildly unrealistic?'

Certainly the oil is there to be sold. The revenue stream is already coming in. We have the ability to basically force the Iraqis to do this if we wish it. We have the funding and ability to subsidize the program for a few years if need be.

It would give people a reason to support the new Iraqi gov't; hundreds of dollars a year to a populace whose average income is less than $1500 American is no joke.

Cycloptichorn

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Cycloptichorn wrote:

What exactly about it would you say is 'wildly unrealistic?'

Certainly the oil is there to be sold. The revenue stream is already coming in. We have the ability to basically force the Iraqis to do this if we wish it. We have the funding and ability to subsidize the program for a few years if need be.

It would give people a reason to support the new Iraqi gov't; hundreds of dollars a year to a populace whose average income is less than $1500 American is no joke.

Cycloptichorn

As Joe said, a common fund doesn't jive well with the "ownership society" envisioned by this administration. Besides political barriers, my primary concern would be that such a system would necessarily include extensive public regulation and perhaps public ownership of Iraqi oil. This isn't bad per se for people that don't fully favor free markets, but ceding a high degree of control to the Iraqi state could generate severe power problems, not to mention the efficiency problems that often accompany public ownership.

In particular, state control of Iraqi oil would make Iraqis dependent upon a paternalistic state; a situation that mirrors all of the bad aspects of the previous food-for-oil program. Handing such power to the Iraqi state could easily foster totalitarianism, as everyone would rely on the central state for a large part of their wealth. On the other hand, if we administer this program from the outside -- effectively appropriating control of Iraqi oil from the Iraqis -- it creates serious sovereignty problems, and it would thus likely raise the ire of nationalists across the entire middle east. Alaska has no such problems.

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Cycloptichorn wrote:

What exactly about it would you say is 'wildly unrealistic?'

If the object here is to give away a lot of money to the Iraqi people, then you're right: we can do that now, without any problems. Indeed, we wouldn't even need to tap into the Iraqi oil revenues: we could simply withdraw all of our troops and send a monthly $100 check, drawn on the US Treasury, to every man, woman, and child in Iraq. Given that the costs of the war are approaching $9 billion per month, that solution would be both cheaper and quicker than the current policy.*

If, on the other hand, the object of this plan is to end the insurgency and start Iraq on the road to a western-style democracy, then it is simply throwing money at a problem that is not amenable to a monetary solution. The insurgents may be fighting for a variety of reasons, but they aren't fighting for money. Instituting a plan to divide oil profits among the people would do little to address the fundamental reasons for Iraqi discontent.

*Iraq has a population of around 25 million. At $100 per person per month, the cost to the US government would be a paltry $2.5 billion, and thus would net a savings to the taxpayer of nearly $6.5 billion per month.

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Quote:

If, on the other hand, the object of this plan is to end the insurgency and start Iraq on the road to a western-style democracy, then it is simply throwing money at a problem that is not amenable to a monetary solution. The insurgents may be fighting for a variety of reasons, but they aren't fighting for money. Instituting a plan to divide oil profits among the people would do little to address the fundamental reasons for Iraqi discontent.

This is only half of the solution, of course.

The object is not to get currently fighting insurgents to lay down their arms (though that would be nice); it is to turn the Iraqi people AGAINST the insurgents by giving them a show of good faith.

It's not just about the money, people. There are many, many Iraqis and ME citizens who are convinced that the real reason we are there is to control one of the largest oil supplies in the world, and who can blame them? This would go a long way to dispelling that notion in the minds of the Iraqi people.

My real questions are: where is the money going to right now? Where is the oil money going to in the future? How does the current system benefit the Iraqi people in any way?

Cycloptichorn

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The objective of the "Liquid Freedom" plan is practical acknowledgement of what is already claimed to be true: Iraqi oil revenues belong to the Iraqi people. It is also quite consistent with the original Plan Phase IV-"The Day After" (see General Tommy Frank's Book, "American Soldier", Chapter 10, "The Plan", pages 419-425).

I like this idea.

I recommend that each Iraqi voter in January be given one share of stock of NOCOI (i.e., National Oil Company of Iraq) by the Iraqi Provisional Government. I further recommend that until the insurgency is declared adequately controlled, the US loan NOCOI the money required to pay initial dividends, say $10 per month per share. Assuming 13 million Iraqi voters, that loan would grow at the rate of $1.56 billion per year. After the insurgency is declared adequately controlled, the NOCOI should be required to repay the loan over a 10 year period at the current 10-Year Treasury Note interest rate. Also, after the insurgency is declared adequately controlled, the individual NOCOI shares should be freely tradeable in an Iraqi or other stock market.

After the initial costs of reconstructing Iraqi infra structure are paid by NOCOI, I bet the value of NOCOI shares will increase rapidly to something like 100 times their initial annual dividend rate or $12,000. Also I bet the dividend will probably triple its initial value from $120 per year to $360 per year.

This doesn't put the Iraqi people on the dole like welfare checks do and thereby stifle or destroy incentives for them to improve themselves by virtue of their own efforts. This allows the Iraqi people to profit directly from work they do for operating, maintaining, or improving NOCOI; or for improving Iraqi infrastructure. Because NOCOI is already theoretically owned by the Iraqi people, this proposal simply recognizes that fact practically and not merely by platitude.

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