Download democracy or economic liberty: which matters more for iraq

DEMOCRACY OR ECONOMIC LIBERTY: WHICH MATTERS
MORE FOR IRAQ?
ADAM LOWTHER
THE AIR FORCE RESEARCH INSTITUTE
MAXWELL AIR FORCE BASE
The great struggles of the twentieth century between liberty and totalitarianism ended with a decisive
victory for the forces of freedom—and a single sustainable model for national success: freedom,
democracy, and free enterprise. —George W. Bush--The National Security Strategy of the United States of
America (2002)
Introduction
In testimony before the House Armed Services Committee, then Deputy Secretary
of Defense Paul Wolfowitz offered the Bush administration’s view of the situation in Iraq
emphasizing progress toward democratization.1 Little, however, was said of efforts to
transform the economy of Saddam Hussein into a flourishing free market. While the
National Security Strategy of the United States of America (2002) places a strong
emphasis on free markets as a method of bringing peace and prosperity to areas of the
globe where neither exists, progress in Iraq has been decidedly slow as the Bush
administration and the democratically-elected Iraqi government continue to focus on
rapid democratization.2
In the three years that have passed since former-Deputy Secretary Wolfowitz
testified before Congress, Iraq has experienced dynamic change. A brief timeline of
Iraq’s move toward democracy illustrates these events:
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July 14, 2003—The Iraqi Interim Council meets for the first time.
March 1, 2004—The Interim Council agrees upon an Interim Constitution.
June 28, 2004—Iyad Allawi become Prime Minster of a sovereign Iraq.
January 30, 2005—Iraqis vote for a Transitional National Assembly.
April 2005—Parliament selects Jalal Talabani as President.
October 15, 2005—Iraqis vote for new Constitution.
April 22, 2006—Iraqis elect Jalal Talabani as President. Nouri al-Malaki
becomes Prime Minister.
While Iraqi progress toward a free, fair, and functioning democracy is impressive, similar
progress toward the establishment of a free market economy, which respects private
property rights, limits government spending, reduces taxes, and returns decision-making
1
Paul Wolfowitz, House Armed Services Committee (June 22, 2004).
Donald Rumsfeld, Remarks to the International Institute for Strategic Studies, Singapore (June
5, 2004) http://www.defenselink.mil/ speeches/speech.aspx?speechid=128
2
13
to producers and consumers, has not been made.
This article focuses on a single question. Should the United States have focused
on the democratization of Iraq prior to economic liberalization and the development of a
free market economy? In order to answer this question democratic peace theory, which
was a motivating factor for the invasion of Iraq, is examined. It is then compared to the
economic liberalization literature, which suggests a, relatively, liberal economy is a
necessary precursor to liberal democracy, if democracy it is to be sustainable.3 A
theoretical model of economic and political liberalization is then developed, which
suggests that economic liberalization is initiated prior to political liberalization in
authoritarian regimes when ill-liberal economic policies threaten regime stability.
Further, it is suggested that there is a tit for tat relationship between economic and
political liberalization. The article concludes with an analysis of American policy in Iraq
and suggests that placing an emphasis on democratization rather than economic
liberalization was a fundamental error.
Market Intervention
Since Adam Smith formalized classical economics in The Wealth of Nations
(1776), economists have viewed economic liberty as an antecedent to political liberty.4
The Austrian school suggests that markets are most efficient when they are unfettered by
government intervention. Free markets produce efficient outcomes, which lead to the
highest possible levels of economic growth. Since the satisfaction of basic needs such as
food, shelter, and clothing is a function of economic activity, economic liberty must
necessarily precede the satisfaction of higher order needs, like political liberty. Mazlow’s
hierarchy of needs confirms this proposition and places political needs (speech, assembly,
etc…) on a higher order. Simply stated, individuals will seek to achieve an optimal
economic outcome—the satisfaction of material needs—prior to seeking the fulfillment
of other (political) needs.5 For this reason, political liberty becomes important when
governments intervene in the affairs of rational self-interested individuals freely engaging
in economic activities. The greater is the intervention (taxation, regulation, redistribution)
the greater is the demand for political liberty by the individual.
The economy of Iraq under Saddam Hussein is an excellent example of the
inefficiencies that are introduced when high levels of intervention preclude the
3
Some scholars point to India as an example of a democracy without a liberal economy in an effort to
discredit the view that free markets are necessary for democratic sustainability. Recent scholarship
questions this assertion pointing out that India’s high levels of corruption make the country less democratic
than suggested and certainly not a liberal democracy.
4
The understanding of liberty applied here is consistent with that of Thomas Jefferson who said, "Liberty
consists in the freedom to do everything which injures no one else; hence the exercise of the natural rights
of each man has no limits except those which assure to the other members of the society the enjoyment of
the same rights. These limits can only be determined by law." Thomas Jefferson and Marquis de Lafayette,
Declaration of the Rights of Man and Citizen (1789) https://www.college.columbia.edu/core/
students/cc/settexts/nafman89.pdf
5
F.A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1960) 11-21.
14
development of an effective market mechanism, which, in a free market, efficiently
determines prices and provides consumers the information needed to make rational
economic decisions. Not only did the heavily controlled economy of Saddam’s Iraq
ensure that average Iraqis were unable to efficiently allocate resources, but the rampant
corruption, heavy regulation, high subsidies, and price controls made it difficult for the
Iraqi economy to prosper.6
The ill effects of market distortions are not reserved to economic circumstances
alone. As analysis of political conditions in the former East Bloc demonstrate, poor
economic conditions led to unrest, which in turn led to greater limitations on political
liberty.7 Similar circumstances existed in Iraq as Saddam’s policies led to a declining
economy, which, because of a feared coup, led Saddam to increasingly use economic
regulation, subsidies, and other policies to reward loyal groups and create a system of
dependency for all Iraqis.8 Iraq’s economy was designed to maximize the regime’s
survival.9 This left the people of Iraq among the poorest in the world. Data on the Iraqi
economy is, however, very limited. Leading studies regularly produced by the United
Nations, World Bank, and Fraser Institute all fail to provide data for Iraq.10 This is due to
the highly secretive and closed system run by Saddam Hussein. Thus, there is no accurate
basis on which we can compare the Iraqi economy, only anecdotal accounts of the inner
workings of the Iraqi regime exist.
The Democratic Peace
In the immediate aftermath of the 9/11 attacks, the question of Iraq rose to
prominence for the Bush administration. The administration began to develop a plan for
the removal of Saddam Hussein from power. The rationale for regime change was based
on morality, American security, and one of political science’s most successful theories,
democratic peace theory. The moral argument was straight forward: Saddam Hussein is
an evil man who kills his own people.11 Equally simple was the security argument;
Saddam possesses weapons of mass destruction, which he has used, and supports
terrorists who hate the United States and her allies. When it came to the democratic
peace, Iraq was to be the first liberal democracy in the Middle East. After
6
The weaknesses seen in the Iraqi economy are predicated on the flaws of socialist economics described
in Ludwig von Mises, “Die Wirtschaftsrechnung im Sozialistischen Gemeinwesen,” Archiv fur
Solialwissenschaften 47 translated in F. A. Hayek, ed., Collectivist Economic Planning (London:
Routledge, 1935) 87-130.
7
Hayek, The Road to Serfdom, 32-40.
8
Christopher Foote, et. al., “Economic Policy and Prospects in Iraq,” Public Policy Discussion
Papers (Boston: Federal Reserve Bank, 2004).
9
Georges Sada, Saddam’s Secrets (Brentwood, TN: Integrity, 2006) 290.
10
James Gwartney and Robert Lawson, Economic Freedom of the World (Vancouver: Fraser
Institute, 2002), World Development Indicators (Washington, D.C.: World Bank, 2003), Doing Business in
2004 (Washington, D.C.: World Bank, 2004), Human Development Report (New York: Oxford University
Press, 2003).
11
George W. Bush, President Bush Outlines Iraq Threat (Cincinnati: Cincinnati Museum Center,
2002).
15
democratization, Iraq would then positively influence other, less liberal, Middle East
regimes. By invading Iraq in March 2003 the Bush administration clearly demonstrated
its willingness to fight for the democratization of Iraq.
While the veracity of the moral and security reasons for invading Iraq will remain
hotly debated, support for the democratic peace is substantial. In the wake of the Soviet
Union’s collapse, interest in what is now called democratic peace theory expanded rather
rapidly. Scholars sought to offer a useful paradigm for a post-Cold War world. With
democracy proving victorious over Soviet-communism, it was only natural that the
spread of democracy should be the focus of a new era in global politics. In the almost 200
year period between Immanuel Kant’s (1795) initial conception of the principles that are
at the heart of the democratic peace and the collapse of the Soviet Union, scholarly work
on the subject had largely been stifled, with the immediate post-World War I period the
exception. Statistical analysis of the effect of democracy was first conducted little more
than four decades ago.12 In the years that followed, little additional research was
conducted.13
It was not until the Soviet Union began to crumble in the late 1980s that
scholarship on the democratic peace began to rapidly increase. The flux of scholarship
examined a number of variables such as conflicts less than war14 and the relationship
between democracy and peacefulness.15 Additional research examined the impact of
economic interdependence and the level of democracy within dyads.16
Often described as the closest thing political science has to an empirical theory,
much of the debate over the validity of the democratic peace is related to the definition of
democracy used in various studies. Some define a democracy as: a nation that holds
periodic elections, has competitive political parties, and allows at least 10% of the
population to vote.17 Others define democracy as: a liberal regime with a market
economy, whose citizens have acknowledged rights, representative government, and
where at least 30% of adult males are eligible to vote.18 Later studies continue with this
tendency to require increasingly larger percentages of the adult population have the right
12
Dean Babst, “Elective Government—A Force for Peace,” The Wisconsin Sociologist (1964)
Vol. 3 No. 1, 9-14 and Dean Babst, “A Force for Peace,” Industrial Research (April, 1972).
13
Melvin Small and David Singer, “The War Proneness of Democratic Regimes, 1816-1965,”
Jerusalem Journal of International Relations (1976) Vol. 1, 50-69 and Michael Doyle, “Kant, Liberal
Legacies, and Foreign Affairs,” Philosophy and Public Affairs (1983) Vol. 12 No. 3, 205-235.
14
The Correlates of War Project defines war as a conflict with 1,000 or more combat deaths. See
Zeev Maoz and Nasrin Abdolali, “Regime Types and International Conflict, 1816-1976,” Journal of
Conflict Resolution (1989) Vol. 33 No. 1, 3-35.
15
Stuart Bremer, “Dangerous Dyads: Conditions Affecting the Likelihood of Interstate War,
1816-1965,” The Journal of Conflict Resolution (1992) Vol. 36 No. 2, 309-341 and Zeev Maoz and Bruce
Russett, “Normative and Structural Causes of Democratic Peace,” The American Political Science Review
(1993) Vol. 87 No. 3, 624-638.
16
John Oneal and James Lee Ray, “New Tests of the Democratic Peace: Controlling for
Economic Interdependence, 1950-85,” Political Research Quarterly (1997) Vol. 50 No. 4, 751-775.
17
Small and Singer, 1976.
18
Doyle, 1983.
16
to vote.19 For realists who challenge the validity of the democratic peace, they point to
wars between democracies as examples of the theory’s weakness.20 Advocates of the
democratic peace argue that the conflicts cited by critics were not between two
democracies, but between one democracy and one non-democracy or two nondemocracies.
More recent research suggests that it is the least democratic state in a dyad that
determines the probability of conflict.21 The higher is the level of democracy in both
states, the less likely is the probability of conflict, particularly with other democracies.
Explanations for the democratic peace often focus on democratic norms and institutions.22
Others, however, suggest that it is free markets that precede democracy and create the
norms that explain the democratic peace.23 While the democratic peace continues to build
a wealth of scholarly support, economists have focused their attention on the need for
developing nations to focus on building strong free market economies.
The impact of democratic peace theory is evident in the Bush administration’s
approach to Iraq. While some scholars certainly disagree, the invasion of Iraq was, in
part, premised on the notion that a democratic Iraq would further American efforts to
spread democracy throughout the Middle East. A desire to spread democracy is, itself,
support for the tenants of the democratic peace on the part of the Administration. As
President Bush said, “And the reason why I’m so strong on democracy is democracies
don’t go to war with each other. And the reason why is the people of most societies don’t
like war, and they understand what war means…I’ve got great faith in democracies to
promote peace. And that is why I’m such a strong believer that the way forward in the
Middle East, the broader Middle East, is to promote democracy.”24 Where many
advocates of the democratic peace may disagree with the Bush administration is in the
utility of using force to impose democracy.
Free Markets as a Criterion for Democratic Success
Among the earliest and most influential studies of democratization is that of
Lipset (1959) which suggests that the sustainability of new democracies is dependent
19
James Lee Ray, Democracy and International Conflict (Columbia, SC: University of South
Carolina Press, 1995) and Rudolph Rummel, Power Kills: Democracy as a method of Non-violence (New
York: Transaction, 1997).
20
David Spiro, “Give Democratic Peace a Chance? The Insignificance of the Democratic Peace,”
International Security (1994) Vol. 19 No. 2, 50-86.
21
James Lee Ray, “A Lakatosian View of the Democratic Peace Research Program,” in Colin
and Miriam Elman, Progress in International Relations Theory (Boston: MIT Press, 2003).
22
Spencer Weart, Never at War (New Haven, CT: Yale University Press, 1998) and Christopher
Gelpi and Michael Griesdorf, “Winners or Losers? Democracies in International Crises, 1918-1994,”
American Political Science Review (2001) Vol. 95 No. 3, 633-647.
23
Michael Mousseau, “Market Prosperity, Democratic Consolidation, and Democratic Peace,”
Journal of Conflict Resolution (2000) Vol. 44 No. 4, 472-507.
24
George W. Bush, “President and Prime Minister Blair Discussed Iraq, Middle East,”
(November 12, 2004) http://www.whitehouse.gov/news/releases/2004/11/20041112-5.html.
17
upon the level of economic development. Lipset concludes that industrialization leads to
urbanization, which in turn increases individual wealth and the education level of
subsequent generations. The size of the "moderate-middle class" increases and improves
the chances for sustainable democracy. Later work finds that the stability of democracy is
strongly correlated to the real gross domestic product, with positive spill-over impacting
a number of additional variables.25
Barro (1991) finds support for convergence between economic growth and
democracy with a robust correlation between GDP per capita and school enrollment. He
also finds that states with higher levels of human capital also have lower fertility rates
and higher rates of investment. And, as may be expected, states with lower growth rates
have greater levels of political instability. These findings are consistent with more recent
work which confirms Barro’s findings.26
In one study, economic growth and government consumption as a share of GDP
were compared.27 The study finds a robust (negative) correlation between economic
growth and government consumption. A ten percent increase in government consumption
led to a one percent decrease in economic growth. Among the 23 OECD states in the
study, governments consumed 27% of GDP in 1960, but by 1996, government
consumption rose to 48% of GDP. These results explain the precipitous decline in
economic growth across Europe over the past four decades. They also lend support to
work, which suggests that, when it comes to government spending, less is more. As Barro
(1991) and Gwartney (1998) illustrate, the level of market distortion generated by
government consumption plays a major role in reducing economic growth, when
government consumption is high.
Ali and Crain (2002) look closely at the ill effects of market distortion. They
distinguish the growth effects attributable to political liberty and those attributable to
economic liberty. They demonstrate a robust relationship between economic liberty and
economic growth. These results confirm previous work.28 Interestingly, Political liberty
and economic growth were not significantly correlated. Based on their results Ali and
Crain conclude that it is economic rather than political liberty that most influences
economic growth. They also conclude that most important among growth-promoting
policies are strong private property rights, low levels of corruption, and a free financial
system.
Where Ali and Crain and Easton and Walker do not focus their attention is on the
role regime type may play in promoting or inhibiting growth. Helliwell (1994) examines
the linkages between regime type and economic growth. He finds that there is a
25
Robert Barro, “Economic Growth in a Cross-Section of Countries,” Quarterly Journal of
Economics (1991) Vol. 106 No. 2, 407-443.
26
William Anderson, “Manipulating the Market,” The Free Market (2002) Vol. 20 No. 4, 1-3.
27
James Gwartney, et. al., “The Scope of Government and the Wealth of Nations,” The Cato
Journal (1998) Vol. 18 No. 3, 163-190.
28
Stephen Easton and Michael Walker, “Income, Growth and Economic Freedom,” American
Economic Review (1997) Vol. 87 No. 2, 328-332.
18
statistically significant correlation between GDP per capita and democracy. The positive
relationship between economic growth and democracy is not well established as earlier
work suggests that lower economic growth rates in democratic states are the result of
high levels of taxation and redistribution.29
The work of Helliwell has been followed by more sophisticated efforts to
understand the relationship between economic growth and regime type. Le Blang (1997)
finds that democracy scores are positively correlated with economic growth. He also
finds that as democracy scores increase, economic growth increases. What is uncertain,
however, is the causal relationship between democracy and economic growth.
As the data above suggests, free markets and the broader economic liberties that
accompany a free market economy are strongly correlated to economic prosperity. A
brief look at the 2008 Index of Economic Freedom illustrates this point. Those countries
with the highest levels of economic liberty are also among the wealthiest. Economic
liberty is, however, relative. While many Americans consider Sweden a bastion of
democratic socialism, it ranks 27th out of 162 countries in economic liberty. Recent
reforms in many Middle East states have pushed formerly ill-liberal economic regimes
into the top tier of the world’s free market economies. Interestingly, Bahrain now ranks
above Taiwan in the Index of Economic Freedom, while it continues to remain a nondemocracy.
Where the Democratic Peace Theorists and Bush Administration Went Wrong: A
General Theory of the Interaction for Economic and Political Freedom
Few scholars will argue that democracy is less-desirable than its competitors. As
Winston Churchill once remarked, “Democracy is the worst form of government, except
for all those other forms that have been tried from time to time.” And, it may be true that
democracies are less likely to fight one another. It has also been well established that
democracy is more or less sustainable based on the economic prosperity of a state, with
poorer countries less able to maintain fledgling democracy. What is not well established
is the order in which democracy and free markets should appear, if economic and
political liberalization are to be sustained. In the pages that follow a theoretical design
that is descriptive of the relationship between economic and political liberalization in
many, but certainly not all, authoritarian regimes is offered. Based on the theory’s design,
it is then suggested that the Bush administration prematurely focused its efforts on
building democracy in Iraq, when, instead, it should have focused on building a strong
and durable free market economy, before turning to political liberalization. It is important
to note, the theoretical model provided here is not descriptive of all transitions from
authoritarianism to liberal regime. Instead, it offers a Lakatosian approach to theory
creation. Each state, including Iraq, will deviate from the model in some way. This does
not, however, invalidate the general theory.
29
L. Sirowy and A. Inkeles, “The Effects of Democracy on Economic Growth and Inequality: A Review,”
Studies in Comparative International Development (1990) Vol. 25 No. 1, 126-157.
19
A Theory of Interaction between Economic and Political Liberalization, in
Authoritarian Regimes
Since the end of World War II there has been a substantial increase in the number
of states with free market economies and democratic political systems. There are two
significant reasons for the rapid expansion in the number of free market democracies:
1) the significant increase in the number of sovereign states due to decolonization 2) the
move toward free market democracy by the newly sovereign states of the Former Soviet
Union. In a number of states in Latin America and Asia, the move from authoritarianism
toward democracy and the free market was fostered by internal decline rather than an
exogenous shock, such as the collapse of empire, communism, or an American-led
invasion. It is the transitions of these Asian and Latin American states that serve as the
basis of the theoretical model offered here.
The Authoritarian’s Bargain
Authoritarian regimes frequently come to power through the “authoritarian’s
bargain” in which the authoritarian leader(s) promise economic prosperity, if the citizenry
will acquiesce to limitations on individual liberty. Since authoritarians often come to
power during a period of instability, the “authoritarian’s bargain” can be an attractive
option. The seeds of failure are, however, sewn in the new regime’s limitations on
economic liberty. Absent economic conditions where: 1) the size of government is
limited 2) property rights are protected 3) there is sound monetary policy 4) there is a
liberal trade policy 5) government intervention and regulation of business is limited;
promised economic prosperity does not materialize.30 Poor economic performance serves
to undermine the “authoritarian’s bargain” as the citizenry is increasingly unwilling to
accept limitations on economic and political liberty. The declining position in which the
regime finds itself creates an “authoritarian’s dilemma” which forces the regime to alter
its policies.
The Authoritarian’s Crisis
Assuming the regime seeks to remain in power, reform becomes a necessity.
Since the authoritarian’s bargain promises economic prosperity, reform begins with the
regime’s liberalization of the economy in an effort to spur economic growth. Political
liberalization, however, does not occur because the regime views political reform in a
period of instability as a threat to the regime’s ability to maintain power. As limited
economic liberalization begins to have a positive impact on economic performance,
further reform is implemented. Confidence in market oriented reforms boost the regime’s
domestic support, which allows the regime to contemplate limited political liberalization.
Continued economic growth and demands for political reform ultimately provide the
30
Greenwood points to five criteria for successful political liberalization and the transition to democracy.
These include the establishment of the rule of law, a relatively uncorrupt bureaucracy and independent
judiciary, private ownership of property, free markets, and a stable monetary system. John G. Greenwood,
“The Preconditions for Eastern Europe’s Economic Recovery,” Cato Policy Report (July 1990) Vol. 12, 112.
20
regime the incentives needed to move forward with initial political liberalization. If the
period following the implementation of political reform is peaceful and the regime does
not perceive its position as weakened, a “tit for tat” process begins whereby continued
economic liberalization is followed by further political liberalization.
The Authoritarian’s Transformation
The process of liberalization continues--although the potential for a reverse
remains--until a free market economy develops and the regime’s control over society
becomes tenuous.31 Demands for democratization increase over time as the pattern of
economic and political liberalization continue and expectations rise. With the regime
voluntarily relinquishing control over economic and political life, regime leaders are
unwilling to reverse successful policies in order to remain in power. Thus, after a lengthy
period of liberalization, elections are held and the political party associated with the
regime likely loses, although the regime’s liberal policies are continued by the newly
elected government. With the transition to democracy complete, a period of relative
freedom, stability, and prosperity begins.
The American Led Invasion of Iraq and Post-War Strategy
The American invasion of Iraq punctuates the theoretical model suggested above
because the model does not include the exogenous shock of foreign invasion and the
imposition of democracy. Altering the cause for reform from one that is endogenous, as
the model suggests, to one that is exogenous does not alter the relevance of the model.
The description of the relationship between economic and political liberalization remains
relevant because it suggests that the post-invasion approach of the United States, which
focused on rapid democratization, was premature. Absent a free market economy in
which annual Iraqi gross domestic product (GDP) per capita (purchasing power parity
(PPP) adjusted) is at least $2,000-3,000; Iraqi democracy is likely sustainable for a short
time.32 For democracy to become immortal, annual GDP per capita must reach at least
$6000. Currently, Iraqi per capita GDP is estimated at $3,600, which may be a high
estimate.33 It is also important to note that American investment is largely responsible for
Iraq’s current numbers and may decline as US spending in Iraq is reduced.
The American imposition of democracy on the Iraqi people less than 24 months
after the invasion violates the historical pattern of development in which non-
31
Peter Bauer does not, however, share the view that economic and political liberty are
interdependent. Instead, Bauer believes democracy is neither necessary nor sufficient for a market
economy. He does, however, note that markets tend to benefit from democracy. Peter, Bauer, “Transition
in the East: Democracy and Market,” Cato Policy Report (March 1992) Vol. 14: 1-15.
32
Minxin Pei, “Economic Institutions, Democracy, and Development,” World Bank Conference on
Democracy, Market Economy, and Development (February 1999) http://www.carnegieendowment.org/
publications/index.cfm?fa=view&id=66&prog=zgp&proj=zdrl
33
“Field Listing—GDP—Per Capita—(PPP),” CIA World Fact Book (2008) https://www.cia.gov/library/
publications/ the-world-factbook/fields/2004.html
21
democracies develop liberal economies prior to transitioning to democracy.34 Before the
American-led invasion, Iraq’s economy was among the least liberal in the world. Thus,
the precondition of a liberal and developing economy was not present when free and fair
elections were held January 30, 2005. The Iraqi parliament’s current difficulty passing a
new “oil law,” which will determine how oil revenue is distributed, is one example of the
new government’s inability to resolve a fundamental economic question within the
context of competitive politics. In Iraq, this problem is exacerbated by the fact that a
Sunni minority previously dominated the Shia and Kurd majority, who now seek
equality, recompense, and retribution. A willingness on the part of newly elected Shia
and Kurd leaders to accede to Sunni economic demands is unlikely making it difficult to
implement needed reform of Iraq’s economy.
Economic conditions are made more difficult by the uncertain security situation,
which is itself made worse by Iraq’s high unemployment rate. Young Iraqi men who
could be gainfully employed in better economic conditions are enticed into the
insurgency because of the desperately needed income it provides. Thus, insecurity
exacerbates poor economic performance lending to current instability and violence. In a
country where 90% of GDP takes the form of government spending and corruption is
endemic, a need for economic liberalization is unquestionable.35 As one study suggests:
Today, there is a “chicken-and-egg” relationship between jobs and
security. Reductions in crime and violence would undoubtedly improve
the employment climate, but these improvements are difficult with a poor
job market. One frustrated job seeker from Sadr City (a poor,
predominantly Shia area of Baghdad) put it this way: “I haven’t been
working at all the last two weeks. If I stay like this for another week my
family will starve, and if someone comes along with $50 and asks me to
toss a grenade at Americans, I’ll do it with pleasure.”36
The United States has no small share of the blame for the current situation in Iraq.
In the immediate aftermath of the American-led invasion, Ambassador L. Paul Bremer
was appointed Presidential Envoy to Iraq May 6, 2003. As the Administrator of the
Coalition Provisional Authority (CPA), Ambassador Bremer’s de-Baathification program
and his dismissal of the Iraqi Army left many thousands of Iraqi men unemployed.
Within months, some of these same men became members of the numerous insurgent
groups.37 Bremer did, however, focus the CPA’s effort on economic liberalization and the
development of a free market economy. To his credit, Ambassador Bremer understood
that Iraq’s poor economic performance was of greater concern than a quick transition to
democracy. In the first year of occupation an opportunity to reform the Iraqi economy
34
Adam Przeworski and Fernando Limongi, “Modernization: Theories and Facts,” World Politics (1997)
Vol. 49 No. 2, 155-183.
35
Kim Holmes, et. al., 2008 Index of Economic Freedom (Heritage Foundation: Washington, D.C., 2008).
36
Foote, et. al., 14-15.
37
Sultan Barakat, “Post-Saddam Iraq: Deconstructing a Regime, Reconstructing a Nation,” Third World
Quarterly (2005) Vol. 26 No. 4, 571-591.
22
existed. With the Iraqi people still reeling from invasion, the time to implement drastic
change in a corrupt state-run economy was at hand. Painful economic reform would
blend with security and other concerns.
While the CPA and Ambassador Bremer enjoyed immense authority, the ability to
reform the Iraqi economy was constrained by a number of factors. Article 64 of the
Geneva Convention (1949) required the American-led multi-national force to provide
“orderly government” and security. Additionally, the CPA was slow to act because there
was a concern that a democratically elected Iraqi government may reverse economic
liberalization. Thus, Ambassador Bremer and the CPA sought to work with potential
Iraqi leaders in an effort to garner their support for reform. Iraq’s leaders did not
necessarily view the implementation of market oriented reforms as an immediate
concern. Shia and Kurd leaders were long denied economic prosperity, which made them
reluctant to create a free market economy now that power is finally in their hands. Lastly,
implementing economic reform was a difficult logistical task given the poor security
situation that developed by the fall of 2003. As Foote notes:
Almost every workday, advisors donned their helmets and flak jackets for
trips to the Central Bank or the Ministry of Finance, riding through
Baghdad’s crowded streets escorted by Army humvees. But advisors
could not take unescorted trips outside the heavily protected Green Zone
to talk with shopkeepers about regulation, with workers of state-owned
enterprises about potential privatization schemes, or with consumers about
potential reforms to the food distribution system. Combined with a lack of
data from Iraq’s official statistical agencies, advisors often felt they were
navigating the Iraqi economy virtually blind.38
When violence began to dramatically escalate in late 2003-2004, American policy
shifted, focusing on rapidly turning over sovereignty to the Iraqis. It was believed that
with Iraq governed by Iraqis violence would dissipate. This meant the economic
liberalization and reform plan of the CPA and Ambassador Bremer became a casualty of
an early transition to democracy.39 With the insurgency remaining a destabilizing force
across Iraq and democratization seen as the solution, limited economic liberalization and
reform left Iraqis with an economy that is, in many ways, very similar to the economy of
Saddam Hussein. Subsidies continue to consume a majority of the national government’s
budget as elected leaders in the new government view largess as the spoils of war. Within
Iraq and across the Arab world, privatization of state owned enterprises and other policies
promoting economic liberalization are seen as an attempt by the West to impose foreign
values on Iraq and an underhanded effort by Western oil companies to steal Iraqi oil.
Limited reform is, instead, suggested.40 Developing a large but honest and efficient Iraqi
bureaucracy is viewed by many as the appropriate course of action for Iraq.
38
Foote, et. al., 16.
Paul Bremer, My Year in Iraq: The Struggle to Build a Future Hope (Threshold Editions: New York,
2006) Ch 14.
40
Sabri Al-Saadi, “Iraq’s National Vision, Strategy, and Policies,” Strategic Insights (March 2006) Vol. 5
No. 3.
39
23
Given the American focus on democratization, economic liberalization and
reform continue to be a secondary or tertiary focus. When the Iraq Study Group
conducted its evaluation of the American effort in Iraq and released its report December
6, 2006, the focus remained on improving the military and political approach. Of the 79
recommendations made precious few dealt with improving the Iraqi economy. The
opportunity to fundamentally reshape a faltering economy may have come and gone.
Without strong encouragement from the United States, there is little incentive for the
current Iraqi government to take anything but small steps toward reform. Once Iraq’s oil
industry is fully functional there will be even less incentive to move toward the free
market. Oil revenue will fill Iraqi coffers and provide elected officials a false sense of
stability as they use oil revenue to satisfy constituent demands.
It is worth noting that the rise of the modern jihadist movement is, in part, a
response to the failure of many oil-rich states to provide economic prosperity to their
citizenry. Mohammed bin Rashid Al Maktoum, ruler of Dubai, is at the forefront of
recent economic reform efforts in some Middle East states where forward looking rulers
are seeking to ameliorate the threat posed by Islamic fundamentalists and, at the same
time, prepare for life after oil. Diversification of Dubai’s economy through free market
reforms and the use of oil revenue for infrastructure development and education are
allowing Dubai to quickly become the financial capital of the Middle East. Iraq would be
wise to follow the path of Dubai. The promotion of free market policies in Iraq is
particularly important because Iraq’s oil revenue cannot provide the same economic
benefits to the more than 27,000,000 Iraqis that Dubai’s oil revenue can provide for its
240,000 citizens. Thus, American efforts to assist Iraq in developing a free market
economy is, without question, to the benefit of average Iraqis.
Perhaps the greatest success the United States is having is with its CivilianMilitary Provincial Reconstruction Teams (PRT), which are working to develop Iraqi
civil society, education, and economic opportunity. Currently, there are 25 PRTs
operating across Iraq engaging in such activities as: training local and provincial officials
in “good government” practices, providing micro-loans to Iraqi entrepreneurs,
strengthening the rule of law through legal training, and promoting ethnic and sectarian
reconciliation. Focusing on local development is the right approach. After decades of
watching the World Bank, International Monetary Fund, and other international lending
agencies provide national governments loans for wasteful and unneeded large-scale
projects, the US State Department and USAID are focusing their aid efforts where they
are proven to work, locally. PRTs have established five Small Business Development
Centers where Iraqis can apply for small business loans which usually range from
$1,000-5,000 and are repaid within 24 months. More than 50,000 micro-loans have been
made to approximately 19,000 Iraqi.41 In addition to small business loans PRTs have
established Community Stabilization Programs (CSP), which have trained 54,000 Iraqis
in construction and other trades. From a strategic perspective, providing training and
employment to unskilled Iraqi men is a positive step toward reducing the recruiting base
for the insurgency. The brutality with which insurgents exercised control over cities like
41
Iraq: PRTs (Washington, D.C.: US Agency for International Development, 2008) 8-13.
24
Ramadi and Fallujah also helped turn Iraqis against America’s adversaries.
The United States must be careful, however, not to reinforce the culture of
dependency that already exists in Iraq by replacing Saddam as the benefactor of the Iraqi
people. While American micro-lending and job training programs are a positive solution
in the short term, promoting free market reform of Iraq’s economy is the most viable long
term solution. Absent major reform the efforts of American PRTs may be in vain. Some
needed economic reforms include: strengthening private property rights, simplifying
investment law, reducing regulation, reducing corruption, and overhauling current labor
laws. These areas continue to be a hindrance to economic growth.42
Conclusion
More than 160,000 American troops currently occupy Iraq. With General David
Petraeus, co-author of the U.S. Army and Marine Corps’ new Counterinsurgency Field
Manual, serving as the Multi-National Force-Iraq (MNF-I) Commanding General since
February 10, 2007, American policy in Iraq has shifted to focusing on the provision of
security. With violence declining dramatically since the beginning of the “Surge” the
time and opportunity may be right to encourage Prime Minister Nouri al-Maliki to focus
on economic liberalization, which will lead to greater prosperity for average Iraqis. As
the Counterinsurgency Field Manual states:
While security is essential to setting the stage for overall progress, lasting
victory comes from a vibrant economy, political participation, and
restored hope. Particularly after security has been achieved, dollars and
ballots will have more important effects than bombs and bullets. This is a
time when “money is ammunition.” Depending on the state of the
insurgency, therefore, Soldiers and Marines should prepare to execute
many nonmilitary missions to support COIN efforts. Everyone has a role
in nation building, not just Department of State and civil affairs
personnel.43
What is uncertain is the significance of developing a liberal economy within the
context of broader counterinsurgency efforts. American Ambassador to Iraq, Ryan
Crocker, and the US Department of State are also playing a major role in attempting to
influence the political process in Iraq. If the failure to bring competing political factions
together on the passage of a new “oil law” is an example of American effectiveness,
General Petraeus and Ambassador Crocker may find it exceedingly difficult to encourage
economic liberalization. Immediate conditions are, however, good. A recent survey of
Iraqi business owners shows a distinctly optimistic attitude toward Iraq’s future.
Respondents did express reservations about the competence of the current government,
42
“2007 Investment Climate Statement--Iraq,” U.S. Department of State
http://www.state.gov/e/eeb/ifd/2007/80708.htm ( Accessed April 11, 2008)
43
David Petraeus and James Amos, Counterinsurgency Field Manual (Chicago: University of Chicago
Press) 49.
25
but a positive view of the future economic outlook of the country.44 Security gains
resulting from the surge and the goodwill of the Iraqi people are providing a window of
opportunity for the United States to press for further market reforms. It is an opportunity
that Ambassador Crocker should not miss. Iraqi opposition to free market reform is
expected. Iraq has no experience with a liberal economy. Therefore, it should come as no
surprise that many Iraqis fear the change and uncertainty that economic reform brings
with it.
American and Iraqi policy makers may be disappointed in their current strategy of
relying on federalism to assuage ethnic and sectarian tensions. Shifting control over
welfare, education, and other policy areas to provincial governments may satisfy the
Kurds and Shia in the short term, but may prove a bone of contention in the years ahead.
This is particularly true if one region is perceived to be more prosperous than another.
Much as the West Coast and Northeast of the United States continue to subsidize the
American South, Kurd and Shia regions may have to subsidize Sunni provinces over the
long term in order to ensure their support for the national government. A prosperous free
market economy that links success to individual effort, rather than tribal, ethnic, or
sectarian ties, is the only viable solution to problems that may arise from Iraqi federalism.
The wealthier are the Iraqi people, the less likely they are to view the national
government as biased toward any one group. Thus, thinking of Iraqis as Sunni, Shia, or
Kurd will prove less fruitful than thinking of Iraqis as individuals seeking to provide a
higher standard of living for themselves and their families.
In the long run Iraq will be the master of its own destiny. If, as the theoretical
model above suggests, economic liberalization should come before democratization, the
United States may have squandered its opportunity to oversee fundamental reform in one
of the least liberal economies in the world. Iraqi democracy is fragile and may prove
fleeting if the Iraqi economy does not meet the rise in expectation of the Iraqi people.
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