After communism and capitalism, there is asterism.

Saturday, April 01, 2006

Follow the Money...

...was the advice 'Deep Throat' gave journalist Bob Woodward who broke the Watergate scandal. Michael Schwartz in Tom Dispatch does just that to explain the Iraqi insurgency. His conclusion is that the bulk insurgency is motivated by economics rather than religion or support for the old regime. This stemmed from a complete failure of the local economy because of a combination of factors. The obvious one was the shut down of the army and the closure of the state-owned factories that suddenly created a huge amount of unemployed who were driven to join or support the insurgency.

Not so obvious was the opening of the Iraqi markets to unrestricted imports and foreign competition. This allowed foreign companies to use their own reserves to undercut any local competition and apply for contracts or sell products at a loss just to capture the market. This is a common strategy in world markets. But in Iraq, after a crushing war, the result was devastating to the local economy. These companies had little interest in using Iraqi labour or expertise and Iraqi companies were, apart from a few exceptions, in no position to compete.

As soon as the situation started to turn pear-shaped in Iraq these companies simply pulled out leaving a void behind them. And driving a new wave of Iraqis towards the insurgency. Bottom line is, if you want to sort out Iraq, you need to sort out the economy first. So what are the various parties around the current government offering?

Well Jaafari gave a nice summary of the Shia parties' economics in his Washington Post article:
"We must encourage entrepreneurship and enterprise, while establishing adequate safety nets for the less privileged. Economic rehabilitation also requires some tough and unpopular changes, such as the reduction in government subsidies for gasoline that my administration began a few months ago."

In other words just the same policy that has already failed so spectacularly.

How about the pro-American economists? Sabri Zire Al-Saadi writes in the US Naval School's journal Strategic Insights his vision for an economic strategy. he gives a very good analysis of what went wrong in the past but falls flat talking about the future. He suggests:
"a careful compromise must be reached between high dependence on oil revenues, and the need to increase the contribution of the private sector to the GDP."

What private sector? Would that be the same private sector that fleeced Iraq for all it was worth and then buggered off when the money ran out. Or was it the private sector that speculates on the currency and repatriates all its profits abroad? Again, the message is 'same old disaster, but lets try to slow it down this time'.

Why on earth do all these people think privatization is a cure-all? It really does not take a PhD in Economics to see the mess it has created. Privatization failed in Russia, it failed in Romania and the only place it can be argued to have worked was in East Germany. And only then because they had one of Europe's largest economies to bail them out.

Unfortunately, the only people that have been shown to have at least a credible economic policy were the Baathists. They managed to rebuild Iraq in 1991 and create a sustainable economy that survived the severest sanctions regime of modern times.

Frankly, I do not want to return to those times because it will only drive Iraq back into the equally destructive cycle of dictatorship and war. But what alternative are the Americans and the current people in the Iraqi government offering the people?


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