Accountable Strategies blog

A blog about accountability issues in the public, private, and nonprofit sectors

Have we ruined Iraq’s economy yet?

Posted by David Kassel on April 1, 2008

The Bush administration has transformed failed nation building into an artform.  

Here are some of the nation-building principles that the administration has used: 

First, you rush in to the situation with a pre-set ideology—e.g., free-trade policies and privatization are the answers to the country’s problems—that blinds you to all alternative options and objectives.  You do not listen to pleas for caution or reason, especially when it comes from people with knowledge and experience.  For that very reason, you are careful not to employ anyone with knowledge or experience.  Better to have people around you who share your ideology and your political party affiliation.

You do not make any effort to understand the history of the country you are rebuilding or the political, societal, or economic aspirations of its people.  Remember, not knowing anything about them allows you to know what’s best for them.  Moreover, you do not do advance planning for your nation-building project, and if there are any plans kicking around, you must do your best to keep everyone in the dark about them.

Other important principles include:  Do not give contracts to companies indigenous to the country you are rebuilding or to any firms with knowledge or experience in the areas in which you are seeking their help.  Give out contracts to politically connected friends and political contributors to the president.  Make sure those contracts are cost-plus, and do not attempt to monitor the companies’ performance or audit their use of the funding they get.

The results have been predictable.  As Naomi Klein has pointed out in her book, The Shock Doctrine: The Rise of Disaster Capitalism:

(L. Paul) Bremer was sent to Iraq to build a corporate utopia; instead, Iraq became a goulish dystopia where going to a simple business meeting could get you lynched, burned alive or beheaded.

A clear step-by-step account of how the U.S. has implemented these principles of failed nation building can be found in the book, Imperial Life in the Emerald City: Inside Iraq’s Green Zone, by Rajiv Chandrasekaran.

The key ideological assumption that Bremmer and his staff had regarding Iraq was that there was an imperative to impose free-market reforms and privatization in the country and to do it quickly. 

There were those who understood that there were problems with that approach.  One was Timothy Carney, who had been recruited to advise the Ministry of Industry.  Carney agreed it made no sense for the Iraqi government over the long run to own all the factories.  But “Carney figured the decision of what to sell, when to well, and for how much rested with the Iraqis.”

Glenn Corliss, a member of Carney’s team, was another who advocated caution.  He had worked for Fidelity and JPMorgan and had specialized in restructuring businesses.  As Chandrasekaran notes, Corliss worried that the sale of factories to private investors would result in layoffs.

That view wasn’t shared by the neocons in the Bush administration, including Bremer, who wanted fundamental economic restructuring of Iraqi society.   Had Bremmer, the neocons, their consultants etc. been aware of Iraqi history and its current society, they would have realized that unemployment was indeed a key concern throughout Iraq, even among those who were glad that Saddam had been toppled. 

Before Saddam fell, government jobs in Iraq had been plentiful and guaranteed people a salary for life.  While salaries were low, the cost of most goods and services was subsidized by the government.  Every family received monthly food rations from the state.  Education, even college, was free, and so was health care. 

Most Iraqis were particularly concerned about unemployment in the days after Saddam’s government was toppled.  They were also wary of foreign ownership of domestic businesess and privatization of the oil industry, in particular.  But Bremmer et al. didn’t heed those viewpoints either.  One of Bremmer’s key aides, Peter McPherson,  told Chandrasekaran: “We need to shrink government employment, not increase it.”

McPherson, on leave of absence as president of Michigan State University, also advocated a “clean-slate” approach to debts and assets held by Iraqi companies.  Partly because those companies had largely all been looted and their financial records were either missing or un-auditable,  McPherson reasoned that all debts and assets of those companies should be nullified.  Corliss, however, knew this approach would simply penalize the stronger, more valuable companies, and benefit “the dogs that you got to take out back and shoot.” 

McPherson also had another interesting theory that as inefficient state companies shrank or went out of business, imports and new private firms would flourish.  He termed the theory “shrinkage,” and he went so far as to suggest that looting was a much-needed form of shrinkage because the theft of government property promoted private enterprise.  McPherson persuaded Bremer to eliminate import duties and slashed Iraq’s top tax rate for individuals and businesses from 45 percent to a flat 15 percent rate.

But as Chandrasekaran noted, the predicted foreign investment in Iraq has never materialized. 

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2 Responses to “Have we ruined Iraq’s economy yet?”

  1. Ben Clark said

    Bush always used to say he wasn’t in the business of nation building. Is it any surprise that he’s no good at it?

  2. Seriously, you may be on to something here. One explanation for the hash the Bush administration has made of nation-building in Iraq may be that they were never really interested in succeeding at it. Their true interest has always been in channeling public funds to politically connected contractors. If that’s the case, the longer the war drags on and the worse things get there from an economic and security point of view, the more money the contractors stand to make. Succeeding in building a viable nation in Iraq will eventually put Halliburton and Bechtel out of business there.

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