Iraq needs substantial public aid, not privatisation

10 October 2003
Imagine an Iraqi man in his middle years who, during 35 years of Baathist rule, attempted to live a decent and honourable life. Let's give him a name. I'll call him Wael. Wael conformed, but never capitulated to the propaganda and crude intimidation, waiting patiently for freedom and democracy to come. Wael did not join the ruling party as many did to get on. As a result, Wael was barred from all the best jobs.

Wael endured mental anguish for his principles and his family paid for them in low income, poor housing and extinguished hopes. Close friends and family suffered at the hands of the regime. Some left Iraq in despair. But Wael stayed. All around him, bureaucrats and collaborators flourished and black marketeers grew rich. Wael's savings have gone. He's freer to speak his mind now, but, like 60 per cent of Iraqis, he's jobless.

So how does Wael feel today when, after all the suffering, the first representative government he has known, created by the western powers he looked to for help, decided it was going to quickly privatise large parts of the Iraqi economy?

In Wael's eyes, it is obvious who will benefit: those with money. It will be foreigners and profiteers who grew fat during Saddam's rule and the chaos since. Wael would have to be a saint if he did not start to doubt the motives of his liberators. He is probably on the way to becoming very angry. Think of Wael and millions of real Iraqis like him this autumn.

Too early

For them, privatisation and a foreign investment boom in Iraq, even if the security conditions made them feasible, are absolutely the wrong policy prescriptions at this early stage of physical and political reconstruction. But if you think like an economist, you will reach the same conclusion.

The only assets in contemporary Iraq that command a price close to their value are oil and gas reserves and land. The unelected-but-representative governing council has excluded these from the economic policy statement issued on 21 September. Most other state assets are so dilapidated, and run by badly-paid and under-trained workforces, that they can only be sold in the present circumstances at a heavy discount to their potential long-term value.

Advocates of early and aggressive privatisation argue that the discount compensates investors for the risks. But high-risk investors tend to be speculative and short-term-minded. These are precisely the type Iraq does not need now. What it needs are large and regulated world-class firms. But these are precisely the type of investor who will not even send their people, let alone their money, until Iraqi security is assured.

In today's Iraq, the 'more capitalist than America' economic policy statement will on its own make little contribution to reconstruction. It could even prove to be counterproductive. The statement has been seized on as evidence that the US all along had a plan to exploit Iraq economically. It may increase domestic opposition to American leadership in reconstruction.


The only sensible and workable Iraq reconstruction model is a plan for large-scale public investment financed out of donations. These should come mainly from the US, the UK, France, Germany, Japan, Italy and others whose governments helped to prop up Saddam Hussein during the 1980s. And it should be implemented long before anybody starts talking about a sell-off of state assets. Give long-suffering Iraqis like Wael a chance to accumulate wealth first.

The first step to economic reconstruction is a strategy engaging all those wishing to play a role in it. This should have been agreed before the attack on Iraq, or, failing that, immediately after. It is still not finalised.

It has been blocked for dubious reasons. The governments of the US and the UK, fearing a negative political backlash, have refused to admit what objective observers know to be true. Their actions in Iraq since March produced the right result in the removal of the Baathist regime. But it used bad methods: a premature attack which lacked convincing justification and clear international support.

Saddam Hussein has gone and the world should be thankful. But the American approach to Iraq is damaging reconstruction. This will continue until there is a strategy rethink in Washington and one that should involve Bush saying to a world, antagonised by American unilateralism, three simple words: 'I am sorry.'

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