Reconstructive surgery in Iraq

Posted: Oct 06, 2003 12:00 AM

I have just returned from a trip to the Arabian Gulf region (Abu Dhabi and Dubai), where our friends express a real sense of urgency that we establish rudimentary free markets and representative democracy in Iraq and turn over authority to the Iraqi people as soon as possible. To that end, I believe Congress should stop nit-picking the administration's funding proposal and authorize it without further delay.

The Bush administration must be doing something right in Iraq as evidenced by the hysterical reporting in the New York Times about the economic reforms there. Times reporter Jeff Madrick characterizes the reforms as extreme, radical "shock therapy." Opening the country to foreign investment and trade, restricting corporate and individual tax rates to 15 percent and tariffs to 5 percent as the Iraqi Coalition Provisional Authority has done is not shock therapy. Shock therapy is what the International Monetary Fund and Ivy League Keynesian economists administered in post-Soviet Russia when essentially we burned down the old economic structure with an ersatz "voucherized" scheme of "privatization," ruble devaluation, inflation and tax increases before a new structure was in place. What's going on in Iraq is reconstructive surgery on an economy and political system that already has been completely razed by war and dictatorship.

Madrick criticizes the Bush administration for adopting "radical laws" without a democratic Iraqi government to discuss or approve them, yet he advocates immediate U.S. imposition of failed and discredited policies that he characterizes as "mainstream," such as high "protective" tariffs and high rates of taxation necessary to support "adequate social programs." "Free markets," he says, "just will not be enough."

To the contrary, the Iraqi CPA makes its most serious mistakes when it abandons the market in favor of central planning. Madrick is correct that the CPA's scheme to create an international banking cartel in Iraq and reopen an Iraqi state-owned bank is a blunder of the first order. The CPA is also making a calamitous mistake by reviving a centralized, state-owned oil industry and sending it off to OPEC to fix world oil prices. And the CPA is risking the entire Iraqi enterprise by insisting that a constitution be adopted before it will allow a representative sovereign government to be established.

Far from racing ahead of the democratic curve and imposing "illegitimate" policies, as Madrick contends, the CPA is being far too timid and trying to avoid making unavoidable choices. We already made the two most fundamental decisions: We will leave the Iraqi people with a democratic republic of some kind; it is up to them to keep it after we leave. And we will leave them a rudimentary free-market capitalist economic system; it is up to them to make it prosper after we are gone.

Having made these decisions, making no further decisions on fundamental economic and political questions in Iraq is not an option. Our challenge is to leave the Iraqi people a working political mechanism through which they can ratify or alter the choices we make as their trustee and guardian during the phase of reconstructive surgery.

For example, we cannot avoid choosing how we will reconstitute the Iraqi oil industry, either as a state-owned enterprise or as a privately owned and operated industry of myriad private joint stock companies. Nothing would launch free-market capitalism faster or more tightly knit together this ethnically and religiously diverse country than giving every Iraqi citizen unencumbered property rights to Iraq's oil.

Privatization of Iraq's oil should be done immediately, not through the half-baked, voucherized auction method that failed so miserably in Russia but along the lines of the fabulously successful Homestead Act in 19th century America where clear title to 160 acres of federal land was "given" outright to citizens. It was, after all, theirs to begin with.

Done right, through a nation-wide census and property registry, the process of bestowing on every Iraqi citizen equal ownership shares in private oil-industry firms, complete with Iraqi CEOs and boards of directors, also would facilitate registering deeds of other property and systematically submitting claims of ownership of property in dispute.

Combining a nationwide census and property registry with voter registration could accelerate elections. After that, it will be possible to establish a representative federal republic based on universal elections of local councils, which in turn would elect regional assemblies, which in turn would elect a national parliament. The sovereignty of such a federal representative republic would immediately be recognized by the United Nations, and that government could write a draft constitution and submit it to the people for ratification.

After visiting the Arabian Gulf again last week I am more convinced than ever that this is the right course to take. The CPA should devote however much money is necessary to organize an immediate census and property registry to register voters, privatize oil, establish property rights and hold elections, not only to save Iraq but also to signal to the rest of the region that beyond Iraq and Afghanistan we also are committed to free-market economic development, open trade and democracy in the entire region.