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[casi] Will the US Privatize Iraq? Should It?

Will the US Privatize Iraq? Should It?

by Llewellyn H. Rockwell, Jr.

Iraqi Finance Minister Kamel al-Kilani has announced his intention to
undertake economic reforms "to build a free and open market economy in
Iraq." The reforms include permitting foreigners to invest and own firms in
the Iraqi communication, banking, and industrial sectors; lowering tariffs
to 5%, and capping tax rates for individuals and companies at 15%. Iraqi
industries that are owned by the state will be sold to private firms.

The idea of oil-industry privatization has been ruled out because the US
wants to avoid criticism that this was the whole reason for the invasion.
Also, first reports suggested that former Russian prime minister Yegor
Gaidar, mastermind behind Russian economic reform of the 1990s, would lead
the team in advising the US occupational government in Iraq. Gaidar later
denied the whole thing. "We should keep our advice to ourselves," said
Gaidar as he returned from Baghdad. "The formation of economic policy is
ultimately the task of the Iraqi authorities."

The US should be as wise. With the announcement of these reforms, we are
supposed to imagine the future of Iraq as a big democratic Hong Kong, with
bustling businesses everywhere, with an international flavor, where taxes
are low and property is secure and commerce is the watchword above all else.
Utopia! And what a contrast to today, where no one is safe under a US
military dictatorship. And just think: the US will shepherd the whole

If you believe this, the US has a bridge in Baghdad to sell you. There are
very few details available about the plan, but we do have history to inform
us. The US has so far not allowed anything resembling a laissez-faire
commercial atmosphere to take root after the bombing and killing campaign
that began last spring. Foreign cell phone companies that have come to the
country to set up shop have been kicked out. Would-be commercial air
services have been refused. The interests of merchants have not been
protected during the upheavals.

Not even the billions and billions of dollars in contract money, looted from
the American taxpayer to be given away to firms reconstructing what the US
destroyed in Iraq, have been sent out for competitive bids. The contracts
were awarded to Halliburton and Bechtel, of course, so that the government
and its friends can win before, during, and after the war. Even now, the US
admits that "US Government contracts...continue to be the leading business
opportunities in Iraq. It's hardly surprising that proposed privatization
would be widely interpreted as a complete sell-off of the country - like a
criminal gang holding a yard sale of all its holdings. It could discredit
the whole idea of free enterprise in Iraq.

Let's take a step back and examine the idea of "privatization" itself. For a
decade or two, this word has been batted around policy circles. In theory,
it is a great idea to sell off or give away property owned and operated by
government, so that it can be in private hands and so that property titles
can be made exchangeable on an open market. The failure of socialism has
shown that without ownership and exchange, waste and deterioration will
prevail at the expense of efficiency and development. With private ownership
and exchange come rational valuation, technological improvement, and service
to the public. By all means, privatize the whole world.

And yet, once an idea, no matter how good, gets in the hands of the
political elite, it becomes liable to abuse and even reversals of meaning.
For years, the federal government has conflated the idea of privatization
with contracting out, and they are very different things. Under
privatization, the property ends up in the market and the owners can do with
it what they want, including selling it or shutting it down. The usual
standards of profit and loss apply. Under contracting out, the government
determines whether the good or service is necessary, and pays a private
company to build or provide it. There is no profit and loss test.

The continuum of corruption extends from there. Under one bogus approach,
state agencies are permitted to raise the price of their monopoly products,
allowing the government to loot the people ever more. Or the government can
sell off or give away property to its friends to do with what they want. In
Russia, this process created a "mafia" that is still ruling the country,
prosecuting its enemies when they get power, or avoiding prosecution when
they don't have power. Partial privatizations can lead to disaster, as when
banks are backed by government and the property sold to them thereby becomes
socialized once again (as happened in the Czech Republic). Another phony
form allows "competition" among state institutions, as when "public school
choice" is fobbed off on the population as a form of market reform.

What kind of privatization will take place in Iraq? You would have to be
absurdly na´ve to believe the Hong-Kong model. Just as one example: the plan
says it is privatizing the government's central bank by creating an
"independent" central bank. Now, if you look at the Federal Reserve,
"independence" is not the first word that comes to mind. Its board is
appointed by the president and it enjoys complete monopoly privileges as
granted by the US Congress. True, it doesn't serve the government
exclusively; it also has the banking industry to think about. But if the Fed
is the model for privatized industry, we can look at privatization in Iraq
as nothing more than a cover for US control.

In Iraq, the US authority is caught between two conflicting goals. On the
one hand, it desperately wants to escape the criticism that it has wrecked
the country. Even today, even in the most developed areas, most people don't
have clean water or reliable electricity or phone service. Iraqi authorities
are saying that it will take two years to fully restore electricity, but
this is just another way of saying that it can't be done under the present
circumstances of unrelenting violence and chaos. The US would like to see
the country approach normalcy if only to dampen fevered criticism from all
over the world that has discredited the whole military operation. The only
way to do this is by permitting (not "creating") a market economy to

On the other hand, the US authority wants to maintain total political
control. To this end, it has voided elections, hand-picked a puppet
government that it still can't entirely manage, and has insisted on
dictating the reconstruction process at every level. Here's the trouble: the
only real path to lasting reconstruction is through radical liberalization.
But liberalization means loss of political control. So the US faces a choice
in Iraq. Does it want reconstruction or hegemony? The attempt to have both -
which is all we've seen so far - has not and cannot work.

This dilemma is not unlike that which Gorbachev faced in Russia in the 80s.
He knew that liberalization was the key to ending the grinding Soviet
poverty, but he also worried that liberalization might lead to the collapse
of the regime. He tried to liberalize while beefing up party control, but
eventually it didn't work. The whole system came unraveled, and he
eventually had to let the Soviet empire go. The US will have to do the same.
In fact, the US as an occupying foreign military power is in an even worse
position than Gorbachev, who at least was a Russian who rose up through the

As a final observation on this Iraq privatization proposal: there is more
than enough privatization to accomplish right here at home. For Heaven's
sake, why in the age of mass blogging and instant private delivery of
everything does the government still believe only it can deliver mail?

And why, instead of privatization in the US, is the Bush administration
going in the opposite direction: increasing government control over
medicine, education, and trade? Let Bush increase private control and reduce
government at home before he pretends to do it abroad. The biggest-spending
and biggest war-mongering administration since LBJ has a credibility problem
when it claims to bring free markets and the rule of law to anyone.

There is a sense in which Iraq needs to be privatized. The US government
needs to leave the country. This is "shock therapy" that most Iraqis and
most people in the world would welcome.

September 25, 2003

Llewellyn H. Rockwell, Jr. [send him mail] is president of the Ludwig von
Mises Institute in Auburn, Alabama, and editor of

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