28 September 2009

War is economics by other means, part III

In a previous post, we discussed the difficulties which faced the fledgling Iraqi economy—one of the vital, yet underlooked, components of a secure Iraq. In that particular article, I noted that foreign investment in Iraq is minimal, that a good portion of the work force is part of the Iraqi police and Army (and thus, don't create revenue), and that oil prices have dropped considerably, which affects the amount of money available to fund the security forces (and thus, keep the insurgency at bay, and to employ potential insurgents in legitimate jobs).

Today's New York Times featured an article documenting some further issues with the Iraqi economy that are somewhat disturbing. During the era of Saddam Hussein, the Ba'ath Party owned the means of production and controlled the economy—the free market was completely non-existent. Although not as extreme today, Iraq's government exercises an extreme amount of control over the infant Iraqi economy. Some things just never change…

Next month the United States and Iraq will gather hundreds of officials and company executives for a two-day conference in Washington intended to send a message that after six years of war, Iraq is open for business, and not just in oil. Now more than ever before, Iraqi officials boast that a trickle of foreign investment — including the first new hotel in Baghdad since Saddam Hussein's government fell — is at last poised to be a flood.

The experience of the company here, though, shows that economic development and foreign investment face more obstacles than security alone.

The state-owned industries that dominate the country's economy — from oil fields to dairies to textile factories — are as bloated and inefficient as they were in Mr. Hussein's time, arguably more so. They are hobbled by corruption, still sporadic electricity and poor roads and bound by bureaucracy and central planning that leave them unable to compete with a flood of cheap imports from Iran, Turkey and beyond.

New legislation intended to regulate investments, land rights, taxes, financial services and consumer protections remains stalled in Parliament. The mere mention of the sort of privatization that swept Eastern Europe and the former Soviet Union after the collapse of Communism is anathema to officials here.

"We are not after shock therapy," Sami al-Araji, the chairman of Iraq's national investment commission, said in an interview.

"We are after a gradual change from a centrally controlled economy to an open one."

Prime Minister Nuri Kamal al-Maliki publicly pressed Vice President Joseph R. Biden Jr. earlier this month about "the need for this conference to be a success."

Privately, though, American officials express concern that it will be little more than a political exercise before Mr. Maliki's re-election campaign unless the Iraqis do more to create a solid foundation for foreign investors willing to take a risk on the country's prospects.

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