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December 5, 2007

"U.S. Falters In Bid to Boost Iraqi Business"

I had hopes for this. Very slim hopes, but hopes nonetheless:

U.S. Falters In Bid to Boost Iraqi Business, Few Products Sold To American Firms, by Josh White, Washington Post: More than a year after the Pentagon launched an ambitious effort to reopen Iraqi factories and persuade U.S. firms to purchase their goods, defense officials acknowledge that the initiative has largely failed because American retailers have shown little interest in buying products made in Iraq.

The Pentagon thought U.S. firms would be willing to help revitalize the war-torn Iraqi economy and create jobs for young men who might otherwise join the insurgency. But the effort -- once considered a pillar of the U.S. strategy in Iraq, alongside security operations and political reform -- has suffered from a pervasive lack of security and an absence of reliable electricity and other basic services.

Iraqi officials have recently highlighted pending deals with retailers such as Wal-Mart and J.C. Penney, businesses that they said were considering purchasing Iraqi products from the few local factories that have restarted. But the two companies said last week that they are not in negotiations to buy Iraqi products...

Three officials who have worked with the Pentagon's Task Force to Support Business and Stability Operations in Iraq said in recent interviews that, although some factories have achieved limited success, the larger effort to link Iraqi industries with U.S. retailers has been a "failure." ...

The task force's assumption from the outset -- one shared by top U.S. commanders in Iraq and senior leaders at the Pentagon -- was that jump-starting Iraqi factories would push young men into paying jobs and away from violence.

But, in the past year, only 4,000 jobs have been created... Those results come against the backdrop of a grim overall economic picture...

Suppose Bush had engaged in a no holds barred attempt to get firms to cooperate in this venture, used his bully pulpit at every opportunity to tell firms it's their patriotic duty and used all the usual slime machine tricks against those who don't cooperate. If he had gone all out and asked his business buddies to sacrifice for the cause (for once), told them that if young men can give their lives, can't you help as well, could that have made a difference? Or was it always hopeless? I've always thought we tried this much too late, so we'll never know for sure.

Why did we wait? The idea initially was that the free market would work its magic and somehow provide the jobs that were needed, so there was no need to protect former state-run enterprises -- those needed to be replaced in the name of efficiency. I wonder if adherence to that ideology rather than adopting a top-down planned approach that kept formerly state-run enterprises open and running (and opened more if needed) from the start would have changed the subsequent course of events. Forget efficiency, there was plenty of time ahead to worry about that, just put people to work doing something, anything. There was plenty that needed to be done.

[Update: Dani Rodrik follows up, "Thoma is right of course. And it gives me pleasure to welcome him to the industrial policy sympathizers club..."]

This is expressed better in a quote from a previous post:

[T]he radical restructuring of Iraq's political economy has received ... little critical attention.... It was taken as a given that after knocking off Saddam, we'd rapidly privatize huge swaths of Iraq's national companies, get rid of hundreds of thousands of civil servants, completely restructure the country's tax and finance laws and throw Iraq's economy wide open for foreign multinationals. ...


Putting "free-markets" before what are recognized as "best practices" in post-conflict reconstruction had an immediate relationship with Iraq's insurgency.

Consider the impact of two of Bremer's 100 Orders. Order #1 was the "De-Ba`athification of Iraqi Society." It laid off 120,000 senior civil servants (and a half million Iraqi soldiers and officers)... Antonia Juhasz, author of The Bush Agenda, told me ... that "it wasn't an indication that they were a party to Saddam Hussein's crimes ... they were fired because they could have stood in the way of the economic transformation."

When I say "civil servants," don't think about the pasty men and women down at the Social Security office. Think about mostly Sunni civil servants -- men accustomed to influence -- fresh out of a job, with few prospects..., and remember that they all had compulsory military training and a collection of automatic weapons.

Now look at Order #1 in relation to Order #39, which made it a violation of Iraqi law for the government to favor local Iraqi businesses or Iraqi workers for reconstruction work, meaning that all those pissed off, heavily-armed and newly unemployed men could not be put to work rebuilding their country.

That killed the State Department's own exhaustively prepared plans for post-war Iraq -- plans that the administration had announced they'd follow prior to the invasion. According to a report by the Center for Strategic and International Studies (PDF):

The Administration … announced plans to employ the bulk of Iraq's regular army to rebuild Iraq's critical infrastructure, such as roads and bridges, after a conflict. The United States would pay the salaries of Iraqi soldiers to perform this work, thereby ensuring - at least in the immediate term - against their return to civilian life without any gainful employment.

We'll never know how differently things might have turned out if the administration had listened to its own experts instead of the Chamber of Commerce's lobbyists.

That's not to say these policies caused the insurgency -- it's not that direct -- but they created circumstances in which it could flourish...

The Bush administration -- dominated by Big Business ideologues -- went ahead with the plan..., and the consequences have been wholly predictable. After all, we've seen them before, in the former Soviet states after the USSR's collapse. ...

None of this is to suggest that Iraq's economy didn't have serious inefficiencies or wasn't in need of deep structural reform. But what economists call "inefficiencies" are most commonly someone's job, or a farmer's subsidy -- people's livelihoods. The reforms could have been phased in over a long period...

Common sense should have dictated that, after the destruction of its infrastructure and the dismantling of its (brutal but stable) government, Iraq ... needed jobs and basics like electricity, water and sewage systems, and it needed them quickly.

That meant local firms, local workers and small, local projects -- which make less juicy targets for saboteurs -- to rebuild the country's public infrastructure. Development experts call that "local ownership," and consider it crucially important for good outcomes.

But ... the Bush administration ... chose to make the country into a trough full of slop for the big multinationals. Make no mistake about it, Iraq's economic transformation is an example of war profiteering by other means, and the disastrous results are plain to see.

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