Driving Iraq's Economy off a cliff

Despite the opinions of my wife and children, I do not always like being right. This paper is an excellent case in point.

The Second Gulf War, combined with the effects of a decade of general sanctions, left Iraq’s infrastructure in shambles. Some degree of reconstruction was – and is still – necessary to allow Iraq to fully rejoin the world economy. It is not just a matter of justice, or humanitarian need. As other’s research has shown, economic stability is strongly correlated with political stability. A politically stable Iraq – and Middle East – is in the interests of the United States. Therefore, creating a robust Iraqi economy is vital to the national security of the United States.

The Bush administration has compared the reconstruction of Iraq to the Marshall Plan. Despite that allusion, the methodology chosen for reconstruction has ignored several relevant historical examples. This paper identifies two major obstacles to Iraq’s continued economic growth: (1) the shift in funding of reconstruction from donations from the United States and its allies to IMF loans, with the policy restrictions such loans incur; and (2) the trend of placing highly paid contractors in supervisory positions instead of Iraqi nationals. It outlines the specific detrimental effects each of these can have on the economy of Iraq.

This paper argues that the historical precedents of the Treaty of Versailles, the effects of IMF policies in Nicaragua, and the British Raj in India all have great relevance to the economics of Iraq in 2006, and the problems it faces. The examination of these examples’ failures leads directly to suggested methods to avoid the pitfalls of the past.

Since the first words of this paper were written, there has been a large increase of violence and political strife in Iraq. The intensity and frequency of the conflict has grown to the point where many are calling it a civil war. I have to wonder how much of this violence was preventable, how much is tied to the problems in Iraq’s economy. I wonder if it is already too late, if the problems presented here are now playing out in bloody partisan battles. I hope that my bleak analysis of Iraq’s economy is completely wrong.

I am very much afraid that I am right.

Read the full paper here as a PDF.
This paper was presented at the 2006 AURCO conference.  The slideshow with the text of the presentation is available here.

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