Redstate

The Good, The Bad, and The Future

By blackhedd Posted in Foreign Affairs — Comments (19) / Email this page » / Leave a comment »

All eyes are on the potential military outcomes in Iraq. The Democrats are trying to embed the notion that failure is foreordained, while the Bush Administration says to wait until the evidence comes back in September before making the decision.

In the meantime, there are people on the ground in Iraq who are dealing with the absolutely crucial task of getting the country back on its feet economically. We don't hear a lot about these efforts, and why would we? In polite society, "everyone knows" that Iraq is a quagmire of civil war, our generation's Vietnam, and that ordinary Iraqis are concerned mostly with not getting shot or bombed to death.

But a nation-building effort has been going on there for the last four years. And the Administration's man on the spot has just written a must-read report card. (Hat-tip AcademicElephant.)

Bottom line? Lots of failure due to a fundamental misreading of the situation, and lots of ideas on what to do differently going forward.

More...

Let's face it. Politically, the Democrats are dead meat if the results in Iraq are any kind of good. If you were in their soft Italian loafers, you'd treat the game as a PR exercise too. And the Bushies don't have much to cling to other than the bizarre delusion that actual results will overcome negative publicity, when it comes to swaying the minds of voters who get their information from television news.

What both points of view have in common is that the Iraq question is fundamentally a military one. ("What the heck are we doing in the middle of someone else's civil war?") Let's get that out of the way right now. Iraq has been in a rebuilding phase since May of 2003. The struggle now is to get the threads of Iraqi society to start pulling together rather than at each other.

I'm told by people who have been all over Iraq that the security situation is really quite good and quite stable, except for Baghdad and its environs. And that actually makes some sense. If you're al Qaeda or any of the other assorted bad guys, you know your best friends are American reporters. So why not concentrate your limited resources where the reporters are? After all, if a bomb blows up and there's no camera crew to beam it into American living rooms, did it make a sound?

What's not good and not stable is the economic situation in Iraq. And this deserves far more attention that it gets. Because once ordinary Iraqis get back to work on making their own personal futures better, they'll quickly put a stop to other people's efforts to mess things up. And they're not there yet.

Enter Paul Brinkley, Deputy Undersecretary of Defense for Business Transformation. Brinkley is a businessman and operations-research expert with an impressive resume. Brinkley took over the job in Iraq in June 2006. He and his team are responsible for all the phases of putting the Humpty Dumpty that is Iraq's economy and industrial base back together again.

Since Iraq was liberated, this job has been split up among various organizations in different ways at different times, starting with the Coalition Provisional Authority (CPA). And of course there is the perennial tension between the State, Treasury and Defense Departments. (If you think war between nation-states is as nasty as it gets, you haven't spent much time in Washington.)

What follows is an analysis based on private conversations with a senior member of Brinkley's team, and Brinkley's above-linked paper, "A Cause for Hope (Economic Revitalization in Iraq)," which appears in the current issue of Military Review.

The word naivete' often comes to mind when recalling the early days of the Bush Administration's program for rebuilding Iraq. And not just naivete' on the part of President Bush's strategists. At the time, I myself found entirely plausible the idea that just getting the Ba'athist boot off Iraqis' necks would unleash millions of hungry entrepreneurs armed with billions of dollars from hungry global investors, and a cohesive, dynamic young nation would simply spring into being like a flower after a storm.

It didn't work out that way. I'm told that Iraq's total GDP is now in the neighborhood of $39 billion. That's a very problematic number. I've been trying to suss out whether that's an official-exchange-rate GDP and whether it's net of oil production, which all by itself should be about that much.

But let's be charitable and assume for now that the $39 billion is both realistic and net of oil. That would put Iraqi non-oil per-capita GDP at a bit more than $1500. Far worse than Mexico, India or China. Far worse even than economic basket cases like Iran and Venezuela. What went wrong here?

According to Paul Brinkley, what went wrong is the fundamental approach taken by the people who were on the ground first after liberation. They did more than assume that relative political freedom would cause a vast upwelling of pent-up free-market activity. They also made several key assumptions about Iraq's industrial and agricultural infrastructure that turned out to be just as wrong: For one, that Saddam Hussein ran the Iraqi economy just like the Soviets ran theirs, and for another, that twelve years of UN sanctions had left plants and equipment outmoded and useful only as scrap.

...the core assumption driving
the application of shock-therapy economic policy
to Iraqi industry was that Iraq was a classic soviet-
style central economy. The reality, however, is more
complex. The old Iraqi economy could best be
described as a semi-centralized kleptocracy. Many
factories operated in a near autonomous manner,
managing their own day-to-day affairs, selling their
products directly to customers, and simply donat-
ing a portion of their profits to the Hussein regime.
others were highly controlled by the regime and
were given classic central plans for production of
goods, which were then shipped to other ministries
for distribution.

And later on:

[Another] primary assumption was that
all Iraqi factories could never compete effectively
in a market economy. As a general statement about
Iraqi industry, this is simply inaccurate. Assess-
ments have revealed many factory operations,
idled now for four years, that had skilled workers,
western-educated management, modern equip-
ment, and robotics and automation (less than five
to ten years old in some cases). It is clear, based
on the state of equipment in many Iraqi factories,
that during the period of UN sanctions (1991-2003)
significant investments in manufacturing capacity
took place. without question, some Iraqi factories
are out of date and should not reopen, but they are
the exception, not the rule. There are factories in
Iraq idled today that could easily manufacture goods
for consumption in western markets if they were
situated in other countries.

Saddam Hussein was all about being a modern-day Saladin, not a new Lenin. He had neither the time nor the imagination to run a Soviet-style command economy in Iraq. But Brinkley points out that by assuming otherwise, we took an approach to business revitalization in Iraq that undervalued a huge amount of existing infrastructure, productive capacity, and functioning business relationships.

In short, the architects of post-Ba'ath Iraq just flushed Iraq's industrial and human capital down the drain and tried to start over from scratch. Let's resolve never to make that mistake again, folks. Even if it costs us some beloved delusions about the power of free markets.

Brinkley goes on to make some key points about unemployment and underemployment in Iraq. He estimates that these now total some 60% of the population. Add that to the fact that about 40% of the Iraqi population is now below the age of 15, and you can see a large collection of young men who are ripe for recruitment to terror. To me, the need to revitalize Iraq's economy is a pressing enough issue, but the demographic aspects turn it into just as compelling a national security issue for the United States.

But what is the way forward?

Brinkley and his team are now of the belief that Iraq's formerly state-owned sector needs to be revitalized. (As a doctrinaire free-trader, I'm suppressing my kneejerk opposition to this, and I hope you will too, because it makes sense.) They do also believe that there is an important role for small private entrepreneurs.

Intriguingly, they also are seeing a major opportunity for Iraq to revitalize its production of fertilizer and agricultural products. Becoming the breadbasket of the Middle East would be a terrific way to cement Iraq's status as an anchor nation in a region that badly needs one.

I'll have more on the way forward for Iraq in a follow-on post.