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Monday, January 23, 2006

Paul Krugman: Iraq's Power Vacuum

Infrastructure is essential in allowing an economy to reach its potential, a fact Paul Krugman illustrates with Iraq. He explains how the failure to develop Iraq's infrastructure through effective reconstruction efforts has undermined the chance of a successful outcome:

Iraq's Power Vacuum, by Paul Krugman, Commentary, NY Times: In the State of the Union address, President Bush will assert ... that he has a strategy for victory in Iraq. I don't believe him. ... To explain myself, let me tell you some stories about electricity.

Power shortages are a crucial issue for ordinary Iraqis, and for the credibility of their government. As Muhsin Shlash, Iraq's electricity minister, said ..., "When you lose electricity the country is destroyed, nothing works, all industry is down and terrorist activity is increased." ... In today's Iraq, blackouts are the rule rather than the exception. ... Baghdad and "much of the central regions" - in other words, the areas where the insurgency is most active and dangerous - currently get only between two and six hours of power a day.

Lack of electricity ... prevents businesses from operating, destroys jobs and generates a sense of demoralization and rage that feeds the insurgency. So why is power scarcer than ever...? Sabotage by insurgents is one factor. But as ... The Los Angeles Times ... showed, the blackouts are also the result of some incredible missteps by U.S. officials. Most notably, ... U.S. officials ... decided to base their electricity plan on natural gas: ...American companies were hired to install gas-fired generators in power plants across Iraq. But ... "pipelines needed to transport the gas" - ... to the new generators - "weren't built because Iraq's Oil Ministry, with U.S. encouragement, concentrated instead on boosting oil production." Whoops.

Meanwhile, ... U.S. officials chose not to raise the prices of electricity and fuel, which had been kept artificially cheap under Saddam, for fear of creating unrest. But as a first step toward their dream of turning Iraq into a free-market utopia, they removed tariffs and other restrictions on ... imported consumer goods. The result was that wealthy and middle-class Iraqis rushed to buy imported refrigerators, heaters and other power-hungry products, and the demand for electricity surged ... This caused even more blackouts.

In short, U.S. officials thoroughly botched their handling of Iraq's electricity sector. They did much the same in the oil sector. But the Bush administration is determined to achieve victory in Iraq, so it must have a plan to rectify its errors, right? Um, no. ... all indications are that the Bush administration ... doesn't plan to ask for any more money for Iraqi reconstruction.

Another Los Angeles Times report ... contains some jaw-dropping quotes from U.S. officials, who now seem to be lecturing the Iraqis on self-reliance. "The world is a competitive place," declared the economics counselor at the U.S. embassy. "No pain, no gain," said another official. "We were never intending to rebuild Iraq," said a third. We came, we saw, we conquered, we messed up your infrastructure, we're outta here.

Mr. Shlash certainly sounds as if he's given up expecting more American help. ... Yet he also emphasized the obvious: partly because of the similar failure of reconstruction in the oil sector, Iraq's government doesn't have the funds to do much power plant construction. In fact, it will be hard pressed to maintain the capacity it has, and protect that capacity from insurgent attacks.

And if reconstruction stalls, as seems inevitable, it's hard to see how anything else in Iraq can go right. ...[T]he Bush administration... doesn't have a plan; it's entirely focused on short-term political gain. Mr. Bush is just getting by from sound bite to sound bite, while Iraq and America sink ever deeper into the quagmire.

Previous (1/19) column: Paul Krugman:  The K Street Prescription
Next (1/26) column: Paul Krugman:  Health Care Confidential

Update: From the Washington Post:

Professionals Fleeing Iraq As Violence, Threats Persist: Exodus of Educated Elite Puts Rebuilding at Risk: ... Iraq's top professionals -- doctors, lawyers, professors -- and businessmen have been targeted by shadowy political groups for kidnapping and ransom, as well as murder, some of them say. So many have fled the country that Iraq is in danger of losing the core of skilled people it needs most ... "It's creating a brain drain," said Amer Hassan Fayed, assistant dean of political science at Baghdad University. "We could end up with a society without knowledge. How can such a society make progress?" Professionals and businessmen with the means to escape are going to Jordan, Syria, Egypt or, if they have visas, to Western countries...

    Posted by on Monday, January 23, 2006 at 12:31 AM in Economics, Iraq and Afghanistan, Politics | Permalink  TrackBack (0)  Comments (20)


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