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Friday, July 28, 2006

Free Market Shock and Awe

Part of what went wrong in Iraq, "ideology trumping commonsense":

Bush's Iraq: A Bloodbath Economy, by Joshua Holland, AlterNet: Iraqis have been brutalized not only by bombs and bullets; they've also been the victims of economic violence in the form of the free market "shock therapy" cooked up by a firm in Virginia on a $250 million no-bid contract before the U.S. invasion. Transforming Iraq's economy overnight was a matter of ideology trumping commonsense, and it's killed thousands of innocent Iraqis and shattered a way of life for hundreds of thousands more.

That the radical restructuring of Iraq's political economy has received so little critical attention -- even as Iraq's nascent government threatens to crash and burn -- is a testament to how deeply indoctrinated we are --especially our media -- in the narrative of what "American-style" capitalism is. 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. File it under bringing "democracy and capitalism" to the poor, backward Arabs.

The reality is that the economic policies we imposed on Iraq were not some generic form of "capitalism"; they included the most radical business-state rules imaginable -- policies that developing countries have vehemently resisted for over a decade. ... And while "democratization" and "free markets" supposedly go hand-in-hand, the truth is that Iraq's economic transformation was mutually exclusive with the goal of forming a legitimate government, and the Bush administration knew it well in advance of the occupation.

That's because it's universally accepted -- even among the most vocal proponents of the very model of corporate globalization that inspired Iraq's new economy -- that in the short-term those policies create economic pain, displacement, anger and civil unrest, as well as a lack of faith in government. That's no way to win hearts and minds.

Even the man who implemented the shock therapy, coalition boss L. Paul Bremer, understood this quite well. Before his installation as "the dictator of Iraq" ... Bremer was a risk management consultant. In 2002, he wrote in a report to his corporate clients: "The painful consequences of globalization are felt long before its benefits are clear… Restructuring inefficient state enterprises requires laying off workers. And opening markets to foreign trade puts enormous pressure on traditional retailers and trade monopolies." Bremer noted that corporate globalization is "good for the economy and society in the long run, [but has] immediate negative consequences for many people," and concluded that those consequences cause "political and social tensions."

Pushing those policies in a country like Iraq was a matter of ideological preference and greed, not necessity. A good example is Iraq's new flat-tax, established by Order #37 (now Law #37). As the Washington Post reported: "It took L. Paul Bremer, the U.S. administrator in Baghdad, no more than a stroke of the pen … to accomplish what eluded [Republicans] over the course of a decade and two presidential campaigns."

Former Reagan and Bush 41 official Bruce Bartlett said with no small amount of envy that an occupation government doesn't have to "worry about all the political and transition problems that have made adoption of fundamental tax reform here so difficult" ...

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), ostensibly to clean out the government of holdovers from Saddam's Ba'ath party. But you had to be a Ba'athist to get those civil service jobs in the first place. Antonia Juhasz, author of The Bush Agenda, told me in a recent interview 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 facing a new order of Shi'ite rule, 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 and guaranteed it would have some popular support. This was, after all, an economic order that had led people living in much better circumstances in places like Seattle, Geneva and Montreal to riot. ... Michael O'Hanlon of the Brookings Institution was right when he called post-conflict Iraq "a debacle that was foreseeable and indeed foreseen by most experts in the field."

Much of this policy mix also violated international and U.S. law. It's no small irony given that one of the reasons given for the invasion was to confront a "rogue" regime that scoffed at international law.

Article 43 of the Hague Convention says that an occupying power must "take all the measures in his power to restore, and ensure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country." The only law that the American forces left standing was Saddam Hussein's ban on public-sector unions.

Article 55 says an occupying force can only serve as the "administrator" of "public buildings, real estate, forests, and agricultural estates." As the Guardian pointed out, those rules also "apply to structural changes to a public resource or service." Naomi Klein asked: "what could more substantially alter 'the substance' of a public asset than to turn it into a private one?"

The questionable legality of the policy was also well understood. Just a week after the bombs started falling on Baghdad, Britain's Attorney General Lord Peter Goldsmith sent a memo to Tony Blair (PDF) warning that "the imposition of major structural economic reforms would not be authorized by international law."...

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

The administration actually cited Russia's economic transition as a model for Iraq. But the University of North Carolina's Jonathan Weiler, an expert on Russia and author of Human Rights in Russia: A Darker Side of Reform told me that ... "Russia's transition to a market-based economy was anything but smooth, and Weiler says "it's certainly not a model that's compatible with trying to create a broadly legitimate government in a country that's been torn up by war and years of dictatorship. ...[W]hen you look at Russian human rights since 1991, you see that the victims have changed--to the socially disadvantaged rather than the politically suspect--but the realities of life for many vulnerable Russians have in fact become worse."

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, or, better yet, started after an Iraqi government was established.

Common sense should have dictated that, after the destruction of its infrastructure and the dismantling of its (brutal but stable) government, Iraq didn't need to become a laboratory for neoliberal economics. It 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 commonsense has always been in short supply in the Bush administration, and they 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.

    Posted by on Friday, July 28, 2006 at 12:12 AM in Economics, Iraq and Afghanistan, Politics, Terrorism | Permalink  TrackBack (0)  Comments (11)


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