Academic journal article The Middle East Journal

The Neoliberal Model's Planned Role in Iraq's Economic Transition

Academic journal article The Middle East Journal

The Neoliberal Model's Planned Role in Iraq's Economic Transition

Article excerpt

For many in the Bush Administration Iraq is now the test case for whether the US can create, through introducing a series of neoliberal economic reforms, a system of American style free market capitalism in the Arab world. The neoliberal model as applied to Iraq's economic transformation will entail a policy mix stressing a greater role for the market in the allocation of resources, a much-reduced role for the state, and increasing integration in the world economy. Although the model appears sound in terms of its theoretical construct and empirical validity, questions remain concerning its likely success in the Iraqi context.

Iraq has been blessed with abundant economic and human resources. It has the highest proven oil reserves in the world at around 112 billion barrels, after Saudi Arabia with 262 billion barrels. However, despite its wealth, Iraq has experienced continuous economic deterioration since 1980 and has become one of the region's least developed economies. A country that could have been a model of development for the Arab world, turned out to be a devastated case of economic decline, mismanagement, and massive corruption.1

In addition to the obvious factors such as three major wars and a decade of crippling sanctions what factors accounted for Iraq's economic disaster? in a seminal paper on Middle Eastern economies, Jahangir Amuzegar2 examined what he termed "the growth-through-ideology thesis" in an attempt to determine if one economic system produced consistently better (or worse) economic performance in the Middle East context. Acknowledging variations by country, Amuzegar classified the region's countries into three major economic systems: Arab Socialism, comprised of Egypt, Syria and Iraq, capitalist Lebanon and Saudi Arabia, and an in-between group including Turkey's "etatism regime leaning toward free enterprise and Iran's positive nationalism or private enterprise assisted by the state."3

From the vantage point of 2003, it is clear that the Arab Socialist model was a major failure not just in Iraq, but also in Egypt and Syria. State companies tended to be less efficient than their private sector counterparts. Lacking market motivation, state companies were less productive and innovative and therefore registered low returns or losses. They were often launched in sectors in which the country had no comparative advantage and thus require subsidies explicit or implicit. Fiscal deficits resulting from losses or subsidies led to under-investment; any investment that did take place was often misallocated and driven largely by non-economic criteria4. No doubt, Arab Socialism would have severely retarded Iraqi growth even in the absence of Iraqi President Saddam Husayn.

On the other hand, Lebanese and Saudi Arabian capitalism, while faring a bit better have not, for differing reasons, produced the results hoped for. In Lebanon's case, the civil war (1975-1990) took a crushing toll on the economy. In Saudi Arabia's case, the economy has had difficulty evolving from a rentier economy. Iran's 1979 revolution ended state assisted private enterprise, while Turkey's economy, despite having more success, has also not lived up to expectations. Due to intermittent political instability and poor economic management, the country has experienced severe macroeconomic imbalances at times, together with periods of stalled economic reforms.

Nobel Prize winner Gary Becker takes this one step further by contending that all of the economic systems in the Middle East have been characterized by the fact that:

The main obstacle to modern economic development for Middle Eastern nations has been bad policy, often inspired by the teachings of Karl Marx and other Western intellectuals. State enterprises and government regulations still dominate the economies of Egypt, Iran (under both the Shah and the mullahs), Iraq, Saudi Arabia, and Syria. Important industries including oil production and refining are controlled directly by the government or by private monopolies that depend on the state. …

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