At a conference on economics and social processes that I attended this past weekend, Vernon Smith, raised an issue that has bugged me quite a bit since we began our invasion of Iraq. Why has this administration said so little publicly about the development of capitalism, not merely democracy, in Iraq? Vernon said that it’s probably because we don’t know how to “build” a market, and certainly Hayek and other Austrians would agree.
The U.S. government has given U.S. companies a chance to cash in on the invasion. USAid is coordinating a massive handout to U.S. companies that are trying to rebuild basic Iraqi infrastructure. The Commerce Department has a rather silly sight on how to do business in Iraq. From it’s FAQ section I quote the opening line to the question “What Business Opportunities are in Iraq?”
“There are many business opportunities in Iraq. The leading business opportunities are through (1) U.S. reconstruction contracts and subcontracts, (2) contracts with Iraqi Ministries, (3) private sector opportunities, and (4) contracts with the United Nations (“UN”) and international organizations.”
So basically there’s no interest, at least at Commerce, in doing private business. It looks like the model of capitalism we have in mind is that you can get hand outs from the U.S. government directly, indirectly, or through the UN and NGO’s. Sounds like a great way to maintain the enormous nanny state that Saddam had in place. I can’t wait until we stop sending the money just to see how the Iraqis deal with that.
I recommend this as a starting point – the report from the Copenhagen Consensus Group assembled by Bjorn Lomborg. They provide an interesting plan to handle the major economic, political, and social problems faced in the developing world. Among the economic recommendations are free trade, immigration openness, ending agricultural subsidies and political stability.
I’d say that indirectly the Iraqi regime has probably got one of those things right – free trade. The rest of it is problematic at best. It’s certainly tough to expect a newly formed government to follow a collection of progressive development policies, especially with the pressure from USAid to spend resources with U.S. firms on big projects. But I hope we start to hear a bit more about promoting markets, not merely aid, in Iraq. If we don’t then I’m not sure that establishing democracy is going to change anything in the region or get us out of there in my lifetime.