It's the free-market theorists, stupid: a Unified Theory about the Iraq occupation

[RTFirefly]

Harpers Magazine: "Baghdad Year Zero
The thesis of this article is that the Bushies really DID have a plan for postwar Iraq that drove their choices: to get rid of everything that might interfere with free markets in Iraq, and let the magic of capitalism rebuild the country.

The belief of Bremer and the other architects of the ‘reconstruction’ in free markets and privatization resulted in state-run businesses getting looted, prevented them from getting rebuilt, put large numbers of Iraqis out of work (in addition to the disbanded military) and gave al-Sadr his footsoldiers.

The honey theory of Iraqi reconstruction stems from the most cherished belief of the war’s ideological architects: that greed is good. Not good just for them and their friends but good for humanity, and certainly good for Iraqis. Greed creates profit, which creates growth, which creates jobs and products and services and everything else anyone could possibly need or want. The role of good government, then, is to create the optimal conditions for corporations to pursue their bottomless greed, so that they in turn can meet the needs of the society. The problem is that governments, even neoconservative governments, rarely get the chance to prove their sacred theory right: despite their enormous ideological advances, even George Bush’s Republicans are, in their own minds, perennially sabotaged by meddling Democrats, intractable unions, and alarmist environmentalists.

Iraq was going to change all that. In one place on Earth, the theory would finally be put into practice in its most perfect and uncompromised form. A country of 25 million would not be rebuilt as it was before the war; it would be erased, disappeared. In its place would spring forth a gleaming showroom for laissez-faire economics, a utopia such as the world had never seen. Every policy that liberates multinational corporations to pursue their quest for profit would be put into place: a shrunken state, a flexible workforce, open borders, minimal taxes, no tariffs, no ownership restrictions. The people of Iraq would, of course, have to endure some short-term pain: assets, previously owned by the state, would have to be given up to create new opportunities for growth and investment. Jobs would have to be lost and, as foreign products flooded across the border, local businesses and family farms would, unfortunately, be unable to compete. But to the authors of this plan, these would be small prices to pay for the economic boom that would surely explode once the proper conditions were in place, a boom so powerful the country would practically rebuild itself.

The fact that the boom never came and Iraq continues to tremble under explosions of a very different sort should never be blamed on the absence of a plan. Rather, the blame rests with the plan itself…

The tone of Bremer’s tenure was set with his first major act on the job: he fired 500,000 state workers, most of them soldiers, but also doctors, nurses, teachers, publishers, and printers. Next, he flung open the country’s borders to absolutely unrestricted imports: no tariffs, no duties, no inspections, no taxes. Iraq, Bremer declared two weeks after he arrived, was “open for business.”

One month later, Bremer unveiled the centerpiece of his reforms. Before the invasion, Iraq’s non-oil-related economy had been dominated by 200 state-owned companies, which produced everything from cement to paper to washing machines. In June, Bremer flew to an economic summit in Jordan and announced that these firms would be privatized immediately. “Getting inefficient state enterprises into private hands,” he said, “is essential for Iraq’s economic recovery.” It would be the largest state liquidation sale since the collapse of the Soviet Union.

But Bremer’s economic engineering had only just begun. In September, to entice foreign investors to come to Iraq, he enacted a radical set of laws unprecedented in their generosity to multinational corporations. There was Order 37, which lowered Iraq’s corporate tax rate from roughly 40 percent to a flat 15 percent. There was Order 39, which allowed foreign companies to own 100 percent of Iraqi assets outside of the natural-resource sector. Even better, investors could take 100 percent of the profits they made in Iraq out of the country; they would not be required to reinvest and they would not be taxed. Under Order 39, they could sign leases and contracts that would last for forty years. Order 40 welcomed foreign banks to Iraq under the same favorable terms. All that remained of Saddam Hussein’s economic policies was a law restricting trade unions and collective bargaining.

If these policies sound familiar, it’s because they are the same ones multinationals around the world lobby for from national governments and in international trade agreements. But while these reforms are only ever enacted in part, or in fits and starts, Bremer delivered them all, all at once. Overnight, Iraq went from being the most isolated country in the world to being, on paper, its widest-open market.

On one side were “the pragmatists,” who favored getting rid of Saddam and his immediate entourage, securing access to oil, and slowly introducing free-market reforms. Many of these exiles were part of the State Department’s Future of Iraq Project, which generated a thirteen-volume report on how to restore basic services and transition to democracy after the war. On the other side was the “Year Zero” camp, those who believed that Iraq was so contaminated that it needed to be rubbed out and remade from scratch. The prime advocate of the pragmatic approach was Iyad Allawi, a former high-level Baathist who fell out with Saddam and started working for the CIA. The prime advocate of the Year Zero approach was Ahmad Chalabi, whose hatred of the Iraqi state for expropriating his family’s assets during the 1958 revolution ran so deep he longed to see the entire country burned to the ground—everything, that is, but the Oil Ministry, which would be the nucleus of the new Iraq, the cluster of cells from which an entire nation would grow. He called this process “de-Baathification.”

A parallel battle between pragmatists and true believers was being waged within the Bush Administration…

Guess who won.

However:

The soldiers and workers he laid off without pensions or severance pay didn’t all disappear quietly. Many of them went straight into the mujahedeen, forming the backbone of the armed resistance. “Half a million people are now worse off, and there you have the water tap that keeps the insurgency going. It’s alternative employment,” says Hussain Kubba, head of the prominent Iraqi business group Kubba Consulting. Some of Bremer’s other economic casualties also have failed to go quietly. It turns out that many of the businessmen whose companies are threatened by Bremer’s investment laws have decided to make investments of their own—in the resistance. It is partly their money that keeps fighters in Kalashnikovs and RPGs.

Heretical questions began to be raised: instead of laying people off, what if the CPA actually created jobs for Iraqis? And instead of rushing to sell off Iraq’s 200 state-owned firms, how about putting them back to work?

---

From the start, the neocons running Iraq had shown nothing but disdain for Iraq’s state-owned companies. In keeping with their Year Zero‒apocalyptic glee, when looters descended on the factories during the war, U.S. forces did nothing. Sabah Asaad, managing director of a refrigerator factory outside Baghdad, told me that while the looting was going on, he went to a nearby U.S. Army base and begged for help. “I asked one of the officers to send two soldiers and a vehicle to help me kick out the looters. I was crying. The officer said, ‘Sorry, we can’t do anything, we need an order from President Bush.’” Back in Washington, Donald Rumsfeld shrugged. “Free people are free to make mistakes and commit crimes and do bad things.”

“The looters were good-hearted,” one of Asaad’s painters told me, explaining that they left the tools and machines behind, “so we could work again.” Because the machines are still there, many factory managers in Iraq say that it would take little for them to return to full production. They need emergency generators to cope with daily blackouts, and they need capital for parts and raw materials. If that happened, it would have tremendous implications for Iraq’s stalled reconstruction, because it would mean that many of the key materials needed to rebuild—cement and steel, bricks and furniture—could be produced inside the country.

But it hasn’t happened. Immediately after the nominal end of the war, Congress appropriated $2.5 billion for the reconstruction of Iraq, followed by an additional $18.4 billion in October. Yet as of July 2004, Iraq’s state-owned factories had been pointedly excluded from the reconstruction contracts. Instead, the billions have all gone to Western companies, with most of the materials for the reconstruction imported at great expense from abroad.

With unemployment as high as 67 percent, the imported products and foreign workers flooding across the borders have become a source of tremendous resentment in Iraq and yet another open tap fueling the insurgency. And Iraqis don’t have to look far for reminders of this injustice; it’s on display in the most ubiquitous symbol of the occupation: the blast wall. The ten-foot-high slabs of reinforced concrete are everywhere in Iraq, separating the protected—the people in upscale hotels, luxury homes, military bases, and, of course, the Green Zone—from the unprotected and exposed. If that wasn’t injury enough, all the blast walls are imported, from Kurdistan, Turkey, or even farther afield, this despite the fact that Iraq was once a major manufacturer of cement, and could easily be again. There are seventeen state-owned cement factories across the country, but most are idle or working at only half capacity. According to the Ministry of Industry, not one of these factories has received a single contract to help with the reconstruction, even though they could produce the walls and meet other needs for cement at a greatly reduced cost. The CPA pays up to $1,000 per imported blast wall; local manufacturers say they could make them for $100. Minister Tofiq says there is a simple reason why the Americans refuse to help get Iraq’s cement factories running again: among those making the decisions, “no one believes in the public sector.”

The author describes how Bremer wanted to sell state businesses off rather than fix them, but the workers were violently opposed: in a country with 50-60% unemployment, losing a job doesn’t mean a temporarly layoff, then another job; it in all likelihood means a slide into destitution: workers “fear job loss as a death sentence,” the article says:

I asked Mahmud what would happen if the plant was sold despite the workers’ objections. “There are two choices,” he said, looking me in the eye and smiling kindly. “Either we will set the factory on fire and let the flames devour it to the ground, or we will blow ourselves up inside of it. But it will not be privatized.”

Bremer had a problem in his privatization plans, howver: the Geneva and Hague Conventions, which

stipulate that an occupier must abide by a country’s existing laws unless “absolutely prevented” from doing so. They also state that an occupier does not own the “public buildings, real estate, forests and agricultural assets” of the country it is occupying but is rather their “administrator” and custodian[.]

Hence (the article says) the interim government that would exist between June 2004 and the elections of January 2005: that government would have the power to sell state assets, and otherwise make the changes that Bremer wanted. The vehicle for doing so would be the interim constitution (most notably Article 26, which dictated that the laws Bremer had passed would remain in force until an elected body changed them) - but that constitution needed UN approval. And here’s where it gets really hairy:

Grand Ayatollah Ali al Sistani, the most senior Shia cleric in Iraq. al Sistani tried to block Bremer’s plan at every turn, calling for immediate direct elections and for the constitution to be written after those elections, not before. Both demands, if met, would have closed Bremer’s privatization window. Then, on March 2, with the Shia members of the Governing Council refusing to sign the interim constitution, five bombs exploded in front of mosques in Karbala and Baghdad, killing close to 200 worshipers. General John Abizaid, the top U.S. commander in Iraq, warned that the country was on the verge of civil war. Frightened by this prospect, al Sistani backed down and the Shia politicians signed the interim constitution.

And that provided the opening for al-Sadr:

That’s who al Sadr’s foot soldiers are: the young men who have been shut out of the neocons’ grand plans for Iraq, who see no possibilities for work, and whose neighborhoods have seen none of the promised reconstruction. Bremer has failed these young men, and everywhere that he has failed, Moqtada al Sadr has cannily set out to succeed. In Shia slums from Baghdad to Basra, a network of Sadr Centers coordinate a kind of shadow reconstruction. Funded through donations, the centers dispatch electricians to fix power and phone lines, organize local garbage collection, set up emergency generators, run blood drives, direct traffic where the streetlights don’t work. And yes, they organize militias too. Al Sadr took Bremer’s economic casualties, dressed them in black, and gave them rusty Kalashnikovs. His militiamen protected the mosques and the state factories when the occupation authorities did not, but in some areas they also went further, zealously enforcing Islamic law by torching liquor stores and terrorizing women without the veil.

Despite the size of the excerpts I’ve quoted, I’ve left out the vast majority of the article (in keeping with SDMB policies). Read the whole thing. It’ll take you awhile.

The debate is, does this theory hang together? Was the economic religion of the Bushies the One Big Thing that explains why such a hash was made of the reconstruction, or was it just one factor among many, as I’d previously believed?

I’m still thinking it through, myself. But it’s one hell of a theory.

[msmith537]

I only briefly skimmed through the article, but it is an interesting theory. It is even a reasonibly workable one IMHO except for one small oversight - a free market economy can’t work without proper security to protect property rights and allow those markets to operate.

[Rashak_Mani]

Well, selling off companies and laying off civil servants is more about taking power away from the old “regime” people and spreading them out I suppose. They just didn’t consider that countries don’t run without civil servants or security. They were so busy thinking of the “new” Iraq they forgot about the transition it appears…

This “plan” hardly constitutes a viable plan, especially right after the invasion… I’d still consider they had no plan at all.

[Kimstu]

msmith: *I only briefly skimmed through the article, but it is an interesting theory. It is even a reasonibly workable one IMHO *

Nitpick: I can’t quite tell which you mean by “theory” here—

1) RTF’s (actually Naomi Klein’) “theory” that the postwar Iraq problems are due to the “Year Zero” camp’s free-market ideology running wild, or

2) the idea of the “Year Zero” camp themselves that their policies would be the best way to rebuild Iraq.

except for one small oversight - a free market economy can’t work without proper security to protect property rights and allow those markets to operate.

And moreover, it’s very hard to enforce security without a reasonable level of social stability, which is very tough to achieve in a heavily weaponized postwar society with 50–60% unemployment levels and lots of civil unrest and regional polarization.

The “Year Zero” advocates seem to have put their faith in the reasoning of the “Golden Arches Theory of International Relations” (the one about the absence of wars between countries that both have McDonalds fast food restaurants). In other words, they were convinced that free markets and international investment would automatically bring peace and prosperity to Iraq.

But maybe they got the theory backwards: maybe the way it works is that the peace and prosperity are prerequisites for successful operation of free markets and investment. Maybe the reason countries with McDonalds are more politically stable is not that McDonalds (and global capitalism in general) made them stable, but that McDonalds stays the heck away from countries that are unstable.

If “Golden Arches Theory” thinking was indeed the rationale for the Iraq reconstruction, it’s starting to look like a pretty expensive mistake, especially for the Iraqis.

[Wake_up_call]

There is a lot the Average Bush Voter (ABV) does not know. They simply believe the lies that are spitted out of the “Folksy sound-byte Dubya” and his cronies. The mainstream media and its embedded journalists, together with Bill O’Riley and Rush Limbaugh, are all helping the ABV to remain ignorant about the issues.

Iraq is supposed to be a key issue in this election, but the ABV does not have the foggiest idea why the neocons decided to go there at the first place, and why we are still staying there. Do you thing the ABV would even bother to read the Harper Magazine article cited by the OP?

How about if the ABV listen to the intelligent people of Iraq, currently living in Iraq, and to other intelligent people’s analysis of Bush administration’s role in Iraq?

As long as the ABV gets his/her information from the mainstream media and votes accordingly, then the ABV deserves the government it is going to get in November.

[Rashak_Mani]

wake up call… expand “ABVs” to include undecided voters too… unfortunately…

[Neurotik]

@msmith537

I only briefly skimmed through the article, but it is an interesting theory. It is even a reasonibly workable one IMHO except for one small oversight - a free market economy can’t work without proper security to protect property rights and allow those markets to operate.

I agree. But is that an oversight on the part of the writer or an oversight on the part of the Bush Administration? That’s the question.

[Brutus]

@Wake up call

There is a lot the Average Bush Voter (ABV) does not know…

Thank the Oracle at Delphi that we have you to keep us all smarted up!

Iraq is supposed to be a key issue in this election, but the ABV does not have the foggiest idea why the neocons decided to go there at the first place, and why we are still staying there. Do you thing the ABV would even bother to read the Harper Magazine article cited by the OP?

Well, the OP certainly made reading the article easy. Quoted enough of it, did he not?

How about if the ABV listen to the intelligent people of Iraq, currently living in Iraq…

Well, if you want to read Iraqi blogs, read this one. (Warning: It isn’t blatantly anti-American, so you may not like it!)

and to other intelligent people’s analysis of Bush administration’s role in Iraq?

Juan Cole? Pffffft.

As long as the ABV gets his/her information from the mainstream media and votes accordingly, then the ABV deserves the government it is going to get in November.

That’s the general idea, you know.

[RTFirefly]

Kimstu - definitely Naomi Klein’s theory, rather than mine. I think it explains a lot, but there’s still a few things it doesn’t. Like why the Blackwater security contractors were in Fallujah in the first place. (Did we ever find out why that was? At the time, there were changing explanations for a few days, then the question seemed to get overtaken by events.) Let alone Bush’s changing response to their deaths.

[RTFirefly]

@Brutus

Juan Cole? Pffffft.

Hope you didn’t mind my sharing your brilliant refutation of Dr. Cole with the class.

[RTFirefly]

@Brutus

Juan Cole? [URL=http://nationalreview.com]Pffffft.

Hope you didn’t mind my sharing your brilliant refutation of Dr. Cole with the class.

[Frankenstein_Monster]

Almost straight from the horse’s mouth:

Bush Officials Draft Broad Plan For Free-Market Economy in Iraq

I also remember Juan Cole speculating that Jay Garner was fired, and Bremer hired, specifically to push through this disaster.

[Frankenstein_Monster]

Iraq was to the neocons what Afghanistan was to the Taliban: the one place on Earth where they could force everyone to live by the most literal, unyielding interpretation of their sacred texts. … And yet the Green Zone neocons and their masters in Washington are no more likely to reexamine their core beliefs than the Taliban mullahs were inclined to search their souls… When facts threaten true believers, they simply close their eyes and pray harder.

I wonder if Lib would have anything to say on the merits of that analogy.

[Evil_Captor]

@Rashak Mani

Well, selling off companies and laying off civil servants is more about taking power away from the old “regime” people and spreading them out I suppose. They just didn’t consider that countries don’t run without civil servants or security. They were so busy thinking of the “new” Iraq they forgot about the transition it appears…

This “plan” hardly constitutes a viable plan, especially right after the invasion… I’d still consider they had no plan at all.

This is the essence of the problem, however. When you dissolve state-owned enterprises as occurred in Iraq and (earlier) the Soviet Union, who gets all the goodies that were formerly owned/controlled by the state? If the Iraqi Dept. of Oil Revenues owned all the Iraqi oil facilties (for Saddam … er, the people) who in particular gets to profit from the facilties? The people who used to work there? The warlord with the biggest number of guns at his command? The best syncophant among the Iraqis?

Quite a question, and one which warlords with guns, Russian mobs and Iraqi mullahs will tend to answer with 'I do, and I’ll kill anybody who says otherwise."

Yah, we fucked up big there, and it was oh-so-predictable.

[Evil_Captor]

@Frankenstein Monster

I wonder if Lib would have anything to say on the merits of that analogy.

Probably, after closing his eyes and praying harder.

[Neurotik]

@Frankenstein Monster

I wonder if Lib would have anything to say on the merits of that analogy.

Not much. If I’ve understood Lib’s arguments, he wouldn’t advocate how the neo-cons did it…basically, throwing everyone in before setting up any semblance of regulatory and legal institutions that could handle grievances.

[jshore]

@Frankenstein Monster

I wonder if Lib would have anything to say on the merits of that analogy.

Well, I think people who subscribe to eutopian theories like libertarianism don’t really get bothered by empirical data…Otherwise, they would have given up on them long ago. It is analogous to Marxists…They’ll always just tell you that all these specific examples implemented it wrong!

[jshore]

I don’t know if this “Unified Theory of the Iraq Occupation” is true or not but if it is, it would fit into the “Grand unified theory of the Bush Administration” which is that this administration is almost completely captive to its own ideologies.

For this administration, facts are not things that are used to decide policies…They are just used for propaganda purposes to sell the policy that they wanted to pursue anyway. Thus, for example, 9/11 becomes the excuse used to sell the Iraq War, the recession becomes the excuse used to sell the tax cuts for the rich…which were originally proposed before the recession as a “give the surplus back to the people” policy, forest fires become an excuse to open up more lands to the timber industry, and an “energy crisis” largely manufactured by market manipulation becomes an excuse to open up more lands for drilling and to relax environmental regulations on power companies.

If there is an example from history of a Presidency that was more captive to ideology than this one is, I don’t know of it.