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COMMENT
Free markets and a free
Iraq
By Gerald P O'Driscoll Jr
The Bush administration is proposing to
reconstruct Iraq's economy. As one of the last
Soviet-style economies in the world, Iraq's economy is
in a shambles. That apparently came as a surprise to the
administration, which now confronts the consequences of
years of Ba'ath Party economic mismanagement.
If
Iraq is to enjoy Western-style prosperity, its leaders
must evolve the kind of institutions that brought
prosperity to the West. More than anything else, free
markets and an open, competitive economy are the source
of prosperity in the United States and elsewhere.
Economic competition is a form of social cooperation, in
which producers strive to satisfy consumers. All of that
is what Iraq needs.
Competition ensures that
goods will be available at the lowest possible price to
consumers. But the system is much more than delivering
commodities as cheaply as possible. Competition is
dynamic. It spurs invention and innovation. It expands
expanding opportunities and wealth creation for the
greatest possible number of people.
Free trade
is competition manifested internationally: the fullest
extension of the system of social cooperation wrought by
the market economy. International trade unites apparel
workers in Mauritius with investment bankers in New York
City in a cooperative bond, making all better off. The
only groups left behind are those who do not participate
in the international trading system.
Post-World
War II, expanded international trade brought prosperity
to more people than in any other period of recorded
history. It also helped improve health standards,
education, and life expectancy for hundreds of millions
of people around the world. Economic and political
liberty expanded in the process. The Middle East is
conspicuous for not having participated in that economic
miracle. The countries of the Middle East and
sub-Saharan Africa are home to 70 percent of all major
conflicts. Accordingly, their economies grow more slowly
than those in other regions.
In all societies,
individuals have conflicts of interest. Private property
and competition facilitate the peaceful resolution of
such conflicts. Indeed, a system of private property
governed by a rule of law sets limits on the permissible
form of competition for resources.
In societies
without well-protected private property rights in
resources, conflicts over resources are resolved by
violence and war. By contrast, in a market economy those
who want more of a resource purchase it peacefully on
the market.
Conflict over natural resources
drives many political conflicts, whether internal or
external, in societies without private property. The
outcome of elections determines not only political
control, but control over vital resources. And, often,
the losers cannot accept the outcome peacefully. An
election is the difference between poverty and
prosperity for the winners, and, conversely for the
losers. Hence, societies in which key resources, such as
oil, are state-owned are societies in conflict.
The only stable outcome in such conflict-prone
societies is a dictatorship powerful enough to impose
order and divide the spoils. That situation describes
the government of Saddam Hussein in Iraq, and helps
explain its longevity. The Ba'ath government controlled
the "commanding heights" of the Iraqi economy (to employ
Lenin's famous phrase). The oil sector produced more
than 60 percent of GDP and 95 percent of hard currency
earnings for Iraq.
Regardless of one's opinion
on the wisdom of the Iraq war, the US government must
now decide on whether to keep the oil sector in state
hands, or to privatize it. The Bush administration is
terrified of privatization in Iraq and is set to keep
oil in state hands. If it does that, then the war will
have been for nothing. The source of internal conflict
among the principal groupings in Iraq will remain. So
internal conflict will result, and a new dictatorship is
likely to emerge. The administration will thereby snatch
defeat from the jaws of victory in Iraq.
The
lesson from all this is that private property and free
markets are the source of prosperity, the wellspring of
progress. The only source of hope for the developing
world is the same system of economic liberalism that led
to the economic miracle of the West.
Gerald P O'Driscoll Jr is a senior
fellow at the Cato Institute and a former vice president
of the Federal Reserve Bank of Dallas.
(Published with permission of the Cato
Institute)
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