Tuesday, October 14, 2003

Iraqi Official Urges Caution on Imposing Free Market

Why is this economic illiterate serving as Iraq's "interim trade minister"?

SINGAPORE, Oct. 13 - Iraq's interim trade minister warned on Monday against forcing his nation's economy to mold itself rapidly into a free-market system, saying that a swift change would fuel unemployment and heighten political instability.

"We suffered through the economic theories of socialism, Marxism and then cronyism," the official, Ali Abdul-Amir Allawi, said in an interview on the sidelines of the World Economic Forum's East Asia Economic Summit meeting here. "Now we face the prospect of free-market fundamentalism."

A lively debate is taking place within the Bush administration and the Iraqi government on how quickly Iraq should move toward a free-market economy. In some quarters, sweeping economic change along the lines of Eastern Europe's rapid reorganization is advocated.

According to Mr. Allawi, imposing a similar reorganization on Iraq would represent a "flawed logic that ignores history."

"The economies of Eastern Europe collapsed due to internal problems," Mr. Allawi said. "Our situation is very different since the changes came in the form of very welcome help from outside."

"These things are not yet being thrust down our throat," he added, "but I strongly disagree with the call for fast and radical change."

[............]

Many in the governments of Iraq and the United States have advocated a wholesale sell-off of state owned enterprises. Mr. Allawi said the international pressure to privatize immediately, and to eliminate subsidies, was too great.

"By no means should we preserve all state-owned enterprises," Mr. Allawi said. "But there are some sectors that are more natural for government involvement or rehabilitation." He urged the quick closing of companies holding monopolies on car sales and construction contracts.

Mir Abdul-Amir Allawi is talking nonsense. The problem in Eastern Europe wasn't "free-market fundamentalism", but the weakness of the rule of law, and flawed privatization processes that ignored the fact that competition is even more important than private-sector involvement - a point, I might add, that was emphasized long ago by Joseph Stiglitz, in his book Whither Socialism? And just what sectors of the economy are "more natural for government involvement or rehabilitation" anyway?

This man strikes me as being your typical middle-eastern Nasserist, an individual so immersed in a culture of dirigiste state planning that he simply is unable to contemplate the prospect of a government that doesn't try to micromanage the economy in all sorts of petty ways. In reality, all that such government interference enables is more opportunities for graft and political favoritism on the part of the powerful and the well-placed.

Do free markets by themselves guarantee success? Not at all - they can achieve little without transparent institutions, due process, and a general sense of stability and order in a society; but then again, it isn't as if any other sort of economic system thrives without these requirements either. America needs to get the security situation under control as soon as possible, and this Mr. Abdul-Amir Allawi fellow ought to be fired.