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May 15, 2003

A Look At Iraq
by Hans F. Sennholz

We may be strangers to Iraqi mores but we always are mindful of the glorious history of the country. Long before there were ancient Greece, Rome, and the beginnings of Western civilization, there were the Babylonians, the pioneers of civilization throughout western Asia. Their capital was a radiant city some 50 miles south of modern Baghdad. They ruled more than once what they believed to be a world-wide empire. By 2800 B.C. they already had developed a system of writing which was used throughout the Mediterranean and in Egypt. Excellent sculptures and engravings testify to their artistic attainments and a legal system such as the Code of Hammmurabi speaks of their search for order and justice. Their economic system allowed them to be industrious traders with partners and customers throughout western Asia.

Face-to-face with present-day Iraqians we must reflect on their recent past. History may provide a vantage point from which we can observe the people and understand the ideologies which motivate them. The history of modern Iraq is a record of bloody revolution, rebellions, coups, and wars. It began after World War I when the country emerged from 400 years of Turkish rule and was made a British mandate. It became a sovereign, independent state in 1932, but suffered a second British occupation in World War II when German forces in Egypt threatened the British mandates in western Asia. British troops had barely left in 1947 when Iraq joined other members of the Arab League and waged an unsuccessful war against the newly formed state of Israel. A few years later, in 1958, a bloody military revolution replaced the constitutional monarchy with a ruling clique of generals who introduced "people's courts" and mass executions. Thereafter, Iraq was ruled by various radical regimes of the Baath party, champions of "Arab socialism." Always at odds with one or more neighboring countries, they readily participated in the October 1973 war against Israel.

In 1979 Iraq experienced an unusual transfer of power from one Baath leader to another: a bloodless change of power. Citing ill health, the old president handed over the reins to General Saddam Hussein, Vice Chairman of the Revolutionary Council of the Party. But barely installed, the general discovered a plot against his government; twenty-one high government officials promptly were executed by firing squads. A few months later, in September 1980, Saddam Hussein voided old peace agreements with the late Shah of Iran, which signalled the outbreak of an all-out war with Iran, the bloodiest since World War II. It pitted some 13 million Iraqis against 38 million Iranians, lasted nearly eight years, and cost the lives of some one million Iranian and Iraqi men.

The end of the war with Iran in 1988 left Saddam Hussein with an experienced army estimated to be a million strong. He lost no time as, in August 1990, his army invaded and conquered the oil-rich neighbor, Kuwait, which had supported him generously during his war with Iran. But to his surprise and dismay, this aggression rebounded as President George H. Bush marshaled an international force which liberated the country early in 1991. Iraqi casualties were estimated at over 85,000 and some 175,000 soldiers were taken prisoner.

Saddam Hussein managed to cling to power despite United Nations economic sanctions and several uprisings by the Kurds in the North and Shiites in the South. Large-scale executions suppressed all resistance and many Iraqis just disappeared. Hussein organized the economy along the lines of a rigid command system with price and wage controls, strict rationing of basic foods and supplies at normal prices, and a ban on the sale of "nonessential luxury" items. At the same time, he boosted government spending and inflated the stock of money at hyper rates of many thousand percent. His economic system soon developed its well-known inevitable symptoms; while the official economy slowed to a crawl and unemployment at times soared to 40 percent, Iraqi economic life turned illicit, that is, to black markets. But in stagnation and poverty, Hussein succeeded in making the UN sanctions the dominant issue not only with his people but also the international community. Ever contemptuous toward the UN and especially the United States he enjoyed great prestige at home and with Arab masses for confronting the Western powers.

In the end, his bluster and swagger vanished when American and British armed forces occupied the country. While the four-week war wrought much destruction on Iraqi government facilities and, for a few days, endangered the lives of the people in major cities such as Baghdad, Arbil, Basra, and Mosul, it inflicted little damage on agriculture and major industries of oil, chemicals, textiles, and food processing. It crushed the old political order and left the economy in confusion and disarray. Above all, it left the command system with no one in command.

* * *

Human life is driven by a dim apprehension of religious, political, and economic thought which philosophers and economists seek to understand. Much of Asia is driven by Islam, the religion founded by the Prophet Muhammed, and by socialism, the political and economic theory that advocates government ownership and management of the means of production and government distribution of goods.

Islam, meaning "submission" to the one God, Allah, resembles the monotheistic faith of Judaism and Christianity. It is unitary in nature, covering and uniting both man's relationship with God and with society. Religion and social relations are inseparable; the ruler of a community is both a religious and a political leader seeking to guide his members. This unitary nature helped the spread of Islam from Mecca to Spain in the West and Indonesia in the East, from Kazakhstan in the North to Tanzania in the South. As Islam continues to expand and become more visible in Europe and North America, religious tension and conflict tend to grow.

The unitary nature of Islam naturally is partial to political responsibility and leadership in economic matters which helps to explain the economic and social policies of governments throughout the Muslim world. The leaders sit in judgment of economic policies or even conduct them. Influenced by various schools, doctrines, and notions of economic thought, they may favor any kind of economic policy from welfarism to radical socialism of the dictatorial type. Clerics are the tutors and preceptors of Islamic theology and social and economic ideology.

Saddam Hussein chaired the Baath party of Arab socialism. Although out of sight since the arrival of American and British troops, the party continues to represent the paramount political, economic, and educational ideology of the Iraqi people. Its advocacy of collective ownership of the means of production, of wage and price controls, and government allocation of individual income and benefits is the source of perpetual social conflict and political power. Personal ambition and social conflict together provide the ideological fuel for rebellions and revolutions. Attempts at overthrowing an established regime somewhere in the socialistic world are made nearly every year. In Iraq the number of revolutions, uprisings, rebellions, revolts, and coups d'etat since its inception in 1932 are too numerous to mention.

Well-versed in socialistic exploitative thought, the clerics and their disciples are convinced that the United States government is interested only in the rich oil deposits in Iraq, known to be nearly as large as those of Saudi Arabia. In their eyes, the war is a bloody imperialistic conquest and usurpation of their national resources.

The most important industry in Iraq undoubtedly is the petroleum industry which is exploiting the deposits in the Northeast, North, and South of the country. Their ownership, past and present, raises important ideological questions. Do the deposits belong to the land owner who finds them, develops them, and makes them productive and profitable, or do they belong to the government that happens to rule the country? Socialists of all shades and colors render all economic resources and production to government officials and politicians who plan and direct economic activity. In socialistic countries government owns and its officials manage all natural resources and industries including fishing, forestry, and mining. Even in countries that allow private property in production the government may claim legal title to all the minerals in the ground. Exploitation is either by government agencies or private companies under concessions from the government. They are granted preferably to domestic firms belonging to the political party in power.

Before World War I oil companies throughout the world enjoyed fee-simple titles to the property they acquired and developed. But with the rise of socialism and nationalism in many parts of the world, governments sought to assert paramount claims and titles to all the minerals in the ground. In time, many began to expropriate not only foreign companies but also domestic firms. In nearly every case the compensation paid for the properties seized was arbitrary and confiscatory. In Iraq it was an Anglo-German business, known as the Turkish Petroleum Company, which exploited the Iraqi deposits and began production before World War I. After the War the German owners were expropriated and the property was divided between the British Petroleum Oil Company which received 23¾ percent of ownership, Royal Dutch Shell 23¾ percent, Standard Oil of New Jersey together with Standard Vacuum of New York 23¾ percent, Compagnie Francaise 23¾ percent, and a local foundation 5 percent. After World War II the British government became the majority stockholder in the British Petroleum Oil Company by way of nationalization and the French government assumed 35 percent ownership of the French Company.

In the footsteps of European socialism the Iraqi government nationalized some oil fields and assets in 1961 and others in 1972. It paid no compensation for those assets seized in 1962 and limited its payment for Western-owned property seized in 1972 to delivery of a few million tons of crude oil. As a reprisal for U.S. support of Israel, it nationalized the property of two American oil companies, Mobil and Exxon, and severed its diplomatic relations with the United States, which forced a few U.S. officials to work out of the Belgian embassy in Baghdad. Diplomatic relations were restored during the Iran-Iraq War when Iraq sought favors from the Reagan Administration.

The United States government now faces the thorny job of managing Iraq's oil production and sales which employs more than 40,000 workers throughout the country. It is a tattered industry misruled and deprived of investment during decades of government ownership and management. Run by Saddam Hussein cronies, it is in urgent need ot people with industry expertise and of billions of dollars to repair the rundown industry's infrastructure. What should now be done with the industry that has such a colorful and controversial past? President George Bush and Prime Minister Tony Blair are in agreement and made it clear that Iraqi oil and other natural resources are "the patrimony of the people of Iraq, which should be used only for their benefit." This position obviously echoes the point of view of all statists and socialists who look upon government and its officials as the guardians of the people's natural resources. To them, private property in petroleum production, in contrast with political ownership and bureaucratic management, apparently is suspect of the selfishness, greed, and covetousness of predatory capitalists. Most media throughout the world echo this very position.

The only question still being discussed is who will manage the industry in the short term - United States appointees, United Nations officials, or Iraqi national oil company executives. United Nations officials undoubtedly would prefer to continue the food-for-oil arrangement which made them the custodians of the proceeds of Iraqi oil exports during the UN sanctions; unless they are returned as keepers, they are likely to favor continuation of the sanctions. But we may assume that Paul Bremer, President Bush's appointee, will search for Iraqis with industry expertise to run the industry, replacing Saddam Hussein's cronies. And if only few such experts can be found or can be trusted, he may call upon professionals of American and British oil companies. They may be able to manage "the people's property."

Friends of the private property order observe the Iraqi scene with great concern. They are convinced that now is the time to encourage the Iraqi people toward establishing freedom and the market order. If it is missed, it may be lost forever. It will continue the political order of mismanagement, dissension, turmoil, strife, and struggle and enmesh the United States in a conflict with a resentful world. Now is the time to privatize all industries and facilities of production owned by the government of Iraq. What the generals brutally expropriated should be returned to the builders and owners, whoever and wherever they should be. The foreign corporations with millions of stockholders throughout the Western world should be invited to return or at least be compensated for their expropriation losses. We cannot undo the past but we must meet its obligations and attend to the injuries suffered in the past. Surely, any kind of privatization of Iraqi industry is likely to cause a cry of protest throughout the socialistic world and especially by the governments of the oil-producing countries in the Middle East. It will provoke the wrath of the kings, emirs, and sultans of the Muslim world, for they practice a different type of privatization which yields personal riches, splendor, and pleasure to them. Even the people of Iraq are likely to resist and defy any true privatization because they have never experienced a freely functioning market order and, therefore, would feel lost and abandoned without controllers and commanders.

The difficulties of transition from an economic command system that has shaped and conditioned the psyche and memory of several generations of Iraqis are numerous and immense. Yet the people already passed two important milestones on the way to a free-market system. They reached the first in 1984 and 1985 amidst the war with Iran when Saddam Hussein embarked upon substantial privatization of the economy, especially in light and medium industries, the service industries, and most significantly, agriculture. It led to increased economic cooperation with other Arab countries and the West. Surely, he sought to control his people with draconic price and wage controls as he inflated and depreciated the currency during the 1990s. Yet, the thought of privatization of economic production has been a popular Iraqi concept ever since.

The second milestone on the way to economic freedom was reached during the time of hyperinflation which depreciated the government benefits and thus severed all ties of dependency. Moreover, black markets always train and prepare a new generation for the market order. Capable black marketeers tend to become great entrepreneurs who search for new ways of rendering economic services. Once the black markets are set legally free and unhampered, the entrepreneurs are likely to work miracles, recasting and rebuilding the economy. Unfortunately, they will have to contend not only with some felons in their midst, who do not distinguish between illegal black-market service and fraudulent trade, but also with many former politicians and bureaucrats who, accustomed to the old ways of connection and corruption, are likely to subvert and degrade the markets on which they appear as entrepreneurs. Observing the confusion and bedlam of transition, the media then may call for return to the command system, and new politicians may prepare new sets of government controls. In short, people accustomed to a command system may feel rather secure and contented in such a system and, therefore, not be ready for the unfamiliar demands of the enterprise system. While they may favor and opt for the command system they may yearn for the fruits of free enterprise.

A thorny job of managing Iraq's oil production is dealing with numerous foreign companies which under contract are rendering vital services to the industry. To make peace in the world of petroleum, this writer would honor all international construction, service, and sales contracts signed under Hussein, even if they were driven by his private interests. Some contracts held by Russian, Chinese, Indian, French, and German companies undoubtedly were made to curry political favor and win favorable votes in the UN. But voiding such contracts, which differ fundamentally from intergovernmental loans and credits, would be a clear violation of the quintessence of contract and undermine the enterprise order which is a contract order.

During the bloody war with Iran the Hussein government sought and received loans and credits from its Muslim allies and friendly neighbors, estimated as high as $120 billion, which amount to some $5,000 per head of the present population of 24 million. It received large loans from Saudi Arabia, Kuwait, and other friendly Persian Gulf states sympathetic to his stand against the Iranian theocracy. The Soviet Union supplied military air-to-air missiles. Even the United States provided financial credits for the purchase of American foods. Should the Iraqi people now be forced to repay loans incurred to finance a war of aggression launched by their dictator, a war which took the lives of some one million Iranians and Iraqis, greatly impoverished the people of both countries, and burdened them with staggering debts?

It is an "odious debt" on the part of both the debtors and creditors. Economists have struggled with the question of debt and payment throughout the last century from World War I to the Persian Gulf conflict. While their reaction usually is ambivalent, this economist draws an important distinction between intergovernmental credits and private contract debt. He would honor all private obligations, no matter what borders they cross and where and when they were incurred, but would refuse to redeem intergovernmental debt that allowed a dictatorial regime to wage wars of aggression. There cannot be any doubt that the Iraq-Iran War would soon have drawn to a close and the Hussein regime would have come to ruin if friendly governments had not lent full support to his aggression. Why should the credits that facilitated the slaughter of a million men and kept a ruthless dictator in power for another decade of bloodshed be honored and redeemed? Refusal would send a strong cautionary message to politicians and officials throughout the world about lending to dictatorships and financing wars of aggression.

* * *

The bloody dictatorship of Saddam Hussein has been vanquished, but the ideas that propagated and nurtured it are alive and popular throughout the Muslim world. Proclaimed and propagated by a multitude of teachers and clerics, they kept Hussein in power and the Iraqi people dependent on a master. Finally liberated by American and British forces, they now express open indignation at "the occupiers" and urge them to leave. They would love to return to a new version of Arab socialism.

There can be no more challenging task for occupation forces than to guide their charges to the light of freedom. Resentment, bitterness, wounded pride, and national honor are natural obstacles to their willingness to learn and comply. It may take several years of an unhampered market order with its visible fruits and improvements, introduced and protected by Coalition forces, to win the people over to its form and structure. The shortest road to an Iraqi enterprise system is yet another: it would be one proposed, promoted, and prescribed by an Iraqi mullah or professor who could successfully demonstrate the necessary changes and lead his people every step of the way. Students always learn best from their own teachers.

Hans F. Sennholz
www.sennholz.com

Copyright © 2002-2007 Hans F. Sennholz

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