Keith Crane is a senior economist at the RAND Corporation, a nonprofit research organization, and worked in Iraq as an adviser to the Coalition Provisional Authority in 2003. This is his first piece to be published on Webdiary
by Keith Crane
As the wisdom of President Bush’s proposed “surge” of US troops is debated across the US and around the world, another question about the US President’s new policy to avert all-out civil war there is coming to the fore. Can using US funding to reopen Iraqi state-owned enterprises get young men to abandon the insurgency and sectarian militias? The idea sounds logical: a man with a good job that enables him to build a decent life won’t want to fight Americans or his fellow Iraqis, right?
Unfortunately, that jobs strategy is unlikely to reduce the violence. Iraq’s state-owned enterprises were the cornerstone of Saddam Hussein’s economic policy. But, propped up by military contracts, those state companies were never well run or efficient; greatly overstaffed, they produced little, similar to the failed state-owned enterprises of the old Soviet Union.
Moreover, outside of the oil and electric power sectors, state-owned enterprises in Iraq have never been major employers. For example, the roughly 180 enterprises in the Ministry of Industry and Minerals, which controls all state-owned manufacturing companies, never employed much more than 100,000 workers in a nation of roughly 27 million people.
The employees of the state-owned enterprises still receive paychecks, even though about a third of their workplaces have been destroyed. For example, the Sulaymaniyah Sugar Mill was bombed during the Iran-Iraq war in the 1980’s, but its employees have been paid ever since, though only rats and pigeons now report for work there.
Indeed, many employees of state-owned enterprises show little interest in returning to work. When the Coalition Provisional Authority asked the employees of the Mishraq Sulfur Company to go back on the job in 2004, some of the workers lit $40 million worth of sulfur on fire and destroyed the facility. They preferred to be paid without working.
There is little to resuscitate among the state-owned enterprises. A third are damaged beyond repair, another third are hopelessly unprofitable, and the rest are a mismanaged assortment of plants, a few of which could potentially produce something of value, but only with proper management and incentives. Trying to give these hopelessly inefficient enterprises a new lease on life would make Iraqis poorer without reducing the violence.
Yet beneath Iraq’s chaos and the rubble, a rough and tumble private sector has been expanding since the US invasion, benefiting from higher oil revenues and more liberal economic policies. As a result, government expenditures and household incomes are up substantially since Saddam Hussein’s last years in power.
Despite the violence, commercial activity has also risen, because Iraqis are now free to import the equipment and goods they need to build homes, run stores, and operate trucking companies. If the US wants to increase jobs, it should intensify efforts to work with these private Iraqi companies to bid on contracts. State-owned enterprises should also be free to bid, but they should receive no favors.
The fundamental problem in Iraq is not jobs. In contrast to the Mexican, Chinese, or Russian revolutions, economic disenfranchisement is not driving the current conflict. This is a struggle for power, not for economic justice or a better life. The root causes are political, sectarian, and personal. Suicide bombers and death squads are not seeking shorter working hours, higher salaries, or better pension plans.
All credible economic indicators show employment prospects in Iraq improving since the end of the invasion. Daily wages for laborers in Baghdad have doubled in the last three years – hardly a sign of rising unemployment.
The only decent survey of employment in Iraq, the United Nations Development Program’s Iraq Living Standards Survey of 2004, measured unemployment at 10.5%. Iraqi statistics, which define unemployment more expansively, show rates in percent declining from the mid-twenties to the teens in the past two years.
Many young Iraqis join militias because that is where the money is. They can earn more hanging around with a gun in their hands than by working in construction or trade. Supporters of the insurgency are happy to plant a roadside bomb in exchange for extra cash. Instead of focusing on a large jobs program, the US could do more to bring peace to Iraq by reducing the money from Iraqi government coffers and smuggling activities that funds the payrolls of the insurgents and militias.
How then should foreign assistance to Iraq be spent?
The US should increase spending on programs to improve the police. Currently, many police devote their energies to shaking down citizens for bribes, and some moonlight in death squads. As long as Iraqis face daily threats of larceny, kidnapping, and murder – particularly from those who are supposed to protect them – they will seek security from neighborhood gangs and militias.
The key to improving police operations is to embed more US and allied police officers in the police force to mentor Iraqi officers. Mentors provide on-the-job training. They also identify good officers and those who are corrupt or participating in death squads or sectarian militias. More funds for equipment, improved facilities, and training would also help.
Funding and support to assist Iraqi courts and prisons to function more effectively and in accordance with international standards is also essential. Without progress in this area, improvements in the Iraqi police will have little effect.
Throwing more money at Iraq won’t buy peace. Iraq is already one of the largest recipients of US assistance ever. But a targeted assistance designed to improve the operations of Iraq’s police and government could help reduce violence.
Copyright: Project Syndicate, 2007.