Killing for Ideology: A Brief History of US Efforts to Establish a Free-Market Capitalist Economy in Iraq

by William Van Wagenen

“Murdering the innocent to advance an ideology is wrong every time, everywhere.” – George W. Bush

On May 1, 2003 just weeks after US forces captured Baghdad, the Wall Street Journal (WSJ) announced that “the Bush administration has drafted sweeping plans to remake Iraq’s economy in the U.S. image,” the execution of which “is expected to be complicated and possibly contentious.”1

The WSJ quotes President Bush as speaking of “a new Arab charter that champions internal reform, greater political participation, economic openness and free trade.”2 That the Administration developed plans to restructure the Iraqi economy before the invasion, suggests that the desire to remake Iraq’s economy constituted one of the objectives of the war itself. The WSJ notes that for many conservatives, Iraq is “the test case for whether the U.S. can engender American-style free-market capitalism within the Arab world.”3

Privatization, De-regulation, and an Investor Friendly Tax Regime

The plans included establishing “a comprehensive income tax system consistent with current international practice.”4 This description of the new tax regime seems to have been a euphemism as the New York Times noted 6 months later that the changes “would immediately make Iraq’s economy one of the most open to trade and capital flows in the world, and put it among the lowest taxed in the world, rich or poor.”5 These new low tax rates for investors 6

Additionally, the WSJ reported that many state-owned companies in Iraq might be sold through “a broad-based Mass Privatization Program” similar to the one implemented in Russia and other eastern bloc countries after the fall of the Soviet Union. In contrast to President Bush’s suggestion that such reforms were necessary for a prosperous Iraq, the WSJ expressed caution, noting that “in many countries, rapid privatization of state-run enterprises led to sharp disruptions in jobs and services, as well as rampant corruption.”7 This caution was understated, given that rapid privatization in the former Soviet bloc countries led to increases in poverty by a factor of ten, according to Nobel Prize winning economist Joseph Stiglitz.8

The coming “disruptions in jobs” from privatization were given a jump start in June 2003, when Paul Bremer, head of the Coalition Provisional Authority, disbanded the Iraqi Army, putting 350,000 Iraqi soldiers out of work.9 Later that fall, Bremer signed legislation locking in the proposed privatization of state-owned industries. Some 192 state-owned factories were closed, which, according to the World Bank, employed more than 500,000 people before the war, though those laid off continued to receive a portion of their salaries.10 Bremer also issued an edict preventing the Iraqi Central Bank from funding state-owned enterprises.11 When in 2007, a Defense Department official tried to reopen Iraqi state-owned factories to restore some of the lost jobs, a colleague at the US embassy in Baghdad called him a “Stalinist,” while another told him that if he rehabilitated factories, Iraqis “are going to use those machines to make more complicated weapons to kill our troops with.”12

At the same time, US government directed reconstruction did little to alleviate the mass unemployment initiated by Bremer. Writing in the Los Angeles Times, Antonio Juhasz notes: “One of Bremer’s orders denied the Iraqi government the ability to give preference to Iraqis in the reconstruction effort. Instead, more than 150 U.S. companies were awarded contracts totaling more than $50 billion, more than twice the GDP of Iraq. Halliburton has the largest, worth more than $11 billion, while 13 other U.S. companies are earning more than $1.5 billion each.”13 In a December 2005 letter to the International Monetary Fund (IMF), the Iraqi government noted that “a large share of bilateral donor support is either not going into the domestic economy or is being used primarily to cover security outlays.”14

In essence, little of the billions in allotted funds ever left the U.S., simply moving from the United States treasury directly to corporate bank accounts, or in other words, from US taxpayer into US corporate hands. In addition to Iraqi companies being bypassed, Iraqi laborers were not even able to benefit from the “trickle down effect” of reconstruction, as most of the few jobs that were created went to poor laborers coming to Iraq from South Asia, since many US companies did not trust Iraqis to work for them for security reasons. Reconstruction also accomplished little in terms of providing services, as Iraqis continue to suffer from severe shortages of electricity, clean drinking water, and any semblance of adequate health care.

As a result of all these factors, unemployment in Iraq remained high. The U.S. Agency for International Development estimated that by 2007 “nearly half of Iraqis are unemployed or work fewer than 15 hours a week.”15

Privatization of Iraq’s State Oil Industry

When the US invaded Iraq in 2003, Saddam Hussein had amassed a debt of some 38 billion dollars to various creditor governments belonging to the Paris Club, including the US and UK (in addition to debts owed to non-Paris club nations such as Kuwait and Saudi Arabia). All of the countries, including the United States, that gave loans to the Iraqi regime did so for bad faith political reasons, namely to aid Saddam in his war of aggression against Iran during the 1980’s. The loans were not given with the permission of, nor the money used for the benefit of, the Iraqi people. In 2004, the Paris club used this debt as leverage to try to force the new US-backed Iraqi government to privatize its oil industry, which Saddam had nationalized in the 1970’s to the great benefit of Iraqi society. In November 2004, the Paris club agreed to cancel, over the course of three years, 80% of the 38.9 billion dollar debt owed it by the government of Iraq, on condition that “a standard IMF programme is approved” and implemented.16

Conditioning Iraq’s debt relief upon completion of IMF programs, was not done out of generosity. Instead, the Paris Club nations offered debt relief to the Iraqi government in order to deepen their influence with, and leverage over, the Iraqi government, hence the condition that debt relief be contingent upon the implementation of the IMF program. As Anna Gelpern of Rutgers Law School has noted, in such cases “Debt relief does not end, but perpetuates the debtor-creditor relationship and increases creditor control.”17

In order to satisfy Paris Club demands, the Iraqi government signed a standby agreement with the IMF on December 23, 2005. This standby agreement stressed “the need to press ahead with structural fiscal reforms. These include, most urgently, measures to enhance the efficiency and transparency of public financial management, the move forward toward the commercialization of oil-related state enterprises, and the drafting of a new petroleum law.”18 In other words, in order to have some 31.1 billion dollars of debt canceled, the Iraqi government would have to privatize its oil industry. Leaving no doubt as to who would benefit from the privatization of Iraqi oil, the U.S.-appointed interim Finance Minister Adel Abdul Mehdi explained in August 2005 that the new oil law would be “very promising to the American investors and to American enterprise, certainly to oil companies.”19

The draft oil law proposes that privatization of Iraq’s oil industry would entail the Iraqi Government signing production-sharing agreements (PSA’s) with international oil companies to rehabilitate Iraq’s damaged oil infrastructure. PSA’s guarantee foreign companies a percentage of the country’s oil revenue until operating costs are recouped, after which the foreign companies would receive a percentage of oil profits. Opposition to PSA’s stems from the view that they would limit Iraq’s economic sovereignty and give foreign companies a much higher share of profits from developing Iraqi oil than they would receive by signing basic fee-based service contracts that do not guarantee a percentage of revenue and profits. Such fee-based service contracts are customary for the major oil producing nations in the Middle East, who like Iraq have large easily exploitable oil reserves and a nationalized oil industry.20 The Iraqi government, currently in a weak bargaining position while under occupation, is being pressed to sign PSA’s committing them to these unfavorable terms for 30 years. Reuters reports that such PSA’s could deprive the Iraqi government of up to $194 billion in oil revenue over 30 years.21

Recognizing the downsides to privatization, many Iraqis have vocally opposed the new draft oil law and have worked to oppose its enactment. In early 2007, Time Magazine quoted Kamil Mahdi, an Iraqi and senior lecturer in Middle East economics at the University of Exeter in Britain, who stated that, “This draft is totally out of synch with any notion of the interests of Iraq.”22 Time also quoted Hassan Jum’ah Awwad Al-Asadi, the head of Iraq’s Federation of Oil Unions, the largest union group, as saying, “We want a new, different law, which will be in the interests of Iraqis. . . We strongly warn all the foreign companies and foreign capital in the form of American companies against coming into our lands under the guise of production-sharing agreements.”23 In June 2007, Iraqi oil expert Tariq Shafiq presented a paper at the Centre for Strategic and International Studies in Washington DC which stated that the majority of Iraq’s oil technocrats opposed the new draft oil law as well:

The policy of the neo-conservative politicians prior to- and post- the invasion of Iraq has been the privatisation of Iraq’s oil industry leaving future exploration and development in the hands of IOC’s [International Oil Companies] on the basis of the PSA model. They called for Iraq’s withdrawal from OPEC and an open oil production policy to rival Saudi Arabia and break the OPEC cartel.

Privatization, however, runs against the grain of the great majority of the oil technocrats and the Iraqi nation. A strong state-owned national oil industry and unified central plan, policy and resource management, with a liberal attitude towards cooperation with the regions and governorates, have become the unchallenged principles of the overwhelming majority of Iraqi oil technocrats.24

Despite this opposition, the cabinet of the US and Iranian-backed Iraqi Prime Minister Nuri Al-Maliki complied with US wishes and approved the draft of the new oil law in February 2007.25 The draft was then sent to the Iraqi parliament for passage, where, after several revisions, the third draft was rejected in October 2008.26 The struggle to reject the draft oil law is still ongoing. Former Iraqi oil minister, Thamir Ghadhban, stated in December 2008 that he expects the fourth draft of the law to be passed in the spring of 2009. 27

Ending Food Rations

In addition to privatizing Iraq’s state oil industry, the December 2005 IMF program for Iraq included “lay[ing] the groundwork for the reform of the social safety net and the public distribution system.”28 Consequently, in early 2006 the Iraqi government made cuts to the food ration program established by Saddam Hussein during the 1990’s, when poverty in Iraq became widespread as the country suffered under a US-UK led United Nations embargo.29

For some in the Bush Administration, rations reductions were not enough however. In August 2006, Commerce Secretary Carlos Gutierrez drafted a document called “Secretary Gutierrez’s Five Priority Areas for Economic Reform in Iraq,” which, the Washington Post reports, “called for the United States to pressure Iraq’s government to cease providing people with monthly food rations, which more than half of Iraq’s population relies on for sustenance.”30 Officials in the US embassy in Iraq’s economic section vigorously opposed the plan, believing “that dismantling it as Commerce was proposing could spark riots that might topple the Iraqi government.”31 Gutierrez was revisiting an idea initially proposed by Paul Bremer, who, according to the Post, felt that the ration system “embodied socialism at its worst, . . . promoted corruption, wasted government money, discouraged domestic agriculture and interfered with the CPA’s plans to promote capitalism.”32

In addition to resisting pressure from the Commerce Department, the embassy’s economic section managed to fight off similar a similar attack on the ration system in the fall of 2006 “from the embassy’s Joint Strategic Planning and Assessment Office, headed by a Rand Corp. analyst on contract with the embassy, [which] created its own plan to restructure the ration system. It was even more aggressive than Commerce’s. It called for eliminating the rations in 38 weeks.”33

Particularly cruel is the fact that the Bush administration was trying to make these changes at a time when Iraq was (and still is) in the midst of a humanitarian crisis. Oxfam reported in July 2007 that:

Forty-three per cent of Iraqis suffer from ‘absolute poverty’. According to some estimates, over half the population are now without work. Children are hit the hardest by the decline in living standards. Child malnutrition rates have risen from 19 per cent before the US-led invasion in 2003 to 28 per cent now. The situation is particularly hard for families driven from their homes by violence. The two million internally displaced people (IDPs) have no incomes to rely on and are running out of coping mechanisms. In 2006, 32 per cent of IDPs had no access to PDS food rations, while 51 per cent reported receiving food rations only sometimes. The number of Iraqis without access to adequate water supplies has risen from 50 per cent to 70 per cent since 2003, while 80 per cent lack effective sanitation.34

Instead of seeking radical changes to the ration system, policy makers with concern for Iraq’s poor would be attempting to increase rations and extend access to the food ration system for the internally displaced Iraqis who have no way to support themselves, at least until the war and accompanying humanitarian crisis ends. For this reason, Abdul Hadi al-Hamiri, Iraq’s deputy trade minister, noted that, “[The food ration system] needs to be changed, but change has to be done after the security situation stabilizes.”35

Killing for a Discredited Ideology

In summary, the economic changes the US has both made, or attempted to make in Iraq, closely follow the prescriptions of the “Washington Consensus,” a free-market economic ideology, which holds that de-regulation, unrestrained capital flows, privatization, and minimal government intervention and reduced social spending, are the best ways to promote economic growth. “Economic reform” along Washington Consensus lines has led to increased poverty, unemployment and food insecurity for millions of Iraqis, and may lead to losing billions in oil revenue to Western oil companies. These changes were being vigorously pushed by the Bush administration in Iraq despite the fact that these same policies had previously led to economic crises in Argentina, Southeast Asia, Russia, and Chile.36 Joseph Stiglitz notes that by the turn of the millennium, Washington Consensus ideology had been largely discredited, and that a post-Washington Consensus consensus was already emerging.37

In President Bush’s farewell speech, just days before leaving office, he stated, “. . .good and evil are present in this world and between the two, there can be no compromise. Murdering the innocent to advance an ideology is wrong every time, everywhere.”38 This comment about America’s Islamist enemies was highly ironic, given that the Bush Administration killed many innocent people to make Iraq “the test case for whether the U.S. can engender American-style free-market capitalism within the Arab world.” Though killing for free-market capitalism may seem like “liberation” to some, or “spreading freedom” to others, for me the Bush Administrations’ actions in Iraq constitute killing for an ideology. What’s more, if Bush is right, it’s even more than that, its murder.

1. “Bush Officials Devise a Broad Plan For Free-Market Economy in Iraq,” Wall Street Journal, May 1, 2003.
2. WSJ, May 1, 2003.
3. WSJ, May 1, 2003.
4. WSJ, May 1, 2003.
5. “Economic Scene; The economic plan for Iraq seems long on ideology, short on common sense,” New York Times, Oct 2, 2003.
6. WSJ, May 1, 2003.
7. WSJ, May 1, 2003.
8. Stiglitz, Joseph. “Making Globalization Work,” WW Norton, 2006, pg. 39.
9. “The Conflict in Iraq: Winning the Peace; Debate Lingering on Decision To Dissolve the Iraqi Military,” NYT, Oct. 21, 2004.
10. “Defense Skirts State in Reviving Iraqi Industry,” Washington Post, May 14, 2007.
11. Washington Post, May 14, 2007.
12. Washington Post, May 14, 2007.
13. “Bush’s Economic Invasion of Iraq,” Los Angeles Times, Aug 14, 2005.
14. “Iraq: Letter of Intent, Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding,” December 6, 2005, accessed online at: http://www.imf.org/external/np/loi/2005/irq/120605.pdf.
15. Washington Post, May 14, 2007.
16. Paris Club press release, “The Paris Club and the Republic of Iraq agree on debt relief,” November 21, 2004, accessed online at: http://www.clubdeparis.org/sections/services/communiques/irak6017/viewLanguage/en. The 19 Paris Club permanent members are governments with large claims on various other governments throughout the world.
17. “Odious, Not Debt,” Law and Contemporary Problems, Volume 70, number 4, Autumn 2007, pg. 123, Anna Gelpern, Rutgers University School of Law, copyright 2007, accessed online at: http://law.duke.edu/journals/lcp.
18. “Iraq: Request for Stand-By Arrangement—Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Iraq.” International Monetary Fund, January 2006, pg. 18. Accessed online at https://www.imf.org/external/pubs/ft/scr/2006/cr0615.pdf
19. Los Angeles Times, August 14, 2005.
20. “Blood and Oil: How the West will profit from Iraq’s most precious commodity,” The Independent (UK), January 7, 2007. Accessed online at http://www.independent.co.uk/news/world/middle-east/blood-and-oil-how-the-west-will-profit-from-iraqs-most-precious-commodity-431119.html
21. “Big Oil has Crude Designs on Iraq Wealth-Report,” Reuters, November 22, 2005. For the full text of the report cited by Reuters, see “Crude Designs: The Rip-Off of Iraq’s Oil Wealth,” Researched and written by Greg Muttitt of PLATFORM http://www.carbonweb.org. Accessed online at http://www.globalpolicy.org/security/oil/2005/crudedesigns.pdf
22. Time Magazine, February 28, 2007.
23. “Troubles for the Iraq Oil Deal,” Time Magazine, February 28, 2007. Accessed online at http://www.time.com/time/world/article/0,8599,1594388,00.html
24. “Iraq Petroleum Law Re-visited: A Paper Presented at the Centre for Strategic & International Studies,” by Tariq Shafiq, Director Petrolog & Associates, June 12, 2007. Accessed online at: http://www.iraqog.com/oillaw/shafiq2.htm
25. “Iraqi Cabinet Endorses Draft Oil Law,” Reuters, February 27, 2007. Accessed online at: http://www.arabianbusiness.com/index.php?option=com_content&view=article&id=8558:iraq-cabinet-endorses-draft-oil-law&Itemid=72
26. “Iraq Parliament Committee Rejects New Draft Oil Law,” Dow Jones News Wires, October 27, 2008. Accessed online at: http://www.rigzone.com/news/article.asp?a_id=68356
27. “Iraq’s Oil Law to be Enacted by 2009,” Press TV, December 10, 2008. Accessed online at: http://www.presstv.ir/Detail.aspx?id=78020&sectionid=3510213
28. “Iraq: Letter of Intent, Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding, December 6, 2005. The following item is a Letter of Intent of the government of Iraq, which describes the policies that Iraq intends to implement in the context of its request for financial support from the IMF,” accessed online at http://www.imf.org/external/np/loi/2005/irq/120605.pdf.
29. Iraq: Food prices rise after reduction of monthly rations, IRIN News, UN Office for the Coordination of Humanitarian Affairs April 2, 2006
30. “Agencies Tangle on Efforts to Help Iraq, Staffers Say Spats Displace Priorities,” Washington Post, March 11, 2007.
31. Washington Post, March 11, 2007.
32. Washington Post, March 11, 2007.
33. Washington Post, March 11, 2007. To their credit, many of those who have attempted to dismantle the Iraqi food rations regime suggest giving cash payments to Iraq’s poor as a replacement. Giving aid only to those who need it, rather than all Iraqis makes sense. Nevertheless, there are several reasons why making such radical changes now would likely have grave effects for many Iraqis, which is why the economic section of the US embassy and the US military blocked Bremer’s proposal. The first is that most of Iraq’s wealthy have left the country, as they had the means to travel and live comfortably in Syria or Jordan, meaning that the number of wealthy Iraqis benefiting from the rations unjustly is small. Secondly, if the ration system were dismantled, there is no guarantee that a comparable system would effectively be implemented to take its place. Given the US’s failure to accomplish meaningful reconstruction, provide basic services, clean drinking water, electricity, etc, it is unlikely that the US would be able to implement a cash payments system to the poor in a timely or efficient way, and that would not be plagued by the corruption which has cursed much of the occupation authority. Trying to make such a transition in the midst of a humanitarian catastrophe would, well, catastrophic.
34. Oxfam International, “Rising to the humanitarian challenge in Iraq,” Briefing Paper, July 2007 accessed online at http://www.oxfam.org/en/policy/briefingpapers/bp105_humanitarian_challenge_in_iraq_0707)
35. Washington Post, March 11, 2007.
36. For specifics see, “Shock Doctrine: The Rise of Disaster Capitalism,” by Naomi Klein. Henry Holt and Company, 2007.
37. Stiglitz, Joseph. “Making Globalization Work,” WW Norton, 2006, pg. 17.
38. “Bush’s Farewell Speech: This is a moment of pride and hope.” CNN.com, January 16, 2009. Accessed online at http://www.cnn.com/2009/POLITICS/01/15/bush.speech.text/index.html
39. WSJ, May 1, 2003.