Global Policy Forum

By Herbert Docena*

Three years after the invasion, Iraq remains a living nightmare for many Iraqis. Up to half of Iraq's labor force are unemployed; more than 60 per cent of the population depend on government rations to survive; over 20 per cent live below the poverty line; and more than 400,000 children are suffering from malnutrition. This, on top of all the destruction, death and disorder. And it could just be the beginning. As more of Iraq's state-owned enterprises are sold off, tens of thousands more will lose their jobs. As the government eliminates rations, cuts subsidies, and slashes wages and pensions, more and more families will sink into destitution.

But with larger portions of Iraq's oil revenues going to international banks, or to multinational oil companies, less and less of Iraq's riches will go to the Iraqis themselves. With Iraq's legal and political institutions re-wired to open up the economy to free trade and to accept the rules of globalisation, there would be few options to pursue alternative economic policies that may lessen unemployment, reduce poverty, and uplift people's living conditions. All these are the expected consequences of what is perhaps the most stunning application of economic "shock therapy" on a country that is still undergoing "shock and awe" operations.

Over the past three years, Iraq has become the subject of what is probably the most sweeping and most violent economic restructuring of any country in history -- in pursuit of what Britain's The Economist magazine called the "capitalist dream" that is Iraq. The elements of this transformation would be familiar to most countries in the global South -- except that in Iraq, they came from the sky in the form of bombs.

The project has entailed opening up Iraq's domestic market to multinational corporations, giving them the freedom to exploit the country's natural resources and to buy off state-owned enterprises, allowing them to freely move their profits out of the country, and freeing them from government regulations. The state is to be shrunk: no longer would its purpose be to guarantee the welfare of citizens but to protect the rights and interests of investors.

It could hardly be said that all this was just an after-thought. While the United States military has acknowledged lacking a plan for post-invasion rehabilitation, there was a comprehensive and step-by-step blueprint for neo-liberalising Iraq from the ground up prior to the invasion. As early as in February 2003, long before any new Iraqi government came into being, the US had already decided this government would do. "The new government will seek to open up its trade and investment linkages and to put into place the institutions promoting democracy, free enterprise and reliance on a market-driven private sector as the engine of economic recovery and growth," read the contract for transforming Iraq's economy, as awarded by the United States Agency for International Development (USAID) to private contractor Bearing Point.

That "democracy" entailed ensuring that Iraq would have no choice. Since the beginning of the occupation, authorities have attempted to lock-in free market economic laws and policies, install a government committed to implementing them, and build up civil society organisations devoted to defending them. As 150,000 US and coalition troops settled in their military bases all over Iraq, hundreds of "technical advisors" planted themselves firmly in various ministries of Iraq's nascent government. Among them were former executives of oil corporations, a drafter of the World Trade Organisation (WTO)'s free trade agreements -- even the chief architect of Russia's catastrophic "shock therapy" in the early 90s.

While occupation authorities subsequently transferred "sovereignty" to an interim Iraqi government in June 2004, they did so only after enacting a raft of laws that the new government -- and succeeding governments -- could not easily overturn. Among them was Order 39, a law that grants foreign investors "national treatment," or all the rights given to Iraqis in operating in the domestic market, while depriving the Iraqi government power over their actions and decisions. Other orders suspended tariffs on goods entering Iraq, allowed foreign banks to operate in the country, and imposed a flat-tax system. Order 81 went so far as to introduce a system of monopoly rights over seeds in order to facilitate the entry of multinational agribusiness corporations.

Even before sovereignty could be "transferred," the occupation authorities and their hand-picked Iraqi leaders applied for membership at the WTO and made deals with the International Monetary Fund (IMF) and the World Bank (WB) on Iraq's behalf. In an attempt to show that the Iraqis themselves were the ones freely choosing the neo-liberal path, the occupation authorities embarked on a political process for choosing a permanent Iraqi government and writing a permanent constitution. At every step of the way, the United States attempted to influence its outcome.

For example, Iraq's post-invasion interim Prime Minister Iyad Allawi, was, despite projections to the contrary, effectively hand-picked by the US. Behind the scenes and even before direct elections could be held, Allawi had signed an oil policy that allows multinational oil companies to develop the majority of Iraq's oil fields through "production sharing agreements" (PSAs).

The terms of the PSAs are shielded from public debates and could not be revised in the future. While the Iraqi state would technically retain ownership of Iraq's oil reserves, it would have little power to regulate and plan its oil industry as control over its operations are given to multinational oil companies. According to a study by the British organisation PLATFORM, these agreements would cost the Iraqi people between $74 billion to $194 billion in losses -- or between two and seven times the current government budget, more than enough to pay off all of Iraq's debt to the Paris Club.

In the next step of the political process, the general elections last January 2005, the US spent millions of dollars supporting its preferred candidates. Beyond electoral contributions, the US has been funding academic research centres, chambers of commerce, professional associations, trade unions, and other civil society organisations that would actively promote, if not passively accept, the US's designs on Iraq's oil and economy.

In the writing of Iraq's constitution, the US ambassador was in the middle of the critical negotiations and US Embassy officials were even drafting and typing changes to the texts from English to Arabic. In the end, progressive provisions that ran counter to the neo-liberal economic policies introduced by the occupation authorities were struck down; inserted instead were sections encouraging investments and the development of Iraq's oil wealth relying on the most modern techniques of market principles.

But if the end-goal of the US-imposed political process was to install a government that could be counted on to administer the "shock therapy" even after the occupation forces retreat to their permanent bases, then the end-result of that process now shows how it has failed. This failure has been most recently demonstrated by how followers of the anti- occupation cleric Moqtada Al-Sadr -- whom the US has sought to marginalise from the process -- instead succeeded in denying the post of prime minister to Adel Abdul-Mahdi. It was Abdul-Mahdi who once said of plans to privatise Iraq's oil, "this is very promising to the American investors and to American enterprises, certainly to oil companies."

Before that, massive protests and riots greeted the lifting of fuel subsidies. A broad group of trade unions came out to denounce plans to privatise state-owned companies and reduce social spending. A national reconciliation conference -- attended by groups which participated in the political process as well as by those which boycotted it -- last year affirmed the Iraqis' right to resist. A common demand of resistance groups is to initiate a new political process -- without the US involved.

Thus, three years on, there is still no guarantee that the "capitalist dream" will come true. Instead of shocking Iraqis into submission, the neoliberal plans for Iraq's economy has galvanised their resistance. As evidenced by the widespread opposition to the occupation and to the economic restructuring of their country, Iraqis are living through their nightmare with their eyes wide open.

About the Author: Herbert Docena is a research analyst with Focus on the Global South, a Bangkok-based policy research centre. He has been following the economic reconstruction of Iraq.