Economic restructuring in Iraq: intended and unintended consequences.(Essay)

With Iraq on the verge of civil meltdown, it is tempting to view a discussion of its economy as academic, secondary to the more pressing issues of impending civil war and chronic insecurity. Yet, this essay seeks to do precisely that: shift the focus in order to place economics at the center of the discourse about Iraq. In doing so, the article argues that an assessment of economic policies and conditions is vital to understanding the current social turmoil. While it does not deny the role of non-economic forces in the present violence, the essay posits that economic policies--which signaled a strategy on the part of the United States to radically restructure Iraq's economy--have greatly exacerbated rather than ameliorated existing social fissures and structural difficulties. It is shown that far from lacking a plan, the United States had a thorough and purposeful economic strategy for Iraq. Indeed, it is not the dearth in planning, but the details of the plan that have promoted insecurity. Viewed in this light, the present conditions of turmoil in Iraq are not exclusively--nor perhaps even primarily--the result of stubborn ancient animosities or absent planning: they are the consequence of a complex interaction of unfavorable initial conditions and subsequent erroneous strategy.

The lack of attention to the economic roots for the violence in Iraq is reinforced by the prominence given to two ever-present themes. These are, one, the prevalence of sectarian rivalries, usually portrayed as timeless and unyielding, and two, the lack of post-war planning on the part of the United States--underlined in the popular imagination by the scenes of anarchy and looting immediately following the invasion. The first exemplifies what Roger Owen (2004, xii) has called "an unhelpful notion of an unchanging East in which ... things remain much the same, whether in terms of tribalism, dictatorial rule or the local people's compulsion to kill each other in the name of religion." Accordingly, Iraq is portrayed as the venue for stubborn ethnic and sectarian cleavages and hatreds. How post-invasion economic policies facilitated a rise in sectarian tensions between the Sunnis and Shi'a is rarely discussed. (1) The second premise presupposes that the United States lacked a post-war plan for Iraq, including insufficient troop levels, which allowed a minor rebellion to gain strength. Thus, depending on which aspect is stressed, the current turmoil in Iraq is presented as an almost inevitable--certainly understandable--result of age-old antagonisms, absent planning and/or disastrous tactics.

This study contests both arguments, demonstrating that there was nothing inevitable or natural about the violence. This does not deny the existence of historic cleavages and structural difficulties in Iraq, but argues that post-invasion U.S.-sponsored policies, which centered on arguably the most radical market "shock therapy" tried anywhere (Stiglitz 2004), were acutely unsuited to assuaging these divisions and difficulties. It is shown that the economic policies of the Coalition Provisional Authority (CPA) inflamed sectarian divisions, fuelled insecurity and consequently impeded the rebuilding of Iraq's shattered infrastructure. As such, this essay carries important implications for development policy, history and economic theory. In terms of policy, Iraq serves as yet another case study in which market shock therapy has proved misguided. The essay is pertinent to history as it details the content and consequences of CPA policies and contests the repeatedly voiced claims that the United States lacked a post-war plan for Iraq. And, the essay is important to theory in that it illustrates the inherent perils in the reflexive application of economic strategy, without regard to the social or economic context.

The essay begins with the discussion of two key challenges in Iraq, one political and the other structural (or economic). These are the sectarian cleavages--which to some extent overlap historically with divisions of class and have been exacerbated by the decline in the institutions of civil society--as well as the technical constraints associated with rebuilding, much aggravated by the successive wars, economic sanctions, and since 2003, U.S.-sponsored economic policies. This is followed by a discussion of the content and consequences of post-invasion economic policies, in particular those of the CPA, and closes with a discussion of current conditions.

Key Challenges

Ethnic and Sectarian Divisions

The ethnic and sectarian tensions in Iraq, particularly the Shi'a-Sunni schism, are known to most by now. The religious basis to the split originates from a seventh-century conflict over the rights of succession to the prophet Mohammed (Sluglett and Sluglett 1978; Kelidar 1983). Repeated exclusion from power along with relative economic deprivation over time nurtured a political outlook of the "underdog" on the part of the Shi'a population (Batatu 1978, 45). This was reinforced during the period of Ottoman control with policies that deliberately discriminated against the Shi'a of Iraq. Fearing that the loyalties of members of the sect resided with the Persian (and Shi'ite) state .rather than their own, the Ottomans in effect barred the Shi'a from the bureaucracy and army, which offered the children of modest Sunni Muslim families an avenue for upward mobility. These mostly Arab Sunni bureaucrats and officers came to dominate the nascent Iraqi state after the First World War (WWI), even though the majority of the population was (and still is) Shi'ite. Although precise data are unavailable, Table 1 offers a rough estimate (based on an analysis of Iraq's 1947 census) of the ethno-sectarian composition of Iraq's population. While the Arab Shi'a forms a slight majority of the population, the minority Arab Sunnis have until very recently dominated political life since the forming of the country.