To resist the seduction of the dark side, central planning, America will need to assemble a brain trust of economic reconstruction advisers who are geniuses dedicated to the principles of free markets and who know free markets' specific limitations.
If America's Iraqi reconstruction administration falls into the trap of centrally planning economic development, then it won't be building a free nation, it will just be treating the Iraqis to more socialism with all of its pitfalls for both the economy and liberty.
The key to prosperity is liberty, as in economic freedom. That means delegating as much economic activity and as many investment decisions as possible to free markets.
Delegating Responsibility
The US government can hardly afford to build a whole infrastructure and industrial economy for Iraq and then just give it away. Nor should it. For starters, such central planning is against the very principles for which we are fighting.
Rather than move in an army of bureaucrats to impose a new brand of the same old socialism (or allow the UN to do so), we should move as rapidly as possible to create free markets by privatizing. To do that, we must establish secure titles to private property.
Step 1: Secure Titles to Private Property
Secure private property rights are the first key to attracting much needed capital investment to rebuild Iraq's (or any devastated nation's) economy. When people can keep what they own and trust that they can, then they'll be willing to cultivate their properties, invest in them and bring capital to bear. Therefore, it is essential that anyone with capital to invest not only be allowed to buy into Iraq but be assured that their investments will be protected.
Moreover, when people control their own property, they'll make decisions based on their specific circumstances, which is virtually always far better than some bureaucrat deciding based on the limited information available at the apex of a government hierarchy located in some capital far away, its attention divided by overwhelming responsibilities.
Toward this end, as each layer of new Iraqi civilian government is established, its constitution or charter must respect property rights in strong, unequivocal language. In addition, their initial behavior must be kept honest by the vestiges of the coalition armies in and near Iraq.
Sorting Through Properties
First, we need to figure out what property titles already exist and whether they're worth respecting. Saddam's family holdings and some Baathist butchers' holdings shouldn't be. Second, we can award title to non-producing properties like simple residences. I'm not sure whether or not to include farms; maybe single-family ones.
After that however, the Iraqi people as a whole have a collective interest in all productive assets like oil fields, ports, powerplants and factories. Since this collective interest is incompatible with the free-markets, capitalism, and private property paradigm described above, we need a transition mechanism to take Iraq from collectivism to capitalism as equitably as possible.
Step 2: Auctioning Off Iraq
That means that we need to auction off most of the properties while encapsulating a few others in new corporations. Either way, whether converted into cash or converted into shares, the residue should be distributed to the Iraqi people to dispose of as they wish.
I recommend auctions for all but the most culturally critical properties, and foreigners should be encouraged to buy. Three things come together to work here:
1.Having established security of title, buyers can buy with confidence, raising prices, generating the most cash for Iraqis.
2.Many nations' investors become attached to Iraq, inducing them to care about Iraq's future stability.
3.Auctions put property into the hands of those who see the most value in it and who have the greatest ability to capitalize it. That, combined with further protection for civil and property rights will induce capital to flood into the country.
Attachment to Oil
Several of my acquaintances believe that the Iraqi people will object if we auction off their oil properties to the highest bidders, even if we distribute the proceeds within Iraq. Whether or not that specific case is true, there are probably some properties that Iraqis can't abide seeing auctioned, so we need a different mechanism to privatize them. As mentioned above, that method can be incorporation. This would allow each Iraqi (now a shareholder) to decide individually whether to cash out or wait for dividends.
It's not as elegant as auction. It takes our protectorate administration into a lower level of detail, selecting an initial board of directors (trustees) and writing some bylaws. Fortunately, this would only be temporary, and the protectorate would not need to actually operate any going enterprises. Once distributed, each corporation can then reorganize itself and operate normally.
What will be needed, of course, is a market for buying and selling shares. We can either set one up in Iraq to list Iraqi corporations, or we could borrow one somewhere else. Either way, there would be an immediate need (read business opportunity) for one or more brokerage companies to serve the freshly minted shareholders in Iraq.
"Oh no, You Can't Let Foreigners Buy Iraq!"
This sentiment is one of the critical problems that has bankrupted the former Communist Bloc countries. Their shortsighted governments insisted that only their own citizens own property and develop it (and title was usually weak even then) even though they didn't have the means to do so.
Beggars can't be choosers. They'll be better off sooner if they cash in proven assets and distribute the proceeds so they can buy things they need before diverting equity into things they want. Resources like oil fields need capital to exploit them; selling to wealthy foreigners attracts much needed investment into the country. More than that, putting property into the hands of those who can afford to develop it will create jobs for those who can't.
Free Markets and Capitalism Emerge
Therefore, as mostly cash proceeds are distributed to Iraqi citizens, and as arriving capitalists hire Iraqis to develop new ventures, the Iraqi people will have something to bid with, so they won't be left out. Even better, we can bootstrap the process by fronting some cash and recovering it from later auctions. Then the Iraqis would be able to get in on the bidding for property and establishing small businesses sooner.
What's more, they'd also be able to buy food instead of depending on free handouts. A cash economy would immediately emerge... the free market economy we are hoping to see. Later, as new property owners pour capital into the country, the economy will expand and diversify as construction and industry employ millions.
Incidentally, by following these principles, and we would show the former Soviet republics how they should have transitioned to capitalism. Indeed, if I were in charge, I would worry more about labor shortages developing, not unemployment. Within a couple years, Iraq could be advertising to attract immigration. And, if I really had my way, the new Iraq would even attract individualists and their wealth fleeing the over-regulation and high taxes in the USA.
Copyright 2003-2004 by Jeff Fisher: Permission is granted to reproduce this article in whole, but only in combination with attribution, the original title, the original URL, and this copyright notice.