With one exception – the actual military “victory,” which looks increasingly Pyrrhic – President Bush’s Iraqi adventure has been marked by repeated failures. Scant signs of weapons of mass destruction have been found, and, according to David Kay,
Worse still, it is now clear that Bush never had a plan for when the war ended. Instead of moving towards peace and democracy, the situation in
If there was not outright corruption in the $7 billion in contracts awarded to Halliburton, whose former chairman was Vice President Dick Cheney, there was undoubtedly a strong whiff of crony capitalism. Halliburton and its subsidiaries have been ensnared in charges of war profiteering ever since, and have had to pay back millions of dollars to the
Now, everyone agrees, the most important task – beyond creating a democratic state and restoring security – is reconstructing the economy. Blinded by ideology, however, the Bush administration seems determined to continue its record of dismal failures by ignoring past experience.
When the Berlin Wall fell, the countries of Eastern Europe and the former
Today, there is a broad consensus that shock therapy, at least at the level of microeconomic reforms, failed, and that countries (Hungary, Poland, and Slovenia) that took the gradualist approach to privatization and the reconstruction of institutional infrastructure managed their transitions far better than those that tried to leapfrog into a laissez-faire economy. Shock-therapy countries saw incomes plunge and poverty soar. Social indicators, such as life expectancy, mirrored the dismal GDP numbers.
More than a decade after the beginning of the transition, many postcommunist countries have not even returned to pre-transition income levels. Worse, the prognosis for establishing a stable democracy and the rule of law in most shock-therapy countries looks bleak.
This record suggests that one should think twice before trying shock therapy again. But the Bush administration, backed by a few handpicked Iraqis, is pushing
There are, of course, similarities and differences between the former communist countries and
Moreover, while both
To be sure, Russians went decades without opportunities to exercise entrepreneurship, while Ba’athist rule did not suppress
These factors, together with the ongoing occupation, make quick privatization particularly problematic. The low prices that the privatized assets are likely to fetch will create the sense of an illegitimate sell-off foisted on the country by the occupiers and their collaborators.
Without legitimacy, any purchaser will worry about the security of his property rights, which will contribute to even lower prices. Furthermore, those buying privatized assets may then be reluctant to invest in them; instead, as happened elsewhere, their efforts may be directed more at asset stripping than at wealth creation.
If Iraq’s prospects are as dismal as my analysis suggests, any international contribution to the US-driven reconstruction effort is likely to be little more than money flushed down the drain. This does not mean that the world should abandon
The World Bank and other institutions considering assistance through loans face even greater difficulties. Piling more debt onto
The dream of
Joseph E. Stiglitz, a Nobel laureate in economics, is Professor of Economics at Columbia University and was Chairman of the Council of Economic Advisers to President Clinton and Chief Economist and Senior Vice President at the World Bank. His most recent book is The Roaring Nineties: A New History of the World’s Most Prosperous Decade.