TCS Daily

After Saddam

By Michael Feroli - February 12, 2002 12:00 AM

Now that it appears the U.S. is serious about removing Saddam from power, it's time to think seriously about what sort of regime will replace him. To that end, many in and around Washington have begun talking with the Iraqi National Congress (INC) about putting together a blueprint of the post-Saddam political structure in Iraq. Just as these discussions are prudent steps in planning for the difficult transition from tyranny to democracy, it is also important to start thinking now about the problem of Iraq's vast proven reserves of oil.

At first glance this may seem like less of a problem than a blessing; a problem that solves itself. A look around the globe, however, will reveal that most countries with a wealth of natural resources also have a poverty of democratic institutions. This is no mere coincidence. Virtually all first-world countries can trace their high standard of living back to the human wealth of their workforces. This is a type of wealth that is not easily expropriated from the people. The wealth derived from natural resources such as oil, on the other hand, can profit whoever controls it regardless of the consent of the people.

Such a readily exploitable source of wealth is often too much of a temptation for the nearest strongman to resist. If a general were to take over, say, Denmark or Delaware, what wealth could he extract from either of those sandy spits of land if the people did not accept his rule? If this same general seized control of a Gulf oil state, he could expect to profit handsomely, the people's consent be damned. It is this prospect of easily realized gain that has cursed resource-rich nations with an unending series of kleptocracies.

This logic, learned painfully over the past fifty years, is now informing the development of the oil reserves in the central African nation of Chad. Two years ago the World Bank, working with the democratic government of Chad, implemented a plan for the management of Chad's yet-to-be-developed oil resources so that the future revenue from Chad's oil benefits the people of Chad rather than just a privileged few. The core of the plan is legislation that sets aside 80% of the oil profits for spending on basic social services, primarily health and education.

While good intentions such as these are nothing new in the developing world, what is unique about the plan is the elaborate set of safeguards designed to make sure these intentions are fulfilled. Among the plan's provisions are offshore oil revenue accounts monitored by the World Bank, an annual independent public audit of the oil proceeds, and an oversight committee with members drawn from several quarters of Chadian society. While no set of measures is foolproof, and the Chad plan has yet to stand the test of time (Chad's oil won't even go on stream until 2004), the arrangement worked out by the World Bank and the government of Chad is a promising development in the tarnished history of natural resource wealth in the third-world.

There are two good reasons to think a Chad-style oil revenue plan would be good for a post-Saddam Iraq: democracy and development. By pre-committing the revenue from Iraq's oil fields to basic social welfare, money is essentially taken off the table and put into the pockets of the Iraqi people. And leaving money on the table is the surest way to another Saddam and the early end of an infant Iraqi democracy. In addition to preserving democratic institutions, a sensible revenue management plan could finance the social services that are necessary for Iraq to make the transition to viable economic development. Iraq currently has the capacity to earn around $15 billion annually from oil exports, with further oilfield development that figure could easily top $20 billion-or around $1000 for every Iraqi man, woman and child.

There are two other good reasons to get serious about such a plan now, before Saddam is toppled. First, it will be much easier to get the INC to commit Iraq's oil wealth for the common good today rather than when they are in power with the petro-dollars staring them in the face. Second, the weeks and months leading up to any action against Iraq will witness a battle for the hearts and minds of the world. We can almost certainly count on the Oxfam's of the world, who were completely wrong in predicting a humanitarian disaster in the Afghanistan war, predicting a humanitarian disaster in an Iraqi war. By presenting a coherent vision of what a post-Saddam Iraq will look like (democracy, generous spending on health and education), the U.S. will be better able to contrast our position with that of the "peace at any price" crowd ("dialogue" with Saddam, i.e. a return to 1989 Iraq). The contrast will be all the more poignant since they will undoubtedly attempt to argue on behalf of the welfare of the Iraqi people.

The future course of American action in the Middle East will present many challenges. Nevertheless, there also exist great opportunities to create in Iraq a modern, prospering democracy-a prospect that can only benefit U.S. interests in the region. Thus far attention has focused on what sort of government will replace Saddam. This is surely a crucial question to address. However, if we neglect to plan for the uses of Iraq's oil, we may simply be clearing the way for another dictator in Baghdad. America's hawks and Iraq's exiles would do well to study the example of Chad.

Michael Feroli is an economist and writer living in New York.

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