TCS Daily

From Green Zone to Free Zone

By Max Borders - April 25, 2005 12:00 AM

While instances of violence are still an almost daily occurrence in Iraq, some analysts believe the country is entering into a phase of abatement in the frequency of attacks overall. Iraqi security forces are better trained, and are growing in strength and numbers. Oil resources are better protected. And one of the two primary arms of the insurgency (former Saddam Fedayeen) has expressed a desire for amnesty, as its guerilla strategy has proven counterproductive. While things may get worse before they get better, the country may soon be ready to enter another stage in its development.

So if you are the Iraqi leadership, where do you go from here? What is the best way to guarantee Shia and Sunni alike are included in the social-political nexus, and to ensure that the region grows economically?

Why not try something a little radical -- like turning the US military "Green Zone" into a free trade zone as American troops withdraw?

The Green Zone or lately "the International Zone," is the area where occupation forces currently live and work. Once occupation forces begin their withdrawal, the Green Zone would be ideally suited to what could become an outwardly expanding commercial center in Baghdad -- the epicenter of a renaissance designed both to bootstrap the Iraqi economy and assuage the Sunni population's restless spirit.

"Find the worst, most dangerous, most destitute places in the world and establish free trade zones there." That's what former Reason Magazine editor Mark Frazier says to do. And maybe we should trust his credentials. Mark has had over twenty years of experience helping to form free trade zones (FTZs) around the world.

Hold on, you may be thinking. How politically feasible would such a move be?

More feasible than at first blush, perhaps. Consider the case of Dubai: Dubai is one of those unsung success stories, obscured stateside, perhaps, by our terrorism-induced xenophobia. A member state of the United Arab Emirates (UAE), Dubai is a liberal trade zone with one of the highest concentrations of wealth in the world. The tiny Arab nation is light-years ahead of the rest of the Middle East, nay, the world -- both in terms of its wealth and its climate of entrepreneurship.

Why? Like Hong King and Singapore, the region was originally conceived of as a commercial district, i.e. a free trade zone -- not just a resource economy. So while Dubai may have primed the pump early on with oil revenues, it has not suffered from the so-called "resource curse." Dubai's benevolent dictator Sheikh Rashid ruled from 1958-1990 and is known for the sagely dictum "what's good for business is good for Dubai."

In an article called "A Spectacular Boom," the International Speculator's Doug Casey, provides mellifluous descriptions of this Middle East tiger economy:

        "In addition to the most spectacular hotel in the world, Dubai will shortly have 
        the Burj Dubai, now starting construction, which will be, at over 500 meters, 
        the world's tallest building and about the world's largest shopping center. 
        The entire project is billed as 'the most prestigious square kilometer 
        on the planet.' I believe it. Whatever happened to 5th Avenue, Rodeo Drive, 
        and the Champs Elysee? They're part of the Old World. Nice, but relatively 
        quaint... And if the Burj Dubai isn't topping something in the United States, it's 
        running with the big dogs; Kuala Lumpur's Petronas Towers and Shanghai's 
        World Financial Center."

So why not establish something similar just 800 miles away?

Once Iraq has reached something resembling a tipping point for the quelling of the insurgency, Iraq will be ready for self-generated development. The key will be for the newly elected government permanently to establish the conditions for entrepreneurship to flourish. It will not require continued development assistance from the US, nor will it require a complex regulatory edifice (quite the contrary, in fact). Instead, the Green Zone and eventually greater Baghdad will require only the institutional ingredients for success. For example:

  • Titled property, especially real estate.
  • A solvent system of currency, banking and credit that evades the religious taboos associated with "usury," which is considered a sin under Islamic law.
  • An independent judiciary for settling civil and commercial disputes.
  • A reasonably low taxation rate for individuals and corporations.
  • A climate of relative security.

Beyond this, economic free-zones need little more. In fact, government support for any free trade zone is a contradiction in terms. The success of similar zones around the world suggests that the model could be good not only for Iraq, but for the most neglected, war torn, godforsaken places on the face of the earth. Why? Because trade provides powerful incentives for people to cooperate rather than to fight.

We will soon see if ongoing experiments in places like North Korea's Kaesong bear any fruit. But history suggests that these centers of commerce tend not only to be peaceful, but to integrate diverse -- even formerly hostile -- subcultures beneath an umbrella of entrepreneurship, inclusion and mutual benefit. (Singapore, for example, is composed of Chinese, Malays, and Indians.)

Critics argue that free trade zones can be engines of wealth generation used by illiberal governments to fund their own expansion (China being an oft-cited example). But if we consider that the baseline of comparison is abject poverty via broad-scale nationalization, government tolerated free trade zones are a considerably lesser evil. In fact, the power of spontaneous ordering forces created by markets is such that individual citizens may grow strong enough to ensure permanent liberal reforms. Economic freedom is a perfect complement to democratization. After all, there is power in property.

Max Borders is a writer in the Washington DC area (hardly a free trade zone).


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