TCS Daily


Iraqinomics

By Nima Sanandaji - March 28, 2006 12:00 AM

The Arab world is rich in natural resources and has a tradition of entrepreneurship, but the economic performance of Arab countries has been very poor over the past few decades. To illustrate, in a briefing paper recently published by the Swedish think tank Timbro, Johan Norberg notes that almost 300 million Arabs produce less than 40 million Spanish. Inferior financial institutions and excessive reliance on public investments and state interventions have created a bad business environment. But the seldom told story of economic success in postwar-Iraq shows us how Muslim countries can grow if they are willing to open up markets and use oil as an economic commodity rather than a political weapon.

In the paper "Economic Growth and Investment in the Arab World", Xavier Sala-i-Martin and Elsa V. Artadi note that GDP per capita in the Arab world declined between 1980 and 2000. The authors conclude that investment has remained high in the region, but that this has not translated into larger growth rates due to a low quality of investments. A number of reasons are given for this, including excessive government intervention and too much unproductive public investment. That Arab countries rely too much on government action and too little on the market is not new. In a speech delivered during the Annual Meeting of the Union of Arab Banks in 1996, Michel Camdessus, then the managing Director of the International Monetary Fund, made the following remarks:

"[I]t is clear that the Arab world needs to improve economic performance and take fuller advantage of the opportunities in today's global economy. But how? I must tell you frankly that in a number of countries in the region, better economic performance and fuller integration into the global economy will require a fundamental reassessment of the role of the state. It is now nearly universally accepted that the most effective economic strategies are private sector-led and outward-oriented... Conversely, there is ample evidence that when the state dominates the economy, resources are often misallocated, and private investment and growth suffer."

Since 2000, Arab nations have experienced an economic boost from record high oil prices. In theory these resources could be put to good use. States could invest in research and infrastructure or implement tax cuts for individuals and firms. However, in Middle Eastern politics increases in cash flow to governments typically lead to massive expansions of the public sector, leading to the unproductive investments that Sala-i-Martin and Artadi discuss in their paper. The reason that Arab countries have remained poor is not only that they rely too much on big government and too little on free markets, but also that their vast oil resources are frequently used as weapons of policy rather than an economic commodity. The threats of instability caused by OPEC oil embargos or the funneling of oil money to terrorist organizations has created a mentality across the entire industrial world in which concerned leaders seek to find alternative energy sources. This might spell good news for nuclear power or oil exporters such as Mexico and Venezuela, but means that Arab nations are pushing forward the date when they no longer can fuel their economies with oil.

Can Middle Eastern states put oil resources to better use? Is it possible for free enterprise to thrive in the Arab world? The experience in Iraq suggests that the answer to these questions might be yes. The democratization of Iraq has meant that both foreign and domestic businesses can operate in a freer economic environment. Although media seldom report about this, the Iraqi economy is rapidly growing. According to the report "Measuring Stability and Security in Iraq October 2005," GDP per capita has more than doubled between 2003 and 2005. Compared to pre-war levels the increase was 31 percent. And the future looks bright. According to the Brookings Institution Iraq Index the Iraqi economy is expected to have a real GDP growth of 49 percent in the period 2006-2008. The oil sector has still not recovered to pre-war levels, partially due to the terrorist menace. Still, if Iraq continues on a path to democracy and economic progress, it is a fair assumption that its natural resources will be put to better use. Foreign investors and consumers would most likely appreciate the possibility to buy oil from a country that does not support terrorists or fundamentalist schools abroad.

Of course, Iraq still has a long way to go in order to recover from the war and the many years under Saddam's tyranny. But if the Iraqi economy can grow despite the ongoing attempts by radicals to undermine it, the same should be possible for the rest of the Arab world. Iraq could serve as a positive example in a region where policy makers have little knowledge about the benefits of free market reforms.

The author is the president of the Swedish free market think tank Captus (www.captus.nu). He is also a PhD student in biochemistry at the University of Cambridge.

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29 Comments

individual property rights
growing gdp per capita is a farce without individual property rights.

a joke?
There is a joke PhD students like to tell:

A bird sitting on a branck sees a rabbit sitting at
the base of the tree typing away. Up comes a fox and
asks: "What are you doing?" The rabbit answers: "I'm
typing my thesis. It's on how rabbits eat foxes."

"But that's not true, foxes eat rabbits." said the
confused fox.

The rabbit looked up from his typing and said: "Just
go look behind that tree and you'll see what I mean."
The fox went behind the tree and the rabbit went
back to typing.

Then a wolf came up to the rabbit and asked what he
was doing. "I'm writing a thesis about how rabbits
eat wolves."

"But that's not true, wolves eat rabbits." said the
confused predator.

The rabbit just assured him: "Go look behind that
tree and you'll see what I mean." The wolf walked
behind the tree and was gone.

Eventually, the bird was curious and flew over to
to look behind the tree. There was a lion surrounded
by bones.

The moral of the story is: It doesn't matter what
your thesis is about, it only matters who your
thesis advisor is.

Here, it doesn't matter what the post says, only that the webmaster would like it to be true. Here is a post saying the economy is doing well in Iraq when not only oil production, but also water and electricity are below pre invasion lows. There are reports of mal nutrition.

But OK, sometimes surprising things are true, let's have the evidence. Well . . . the evidence is that somebody in a think tank is projecting that the economy will improve in two years. Presumably, that projection does not assume that the country sinks into civil war.

The "reconstruction" of Iraq has been so rife with unfullfilled promises that even the rightest winger should have learned not to count chickens in the egg.

in LG's world
nothing is true, unless it comes from a DNC handout.

The fact remains that the economy in Iraq is improving rapidly, water and electricity are well above pre-war levels. Anyone who wants to can check for themselves.
LG won't because his keeping his world view intact is much more important than mere facts.

Quick: tell the Senate Foreign Relations Committee: They received a different report
WASHINGTON, Feb. 8 — Virtually every measure of the performance of Iraq's oil, electricity, water and sewerage sectors has fallen below preinvasion values even though $16 billion of American taxpayer money has already been disbursed in the Iraq reconstruction program, several government witnesses said at a Senate Foreign Relations Committee hearing on Wednesday.

Of seven measures of public services performance presented at the committee hearing by the inspector general's office, only one was above preinvasion values.

Those that had slumped below those values were electrical generation capacity, hours of power available in a day in Baghdad, oil and heating oil production and the numbers of Iraqis with drinkable water and sewage service.

Only the hours of power available to Iraqis outside Baghdad had increased over prewar values.

http://www.nytimes.com/2006/02/09/international/middleeast/09hearing.html?ex=1297141200&en=59ca112ddf7eaa4b&ei=5090&partner=rssuserland&emc=rss

NYT
anything that is sourced by the NYT can be assumed to be a lie.

Then look it up on the Washington Times or Fox news or NewsMax
The numbers won't change: they are the official numbers reported by the U.S. functionaries in charge of collecting this information.

If you can find different numbers somewhere, post them. Otherwise, why not go back to explaining to your 290 pound mother why you can't get it up for her any more, even though you know she's the only woman you'll ever be able to get into bed.

un called for
The mother stuff was un called for.

I appreciate your frustration with this guy, but I take comfort in thinking that others react to his posts as I do. He's trying to provoke you and the best thing you can do to diss him is to stay unprovoked.

Every college professor (liberal of conservative) knows that there is somebody who is not going to get it no matter how often or in how many different ways you explain it. There comes a time when you have to walk away knowing you've done your best and that your best has worked 95% of the time. But not, alas, for Mark.

Better not...
I thought I would join in since I actually do have numbers and sources but that mother comment tells me that an actual debate is not to be found here.

Maybe next time...

Thread breaker indeed...
Somebody is channeling Kos Kidz.

if you've got em.
Please go ahead with your numbers. If there's anything to support the main post, I would like to hear it.

Crude Economics
Rapid recovery in Iraq oil sector unlikely
Reuters, March 16, 2006

...Home to the world's third largest oil reserves, Iraq pumped some 2.5 million barrels per day (bpd) and sold 1.7 million bpd before the 2003 U.S.-led war that toppled Saddam. Prior to the 1990 Gulf War, crude output levels were at around 3 million bpd. Now, output fluctuates below 2 million bpd and the country supplies world markets with just over one million bpd.

...said Muhammad-Ali Zainy of the Centre for Global Energy Studies, "the situation of the oil sector is very dismal." To reverse output declines, Iraq needs to ensure the flow of funds and restore security to allow for oilfield maintenance, analysts said, noting that production briefly hit around 2.4 to 2.5 million bpd in 2004.

...Analysts say if stability returns, it will take a year to hit pre-war output capacity, another few to reach pre-Gulf War capacity and then 6-8 years to raise capacity to 6 million bpd.

...Other parts of the industry are faring badly. Refinery runs and gas utilisation have fallen and Iraq went from being an exporter of oil products in 2002 to importing some 20,000 tonnes a day of light products, such as gasoline, at a cost of $4 to $5 billion a year.

"There is nothing in 2006 that makes us believe things will get better," said Saadallah al-Fathi, a former official at Iraq's oil ministry...

...Only small oil firms have ventured into Iraq. While oil majors are eager to take a stake in the industry, they are waiting for security and the political process to stabilise.

http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nL16672097

Any excuse will do
>actually do have numbers and source

you never have before, but this does make a nice story

>that mother comment tells me that an actual debate is not to be found here.

actual debate is never to be found anywhere MarktheGreat is posting his fictions.

Tlaloc has nothing, based on previous postings
And I am fed up with dittohead vapor. MarkTheGreat posts nothing but pure fiction mixed with insults, flooding this site continually with his inane anti-information.

interesting take on reality
Those who have never met reality, eric and LG, complaining that others don't see the world as they do.

I'm waiting
for eric to post anything substantive.

eric can't help
considering he lives in his mothers basement.

to repeat:
WASHINGTON, Feb. 8 — Virtually every measure of the performance of Iraq's oil, electricity, water and sewerage sectors has fallen below preinvasion values even though $16 billion of American taxpayer money has already been disbursed in the Iraq reconstruction program, several government witnesses said at a Senate Foreign Relations Committee hearing on Wednesday.

Of seven measures of public services performance presented at the committee hearing by the inspector general's office, only one was above preinvasion values.

Those that had slumped below those values were electrical generation capacity, hours of power available in a day in Baghdad, oil and heating oil production and the numbers of Iraqis with drinkable water and sewage service.

Only the hours of power available to Iraqis outside Baghdad had increased over prewar values.

'mother's basement'
this is roughly the 40th time MarkTheGreat has offered this witless insult in place of either information or argumentation.

WASHINGTON, Feb. 8 — Virtually every measure of the performance of Iraq's oil, electricity, water and sewerage sectors has fallen below preinvasion values even though $16 billion of American taxpayer money has already been disbursed in the Iraq reconstruction program, several government witnesses said at a Senate Foreign Relations Committee hearing on Wednesday.

Of seven measures of public services performance presented at the committee hearing by the inspector general's office, only one was above preinvasion values.

Those that had slumped below those values were electrical generation capacity, hours of power available in a day in Baghdad, oil and heating oil production and the numbers of Iraqis with drinkable water and sewage service.

Only the hours of power available to Iraqis outside Baghdad had increased over prewar values.

substance
please refute if you have contrary information

WASHINGTON, Feb. 8 — Virtually every measure of the performance of Iraq's oil, electricity, water and sewerage sectors has fallen below preinvasion values even though $16 billion of American taxpayer money has already been disbursed in the Iraq reconstruction program, several government witnesses said at a Senate Foreign Relations Committee hearing on Wednesday.

Of seven measures of public services performance presented at the committee hearing by the inspector general's office, only one was above preinvasion values.

Those that had slumped below those values were electrical generation capacity, hours of power available in a day in Baghdad, oil and heating oil production and the numbers of Iraqis with drinkable water and sewage service.

Only the hours of power available to Iraqis outside Baghdad had increased over prewar values.

then get the thread going again
Have you information contradicting what the Senate was told?

WASHINGTON, Feb. 8 — Virtually every measure of the performance of Iraq's oil, electricity, water and sewerage sectors has fallen below preinvasion values even though $16 billion of American taxpayer money has already been disbursed in the Iraq reconstruction program, several government witnesses said at a Senate Foreign Relations Committee hearing on Wednesday.

Of seven measures of public services performance presented at the committee hearing by the inspector general's office, only one was above preinvasion values.

Those that had slumped below those values were electrical generation capacity, hours of power available in a day in Baghdad, oil and heating oil production and the numbers of Iraqis with drinkable water and sewage service.

Only the hours of power available to Iraqis outside Baghdad had increased over prewar values.

posts speak for themselves
Fortunato,

Mark's posts speak for themselves. Let him be the party of insults and denial & you be the party of facts and decorum. You won't convince everyone, but most.

Think of him as one of the nuts on that corner of Hyde Park that go on. There's nothing better for you to do than walk away.

Why do respectable conservatives with intellectual honesty...
...put up with MarkTheGreat's abusive nonsense? Isn't it shameful to be represented by a lamebrain loser like this? If not, why doesn't anyone call him on it?

UAE a better model
if the topic is economic growth in the arab world, why not use the UAE as your model (for economic if not political progress)? iraq is a mess but it's also an aberration at the present time. of course GDP will show a huge temporary increase from the levels at the end of saddam's reign/beginning of the war; that proves nothing for the long term. there will not be a truly thriving market economy in iraq as long as there is an occupation and an insurgency. but the experience in the UAE, qatar, and bahrain, altho small countries, shows there can be modestly successful capitalism in the arab world as long as the twin evils of socialism and religion are kept relatively in check.

btw, if anyone actually READ the study cited in the article, you would see acknowledgment of the problems regarding electricity and water in iraq (even in a US govt report!). economically, there are some good things happening in iraq, and a lot of bad things going on. which is bad news for those on the left who pretend that everything was fine economically under saddam, and bad news for those on the right who think that everything is peachy right now.

strange post
eric has never posted any facts, and he frequently insults those who disagree with him.

I guess LG is one of those liberals who is incapable of seeing that which he disagrees with.

could be
because I am always right, and you just can't bring yourself to admit.

Or perhaps your mother won't let you admit it.

please stop spamming this site.
If you have information to offer or an argument to make, do so. Otherwise, please stop spamming this site

please stop spamming this site
>because I am always right

always! really? please stop spamming this site.

right and wrong
I thought I was wrong once, but I was mistaken.

I guess you define spam as anything you don't agree with.

Wrong and wrong
the messages so designated are ad homs and non-info

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