Economic Privatization And

Economic Privatization and Liberalization in Iraq, Kuwait–maybe even Egypt

The US is going ahead with privatizing 12 state owned enterprises, mainly services, in Iraq. This step is technically illegal in international law, despite UN resolutions of limited scope. The Hague Regulations of 1907 say that Occupiers may not change civil law, and the body of jurisprudence around the Fourth Geneva Convention of 1949 interprets it as forbidding altering the character of local society. Privatization may be good for Iraq, but it can only be licit if it is carried out by an elected Iraqi government.

The US program for Iraq is being adopted by some other Arab countries. Kuwait will now allow 100% ownership of Kuwaiti companies by foreign concerns. Up until recently foreigners were limited to 49% of ownership. This limitation discourages investment by any company with trade secrets to protect. If a pharmaceutical company establishes a factory under the 49% rule, it must have a local partner that owns 51%. But this means that the local company might be able to steal the formulas of the medicines made and pass them on to other companies abroad for a profit.

Meanwhile, Egypt’s ruling party is making noises about a new opennness, and is being pressed by the al-Ahram Center for Strategic Studies, an influential think tank, to give up the old 60s-style socialist economy.

The US often urges such economic liberalization on other countries, but isn’t always consistent. No foreign company can own more than 49% of a US airline, for instance, and US tariffs protect southern textile factories from 3rd world competition. Major farm subsidies for many crops, including sugar and peanuts, are another form of unfair competition.

Not only is the US inconsistent, many economists believe that the “Washington Consensus” on deregulation is deeply flawed. They point to the fact that Argentina has followed the Washington consensus slavishly, and was rewarded with an economic meltdown. Shock therapy in Russia produced mafia CEOs and economic collapse. Deregulated energy markets led to massive fraud and theft from the California public by companies like Enron (causing dislocations that were unfairly blamed on Gov. Gray Davis). Deregulation of currency markets led to the economic collapse of East and Southeast Asia in 1997. There is a real question about the wisdom of imposing this program on Iraq, much less its legality, or on the Middle East as a whole. We don’t need a lot of new Argentinas in that volatile region. Markets, like pet tigers, can be wonderful dynamic things, but they are stupid and amoral, and need to be regulated if they are to be tamed.



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