Iraq: A Boost for Reconstruction

Carlos Pascual and
Carlos Pascual Former U.S. ambassador to Mexico, Senior Vice President for Global Energy - IHS Markit, Former Brookings expert
Michael E. O’Hanlon

July 2, 2006

The U.S. debate over Iraq focuses chiefly on how fast we can bring our troops home. But if withdrawal is not put in the context of what it will take to achieve success in Iraq, we will have squandered American lives and treasure without considering whether the United States, Iraq and international security will be better off.

How large the U.S. military presence should be and what missions troops should emphasize are critical questions. But we must not forget that they are there to create an environment in which Iraqis can shape a more prosperous and secure life with an assurance of the rule of law.

The United States has not ignored the economics of rebuilding Iraq. The $21 billion appropriated so far is, in inflation-adjusted per capita terms, comparable to Marshall Plan levels of aid. Financially, we have devoted as much to rebuilding Iraq as we sent to Western Europe after World War II.

This time, unfortunately, the aid isn’t working nearly as well, in part because the task is more complicated given Iraq’s history of state control and oppression, largely because of the violence.

Major Iraqi utilities generally are functioning at or below Saddam Hussein levels. Unemployment is 30 percent to 40 percent. Household fuels are not as readily available as they were a couple of years ago. Health care clinics and hospitals are generally mediocre. By most accounts, Iraqis feel that corruption has been transferred from Mr. Hussein’s elites to another set of unaccountable oligarchs. Example: Meters still have not been installed on oil wells, so no one knows how much oil is being stolen.

Not everything is bleak. The gross domestic product – the value of all goods and services produced – has recovered to 2002 levels and perhaps even a notch more. Iraq’s per capita income of about $1,000 a year means it is a poor country but hardly destitute. Consumer goods are more readily available, telephones are far more prevalent and vaccinations for children are common. School enrollment appears to be up too.

That said, a recent U.S. government poll found 80 percent of Iraqis surveyed as describing their economic environment as poor or mediocre. Only 30 percent of Iraqis now say they are optimistic about the future.

The horrible state of Iraq’s infrastructure that existed under Mr. Hussein is part of the problem. So are the frequent insurgent attacks against it. And Iraq’s human talent is not being used effectively. The de-Baathification process drove many professionals from their jobs in 2003, and the insurgency has been targeting for assassination many of those who are working to build a new Iraq; criminals as well as insurgents and terrorists are kidnapping professional Iraqis at record-setting rates.

More of the same won’t suffice.

While we should continue reconstruction efforts and replenish those funds from the original $21 billion package designed for reconstruction but diverted to security purposes, new efforts also are needed. Massive private investment will not be made given current security conditions, and the infrastructure will not improve because of the strength of the insurgency.

Under these circumstances, we recommend two new economic initiatives in addition to ongoing efforts. They are critical to improving the political and security environments in Iraq today.

Create jobs.

There are parallels to the United States of the 1930s. Free-market economics do not suffice by themselves. There is such a crisis of confidence that Iraqis need a shot in the arm just to know they have a stake in the country’s future. We need to help the Iraqi government provide its citizens with a simple dose of positive thinking.

The simplest way to do this is to create a Works Progress Administration to guarantee a modest paying job to any Iraqi (except known criminals and terrorists) who wants one for the next five to seven years. The jobs could be in agriculture, urban renewal or sanitation.

Ideally, more resources could be channeled to a local level to give Iraqis a chance to expand small businesses, which have been the biggest sources for employment growth in every major economic transition in recent history. The key is to decentralize the use of the resources to take advantage of Iraqi talent and local knowledge of security conditions.

Who better than Iraqis to understand where it is safe to invest? Who better than Iraqis to foster a climate of rejecting insurgents who disrupt a tangible hope of a more prosperous future?

If others help, the U.S. price tag for this effort might be $1 billion a year, or less than we spend on military operations in Iraq in a week. If we could help Iraqis capture siphoned revenues from the oil sector, Iraqi financing realistically could be phased in. If we shouldered the full burden, the cost would still not rise above $2 billion to $3 billion annually.

Clarify who controls the oil.

The Iraqi constitution is not clear about who controls future oil wealth, Baghdad or the provinces. Since oil accounts for two-thirds of the GDP and 95 percent of all export earnings, this issue is crucial.

Unfortunately, the ambiguity angers Sunni Arabs, whose territory sits on 5 percent to 10 percent of Iraq’s estimated oil reserves even as they constitute 20 percent of the population. Our Kurdish and Shiite friends must be convinced that oil is the common property of all Iraqis, to be shared equally on a per capita basis in perpetuity. The principle of equality is essential.

The United States does not call the shots in Iraq. But with the United Nations and other players, it can help organize the resources needed to implement a jobs program and provide the perspective needed to convince the Shiites and Kurds to share Iraq’s future oil.

It is imperative that we do so, not only for Iraq’s future but also for the safety and well-being of our troops.