Nation for Sale:

In Iraq, war and embargo have cleared the path for privatization


Author Barbara Nimri Aziz: a New York-based broadcaster, writer and anthropologist, recently returned from the Middle East. She has been observing developments in Iraq first hand for a period of 8 years.

To cope with the economic crisis created by the UN embargo since the Gulf War, Iraqis sold private libraries, jewelry, furnishings, and even cars.

But now it's apparent that the government is also mortgaging resources to stay afloat. A year ago, the government opened for sale warehouses of grain, cars, auto-parts, and hardware to offer an alternative to merchants' high prices. Prices everywhere dropped. "Private suppliers were hoarding and forcing prices up," says one visiting NGO expert who welcomed the move.

But the stability was short-lived, perhaps because consumers became merchants, buying goods to set up businesses; those with more cash had more to gain from the sales. At about the same time, huge stores of vehicles and entire factories were reportedly sold. Previously, car and truck distribution and most industries were state-controlled. Government workers who'd enjoyed easy access to cars and bus service now found them unavailable. But the buyers weren't the civil servants who'd lost their car privileges, since the sales were restricted to people with significant capital. The trend toward free enterprise is most obvious in the growth of poverty rather than wealth. Most of Iraq's citizens were forced to take any available economic initiative, `however paltry, in their search for livelihood; thus, the proliferation of vendors, many of them children and former government employees.

Every Iraqi today must seek alternatives to crippled government services. Meanwhile, the government is increasingly less able to do what it used to, in everything from medical care to banking. After the Gulf War, because the Iraqi dinar became almost worthless, many people stopped using state banks. Illegal money changers flourished, competing with the government for scarce dollars remitted by hand to family members, or brought in by visitors and NGO staff.

Then, in 1995, the government eased its fiscal policies, permitting money changers to operate openly. Private banks were licensed to compete with the state's Rafidian Bank. Until then, all banks were government-owned. Private hospitals also began to flourish. Before the war, almost everyone used the excellent public health care services. Without medicines or other supplies, however, the centers had to reduce wards and refuse patients. Young residents like Moyed Khairy had to decide: go abroad for work or moonlight at home. Moyed has stayed. Working afternoons at a private hospital, he supplements his monthly government salary (3500 dinars, or $3.50) by 15,000 dinars. The 45-bed center and similar ones were built after 1992 by partnerships of senior doctors and medical professors with capital to invest and reputations that attract paying patients. Iraqis say they're forced to leave government service since their salaries can't keep up with inflation. Even a teacher like Ali, fluent in English, is a peddler now. He stands beside a handcart displaying small vials of fragrant oil. "I can earn more selling," he says, though not enthusiastically. "Before, I had a car and house and cash left at the end of the month. My family and I took a holiday every year. After the embargo, I could not even buy food for us." Across Iraq, one meets young taxi drivers, repairmen, fruit vendors, or restaurant managers who were trained as lawyers, electrical engineers, interior designers, foresters, or archeological assistants.

In the past, most of them were employed in civil service and constituted a significant middle class. State-run galleries, institutes, planning centers, and schools absorbed most of the educated class, and all education was free. Now this class is disappearing; it's the most glaring indication of the government's bankruptcy. Trained professionals, one of the government main resources, are on the open market. In contrast to the growing number of poor Iraqis, however, one finds signs of a small but significant new wealthy class of entrepreneurs. But, unlike salaried people who are simply cast off to fend as best they can, these citizens are actively encouraged to become producers and traders, taking on government-scale enterprises. They're the large merchants and farmers who enjoy a more or less free hand to furnish the country with badly needed goods -- mainly food, clothes, and machine parts.

Concerning farmers, most observers agree: "They are rich, yes; but they deserve what they have. They worked hard," says a Baghdad householder who relies on government food rations. Probably the richest of the new entrepreneurs are those who illegally transport large shipments. "People may smuggle, but at least stuff comes in," comments one observer, expressing both the private and government acceptance of this activity. "These profiteers were needed to do what the government could not do -- import and export. This is an aftermath of war; it's to be expected," says Jordanian professor of finance Khaled Abdullah. "They work with the government's support because they are doing its work. ... Those new merchants' efforts relieve government of the burden of getting food to the population." Omar, an Iraqi exile in Jordan, was once a businessman himself. He calls these traders "cowboys, nomads; they crossed the borders and took chances. They have replaced us." If these new rich are able to buy the factories and other former government institutions, they'll likely become an extremely wealthy industrialist class, one that Iraq hasn't seen in modern times.

This would also be a significant reversal of the heavy reliance Iraq's Baath leadership put on government control of industry. Other questions arise: How does this shift of economic resources affect the political status quo? And does this class represent a new political power base? "Not at all; they do what [Saddam] tells them," says an American with experience in Iraq before the war. Businessmen in Jordan who've traded with Iraq agree. "These new rich are rewarded with wealth; as long as they do his work, they can continue. They get material benefits and that's all they want." It's suggested that these merchants pay protection money to agents from Tikrit, hometown of the president's clan members. This is quite likely so. These Tikriti are found in top positions, likely won by loyalty to the ruler. Iraq's present privatization moves may appear to be an economic expedient.

But Iraqi economic consultant Mustafa al-Mukthar says, "This is a continuation of a privatizing process that began in the 1980s. Farmers have always had wide scope under Baath rule. In the 1980s, the government sold the poultry industry it had developed, and its fish farms to private buyers." He adds that some state factories were reorganized into mixed private-state operations several years back. The recent move to offer shares to state employees is a continuation of that process, al-Mukthar maintains. In a measure announced in December 1996, half of government shares in those mixed operations would be available to employees. This measure may also stave off the debilitating flight of essential technocrats from government service. Does all this mean Iraq is abandoning its nationalization policies? Iraqi economist Nasra Sadoon says these policies aren't inconsistent with Baathist ideology. "Baath policy did not follow a strict Soviet model; these developments came after years of experimentation, and were highly successful." She also claims, "When privatization increased, the government recognized the benefits. Prices fell and many companies became more efficient."

Dr. Phebe Marr, a Washington-based expert on Iraq, agrees that opening industry to the private sector isn't new. But she suggests that privatization was adopted during the Iraq-Iran war as a palliative. "Doctors were permitted to open private clinics," she notes. "Many consumer industries ... were developed and some agriculture was freed up." Marr also explains that Iraq's economy wasn't based solely on oil. In the mid 1970s, during its boom, "the government developed important large scale industries. It maintained control of those for the large part, but released smaller, non-strategic industries." Most observers agree that, in order to generate more food and help people deal with soaring inflation, privatization may be alright.

Moreover, even with excellent educational and health systems, past government involvement in peoples' lives was probably excessive. Yet, at least in the short run, the current trend would mean a very different social structure, consisting of a few rich, a much reduced middle class, and many more poor. Nasra Saddon claims that any new wealthy class "will eventually merge with the intellectual and professional middle classes to continue to build Iraq." Citing her nation's ancient historical experience and many cycles of change, she argues that this crisis is a stage which, while painful, isn't permanent. As for the possibility that Iraq's main resource -- oil -- could be privatized, Mustafa al-Mukthar says, "No. State ownership of our oil is a principle. Changing this is out of the question." Merchants in Jordan agree that this is hard to imagine; they don't expect any Iraqi industries to be open for outside investment in the near future, either. But at least one US-based economist specializing in Iraq questions this. He suspects that the international community responsible for the sanctions may welcome this development. "International companies have not been allowed to operate inside Iraq for 30 years. Now may be the time they are waiting for," he says. "We are in a stage of global capitalization, and nations who are telling the whole world to 'open your markets to international investment' could have a lot to gain in Iraq." He suggests that opening Iraq's markets will be part of wider negotiations to lift the sanctions. This policy shift, he speculates, may be Iraq's signal to the West that it's willing to follow the global dict