Commitment to Free Trade Critical to Recovery of Iraq

by Daniel Griswold

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute.

April 25, 2003

"War is God's way of teaching Americans geography," 19th century American writer Ambrose Bierce sagely observed, and the war in Iraq is no exception. After weeks of intense coverage, one fact is plain: The people of Iraq should be among the richest in the world.

Iraq has been cursed by brutal politics, but it has been abundantly blessed by geography.

Two great rivers bound a fertile plain in a subtropical climate. It possesses a seaport and access to major markets. As the repository for many of the world's greatest archeological sites, it should be a tourist Mecca.

And the country sits on top of the world's second largest known oil reserves.

Among his many crimes, Saddam Hussein squandered and stifled the potential wealth of his country by his warmongering and official thievery. The economic policy of his Baathist Party was a kind of thuggish socialism: government control of prices and industry, ubiquitous rationing, arbitrary confiscation of private wealth and little trade other than arms and oil.

Economic Plunge

Saddam's misrule has left Iraq by far the poorest country in the Persian Gulf region. Its per capita gross domestic product is the equivalent of $2,500 a year, far lower than the per capita GDP of Qatar ($21,200), Kuwait ($15,000), Saudi Arabia ($10,600) and even Iran ($7,000). Iraq's imports are a fraction of what they were in the 1980s, when its citizens were buying almost $1 billion worth of U.S. farm products a year.

America's well-earned victory on the battlefield will be in jeopardy if the people of Iraq cannot enjoy the material fruits of their new freedom. To safeguard our investment of blood and treasure, the U.S. and Britain should ensure that any new Iraqi government protects economic as well as political and civil freedoms.

An essential part of any plan to establish freedom in Iraq should be a commitment to a free market and the institutions that support it, including a commitment to free trade. Iraqis must enjoy a secure right to property, a stable currency, decontrolled prices, the rule of law and contract and the freedom to engage in business at home and through international trade.

Postwar reconstruction of Europe provides a model, although not in a way most people believe. Yes, Marshall Plan aid played a role in reviving Western Europe, but the real story was the continent's turn toward markets and free trade.

In June 1948, Ludwig Erhard of West Germany's Money and Credit Department abruptly repealed price controls and issued a new currency. Tax and tariff cuts soon followed. As one historian noted: "The spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the streets in their everlasting search for food came to life." Iraq needs an Arab Ludwig Erhard.

Study after study has confirmed that nations relatively open to trade grow faster and achieve higher incomes than those that are relatively closed. The model for Iraq's new leaders should be Ireland, Chile, the tigers of East Asia and other countries that have achieved sustained growth through expanding trade--not the stagnant and increasingly isolated countries of the Arab Middle East.

Open U.S. Markets

With the Saddam regime now history, U.N. sanctions should be lifted immediately. If any nation on the Security Council insists on keeping sanctions in place to protect the U.N.'s bureaucratic control over Iraqi oil, the U.S. should ignore the sanctions and unilaterally let Americans trade with the people of Iraq. U.S. markets should be opened to goods made by Iraqis, especially import-sensitive textiles, apparel and farm products.

Beyond stimulating growth, trade with Iraq would bring humanitarian relief, cement ties between our two countries, and send a positive signal that Iraq is open to foreign investment.

Much has been written about the need for political reform in the Arab world, but it also desperately needs economic reform. The Arab world's share of global trade and foreign investment has been declining in the last two decades. Outside of oil, Arab countries export little that the rest of the world is willing to buy. With a few exceptions, barriers to trade and foreign investment remain high. There are more McDonald's franchises in the tiny Netherlands than in all the Arab world.

A vibrant Iraqi economy would give hope to a new generation of Arabs to reclaim their rightful place in the world of trade, science and ideas.

An educated, hopeful middle class would in turn create more fertile soil for limited and representative government.

But if a post-Saddam Iraq fails to prosper, its people will grow frustrated and blame the market and the West for their troubles, creating fertile soil for terrorism.

The technology, dynamism and openness of our own market economy helped us win this war.

If spread to Iraq, those same market forces can help us win the peace.

This article appeared in the Investor's Business Daily on April 25, 2003.