Commentary

Iraq, Oil, and Democracy

By Ronald D. Rotunda
April 23, 2004

We all know the problem: How does Iraq make the transition to democracy that does not promptly break apart into unstable regions. That was the focus, a few weeks ago, at a conference hosted by Bilkent University, a private university in Ankara, and the Turkish Foreign Policy Institute. About half of the participants were from Iraq. Most of the rest were from Turkey, with a few British participants. I was one of two American lawyers invited to participate.

The short answer to the question is oil: private control of oil wells will bring wealth to the people, growth to the economy, and perhaps provide a unifying secular source of political stability-in Iraq, of course, but also among the Kurds, the Turks and the Iraqis.

While some Turkish participants referred to “our Kurdish brothers and sisters,” others were fearful that an independent Kurdistan might seek territorial expansion into present-day Turkey. They also wanted protection for Turkish-speaking Iraqis, and were concerned that Kurdistan would be unsympathetic to their plight.

The non-Kurdish Iraqis also wanted to make sure that the central government would control the oil in Northern Iraq (Kurdistan) to discourage the Kurdish secession. The draft constitution provides that “the natural resources of Iraq” belong “to all the people of all the regions” of Iraq. One Iraqi — an Islamic fundamentalist who opposed women’s rights and argued that “all of the problems of Iraq are caused by the American troops” — was vehement that the central government, not a regional government such as Kurdistan, should control the oil, to keep Iraq whole.

The secular Turks and Iraqi fundamentalists differ on many things, but not about this issue. A Turkish participant agreed, and argued that the central government’s control of the oil wealth will make it less likely that the Kurds would seek to leave Iraq and create their own state.

I responded that the citizens of Iraq should own the means of production — not in a Marxist sense, where it is really the politicians who own the companies — but in the capitalist sense, where the people own the shares directly. The government could create 10 oil companies, each with oil wells throughout the state. The government could then distribute shares of each of these companies to each of the Iraqi citizens. Because the citizens are not used to capitalism, the government might impose a few restrictions, such as forbidding Iraqis from selling the shares for a certain number of years.

These companies could start paying dividends immediately, to pump money into the economy and so the Iraqis will know what capitalism is all about. Because each oil company will own oil wells throughout the country, citizens in the South would have an economic interest in the North being prosperous. Ditto for citizens in the North. Economic interdependence promotes peace. The government could raise the funds it needs for operating expenses by imposing a withholding tax on the dividends, so that the people know, first, that government services cost money and, second, that money really comes from each of them individually. The Iraqi government should secure its funds the way other capitalist governments raise money, by taxes, not by running a monopoly.

One person said that I was “flamboyant” and “colorful.” I asked if he was talking about my bright pink bowtie. “That too,” he said, “but I’m really talking about your proposal.” Another said that it just could not happen. Yet another Iraqi said, “How could the people own the wells if they do not already own the wells?” The government can simply create the shares and give them to the people to own directly. As for the Islamic speaker who claimed that “all” of Iraq’s problems were caused by the presence of American troops, I said that I hoped he was right, for it meant that Iraq would have no problems when the troops left. He looked at me in stony silence and did not respond.

Sadly, it seemed that many Iraqis do not understand how capitalism works, and why a market economy can make the poor people much better off than they ever were when Saddam controlled the oil wealth and dolled out perks to the Iraqis like a stern parent rewards small children for being seen and not heard.

If the Iraqis do not understand capitalism, they cannot be capitalists — just like they cannot be democrats if they do not understand minority rights.

There are other reasons for pessimism. A Kurdish-speaking participant privately told me that Grand Ayatollah Ali al-Sistani, a leading religious figure in Iraq, really is a moderate and rejects Iran’s theory of clerical rule. But in the next few months, one of his enemies is likely to have him assassinated. A likely suspect: the cleric, Muqtader Sadr, who is in his early 30s, has routinely denounced the occupation, has a large militia backing him and, now, coalition forces hunting him. Sadr wants to run things.

Ronald D. Rotunda, George Mason University Foundation Professor of Law, is a senior fellow with the Cato Institute.