Commentary

Letters to the Editor: Iraq’s State-Owned Oil Nullifies Market Economy

This article appeared in the Financial Times, January 23, 2006.
In response to Robert M. Kimmitt’s Dec. 9 editorial-page commentary “Iraq’s Post-Saddam Economy” (Financial Times, London):

The opening sentence of Mr. Kimmitt’s article announces his thesis: “Only a year-and-a-half after regaining its full sovereignty, Iraq is laying the groundwork for a self-sustaining, market-based economy which can serve as an engine of growth for that nation and for the broader Middle East.” With that, the deputy secretary of the U.S. Treasury embraces what has become a well-worn mantra of the Bush administration.

Mr. Kimmitt’s argument contains a fatal error of omission — one that renders his thesis null and void. Absent is any mention of the fact that Iraq’s state-owned oil sector comprises three-quarters of Iraq’s GDP. Thanks to Iraq’s new constitution and prevailing Iraqi sentiments, oil will remain state-owned and continue to account for the lion’s share of GDP, as far as the eye can see. In consequence, Iraq’s economy is — and will in all likelihood remain — a grand socialist enterprise, not a market-based economy. And as Friedrich von Hayek forcefully argued in Chapter VI of his 1944 classic “The Road to Serfdom,” state ownership of the means of production, on a scale comparable to that in present-day Iraq, will doom all attempts to establish the rule of law.

If truth be known, the groundwork for a market economy in which individual freedoms are protected under the rule of law has not been laid. Accordingly, the notion of Iraq becoming a beacon for economic freedom in the broader Middle East is farfetched.

Steve H. Hanke,
Professor of Applied Economics,
The Johns Hopkins University,
Baltimore, MD 21218, US

Senior Fellow Steve H. Hanke is a professor of Applied Economics at the Johns Hopkins University in Baltimore.