- The Washington Times - Friday, February 21, 2003

In the aftermath of a U.S.-led war to remove Saddam Hussein's regime, the Bush administration will confront a weighty responsibility: helping Iraqis build new political, social and economic structures. To increase the prospects that post-Saddam Iraq will be both more stable and more prosperous, the United States should announce as soon as possible that it favors the privatization of Iraqi oil.
Nobel Prize laureate Milton Friedman is perhaps privatization's most famous advocate. In 1989, Mr. Friedman wrote: "Who, I ask opponents [of privatization], owns the government enterprises? The answer is, 'The public.' Well, then why not make that into a reality rather than a rhetorical flourish? Set up a private corporation and give each citizen one or one hundred shares in it. Let citizens be free to buy and sell their shares."
Consider the impact both psychological and strategic once average Iraqis learned that after Saddam's departure they would not only enjoy freedom for the first time in more than a quarter-century, but also a personal share of Iraq's vast oil wealth. What's more, such a policy would help put to rest the "blood for oil" charge the suspicion that Washington's motive is to somehow take possession of Iraqi oil.
There are many ways to go about privatization, but the best prospect involves the formation of several private Iraqi oil companies. Registered Iraqi voters say, citizens over 18 years of age would then be given an equal number of shares in each of these companies. Corporate governance would be similar to that expected elsewhere in the world. Shareholder power would be in proportion to the total shares any one individual owns.
What if a majority of Iraqis do not understand the privatization process and sell their shares to well-connected former Saddam cronies who amassed wealth during the dictator's corrupt rule?
To protect against such a relapse, laws could be passed to limit the number of shares that any shareholder could buy or sell during a one- or two-year "learning period." Experimental trading in stocks could then occur without the prospect of losing all of one's shares or of shares quickly concentrating in the hands of a few.
Privatization would serve as a means to help diffuse economic and political power in a post-Saddam Iraq. With millions of Iraqi citizens receiving dividends from private Iraqi oil companies, the benefits of oil income would be dispersed and less susceptible to centralized political control.
A post-Saddam government in need of tax revenues would have to deal with the problem that all democratically elected governments confront: finding an optimal level of taxation, a level that supports the limited and legitimate functions of government but does not stultify economic growth (or endanger the government's re-election prospects).
But that's a good problem for Iraq to grapple with. It's possible that before long, Kurds favoring lower taxes will unite with like-minded Sunnis and Shi'ites against high-tax proponents from those same ethnic groups. In other words, privatization could spur the development of Iraqi political debate not based on ethnicity.
Moreover, successful oil privatization in Iraq could serve as a model to other regimes in the Middle East. One reason that non-democratic governments endure in this troubled region is that, whatever their failures, they maintain their oil income. If other Middle Easterners demand of their governments that they, too, get their fair share of the oil, that will mean less concentration of wealth, leading to less concentration of power and more accountability.
Shared oil wealth, through dividend payments, would enable economic democracy. Every day, Iraqis would cast their dinars in effect, their votes. That means that the desires of consumers would supercede the propensities of government planners and corrupt politicians. Such consumer sovereignty can be expected to lead to rapid economic growth and job creation, and less poverty and frustration.
It boils down to this: Milton Friedman was right about privatization and never more so than in regard to what is likely to be the next chapter of Iraq's history. America's policymakers need to act quickly to ensure that after Saddam Hussein, the power really will go to the Iraqi people.

Mohammed Akacem is professor of economics at the Metropolitan State College of Denver. Dennis D. Miller is professor of economics at Baldwin-Wallace College in Ohio. Both are senior fellows of the Foundation for the Defense of Democracies.



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