Posted on 06/28/2004 10:33:11 PM PDT by kattracks
June 29, 2004 -- EACH unhappy oil-produc ing nation is unhappy in its own way. The gravest chal lenge facing Iraq — after security — is to dodge the economic traps that have ensnared its oil-rich peers across the map: Saudi Arabia, Venezuela and Russia. Saudi Arabia's economy is a fetid oil swamp. The royal family owns the nation's oil assets — so the monarchs don't depend on the people's industry for tax revenue. The princes have no stake in building a diverse economy. The overeducated masses are the products of a welfare state, with nothing useful to do.Venezuela also keeps its oilfields in the hands of the state. Public investment in oil has suffocated Venezuela's economy over the past two decades. Desperately poor Venezuelans outvoted a shrinking middle class to elect autocrat Hugo Chavez as their president six years ago — because he pledged to tap overflowing oil coffers and send a few dollars to hungry families every month.
Russia's first free government sold off the nation's natural resources at fire-sale prices to well-connected buyers. The privatization process was so dishonest that it infected Russia's infant private sector with corruption — and retarded economic progress in the post-Soviet nation for more than a decade. Honest businessmen don't trust in the rule of law — so they flourish underground, and don't pay their taxes.
How can Iraq's leaders resist the dark lure of oil's easy money to build a functional, sustainable political economy?
(Excerpt) Read more at nypost.com ...
Mega wowsers!
Your tagline suggests you have much more experience/expertise in this area than I do- could you elaborate on your post?
Yes, do elaborate. I do this for a living and the analysis of Saudi Arabia, Venezuela and Russia are on point. The finance literature on corporate governance supports the author's view that privatization should only come after the necessary "infrastructure" has been developed, lest Iraq end up with its own version of Khodorkovski and the other Kleptocrats, er Oligarchs, as in Russia. Laws, regulations, courts, accountants, etc, are all prerequisites for a properly functioning market economy. Useless natterings? Please explain yourself . . . .
Article seems reasonable to me too.
Consider what happened to 16th -17th century Spain when the New World poured all that gold and silver into the monarchy. Gold gold or black gold, the danger is real.
The principle of implication, in formal logic, i.e. the evaluation of the truth or falsity of statements of the pattern ''if X then Y'', is sometimes stated as: an implication is true if the antecedent X is false or the conclusion Y is true.
Another way to say this is: if you begin with a false premise, you may (legitimately, in logic) conclude anything you like. ''If the sun is green, then Bent Willy is honest'' happens to be a TRUE statement.
That's fine as a principle of reasoning...but it is completely impractical in the world as it is. Notwithstanding, this is exactly what the author does; she adopts Big Rock Candy Mountain Pollyannish premises and argues along from there. Examples? Certainly:
''The now-defunct Iraqi Governing Council and Coalition Provisional Authority seeded that growth. Since the fall of Saddam's socialist state last April, Iraq has signed a generation's worth of economic reforms into law:
* A new currency — and a stable central bank to control monetary policy.
........
* Laws to protect intellectual property rights.
* A modern bankruptcy statute — encouraging investors to take financial risks without fear of harsh punishment... ''
Now, all this sounds just lovely, but she (and they) have skipped right over the two most fundamental principles necessary for ANY of these to work properly or even reasonably well, namely,
1) a formal definition at law of private property,
2) a civil code that enforces said definition.
Iraq has neither at the moment, and virtually no prospect of establishing either within any reasonable period of time. Whether she omitted these necessities from carelessness, naivete, or POF stupidity is beside the point: she is operating under a bizarrely false premise.
Next, while she (and nathanbedford, to be sure) is entirely correct that nations dependent on resource-based wealth tend to fail badly over time, the mere wish -- and that's what it is, a wish -- that a political system of any stripe will voluntarily diversify away from an easy, obvious, and enormous source of wealth is every bit as childish as a four-year-old's conception of Santa Claus. In plain English, it ain't gonna happen. Such a policy would likely be to the benefit of a nation; my becoming 6'11'' tall and acquiring the ability to hit the J would likely be to my benefit. The probability that these two prospects will eventuate is identical; it's zero. Therefore, yammering on about it is just useless nattering.
Had I the time, I'd dissect this pseudoutopian-wannabee article sentence by sentence, but I hope the point I intend is clear.
I also hope the author acquires her supply of rose-coloured glasses at Big Lots or Sam's.
(And, yes, rebelyell, I do trade energy options, and futures options generally, for my second living in fact. The trade in the tagline can only NOT produce a profit (actually, 2 profits) under one very obscure condition. By 1 November, I'll be exiting the trade, almost surely at yet a SECOND credit. Intriguing, no? BTW, given yesterday's drop in NG, may have to purchase the 9.00 calls instead of the 8.75 in order to generate the preferred entry credit).
Best regards,
Okay- we can disagree over the degree to which these exist or will exist, but that's a reasonable concern.
The bottom-line fundamental key is the institution of private property, which none of the nations she cites has done (or has, in the case of Venezuela, basically revoked over time).
The author appears concerned only with the establishment of governmental institutions, rather than with an infrastructure (her word) of principles. And it doesn't work that way, and won't in future. I'll lay you two-to-one on that privatisation under the current auspices, whenever it happens to occur, will be almost as big a ballsup as was the case in Russia. Only the oligarchs will differ (and, I daresay, the big oil players, having learned a lesson in Russia, won't passively let the prize get away this time). It won't be AS big a dog's dinner as Russia, because Iraq does not have that degree of an institutionalised culture of criminality generated by 70+ years of state socialism.
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