Posted on 02/28/2007 10:18:11 PM PST by Valin
Call it an economic and political victory for "New Iraq" -- and an indication that we may see more in the future.
This past Monday, Prime Minister Nouri al-Maliki's cabinet finally agreed to a reformed "oil law." The cabinet will forward the legislative package to the Iraqi parliament for action later this spring.
The "oil reform" program in Iraq is long overdue, but the Iraqi government also deserves kudos for the effort. Democracy is often a slow, muddled and tedious operation (look at the U.S. Congress).
Until Iraq's democratically elected parliament was seated and the government selected, Iraq lacked "full sovereignty." Any "permanent oil reform" implemented by the Coalition Provisional Authority or an interim Iraqi government would have been portrayed as inherently illegitimate. The new bargain has its flaws (what legislation doesn't?), but illegitimacy isn't among them. The Iraqis have worked through the snarl on their own.
Implementing the new program will strengthen the national government while giving all regions an economic stake in its political success.
Oil is both Iraq's blessing and bane.
The blessing is obvious -- "black gold" is a vital natural resource and an economy-priming commodity. As for the bane, that's the battle for control of oil production and precious oil revenues.
Iraq's biggest-producing oil fields lie in the predominantly Shia Arab south and Kurdish north. In 2007, Iraqi Sunni Arabs fear Shias and Kurds will deny them a fair share of the wealth. Many Shia and Kurds retort that it's time they were compensated. For decades, Sunni Arab elites controlled Iraq's oil industry. Kurds and Shias never received a "fair share" of the income.
Despite the Kurd and Shia resentment, and the Sunnis' fears, Iraqi leaders quickly agreed to an oil revenue sharing formula. The Kurds, however, demanded oil contracting concessions. Remember, the Kurds have enjoyed a degree of autonomy since 1991. The Kurd demand bedeviled negotiations for months, with an interesting collection of Sunni and Shia arguing the demand undermined the central government's authority.
The compromise that emerged permits contracting by region but establishes a Federal Oil and Gas Council. The FOGC has a final say on negotiated contracts. Political sleight of hand? Welcome to democratic government. In a press statement, U.S. Ambassador to Iraq Zalmay Khalilzad praised the entire process: "This is a significant political achievement because leaders representing all of Iraq's communities have demonstrated that they can pull together to resolve difficult issues of vital national importance."
The Iraqi government should consider two other economic reforms.
A logical follow-on is the establishment of an Iraqi "oil trust" program, similar to the one implemented by the state of Alaska where every qualified citizen gets a share of state oil revenues. An oil trust would put several hundred dollars a year into the pockets of every adult Iraqi -- that serves as an instant economic "fire-starter." The oil trust immediately invests everyone in the economic success of Iraq's new democratic government.
Clarifying and affirming individual property rights is another important reform. Peruvian economist Hernando De Soto's "Mystery of Capital" (published in 2000) argued that Egypt's poor have around $240 billion in "dead capital," most of it tied up in property that they cannot properly mortgage. De Soto said that individual property rights and a legal system that protected contracts would instantly energize Egypt's sclerotic economy.
In 2004, while serving in Iraq, I read a short, unclassified study that made the same argument for Iraq. The potential economic payoff is huge.
The Iraqi government needs to hear from De Soto. I know of one economist who thinks a speech by De Soto to the Iraqi parliament and government ministries would not only benefit Iraq, but do wonders for reform advocates throughout the developing world.
Progress?
Ask me in 4-5 years. I seem to have misplaced my crystal ball.
This is a good point, but the next point, about individual property rights, is even better. I had to snicker at his crack about the ineptitude of the US Congress - even our 250 year old representative government has its less-than-perfect systems. Iraq's will, too, but I think this plan for handling their oil revenues is a good start.
Wow, this is like talked out of my own butt. Individual oil vouchers or something like that and Hernando´s De Soto property reform are my favorite programs and I have been longing to see the west implement them there. Even better would of course be if Iraqis would do it themselves.
Remember that Sadr City (formerly Saddam City) is a giant slum/getto of identical apartment buildings forming a pure rectangle of a neighborhoud, separated from the rest of the city. There live 2 million shia´s and although I never have had any confirmation I beliewe they live there in at least initially public housing.
What a "great" recipe for fanatism is such a neighborhoud.
Soto´s reform could help solving that problem.
The good thing about vouchers or a oil trust fund distributing the oil wealth to individuals is that then it is possible to jump start the economy and make it healthier by privatising most state run bussinesses (wich are the majority I beliewe still) and people could buy their services through the oil revenues, but instead of the government doing it for everybody the individuals could do it themselves.
When private ownership has become the common system and everyone has access to cash a flurry of investments and economic growth will begin, something that divert people´s powers from fanatism and terrorism.
This is something we should have done from the start, although I also see the merit of letting their own democratic institutions do it.
It will be progress if the Parliament passes the law but there are quite a few who don't like it's provisions for privatization and bringing in Western oil firms. I'll be optimistic if and when the Parliament passes the law. Til then it's just a proposal.
The interesting thing for me is that this is being seriously purposed and tallked about.
Yes, same here, finally it is. But how much of the last two things mentioned is just wishful thinking and how much is actually beeing discussed? As I have heard that the proper dividing of the revenues to the counties is being discussed in other media but there the other things, that is the oil trust fund and De Soto´s reform, are not mentioned.
the other things, that is the oil trust fund and De Soto´s reform, are not mentioned.
This is something we should have done from the start, although I also see the merit of letting their own democratic institutions do it.
:-)
Improving the McUSA business model.
Dividend checks, land reform, and generic common law seem like good ideas to tempt the mice to roar.
I admit, my english isn´t very good, as it is a second language to me.
But what strikes me about the article is that the author adds to this interesting news about the political dialogue and hopefully laws that can stem the worries about the oil once again like in every other oil country fiefdom of those in power.
That is he adds his own ideas about the oil trust fund and the need for private property reform in De Soto´s model, ideas that I happen to concur with him, but nonetheless ideas that don´t seem to be having enough impact in Iraq.
Hernando De Soto explains it quite well in his book how the glass bubble prevents people within it to understand the situation of those outside of it, wich is often the majority of the population.
Actually I am not sure that a trust fund in Alaska´s model would be the best way, rather should they first put the money into the people´s hands, and then tax it like any other income so people could see how much money the government is spending like in normal, non oil rich country. It wouldn´t need to go to the people first, they only would need to see how much they would have got if there was no taxation.
This way Iraq can excape the oil curse, by becoming like normal countries in the sense that the spending money of the government comes from the people who can pressure the government to lessen its spending by lowering taxation.
The problem with oil countries is that the money goes first to the government, wich spends it on behalf of the people and thus creates a situation wich politicians can allways buy themselves popularity, at least of those it needs to, by spending money on them.
And just like socialists have allways beliewed, their belief that the money comes initially from the state, not from the people, comes true.
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