Wednesday, January 30, 2008

Economic Development in Iraq

Yesterday, VMI hosted Hon. Robert M. Kimmett, Deputy Secretary of the Treasury to give some "remarks" about the Treasury's involvement in economic development in Iraq. His speech was dignified, and well-written, but clearly had been vetted for reasons of security, and probably politics. He remarked how the Treasury has taken an elevated role in helping develop Iraq economically, as our military helps them remain secure militarily.

One important issue in the development of Iraq is the role of oil and natural resources, and the risk of contracting a "Dutch Disease" or "resource curse" whereby profits generated by high prices and favorable terms of trade in the resource sector for exports essentially "crowds out" private investment in the manufacturing sector. So, when we met, I asked him about it whether this was a risk for Iraq, and answered, "no…" and went on to list a number of sectors in which Iraq has seen substantial progress. They included (in no particular order): the construction of roads, the building of schools, hospitals, and agriculture. But, with the exception of agriculture, sectors mostly represent "public goods," and most countries for which the resource curse is applied DO see impressive development in the provision of these public goods. Examples include Dubai, Saudi Arabia, and even Norway.

What is more troubling is how this economic structure might contribute to perpetuation of ethnic tensions. Put in broad terms, when there are factions in a society that identify on ethnic grounds, violence and tensions tend to arise on two fault lines: (1) they arise on the basis of control over the rents received from some strategic resource, and; (2) the ability to control the provision of public goods and confiscate their use for your own faction (and, exclude their use from the other).


  1. Anonymous1/2/08 01:34

    Sir I think that its an excellent point that you make in saying that the public sectors would see an increase in growth and development like building roads, schools, etc. and why wouldnt this be the case. A country such as Iraq would see substainal growth and progress in these fields since a)they werent in place under Saddam, b) much of their infrastructure has been destroyed. Clearly if you start with nothing and you make something, then thats progress. I think it would be interesting to look at the numbers and see how many of these projects are actully being financed by Iraqui private investors/ business owners. The Army corps of engineers should not count in Iraq's public sector progress, which makes me ask the question, Are the Iraqui people investing and starting "public sector" compaines or working for the government through contracted out based projects or rather is the Army doing this? The speaker made the comment that more and more businesses are opening up which is amazing and necessary for the future of that state, however itd be interesting to see the numbers and find out wether these are service based industrys or manufacturing.

  2. I agree with the points made in this comment, and would add to them that investment in a well functioning private sector is needed to complement these "public" goods.