Ideology Be Damned

12 January 2004


White House Considering State-Owned Oil Company for Iraq

No less a source than the Wall Street Journal has reported that the pro-market Bush White House is considering a national oil monopoly for conquered Iraq. A front page report by Chip Cummins last Wednesday said that practicality was going to beat out ideology, that Iraq would have a national oil company like Saudi Arabia and Kuwait. Republicans admitting that the market is not always practical? Will wonders never cease?

Iraq should be a wealthy country, but thanks to war and gross mismanagement, it is just potentially wealthy. While floating on a sea of oil, Iraq needs to spend billions to realize its potential. So quite clearly, the oil must be sold and the revenues spent on making the country function. Iraq must build infrastructure that addresses the needs of the people rather than the ego of a madman. The government in Baghdad must spend on schools in Iraq rather than derivatives on Wall Street. The money must be used for national development, not private consumption.

The libertarian argument, that the free market will provide a far better solution than government ownership, doesn't apply because the necessary conditions for the free market don't exist in Iraq. There is no legal system worthy of the name to establish and enforce property rights and contractual obligations. That is not to say that someday a free market in oil can't exist in Iraq, merely that it cannot exist now or in the near future.

It is thoroughly reasonable to think that, thirty years on, Iraq will be a democratic, bourgeois, liberal parliamentary democracy with a free-press (one doubts it, but still, it is possible). Under such conditions, it might be feasible to privatize the national oil company. However, it should be broken up into competing units before that happens because the only thing worse than a public monopoly is a private one.

For now, oil is the key to the economic future of Iraq. It is too important to fall into the hands of an unaccountable private syndicate. There will be government mismanagement; that is the nature of things. However, if the money does not flow to the government, it will create a second locus of power. That is something Iraq, the oil market and the United States cannot afford.

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