Building a Market Democracy in Iraq

One goal of the recent war in Iraq was to build a lasting market democracy that could serve as an example for the Middle East. While progress towards this goal has been stymied by the mundane practicalities of restoring law and order, the coalition must eventually take it up. When it does, it will also have to face the fact that the current distribution of economic power in Iraq is not conducive to democracy or markets, and that outside interim administrations tend to make matters worse.

Start first with the distribution of economic power. Years of dictatorship and sanctions decimated Iraq's business and professional classes. Estimates suggest that over 60% of Iraqis depend for their income on government, which will obtain the bulk of its revenues from oil for the foreseeable future. But when an easily extractable, government-controlled resource accounts for a large share of national output, democracy can suffer.

Consider Venezuela. Hugo Chavez's government faced a widespread opposition strike, whose intent was not only to demonstrate popular opposition, but also to starve the government of revenue. Without revenue, such a government cannot pay the army or thugs who keep it in power.

Although it seemed that Chavez would fall, oil saved him. Few people are needed to extract oil. With the help of some loyal (and foreign) engineers and enough new workers to replace strikers, the government kept the oil flowing, securing the resources needed to maintain the loyalty of mercenary forces who would otherwise have gone over to the opposition. The strike is all but over, and the Chavez government is now taking action against its leaders.