Rebuilding Iraq

I have long advocated that the Iraqi people should have as large a role as possible in rebuilding their own nation. There are a number of reasons for this. Financially, it is much cheaper to rely upon domestic labor than it is to jet in foreign corporations and contractors to do the same work. In terms of experience, Iraqis managed to build their country, rebuild (to the extent possible) after the first Gulf War, and to maintain their infrastructure despite the embargoes - if foreign help is needed, it might be to supplement the local skilled labor, but not to supplant it. In terms of the peace process, allowing Iraqis to rebuild creates local jobs, and it also creates a personal local investment in the rebuilt infrastructure. Generally, people are probably less likely to try to destroy that infrastructure if they have built it, if doing so will incur the wrath of their neighbors, or if doing so will put their neighbors out of work. Further, if permitted to participate meaningfully in the reconstruction, Iraqis will learn the skill set necessary to perform similar tasks and to maintain infrastructure projects without foreign assistance, and to the extent that they work alongside western companies will learn how those businesses operate. The same work performed by a subcontractor from Texas or South Korea? There's no local investment of time and labor, no local ownership interest, and the local people may not perceive much of a benefit.

Further, the operations of various U.S. officers, handed slush funds of money seized from the old Iraqi regime, document that if you improve the lifestyle of the local people and give them work, they are happier and more supportive of the occupation forces. That's just human nature. Freezing the Iraqi people out of the reconstruction and future economy of their own nation seems like a recipe for disaster.

Today, in "The $500 billion fire sale The Guardian points out that some work is being performed by Iraqi "subcontractors" - and some involved in the bidding process are pretty shocked by the financial shenanigans:

For the Iraqi expats in the audience, Basri's is a tough lecture to sit through. "To be honest," says Ed Kubba, a consultant and board member of the American Iraqi Chamber of Commerce, "I don't know where the line is between business and corruption." He points to US companies subcontracting huge taxpayer-funded reconstruction jobs for a fraction of what they are getting paid, then pocketing the difference. "If you take $10m from the US government and sub the job out to Iraqi businesses for a quarter-million, is that business, or is that corruption?"

There is an associated concern among those who are being asked to insure the reconstruction. Initially contractors and subcontractors were insured through the federal USAID program.

But with bidding now starting on Iraq's state-owned firms, and foreign banks ready to open branches in Baghdad, the insurance issue is suddenly urgent. Many of the speakers admit that the economic risks of going into Iraq without coverage are huge: privatised firms could be renationalised, foreign ownership rules could be reinstated and contracts signed with the CPA could be torn up. Normally, multi-nationals protect themselves against this sort of thing by buying "political risk" insurance. Before he got the top job in Iraq, this was Bremer's business - selling political risk, expropriation and terrorism insurance at Marsh & McLennan Companies, the largest insurance brokerage firm in the world. Yet, in Iraq, he has overseen the creation of a business climate so volatile that private insurers, including his old colleagues at Marsh & McLennan, are simply unwilling to take the risk. Bremer's Iraq is, by all accounts, uninsurable.

Investors from the United States are being assured that U.S. tax dollars will protect them:

A US government agency, Opic provides loans and insurance to US companies investing abroad. And while Lempres agrees with earlier speakers that the risks in Iraq are "extraordinary and unusual", he also says that "Opic is different. We do not exist primarily to generate profit." Instead, Opic exists to "support US foreign policy". And since turning Iraq into a free-trade zone is a top Bush policy goal, Opic will be there to help out. Earlier that same day, Bush signed legislation providing "the agency with enhancements to its political risk-insurance programme", according to an Opic press release.

While Opic is supposed to operate at no cost to taxpayers, its spokesperson was unable to explain how it could do so if there were a multi-billion dollar expropriation and re-regulation by the new government of Iraq. (Microsoft, which plans to invest, understands where the Bush Administration and Opic have shifted the risk of loss. According to their spokesman, "In theory," he says, "the US treasury stands behind us.")

Some have pointed out that this creates a double standard, where Iraq's economy is subjected to "free market" forces, but the U.S. companies which are taking it over are heavily subsidized.

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