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Wealth and Democracy in Iraq


by Austin Bay
October 18, 2005

In practice, if not in theory, wealth and democracy reinforce one another.

Iraqis have conducted two successful national elections in the midst of terrorist violence. Despite an estimated unemployment rate of 40 percent, some Iraqi "big picture" economic trends are positive. This week at the University of Central Florida's National Global Issues Forum in Orlando, Ambassador Robin Lynn Raphel, the State Department's coordinator for Iraq reconstruction, said that from 2004 to 2005 the Iraqi economy has expanded by 25 percent.

That's encouraging news. When it comes to stabilizing Iraqi society, however, the microeconomics of the average Iraqi's pocketbook may trump the macroeconomics of money in Baghdad's coffers.

Iraq, long plundered by despots, should be a wealthy country. It has water, an agricultural base, a source of capital (oil) and people willing to work. It is the best place to begin to reform the dysfunctional political systems that shackle and rob the vast majority of Middle Easterners. Success in Iraq would create conditions to break the region's endless cycle of robbery and violence. It would also force angry Middle Eastern Muslims to finally confront the inadequacies of their own societies, instead of blaming Europe, the United States and Israel for their centuries of fossilization and decline.

Success in Iraq means spreading wealth and curbing corruption. Iraq desperately needs to become an ownership society, for economic stakeholders are political stakeholders.

For three years, Robert Miller of the ZOR Foundation has advocated establishing an "Iraqi National Oil Trust," which shares oil profits directly with Iraqi citizens. Miller, of Winter Springs, Fla., understands Iraq. In 1964, he graduated from Baghdad's Al Hikma University.

At the UCF conference, Miller said the state of Alaska's "oil trust" is a good model, but Iraq pioneered the concept. In 1950, Iraq's parliament created an autonomous board that dedicated oil revenues to future economic development. However, Miller said, "powerful political interests at the time sought to control Iraq's oil wealth for their own political purposes." The government altered the program and placed control with the Ministry of Finance.

Miller would establish a new "Iraqi National Oil Trust" by national referendum -- meaning the trust could only be "changed or undone by another national referendum." Miller's trust would dedicate 50 percent of oil profits to national reconstruction, 20 percent to education (primary through university education) and 10 percent to government administration. The other 20 percent swells the personal pocketbooks of every adult registered voter in Iraq. Based on 3 million-barrels-a-day production at $50 a barrel, that guarantees every Iraqi adult about $680 a year.

Miller argued that limiting the government's slice of oil revenues strengthens democracy. The government must rely in part on taxes, instead of petro-dollar largesse. This means the government must seek public support for tax initiatives.

Miller pitched this idea in the summer of 2003, and the Coalition Provisional Authority expressed mild interest -- then passed on the idea. This may prove to be another CPA mistake.

Lenny Glynn, formerly with BusinessWeek and Institutional Investor, has written extensively on the benefits of "oil trusts" in Iraq. Glynn believes an oil trust is a way to escape the "state-centered oil paternalism and public clientelism" that plagues petro-states. Glynn, in an article last month for the Internet's Daily Standard, wrote, "The precise institutional form that such a system might take is less important than the principle that Iraq's natural wealth should belong, by right, to its people."

Glynn added: "If there is one thing that matches the universal appeal of freedom, it's the universal appeal of money. A Freedom Trust would marry Iraqis' hunger to breathe free, so heroically displayed by their votes last January (2005), with the income and wealth-building to enjoy their freedom."

Well said. The Iraqi people need to put an oil trust referendum on their next national ballot.

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