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Capitalist Iraq

Via econopundit comes news of the United States opening the doors for foreign investment in the formerly-socialist state:

DUBAI (Reuters) - U.S.-controlled Iraq Sunday unveiled sweeping reforms allowing foreign investors into all sectors except oil, ending 30 years of state economic control.

I don't like the restriction on oil investment, but it was probably politically necessary to prevent the "it's all about oooooil" chorus from starting up again. It's very unfortunate, because reduced foreign investment in oil means people in Iraq will be poorer than they otherwise would have been. I wonder what proportion of the oil chorus realizes this, and if they care.

A state-run petroleum industry bothers me a lot, but I don't know how it could be realistically converted to private ownership. If Iraq had mature financial markets I'd say distribute stock to everyone, but it doesn't. (It isn't clear that the people would know what to do with the stock, anyway.) I think it would be a mistake to just hand over the industry to the people currently running it, because many of those people got into their positions by political favor from the Hussein regime. The oil industry is important and difficult and it will be interesting to see what develops over the next few months.

Thankfully, outside of oil, foreign investment won't be strangled by politics:

The U.S. official noted the open-ended foreign investment proposals did not require any screening process — something he said the Iraqis had requested -- which would make investment there more alluring to foreigners.

"There is no screening committee. There is no way for a sort of niggling process to grab hold of your ankle and chew on it," he said.

Also, taxes in Iraq are now lower than they are in the United States:

The new laws also slash top marginal tax rates for individuals and corporations to 15 percent from a prior 45 percent, the U.S. official said.

These are my favorite lines:

The list of reforms for liberalizing foreign investment, the banking sector and taxes and tariffs read like a recipe devised by Washington for a capitalist Iraq.


"This isn't just a proposal — this is the law, this is done. This was all signed yesterday," the U.S. official said.

Yes! Yes yes yes! To those who blame the Bush administration for not having a plan to rebuild Iraq, I counter that they shouldn't have a plan beyond providing security — a socialist system in Iraq is incompatible with our goal of making it a prosperous state. What Iraq needs is capitalism, and here it comes!

I'm suddenly very optimistic.

Tiny Island