The Price of Ideology

This article about American refusal to fund state-owned factories in Iraq disgusts me, all the more so because the problem has been apparent since at least 2004 (see below).

The basic idea is that Saddam had a bunch of state-owned factories making stuff like sinks and tomato paste. The Americans decided that state ownership is a pretty poor way to run an economy, so they shut down the factories and waited for the invisible hand to work its magic. The factories are still closed, and the unemployment rate runs between 30 and 60%. The Americans still aren't keen on funding the factories, although they appear more open to the idea now. Naomi Klein was writing about this way back in September of 2004.

To me this illustrates two related mistakes we've made in Iraq. The first is that we've set really bizarre priorities. Even if you believe that the factories are in some sense inefficient, it would seem worth it to keep lots of Iraqis employed even if they're not being particularly productive. This leads right into the next mistake, which is the elevation of ideology over everything else. If I had to guess, I'd say that the people who designed this war and ran the reconstruction were steeped in market fundamentalism. They're probably the sort of people who think that Keynes was a charlatan or worse, that anything but a flat tax is creeping socialism, etc. Thus the seemingly innocuous Republican insulation from mainstream economics comes back to bite us in the ass.

In April 2005, Matthew Harwood wrote an article for the Washington Monthly called, "Pinkertons at the CPA", subtitled, "Iraq's resurgent labor unions could have helped rebuild the country's civil society. The Bush administration, of course, tried to crush them." Again, you can make an argument in the abstract that unions are bad for the labor market, but in a situation like Iraq such considerations are secondary at best.

So I guess the lesson is that economics really does matter. If you believe that progressive taxes and labor unions lead to serfdom, then you might actually prefer a strong insurgency and sectarian violence to an Iraq that is unionized (I'm not saying that was the choice, though I think at the margin we did make that tradeoff). More importantly, if you start out with crazy assumptions and partisan commitments, you will be unable to identify and correct flaws in your plan. Rebuilding a country is a pragmatic exercise that calls for flexibility and a willingness to abandon ideology. Unfortunately for us, and more unfortuantely for the Iraqis, the Bush administration is in charge.