THIS STRATEGY IS NEW?

By William Fisher

It’s encouraging to know that President Bush is taking a hard look at economic initiatives as he prepares to let the nation in on his new strategy for Iraq.

But he faces two huge problems. The first is that he’s been here before – and his Coalition Provisional Authority, under the aegis of Viceroy Jerry Bremer botched this job as he did most others back 2003 and 2004.

The second is that, whatever economic development projects Bush may try to put in place, it may just be too late for any of them to be effective.

The Washington Post reports that the initiatives Bush is considering include a short-term work program, a micro-lending project, and a reappraisal of potentially viable state-owned industries that could be re-started.

Officials told the Post that these kinds of programs are part of a “classic counter-insurgency strategy” that also includes military and political components.

The military piece would presumably include the much-discussed “surge” in U.S. boots on the ground. The political part would be largely out of U.S. control; it would turn on the ability and the will of Iraq’s so-called “Unity Government” to take on the armed militias and death squads now wreaking so much death and destruction.

Some administration officials consider the economic package the most important of the three components. But, even if it’s not too late, it seems clear that projects of this type will be largely useless absent security and political reconciliation. And the Malaki government seems paralyzed to confront these realities.

As to the nature of the economic initiatives themselves, there is certainly nothing new or innovative here. These kinds of projects have been used by the U.S. Agency for International Development, USAID, virtually since the agency was founded more than 40 years ago.

Short-term work programs that would follow up a military sweep by immediately hiring people in the neighborhood to clear up trash or do other small civil-affairs jobs, is a sometimes useful band-aid that USAID has applied dozens of times, in many parts of the world, and in areas not necessarily beset by insurgencies. Short-term, it might prevent some Iraqis from joining armed gangs, but it is unlikely to change the allegiances of the thousands who have already made that bloody decision. And it is doubtful that, given the nature of both military and civilian bureaucracy in Iraq, such programs could be implemented quickly enough to have any significant impact on unemployment, which is far higher today than during the rule of Saddam Hussein, Iraq's late leader.

Micro-lending programs are also an old USAID chestnut, recently brought to public attention by the Bangladeshi efforts for which Muhammad Yunus and his Grameen Bank won the 2006 Nobel Peace Prize. Micro lending involves making modest loans to help individuals get businesses going and create new economic activity in poor neighborhoods. USAID and other countries’ aid agencies have used the technique to help poor but entrepreneurial men and women in villages in every part of the developing world. In many of these, a loan of $10 or $100 dollars has started to help lift thousands of communities out of poverty. The loan repayment rate would be to die for by any commercial banker. In some iterations of this program, there is a rule that no one in a community can get a new loan if any borrower in that community misses a payment on his or her current loan. That gets the whole village involved. Where these programs have not worked, it is more often than not because of red tape and corruption by their national governments.

But will micro-lending work in war zones where vendors are afraid to take their handicrafts and other wares to the markets that are prime targets for suicide bombers and IEDs? Will it work in towns where there is no electricity to, say, power the sewing machines needed to turn out the inexpensive T-shirts and other garments that are traditional products made with micro-loans?

Most international development experts would find this proposition extremely problematic.

Then there’s the review of dormant state-owned industries to try to determine which ones are economically viable and worth reopening. This, too, is an old USAID approach, especially since the Reagan Administration, when such reviews almost always recommended not resuscitation but privatization. And in many cases, they were right. State-run industries in developing countries are almost always inefficient, over-manned, and often corrupt. In countries where unemployment is high, the governmental industrial sector is little more than a dumping ground for young men and women who can scrape together a bribe for the factory manager. In many situations, private investors could probably do better. But the problem has been that there were few bidders for these dinosaur industries.

If the Bush Administration elects to resurrect these losers, it may keep some Iraqis off the streets and collecting a paycheck. That may well be useful, but we should be under no illusions that Iraq can build an economy on losers.

If all this has a deja vue feel to it, it’s because most of these initiatives – any many others -- have been tried before, only to go down in flames under the supervision of the inexperienced, ideologically-driven political appointees sent to Iraq to supervise the “reconstruction” of the country – at a cost well in excess of $20 billion.

During 2003 and 2004, the CPA hired some of the most respected and successful international development consulting firms as contractors. When their projects failed to achieve their objectives, the contractors were blamed. No doubt some under-performed. But spotty performance was overwhelmingly the fault of the CPA folks charged with supervising these contractors. Few had any experience with international development. They knew nothing of the country, its culture, its languages. They showed a disgraceful indifference to the CPA red tape that prevented critical supplies, and salaries for contractors’ Iraqi employees, from reaching contractors on a timely basis. They pushed for a Baghdad stock exchange to rival New York’s. They recommended privatizing virtually everything that didn’t move. They constantly changed the missions and workplans of their contractors, who often worked under life-threatening conditions. They rarely ventured outside the Green Zone to review progress or lack thereof. They were heavily populated by Bush political appointees full of grandiose ideas that served only to expose their ignorance of the country they were sent to help.

Doubtless, some of the same contractors will win bids to execute Mr. Bush’s “new” economic strategy – if there is one. That’s to be expected, since they are among the best in the world. But these kinds of contractors cannot operate as free-lancers in a vacuum. I draw on years of personal experience when I say that they depend on – and welcome – informed eyes-on supervision and oversight. We’re not talking about Halliburton here.

The CPA, thankfully, is gone – its leader now the proud recipient of the Medal of Freedom. But there is no evidence that it has been replaced by international development specialists who actually know what they’re doing. Remember that these are the same folks who still can’t deliver electricity or clean water.

Even if I’m wrong about that – and I hope I am – the devil will still be in the details. The U.S. Government is not famous for its rapid response skills.
So it will likely be months between President Bush’s unveiling of his new plan and the signing of contracts and the arrival of new contractors on the ground.

The big problem is that the U.S. has run out of months.