Politics & Policy

Iraq Needs Capitalism, Not Foreign Aid

The wrong road.

Let’s say that it is the middle of the night and Bill Gates’s house is on fire. And let’s say that as a good neighbor you rush over, heroically break down the front door, and then, risking your own life, you rescue his family from possible death and save the house from burning to the ground.

Three weeks later you get a request from Bill Gates for $300 to pay for the door you broke down. To pay up would be preposterous. You saved the Gates home and family from possible ruin.

Yet this is precisely what the U.S. Congress is prepared to do now by authorizing $20 billion of U.S. taxpayer dollars for the initial costs of the reconstruction of Iraq (half of those, by Senate vote last night, probably in loans).

Is this another case of America winning the war and being taken to the cleaners in the peace? Do we have here the classic fictitious parody The Mouse that Roared come to life?

Last week I coauthored an article on these pages with Florida congressman Tom Feeney, arguing that U.S. taxpayers should not have to pay the costs of rebuilding Iraq. We made the case that Iraqis could be loaned the money, and that the loan would be repaid through future oil profits. The Senate started to get the message last night.

That article incited criticism from many of our free-market friends and allies. The Wall Street Journal editorial page called our idea “unreasonable.” The White House has also lobbied heavily against the loan idea, arguing that Iraq is already saddled with $120 billion in unpaid foreign loans.

The issue here is not whether the Iraqis should get reconstruction aid. Yes, the Iraqi infrastructure is in utter disrepair. And, yes, the sooner the infrastructure is repaired, the sooner a functioning government can be put in place, and, in turn, the sooner American troops can be safely withdrawn. The issue is how the Iraqis should get the funds.

The arguments against the loan-financing approach are unpersuasive. Here are some brief refutations of the criticisms of the plan.

Spurious argument #1: A loan program would place an undue financial burden on the Iraqis. Not when one considers that the discounted present value of the oil in Iraq approaches $1 trillion. The oil fields are generating very little revenues now. But these loans could be repaid over a 10- or 20-year period with a reasonable interest rate imposed. Policymakers need to remember that, as Paul Bremer recently noted, “Iraq is not a poor country, it is a temporarily poor country.” If the oil fields are privatized and the new Iraqi government vigorously allows capitalist forces to take hold, Iraq could get rich very quickly. Loan repayments would be a small price to pay for this prosperity.

Spurious argument #2: Loaning Iraq the money would merely confirm the suspicions of America’s critics that the U.S. invasion was intended to seize control of Iraq’s oil. But we aren’t in any way confiscating the oil. We are simply insuring that we are repaid for the expenses incurred to get the Iraqi economy functioning again. Without the infrastructure repairs–to the pipelines, the roads, the security measures, the power plants, and so on–the oil remains in the ground and can never lubricate the Iraqi revival. In any case, making the loans through a multi-nation lending group, such as the World Bank, insures that the U.S. government isn’t the entity that puts up the money or gets repaid.

Spurious argument #3: This $20 billion of foreign aid can have the kind of high return the Marshall Plan did after World War II. The Cato Institute has demonstrated many times over the years that the supposed “success” of the Marshall Plan is a myth that the foreign-aid establishment self-interestedly perpetuates. The aid to Germany, for example, was almost entirely cancelled out by the reparation payments the Germans were making. West Germany recovered rapidly because the Germans allowed the free market to work. East Germany had billions of dollars of aid from Russia, but it grew poorer. Moreover, if the purpose of the Marshall Plan was to build long-lasting strategic alliances with the French and Germans, then something went wrong, because two of our greatest adversaries in the war against terrorism today are the French and the Germans.

Spurious argument #4: Iraq is already saddled with too much debt.

Much of that debt is owed to three countries: France, Russia, and Germany. Why should businesses in these nations, which have obstructed the crusade to evict Saddam Hussein, be repaid anything by the Iraqi people? These nations did business with a criminal despot who is gone. If they want to be repaid, they should find Saddam and get him to repay them. The facts here aren’t really very complicated. We liberated Iraq. The French, Russians, and Germans helped prop up this nation’s evil oppressor. We should have first claim on any repayments.

Iraq’s house was on fire. America rushed in to put it out. The notion that the U.S. taxpayer should single-handedly bear the burden of rebuilding the house, even though it rests upon a mountain of black gold, is fiscally irresponsible. With the war over in Iraq and Saddam gone for good, we should be giving Iraq a hand up through capitalism, not a hand out through welfare.

Stephen Moore is an NRO contributing editor.

Members of the National Review editorial and operational teams are included under the umbrella “NR Staff.”


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