Picture a country that has just emerged from six years of war. The economy is destroyed, and foreign troops occupy its land. Many of its people are poor and rural, and abide by customs and technologies that have not changed for centuries. With identities most strongly tied to city or region, there is little sense of national unity, and there are no strong federal institutions. The public has just approved a new constitution in a contentious referendum, following decades of dictatorship. However, the new and nominally democratic government is a vessel of patronage and corruption whereby funds, jobs, and contracts in the largely state-run economy are doled out along regional and political lines.
This sounds an awful lot like Iraq today, but it actually describes Italy in the years immediately following World War II. The Italian experience over the past 65 years — replete with uneven economic growth, ever-changing governments, and Mafia-laced corruption — is one that few modern countries would seek to emulate. However, Italy is today a wealthy and stable country. Its postwar condition has enough commonalities with that of today’s Iraq that its growth trajectory serves as a best-case scenario to which Baghdad can aspire. In Italy’s case, a system of political favoritism actually helped preserve the peace from 1946 until the arrival of the “economic miracle” of the 1960s. As the newly formed Iraqi government finally gets down to the important business of governance, it should look to Italy and know that the chance of a positive outcome for its country still lies within reach.
Iraq is well known to be divided among its Sunni, Shiite, and Kurdish factions, which (with plenty of exceptions) are roughly situated in the central, southern, and northern areas of the country respectively. Many of the state’s institutions are controlled by political parties that generally fall along factional lines. While Italy’s 1946 internal divides never reached the near-civil-war conditions of Iraq’s 2005–07 sectarian violence, the Italian rift was significant. Northern and southern Italy had very different wartime experiences. American and British troops occupied the relatively peaceful though poor and agrarian south, to which King Victor Emmanuel III ultimately fled. In contrast, Nazi troops occupied the urban and industrial north, in the form of the puppet-state Italian Social Republic. Northerners turned against their neighbors, split between republicans and post-fascists — or more bluntly, resisters and collaborators. Compounding these differences was the fact that the formal Italian language was little used outside of official matters, as most people preferred regional dialects. It was not until southerners migrated to the north en masse in the 1960s that the country began to unite around standard Italian. As Tony Judt observes in his masterpiece, Postwar, “‘Italians,’ for good or ill, were forged more by the shared experience of watching sports or variety shows on RAI [the national broadcasting network, which entered the television market in 1952] than by a century of unified national government.”
In both countries, internal divisions extended to the voting booth. One year after Mussolini’s execution, Italians voted to form a republic in a 1946 referendum that mirrors Iraq’s constitutional referendum of 2005. The north/south divide shaped a polarizing outcome, with all the northern regions voting strongly in favor of a republic (Trento’s 85 percent vote being the highest), and the southern regions supporting the monarchy (Campania led the way at 77 percent). Such extreme divisions over fundamental political questions are alarming for the unity of any country, and they persist in Iraq as well, where the results of the March 2010 parliamentary elections fell along largely sectarian and regional lines. The Shiite southern provinces voted heavily for the State of Law Coalition, the Sunni center for the secular Iraqi National Movement, and the Kurdish north for the Kurdistan Alliance. Amidst allegations of fraud, it took the Iraqis nine months to form a government.
Italy’s political reality led to an economic-development path that is available to Iraq as well. First, a tradition of state-owned enterprise cultivated by Mussolini was further ingrained in 1946, as Italians looked to their newly elected government to heal the country’s war-ravaged infrastructure. A variety of government holding companies controlled most industrial sectors. The Institute for Industrial Reconstruction, founded in 1933, controlled steel and iron production and shipbuilding, as well as companies such as Alfa-Romeo and Alitalia. ENI, the oil and gas company, was founded by the government in 1953, while the electricity giant ENEL effectively nationalized over 1,200 private energy providers in 1960. Other key sectors such as engineering, chemicals, telecom, media, banking, and food production also fell under state control. The state deepened its economic footprint with the Cassa per il Mezzogiorno, or Southern Fund, which poured the equivalent of billions of Euros in public funds into developing industry and infrastructure in rural southern Italy from 1950 until 1984.
The concentration of so much economic power in the hands of the government practically invites corruption, and Italy did not resist the temptation. Those in office were uniquely positioned to dispense jobs, development funds, and more. While no special interest or party ever held a clear majority, each party was equally skilled at self-preservation by lavishing all manner of favors on supporters. The Christian Democrats who dominated the government from the 1950s through the 1990s (with CIA assistance during the Cold War years) largely represented the southern regions, the Veneto, and Catholic interests. The Communists, making up the largest opposition bloc, were strongest among urban workers in the central regions of Tuscany, Umbria, and Emilia-Romagna. The Socialists dominated municipal government in the northern cities. Each party colonized local business, government, and media, as the state economic entities served not just their employees, but also the vast politically aligned networks of unions, clergy, social services, local bureaucrats, and criminal networks that supported them. In the early stages of the Republic, some ministries and state agencies were known to spend up to 80 percent of their budgets on salaries and administration. Political power became synonymous with graft and corruption.
Ultimately most organs of Italian public and civic activity, from trade unions to sports teams, formed along party lines. The system was grossly wasteful, and worked against any notion of efficiency or private enterprise. However, during the early postwar period, with the country still split between monarchists and republicans, and with mass migration from south to north threatening the social fabric, the stability produced by a steady flow of government largesse cannot be ignored. When GDP started growing at 6 to 8 percent a year for five years beginning in 1959, thanks to rejuvenated steel and energy sectors, greater private-sector participation, and support from the Marshall Plan, Italy was on its way to becoming one of the world’s great economies. Later, during the “lead years” of 1977–82, when domestic terrorism by left- and right-wing extremists and Mafia elements threatened the Republic’s institutions, Italy’s economic strength gave cause for Italians of all stripes — including the Communist and neo-Fascist parties which the terrorists claimed to represent — to come together for the security of the state.
Iraq today has many of the same conditions that troubled Italy in 1946. Saddam’s Baath party had a socialist economic ideology, with a centrally planned economy relying heavily on the oil sector. Nearly all major sectors have been, and continue to be, in state hands. While the private sector has made key inroads, particularly in the banking industry, a 2008 New York Times survey suggests that the Iraqi government directly or indirectly employs some 2.4 million people, or over 35 percent of the country’s workforce. Security work creates the most jobs, with the Defense and Interior Ministries the two leading employers in Iraq. As in postwar Italy, Iraq’s ministries are largely controlled along political and sectarian lines, with even the lowest-level employees needing to prove their loyalties. There are numerous factions among the primary ethnic and religious groups, and the resentment among the groups is unquestionably deeper-rooted and more complex than in postwar Italy. The January 2011 return to Iraq of firebrand Shiite cleric Moktada al-Sadr only further complicates matters. However, the best path toward reconciliation and healing still starts with the same model of government largesse along party lines. Fortunately, a culture of corruption and favoritism has never been lacking in Iraq.
The absorption of excess labor, particularly former fighters and insurgents of every stripe, into already-bloated government ministries, security forces, and other state-sponsored employment is absolutely critical. Salaries and benefits must be higher than anything al-Qaeda and its affiliates can offer. For Iraq, pacifying the restive Sunni minority, which had governed the country under Saddam but suffered retribution after his fall, is the highest priority. One of Prime Minister Nuri al-Maliki’s greatest challenges will be to open more ministry posts for marginalized Sunnis, who have greater experience in managing the state’s bureaucracy. Allowing the Kurds an appropriate level of autonomy, to head off their threats to secede, is also crucial. In September 2010 the Iraqi government unveiled a plan to integrate some 52,000 Sunni members of the pro-U.S. “Awakening Council” militias into an array of federal, provincial, and local government jobs. Maliki is trying to sell the plan to the Shiite-controlled Interior Ministry, which is currently pushing back. His success in implementing this plan could be his crowning achievement as a politician, and would go a long way toward helping stabilize the country. Skilled diplomacy is preferable to a constitutional mandate that would divide key government posts along sect lines, as in Lebanon. Lebanon’s model has kept an uneasy peace in that country, but it is an inflexible system that is nearly impossible to amend. Such mandates are not a long-term solution for a democracy.
The distribution of Iraqi oil revenue along political lines can provide a medium-term stability that will encourage foreign and domestic investors to start taking risks. Like Italy, Iraq is sure to experience its own economic miracle once the country is secure, and it is private-sector growth, not a system of patronage, that will guarantee Iraq’s long-term future. Iraq is awash with energy and agricultural resources, and it has a strong culture of entrepreneurship. Investors have been waiting since 2003 to participate in the country’s recovery, while oil prices edge upward amidst a healing global economy. War recovery is big business, as shown by the decades of high growth in Europe immediately following World War II. While Italy and the rest of Europe had the Marshall Plan to assist their growth, Iraq receives and will continue to receive comparable American aid and investment. As the economy grows, the 325 members of Iraq’s Council of Representatives, who hail from four major and five minor political parties, will have more resources at their disposal to direct to supporters in the form of jobs, contracts, subsidies, and more.
Iraq also suffers from a lack of national unity, which, in the most optimistic of circumstances, the dispensation of jobs and favors could help amend. Sunnis’ current grumblings are rooted in a perceived lack of fairness in the distribution of largesse. By tipping the scales slightly more in their favor, the government might help to relieve tensions. Then, as in Italy, once the economy starts growing, and the state refills the power vacuum, and improved security permits cultural institutions like national TV and sporting leagues to flourish, the Iraqi state can reoccupy the common imagination. In my own experience in Iraq in 2003–04, I was encouraged by the near-unanimous acknowledgment by the people I talked with that they were Iraqis first, and whatever sect or ethnicity second. Despite American concerns about Iranian meddling, Iraqi Shiites have historically distrusted their Persian neighbors, and have no interest in living under Tehran’s influence. Memories of the Iran-Iraq War loom large. Iraqi security forces, with the help of retired militiamen, must beat back the remaining extremists who would sow hatred and violence rather than see a multiethnic Iraq flourish — obviously no small task. As the American armed forces continue their gradual withdrawal through 2011, Iraqis will have one less source of tension in their midst, and will be forced to confront a new reality in which they have no choice but to work together with their brothers. Will a fragile Iraqi state unified by economy and culture be able to beat back future acts of terrorism, as the Italians did around 1980? It is hard to say, but with the right governance and some short-term fixes, the economy could grow strong enough that it becomes preferable to any sectarian alternative.
In this best-case scenario, Iraq can follow Italy’s path from a poor, divided, war-ravaged country with a state-run economy to a modern nation with a middle-class populace that takes to the streets over jobs and growth, and not the politics of identity. Today’s Iraq actually leads 1946 Italy in educational attainment, with 9 percent of Iraq’s adults having graduated from secondary school, compared to 5 percent for 1946 Italy. Conversely, 1946 Italy benefitted from the relative stability of its neighbors and the economic integration that would lead to the European Union. But Italy’s road has not been easy either. The country has suffered consistent political upheaval, with no fewer than 62 governments in the 66 years since World War II. The lesson this teaches is profound: Once an economy is allowed to grow, through a peace forged by whatever regrettable or corrupt means necessary, a society can gradually develop a common identity and grow strong enough to withstand social and political shocks. This should be encouraging to Iraq, a place that hears little good news.
— Jay Hallen is a consultant to the financial-services sector. In 2003–04 he advised the Iraq Stock Exchange on behalf of the Coalition Provisional Authority.