Lounsbury: Cole: Iraq, Privatization, Ignorance

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March 18, 2005

Cole: Iraq, Privatization, Ignorance

I like Juan Cole. Despite his rather typical leftish politics, he is usually a good observer. However, today's comment on Iraq was ... borderline illiterate in many aspects, alhtough it contains valid points. A quick run down.

Plots
http://www.juancole.com/2005/03/wolfowitzs-plot-to-destroy-opec-and_18.html
Cites to the BBC story on the Iraqi oil sector and US plans
(see http://news.bbc.co.uk/2/hi/programmes/newsnight/4354269.stm)

I'm going to comment on Cole, not on BBC.

Selections

"It is a story that also has a bearing on Paul Wolfowitz's bid to become chairman of the World Bank. I have some questions for him. Does he want to reduce the Arabs to poverty? Is he hostile to the very existence of OPEC and of producer cooperatives in primary commodities? Does he favor the use of warfare by states to permit their corporations to take over public energy resources in the Global South? Are his economic policies going to be rooted in a desire to further the interests of the Likud and other rightwing parties in the Global South?"

This is largely a set of dumb and confused questions. Wolfowitz's hostility (or not) to OPEC has fuck all to do "reducing the Arabs" [sic] "to poverty."

OPEC - which is hardly an "Arab" organization, although it's true KSA plays a key role - is not "The Global South" (whatever that means, sounds like silly anti-Globo Leftist idiocy speak to me) and frankly its policy (rational one may add) of maintaining the highest sustainable oil price is more of a tax on the poorer non-oil producing emerging markets as percent of buying power than it is on The West or Developed Markets. Nor does OPEC money effectively get reinvested in those non-producer nations.

Producer cooperatives for primary commodities: actually I think Wolfowitz is critical of such, but that's not an evil.

Warfare for taking over the public energy resources of the "Global South" (every time I type that idiotic phrase I hate it a bit more, namby pamby academic bullshit speak)? What the bloody fuck does that mean. Iraq? Yes, but what the fuck does this have to do with World Bank? In any case, it's a confused smear of a question.

The last question is simply incoherent.

"As Palast tells the story, the Neoconservatives (presumably Wolfowitz, Perle and Feith) and the Department of Defense were dedicated to privatizing the Iraqi petroleum industry as a key plank of their Iraq project. They hoped that Iraq's privately-owned (presumably by American petroleum corporations) petroleum industry would secede from the Organization of Petroleum Exporting Countries (OPEC) and would pump large amounts of petroleum, refusing to stay within the bounds of the Iraq OPEC quota. By setting quotas for members, OPEC attempts to keep the price of petroleum from falling too far or from oscillating too wildly."

Well, actually it was more than the NeoCons hoping for this, although it was a dumb ass aspiration from the get go, given Iraqi interests are naturally for price stability at a maximum current price. Of course among the reasons why OPEC "works" now is that the non-OPEC producers and OPEC coordinate. The price collapse of 1998 taught all producers what pain was. OPEC is working because in fact "oil producers" generally presently see gain from cooperation.

Of course privatization is not of necessity connected with exiting OPEC. Nor is willfully violating quotas (which members in good standing have done almost at will, until prices smacked them).

"That there was a cult of privatization at the Pentagon has never been in doubt."

Cult of privatiation?

" Iraq has been a socialist country since at least 1968 (and had elements of socialism in the period of military rule 1958-1968). Most major industries were publicly owned. Moreover, the Iraqi population liked it that way. Opinion polls show that 80% of Iraqis think the purpose of a government is to take care of people."

Yeah, Iraq has been a basket case economy since the 1980s. Socialist enterprise development has contributed to that. Most major industries outside of the oil sector were complete shit before hand. I note Cole's stupid, reflexive leftist "take care of the people" line.

Great, take care of the people historically in that context has meant deadly dictatorships. Yes, the Iraqi people are afraid of privatization - afraid of losing jobs etc. Afraid of instability.

All valid fears. That does not make their fear of change a good basis for economic policy nor privatization bad.

"Paul Bremer, the second US civil administrator of Iraq is a fanatical laissez-fairiste."

Fanatical laissez-fairiste. Interesting turn of phrase.

Naive believer in the ability of markets to regenerate I grant. Fanatical? Nah, had he been fanatical some of the real whack job plans I saw would have been forced through. They were not.

"The privatizers would set up private corporations to sell you creek water and oxygen if they could get away with it."

And?

Selling water delivery services is a good thing. Attracts capital, allows extension of services and improves quality.

"In a BBC interview, Jay Garner alleged that the Department of Defense dissolved the Iraqi army and sent it home, causing all of us no end of trouble, because they were afraid that retaining a large Baath institution like that would form an obstacle to radical privatization."

Possible.

I would agree that probably fed into decision making (among many reasons) and was stupid.

" Bremer wanted to allow foreign companies to buy any firm in Iraq and to be able to expatriate profits immediately."

Cole is over personalizing this. CPA generally. See my comments back in 2003. CPA was filled with what I would frankly call naive ideologues who did not understand the country they were dealing with and the fact private enterprise would need to be nurtured. The rules were to allow for free investment, Iraqi or otherwise. Expatriation of profits comes as part of that, nothing wrong per se. Ex of course the Iraqi economy was too fucked to handle that. Should have been planned as a gradual move, very true.

Dumb ass naive planning.

Cole decides to speak to things he doesn't understand
" (The abolition of currency regulations, advocated by Washington Consensus free marketeers, contributed to the meltdown of the East Asian economies in 1997; Malaysia escaped devastation by thumbing its nose at the privatizers and slapping on currency controls. It turns out that if there are no regulations about currency transfers, speculators take advantage of it; Surprise!)
Let's leave aside Cole's illiterate and ridiculous use of "privatizers" in the context of the Asian currency crisis (that had nothing to do with "privatization") and focus on his illiterate macro-economics.

It turns out if you attempt to maintain currency at rates that are not supportable in the market, and run up debt in forex due to that because the forex denominated debt looks cheaper than it really is on a risk adjusted basis, you will pull in "hot" short term money. The Asians were looking for FDI for private investment and got it, only too much in portfolio flows, driven by their own policies - not "Washington Consensus." One can rightly critique the calibration of IMF response, but it's just completely illiterate to say "Malaysia escaped devastationg by thumbing its nose at the privateers and slapping on currency controls."

Cole needs to learn some economics.

"Obviously, the real prize in privatization would be the petroleum industry. No other state-owned Iraqi industries are worth much, and will be difficult to sell to private owners because they are bloated bureaucracies and inefficient."

Well ain't that a glowing endorsement of the socialist economy; in fact most Iraqi state industries were money losers - great for creation of wealth you know. However, he's wrong, other industries (as you all know from my obsesions) were interesting and lots of money was being mobilized - however sell off really wasn't a good idea because of the shitty state of things and the politics.

"The prospect of the Iraqi petroleum going into foreign hands, however, impelled many Iraqis to begin sabotaging the pipelines, or to support the saboteurs."

I seriously doubt that. I seriously fucking doubt that. Prospects, vague and discussed (althought the CPA rules never overturned the Oil regs that forbid such) do not turn people to blowing up pipelines. Stupid fucking assertion.

Generalized resentment of Americans among the old Baath elite, Islamist hard core opposition, possible extent resistance plans. These make sense. And to the extent CPA in its loud mouth incompetent Bush Administration way carried a little stick and spoke in a big confused voice, yes over the top talk about privatization and resentment of having their economic world changed apparently at CPA will may have fed in.

"According to Palast, it was the Coalition Provisional Authority officials from a Big Oil background, like Philip Carroll, the former CEO of Shell Oil USA, who told Bremer "No!"

The US petroleum companies haven't been interested in owning Middle Eastern petroleum for decades. Most Middle Eastern oil producers nationalized their industries in the 1970s. The US companies moved into refining and distribution, which is plenty profitable. Trying to own the oil fields had long caused them a lot of trouble. The attempt of Prime Minister Mohammad Mossaddegh to nationalize Iranian oil in 1951-1953 had led to a US/UK boycott of Iranian petroleum and ultimately a CIA-backed coup that ended the last democratically elected government in Iran in 1953. Since that time, Middle Eastern peoples had become much more politically and socially mobilized, and popular demands for ownership of national resources became irresistible."

Let me restate this in real terms:
Getting into owning in country assets in the MENA region looks too risky, non-national hydrocarbon firms have preferred to manage this by moving up the value chain. The MENA state ownership of oil resources, a fact since the 1960s-1970s has been a fine little means for the hydrocarbon states to become utterly divorced from their populations (see Algeria, e.g.) but the rentier elites have done a good job of pimping simplistic, socialistic resource nationalism to people like Cole and the populations on the "exploitation / colonialism" line, while the rentier elite state effectively exploits the same for its own narrow interests.

Applaud this in the name of the people.

"(Max Boot, who thinks Middle Easterners are just Filipino peasant villagers circa 1902--poor, illiterate, unconnected and politically naive--exemplifies the basic Neocon fallacy. The Neocons haven't even caught up to the 1950s or read Karl Deutsch on the social mobilization of the Global South. People can't be occupied so easily once they are urbanized, industrialized, literate, connected by modern communications, and politically aware. This is why Boot and Wolfowitz did not anticipate a long-term guerrilla war in Iraq, or how savvy and effective it would be. They really think they are Lord Curzon dealing with backward WOGs)."

This is just empty stupid abuse, which I have nothing against were Cole otherwise on point here, but since he's an economic illiterate, it's not entertaining.

"So the Neoconservative/ Department of Defense plan to privatize the petroleum industry was swimming against history, and proved impossible to implement because a) the Iraqis wouldn't put up with it and b) even US Big Oil could see that it was a disaster waiting to happen."

Cole is wrong here.

Swimming against history is 30 years out of date. Throughout the region there are moves to move away from the State dominated model and return assets to the private sector (albeit usually with national investor rules to ensure some national ownership component) in order to modernize, attract new investment and try to end the Vampire State effect.

What went wrong was (i) Rational economic actors (we can call this abusively 'Big Oil' if we want, or economically literate observers) could see the risks were too much for a direct privatization move a la CPA's clumsy and gauche policies, (ii) CPA in its beautiful and stupid ignorance plunged ahead on the utterly and often fascinatingly naive idea that all would be self evident - rather than working on building local consensus among stake holders, and implicating Iraqis in the necessary reforms.

The kernel of truth in his critique is that CPA went in without any fucking idea of how to sell their ideas to actual Iraqis, without any respect for a process of transitioning Iraq on Iraqi terms to a private sector driven economy, and without any clue as to the needs of Iraqis to get on their feet for doing so. All that was absolutely criminal (and as anyone reading me in mid to late 2003 knows, was driving me up the wall): these so called "free marketeers" did, in my opinion, immeasurable damage to really getting free enterprise going in Iraq because they were not really business people or economists or related experts in emmerging markets and went in commiting a cardinal sin: they didn't fucking understand the least fucking thing about their motherfucking market. When you do that, you get fucked.

"The other thing wrong with the Wolfowitz/Perle/Feith plan to destroy OPEC via Iraq is that it cannot be done. If they thought it could be done, they are ignorant of the petroleum industry and also of basic economics."

A more ironic critique could not be made.

Well, the remainder of the post is not that bad, sounds partially cribbed from other sources.

March 18, 2005

Cole: Iraq, Privatization, Ignorance

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