September 19, 2003 | Executive Memorandum on Iraq
President George W. Bush has called on Congress to approve an $87 billion supplemental appropriations request, most of which is earmarked for Iraq. Congress should approve the Administration's request, which is sorely needed to stabilize Iraq, improve security against terrorist attacks, and finance reconstruction. But in the long run, only the Iraqi people can assure the successful transition to a secure and stable Iraq. Thus, Iraqis must be liberated from the restrictive economic system imposed by Saddam Hussein's dictatorship, just as they have been liberated from Saddam's tyrannical political system. As The Heritage Foundation's Index of Economic Freedom shows, countries with free and transparent economies are the ones best able to grow and prosper.
Saddam's regime inserted a number of restrictions into the Iraqi constitution and legal statutes that stifled private enterprise and assured state domination of the economy. The result was a sluggish economy increasingly dependent on the state-owned oil sector, which served the interests of Saddam's socialist Baath Party. In fact, Article 1 of the 1990 interim constitution, Iraq's most recent constitution, proclaims that the promotion of a socialist system is one of the basic goals of the state. Article 13 prohibits private ownership of natural resources and the "basic means of production." Article 18 prohibits foreign ownership of immovable property (land, buildings, and other permanent structures). Companies Law No. 21 of 1997 requires that all founders, shareholders, and partners of Iraqi companies must be Iraqi nationals or citizens of other Arab countries.
The net effect of these legal restrictions was to suffocate private enterprise, reduce job opportunities for Iraqis, perpetuate state monopolies over many sectors of the economy and discourage private investment. These distortions hurt the interests of the Iraqi people but enabled Saddam Hussein to appropriate Iraq's huge oil wealth to maintain himself in power, reward his supporters, and fund his grandiose ambitions to claim leadership of the Arab world and dominate the Middle East. Iraqis would be far better served by shaking off the dead hand of Saddam's Baathist commissars and undertaking free market economic reforms to jumpstart their limping economy.
Removing barriers to private Iraqi and foreign investment would also lower the burden on American taxpayers for rebuilding Iraq, which is projected to cost $50 billion to $75 billion. While Ambassador L. Paul Bremer, the Administrator of the Coalition Provisional Authority, has taken some steps to move Iraq toward a free market economy, including suspending tariffs and import fees, many laws that severely restrict free enterprise remain in effect.
For more than three decades, Saddam Hussein's regime imposed severe political and economic restrictions on the Iraqi people. While the Iraqis have been liberated from Saddam's political repression, they continue to be hamstrung by Baathist-inspired economic repression. The United States should void these restrictions immediately and encourage the nascent Iraqi government to advance economic freedom to reinvigorate the economy. The sooner Iraqis are free to own property, invest private capital as they see fit, freely borrow from banks, set up businesses with minimal red tape, and trade products freely across the Iraqi border, then the sooner the Iraqi economy will revive, living standards will improve, and Iraqis will take ownership of their political future.
James Phillips is Research Fellow in Middle Eastern Studies in the Kathryn and Shelby Cullom Davis Institute for International Studies and Marc A. Miles, Ph.D., is Director of the Center for International Trade and Economics at The Heritage Foundation.