Blogger Audacious Epigone has posted a chart showing government expenditure as a percentage of GDP for 160 countries. Which country has the highest percentage of GDP as government expenditure? Cuba is in second place with 81.4%. Slovakia is in third place at 66.2%. So which country is the ultimate socialist regime? Iraq at 87.3% of GDP as government expenditure. That's an amazing figure.
I wonder if that figure includes the Sunni irregular military forces that the US military bankrolls to buy them off and keep them from attacking American and Shia targets. See my previous post about Nir Rosen's piece "The Myth of the Surge". We are buying off factions in Iraq to reduce the violence. That buying off process is part of what boosts government expenditures to such a high percentage of GDP.
You might think such a high percentage of GDP as government expenditure isn't possible. Surely someone has to produce whatever the Iraqi government buys. But the Iraqi government can use oil revenues to pay employees and the government and its many employees can buy goods shipped in and trucked in from other countries.
But Iraq's economy is weaker than at any point since the US invasion. Some estimate joblessness at 60 percent (the CIA shows a 30 percent rate for 2005), and prices for foodstuffs and basic goods have doubled - and in some cases tripled - since 2003.
Earlier this month, Iraq's planning minister, Ali Baban, said the rise in the consumer price index (CPI) - the basket of goods and services used to measure inflation - increased by nearly 70 percent in July compared with 12 months earlier. In July 2005, the CPI rose by 30 percent.
While the daily death toll frightens Iraqis - it topped 100 in the past two days alone - the country's economic grind is eroding the standards of living of millions of Iraqis and leading to mounting frustration in a country where the average monthly wage is less than $200.
Hunger is a problem. The higher the prices go the more people won't be able to feed their kids or themselves.
The violence in Iraq is cutting into the demand for labor and cutting output.
Usually when wages are flat and unemployment high, prices are stable, because consumption also stays flat. In developed economies like the US, inflation walks hand-in-hand with economic growth and job creation. But in Iraq, violence is driving the price increases, destroying jobs and testing a social net that was already weak before the fall of Saddam Hussein's regime. Economic despair, in turn, generates new recruits for the sectarian militias most responsible for the economic decline.
Corruption is another major problem. An audit sponsored by the United Nations last week found hundreds of millions of dollars of Iraq's oil revenue had been wrongly tallied last year or had gone missing altogether. Business is being done, but it isn't often very productive in nature. "There is a lot of activity in terms of trade and finance but there is not much activity in terms of production and that is not very healthy," said the central bank's Shabibi.
The financial corruption is probably filling a lot of Swiss bank accounts.
The Los Angeles Times reports that some Bush Administration officials have begun to think that Iraq would be better off under a strongman dictator. Um, you know, like Saddam Hussein.
Should a second government fail, it would not only raise questions about Maliki's effectiveness but might indicate that anyone would have difficulty leading Iraq. Few in the U.S. government so far have suggested anything as drastic as another change in the leadership, although some, frustrated by the lack of progress, have voiced a private view in recent weeks that Iraq might be better off under a traditional Middle Eastern strongman.
"But that's not the policy," said the second senior U.S. official, discussing the idea of changing governments again. "The policy is to prevent that from happening by making this government succeed."
Putting a Sunni dictator in charge would also yield strategic bonus points for neoconservatives who want to make Iran less of a potential future threat to Israel. An Iraq run by Sunni Arabs would make the Iranians think more about their own neighborhood and less about more distant countries that the Mullahs despise. The neocons really messed up by making Shias powerful in Iraq.
It is no wonder some Bush Administration officials are thinking about a dictator for Iraq. Democracy is not working - at least one in ways that people with Western values would want it to work. Iraqi Prime Minister Maliki can not crack down on the Shia death squads because democratically elected Shia political parties in his coalition support the death squads.
Despite their growing desire for action, U.S. officials say they recognize the difficulty Maliki faces in trying to lead a fractious government with only the narrowest base of public support. For example, though a top goal of both the Bush administration and the Maliki government is suppressing sectarian violence, it is difficult for the prime minister to try to bring pressure on groups associated with Sadr.
"People here recognize that it's a political reality that he depends on the votes of groups which, while not all dirty, have some ties to Shia death squads," the second senior official said. "He's a decent man, a serious person, but there are realities."
I wonder whether George W. Bush knows that democratically elected Shia political parties are supporting Shia death squads that are killing not just insurgents but just people who have Sunni-sounding names. A recent Bush speech on Iraq and terrorism is full of the same myths and delusions that characterised Bush Administration rhetoric on Iraq and terrorism a few years ago. Is he sincere when he makes ridiculous speeches or is he just trying to cover up the ways that the Iraq invasion was a mistake?
BAGHDAD, Sept. 16 — Shiite militiamen and criminals entrenched throughout Iraq’s police and internal security forces are blocking recent efforts by some Iraqi leaders and the American military to root them out, a step critical to winning the trust of skeptical Sunni Arabs and quelling the sectarian conflict, Iraqi and Western officials say. The new interior minister, Jawad al-Bolani, who oversees the police, lacks the political support to purge many of the worst offenders, including senior managers who tolerated or encouraged the infiltration of Shiite militias into the police under the previous government, according to interviews with more than a dozen officials who work with the ministry and the police.
This is democracy at work in Iraq.
The ministry recently discovered that more than 1,200 policemen and other employees had been convicted years ago of murder, rape and other violent crimes, said a Western diplomat who has close contact with the ministry. Some were even on death row. Few have been fired.
Shiite interior minister Jawad al-Bolani has to weigh reform against the risk of getting himself killed.
Mr. Bolani, a Shiite engineer appointed last May, sincerely wants to purge the ministry of Shiite partisans brought in by his predecessor, the officials interviewed said. But his independence from powerful Shiite political leaders — the very quality that earned him the job — also means Mr. Bolani has limited power to remove politically connected subordinates and enact changes.
“He’s got to be careful about what he does, just to stay alive,” the Western diplomat said.
His democratically elected colleagues will put out a hit on him if he goes too far and makes substantial reforms.
"We believe that freedom is a gift from an almighty God, beyond any power on earth to take away," Bush said. "And we also know, by history and by logic, that promoting democracy is the surest way to build security."
Democracy in Mexico has built Nuevo Laredo into a shooting gallery between drug gangs, corrupt police, and corrupt soldiers (with considerable overlap between the soldiers and the drug gangs). Democracy in Iraq has fueled ethnic hatred. See my post from over two and a half years ago: Prospect Of Democracy Breeding Ethnic Hatred In Iraq. As for why too many liberals and neoconservatives (which I view as a type of liberal) can not see the implications of Iraq for their own beliefs see my comments on another site about how the desire to see liberalism as a universal aspiration of all humans blinds many intellectuals from admitting the obvious lessons that Iraq drives home.
Three years after Bush administration officials predicted that oil revenues would fund the country's reconstruction, the industry is in turmoil. Attacks that knocked out pipelines in the north have combined with bad weather in the south to drive Iraq's oil exports last month to their lowest level since September 2003, in the aftermath of the US-led invasion.
Bush Administration predictions on oil production were so very wrong. I think we should pay more attention to track records on predictions and accord less weight to those who make many big incorrect predictions.
Our side can't fix the oil equipment faster than the insurgents can blow it up.
But US officials acknowledge that increase will only happen if Iraqis can protect the entire pipeline.
''If you could repair it faster than they could destroy it, you'd win the battle. But you can't," said Lowell Feld, analyst with the Energy Information Administration, an arm of the US Department of Energy.
Guarding the Fatah oil refinery used to be a pretty straightforward job for Saif Mohammed. Insurgents hit only sporadically, and usually missed important targets. But by early last year, attackers were using rocket-propelled grenades, mortars and heavy machine guns in brazen daylight assaults. They seemed to know about everything and everybody in the refinery. Ambushes were common. "We were afraid to even take vacation and go home," says 26-year-old Mohammed. "The people who worked with us used to tip off the fighters. They wanted to play both sides—to keep their jobs and be informants for the terrorists."
In addition to granting women more legal rights than they currently enjoy Saddam Hussein was also capable of protecting his oil facilities from internal opponents.
For the cost of the war in Iraq we could fund a lot of energy research, heavily insulate all government buildings, and take other steps to reduce our reliance on oil.
One of the many ridiculously wrong predictions made by US Vice President Dick Cheney and then Deputy Defense Secretary Paul Wolfowitz about the Iraq invasionn was that the Iraqi oil fields would pay for the rebuilding of Iraq and that the war would therefore have low costs. But oil production in Iraq is still below pre-war levels.
Persistent sabotage of oil facilities in Iraq has cut production below the 2.5 million barrels per day produced before the U.S. invasion in March 2003. Meanwhile, a U.S.-led economic embargo has reduced investment in new oil facilities in Iran.
Local usage appears to be 500,000 barrels per day.
High oil prices have allowed Iraqi oil revenues to rise in spite of the production decreases. But I remember war advocates who argued to me that the oil spigots in Iraq to flow so fast after an invasion that the resulting decrease in oil prices would pay for the cost of the war.
Nobody has definitive numbers on Iraq's oil production, but analysts say daily production this year will average about 1.8 million barrels per day, about 10 percent less than 2004 levels of about 2 million barrels — and just over half 1990 levels.
"It's another disappointing year," said Sharif Ghalib of Energy Intelligence Research in New York.
Analysts say 2006 looks just as gloomy, although some predicted it would show an improvement.
"Anything above 2 million barrels per day would be a positive surprise for next year," said David Wech, an oil analyst with PVM Oil Associates in Vienna.
The previous link has a chart of monthly Iraqi oil exports. It looks to have peaked post-war at 1.8 million barrels per day in February and March 2004 but has since fallen to 1.2 million barrels per day in November 2005. About a half million goes to domestic consumption. So Iraq's probably produced 1.7 million barrels in November 2005.
Most have been small companies that bypass the central government in Baghdad and sign agreements with regional Kurdish officials in the north, just to get a foothold in the market. The real test will be if Iraq can manage to entice the world's top oil companies, which are needed to rebuild the industry.
That isn't expected to happen until the new government resolves the constitutional debate over the control of oil.
Kurds and Shiites, who predominate in Iraq's two main oil-rich areas - the north and south, respectively - seem determined to form virtual mini-states that have control over their oil assets and profits. Iraq's Sunni Arabs are concentrated in mostly oil-poor central Iraq and want central control over the resources to ensure they get a share of the profits.
Read the previous article for more details on Kurdish oil deals with Turkish and Norwegian oil companies. The central government is disputing the legal right of the Kurds to do this. But the Kurds are de facto independent of the central government while pretending to still be part of Iraq. The Arab Shia provinces want to do the same thing with their oil fields but are held back by a much higher level of sabotage and violence. Plus, the overwhelmingly Shia central government leaders want their cut of money from Shia oil fields.
The large Western oil companies have been unwilling to enter into deals to develop Iraqi oil fields because the violence and political uncertainty. Smaller companies are taking some risks. But the level of development is still quite low.
Unfortunately the Shia fields contain far more oil than the Kurdish fields. So Kurdish region stability and Kurdish separatism are not enabling most of Iraq's oil fields to go into production.
Oil Minister Ibrahim Bahr Al Uloum, attending a meeting of Opec in Kuwait, pledged to raise Iraq's crude oil flows to three million barrels per day by the end of 2006.
Iraq's U government has several times missed out on its oil target and the oil industry is sceptical of the authorities' ability to boost output.
A 3 million barrel per day production rate would restore Iraqi oil production to the level it was at before Saddam invaded Kuwait in 1990.
The Iraqi government is claiming Iraq will be producing 6 to 7 million barrels per day by 2010. One can only hope so. The growing Chinese economy needs that oil.
He now has to rely on the estimate of Philip J. Carroll, America's adviser to the Iraqi oil ministry, who guesses--hopes--that the Iraqis can export enough oil during the balance of this year to cover salaries, pensions, and other everyday costs associated with reconstituting the Iraqi bureaucracy.
But even if Carroll's goal is met, Iraqi production will not generate sufficient funds to cover the cost of reconstructing the country's infrastructure.
"Crude oil production is rising very fast now. We are up to well over a million barrels a day," a coalition spokesman told reporters here. "Yesterday's production was significantly above that figure," he added. His remarks echoed comments by a senior Pentagon official who testified Tuesday before a Senate panel, reported Platts.
In my opinion the US government should have made much more preparations in advance of the war to rapidly increase Iraqi oil field production once the war was completed.
The rate at which Iraqi oil production rises matters for several reasons:
Therefore the US can gain both security and economic benefits from high levels of Iraqi oil production.
For greater longer term security the US ought to pursue a very ambitious research and development effort to develop forms of energy that can gradually replace fossil fuels as energy sources.
The Financial Times reports that the United States government has decided to accelerate the privatization of government-owned Iraqi industries.
Dozens of Iraqi state-owned companies are likely to be earmarked for privatisation within the next year, Tim Carney, senior coalition adviser to the Iraqi ministry of industry and minerals, said yesterday.
Previously the US-led coalition had said it would wait until the creation of an elected Iraqi government, in a year or two, before beginning privatisation.
Currently the US occupation administration is usiung the government industry workers simply as a way to pump money into the local economy.
Two months after American forces seized control of Iraq, American officials now find themselves approving salaries for hundreds of thousands of no-show and no-work jobs.
With American blessings, the Iraqi government is paying full salaries to at least 200,000 employees at government ministries and the country's huge but moribund government-owned companies.
The accelerated sell-off seems like a smart move. A lot of workers in these companies are Baath Party loyalists. It is better to force them out into the private sector because doing so effectively ejects Baathists from the government reduces their influence. Also, privatization will speed the growth of the Iraqi economy. One problem is that a lot of workers will be laid off but it hardly seems wise to reward the loyalists while the rest of the population have to take what work they can find. Money spent on keeping the government industries afloat would be better spent on construction projects to rebuild the country.
Writing in The Washington Post Peter S. Goodman reports that successful Kurdish businesses in the northern enclave are eager to expand into the rest of Iraq.
But the war has also raised the prospect of a unified Iraq, prompting thoughts among successful merchants here of expanding their sights beyond the region. At Sana Mobile, one of the two cell phone carriers in town, there is now talk of expanding into the rest of Iraq. "We have the financial ability and the technical ability," engineer Khalid Hasan said. "We have the experience."
With established private sector businesses and experience operating in an economy where business skills count more than political connections the Kurds in northern Iraq are in a great position to expand now that the rest of Iraq is not closed off to them. It seems likely they will accelerate the economic development of Iraq as a whole. Kurdish business interests will probably favor the continuation of Iraq as a single political entity.