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Background
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Sep 23, 2003, 12:11

Although the Baath regime clearly sought to expand the state's influence and establish a socialist-type command economy under tight government control, its economic policy was at odds with the recent decade of sanctions, which necessitated its reliance on the private sector. Any attempt to create a new state should find a way to deal with and build upon the strength of this sector, which is, however, heavily tainted by close association with Baathist political elites.

During the 1980-1988 war with Iran and facing a difficult economic situation, the regime turned away from its original approach, introduced reforms designed to encourage the private sector and foreign (Arab) investment, and enacted limited albeit significant deregulation and privatization measures.

The reduction in oil revenue and the international community's close monitoring of state expenditure through the sanctions regime led to the acceleration of this trend during the 1990s when a stock market (Baghdad) and private banks emerged. Having gained real leverage, the business community became a social force with which the regime had to reckon – and, what is more, a social force that reflected, albeit imperfectly, all ethnic and religious components of Iraqi society. One example illustrates their enhanced influence. When merchants were accused of price manipulation and executed in 1993, the market reacted fiercely, triggering shortages and soaring prices. For the first time in the history of the relationship between the Baathists and the business community, the authorities "apologized" and rehabilitated the victims as "martyrs of a moment of anger".

At the same time, this economic evolution was marked by two trends that will be significant in the post-conflict phase:
First, as a result of the spread of market forces, the country witnessed a striking increase in social ills: corruption, contraband and criminality.

Secondly, the growth of market forces in a setting still dominated by the central state meant that the private sector never gained full independence. It grew, and its members derived their wealth primarily from industry, trade, contracting and banking but these were all activities in which Iraqi entrepreneurs were forced to seek associates and guardians among key officials. Rewards for partnership with the regime were as clear as the penalties for defiance. Loyal kinship groups and regime cronies – including selected Shiites and Kurdish families – were awarded lavish contracts. Overall, the business community remained an economically dependent and heterogeneous group, reliant on state contracts and forced to adopt strong predatory practices.

In short, though the sanctions era helped broaden the private sector and bring within its ranks individuals with little if any direct links with the regime, years of mismanagement, a distorted economic system and oil smuggling associated with the sanctions also promoted crony capitalism, an unhealthy symbiosis between the business community and the Baathist state. However Iraq is governed after Saddam, it will be difficult to undo the damage quickly. The capital accumulated by this group will be of vital importance for Iraq's economic rehabilitation; likewise, the relatively dynamic business and financial communities ought to play an important part in the transition process.

The new, interim authority in Baghdad will possess leverage over members of the business community, who harbor great fears regarding the transition process. Though they are concerned about the loss of the state's economic patronage, they are even more fearful of lawlessness, specifically looting and physical violence by angry mobs or gangsters in the chaotic environment following the end of the war. By providing law and order and protecting property, the U. S. and others in the international community can reassure members of this sector about their continued role under a new set of laws, rules, based upon open market economy, democratic principles, with accountability and transparency therefore maximizing cooperation in the reconstruction process.

Steps will need to be taken to begin untangling the unhealthy web of business connections that have underpinned the Baathist regime. The right way to incorporate the business sector while simultaneously reforming it will be to reactivate the professional associations and guilds, including the Iraqi Industrial Federation, the Contractors Union and the Federation of Iraqi Chambers of Commerce. Each maintains offices in Baghdad and other major cities such as Basra, Mosul and Irbil. The rapid holding of free and fair elections in these various organizations could promote the emergence of representative interlocutors who could legitimately participate in national consultations.

I-ACC plans to actively promote free markets, and the rule of law by holding round table meetings throughout major cities in Iraq with the participation of business leaders in the country, US agencies, and select groups of individuals from business, think tanks, non-profit organizations to foster its goals.