Mises Daily Articles
Soviet-Style Rule in Iraq
So you thought that the US went into Iraq to uproot a dangerous dictator and establish democracy? Well, the US military has taken on a job a bit more difficult than that. It is trying to build an economy, which no state in the history of the world has been able to do without the assistance of a vibrant market.
Fallujah, Iraq, has no economy to speak of. The US bombed all that away a few years ago. It doesn't have clean water. The place is filled with rubble. There is some electricity, for about four hours a day, but you can't count on it nor even which four hours of the day it will be. You only need to think for a moment what your life would be like under those conditions.
The US military has taken responsibility for the rebuilding effort, as they have done all over Iraq, where 90 percent of projects have been delayed and delayed. But in Fallujah, the US is promising that by the fall, 80 percent of homes will have clean water. Most implausibly, the US is promising to bring wireless internet to everyone. Just don't drink the water while you surf the web.
How much is this going to cost? Oh, a couple hundred million. Or maybe a few billion. We'll let you know once it's done.
Water distribution relies on electricity, and the US has somehow not been able to get the generating plants working right to make the electricity available. People buy their own generators, but those require gasoline. There is a shortage of gasoline owing to several factors: the masters of the universe who overthrew Saddam have not been able to process the oil from the ground and get it to market, and the gas that is available can only be sold at an ultra-low and controlled price. The US enforces these controls by arresting black-market gas dealers.
Now, there are general and specific problems with the central planning that the US is doing in Iraq. The general problem afflicts all socialist planning. Think of Stalin's plan to bring electrification to the Ukraine, a "progressive" move not unlike Bush's plan to modernize Iraq. It was one disaster after another, all backed by political despotism and death.
Why does socialist central planning not work? The means of production are not held privately, so there cannot be any exchange markets for them and therefore no exchange ratios established. That means there is no way to calculate profit and loss. Without profit and loss, there is no way to assess the tradeoffs associated with alternative uses of resources. That means there is no economy in the literal sense of that term.
Let's say there is only a limited amount of gasoline. Should it be used to fuel trucks to haul debris away, run construction equipment to put in power plants, or used to move building materials in for new schools and roads? There is no way to assess the relative merit of these choices. The same is true for every resource. What is the priority? It ends up being an arbitrary decision by the central planners. In this case, that arbitrariness ends up with Fallujah residents who can view home videos on Youtube.com but can't get a drink of water without acquiring a deadly infection. The analogy with the Ukraine is unavoidable: electrification in the midst of famine.
The pricing problem, or the calculation problem, as Mises called it, will always and everywhere doom any attempt to centrally plan. It even makes it impossible to carry out projects from the first to the last stage of production, since every economic good requires many stages of production. After all, even with all of Stalin's secret police and armies, there was nothing they could do to produce a decent crop of grain. The process of production is too complicated to be run by anything as stupid as a government bureaucracy.
The specific problems of martial-law central planning are tied to the way the US has chosen to do business. The government has contracted out most of its work to private corporations. Of the $18 billion that the US Congress has allocated since 2003, 90 percent has been farmed out to private contractors.
This may (or may not) increase efficiency but this strategy does not overcome the calculation problem. The question of what should be built and how much and by when (the core of the economic problem) is still made by the government, not by private enterprise. The contracting agency does not own or sell what it builds. It is there only to do what it is told and pick up the check.
So the "privatization" of construction in Iraq is not a step toward market economics, contrary to what the Right says (in praise) or the Left says (in condemnation). It only ends up adding another layer of problems, namely the problem of graft and corruption that comes from the decision-making process of who or what is going to get the money.
A main beneficiary of Iraqi rebuilding money has been Halliburton, a company with famous political connections throughout the whole of the Bush administration. The missing funds, cost overruns, and incomplete projects have finally become too much even for the Army, which is ending its exclusive deal with the company.
But who or what will pick up the slack? More companies with high-level political connections like Lockheed Martin and Northrop Grumman.
Mises wrote in 1920 that he could confidently predict the future of Soviet socialism:
There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods. All these concerns will be interrelated. Every good will go through a whole series of stages before it is ready for use. In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings. It will never be able to determine whether a given good has not been kept for a superfluous length of time in the necessary processes of production, or whether work and material have not been wasted in its completion.
Similarly, we can confidently predict the future of US-run socialist planning in Iraq. There will be billions more spent, and hundreds of projects in operation. The majority will not amount to anything. In ceaseless toil and moil, the military will be without any means of testing its bearings. It won't be able to determine whether or not anything it did or built was economically wise.
We can add to the tenor of Mises's predictions. Bombs will still be killing people. The living will continue to suffer unbearable deprivations. There will not be a stable central government. The GDP will not reach prewar levels for many years, if then. The water will still be dirty in Fallujah, the electricity will not be reliable, and the residents won't be surfing the internet.