When American journalists and policymakers talk about Iraq, their focus is overwhelmingly on security. Will Iraqi forces mop up the remnants of the Islamic State? Will Iran extend and formalize its influence in Iraq (as the Iranian and Iraqi Defense Ministries’ recent Memorandum of Understanding suggests)? Will the Hashd ash-Shaabi, the largely Shi’ite militias that arose in the wake of Mosul’s fall, remain a corollary to the Kurdish Peshmerga, or will they instead become an Iraqi version of Hezbollah? Will the Iraqi government and Sunni Arabs reach an understanding, or is Iraq destined for more sectarian violence?
While the answers to these questions are crucial to Iraq’s stability, so, too, is Iraq’s economy. Iraq has for decades been the proto-typical rentier state. The bureaucracy grew bloated and inefficient as new generations of university graduates entered government or took positions with state-owned enterprises. That was fine so long as the price of oil was inflated. Civil servant jobs may have been non-productive, but they both kept disenfranchised youth off the street. They ensured that a large proportion of the Iraqi people remained dependent upon the government for their livelihood and, therefore, acquiescent if not loyal to Saddam.
Culture also plays into the bureaucratic bloat. Throughout the Middle East, family elders don’t just push their sons and daughters into certain more-prestigious fields of study. They also encourage them to accept civil service jobs with the promise of lifelong tenure rather than try their luck in the private sector. Over time, this trend has exacerbated rentierism in Iraq and other oil-rich Arab states as governments become ever more dependent on oil to pay civil service salaries while the non-oil tax base remains moribund.
Iraqi Prime Minister Haider Abadi, however, seems intent to change that. Anyone who has met Abadi cannot help but be impressed with his technocratic grasp of the economy. He and his aides have been working behind-the-scenes to reduce the size of government. Privately, many Iraqi politicians and officials acknowledge that each ministry could likely function with one-tenth of its current staff, although for political reasons it will take years to trim them down to anything near that size. Abadi is advancing the reform issue smartly, however. Rather than simply fire people, he is seeking to reduce the impediments to private sector growth. On August 1, for example, the Prime Minister’s Office announced that the cabinet had approved social security for private sector employees, effectively allowing them the same pensions that public sector employees receive.
It’s going to take more than a single decision to make Iraq thrive but, despite the heavy costs incurred fighting the Islamic State and growing criminality in Basra, Iraq’s economy has been booming. This latest move should prolong the economic expansion. Indeed, for all Western lobbyists sing the praises of Iraqi Kurdistan’s economic boom, when it comes time to put their money where their mouths are, international investors favor Baghdad over Erbil because Iraq has more financial discipline and corruption—as bad as it is—is not intertwined with ruling families.
Populists will resist, of course, and progress may stumble, but Iraq’s leadership is making economic and strategic decisions that will repair Iraq’s financial base. Let us hope for the sake of regional security, Iraqi prosperity, and trade, that U.S. and European policymakers, as well as regional states regardless of their sect, will do what they can to encourage such progress.
