What would
people do in a country, where the private economy is stagnant, millions are
unemployed, millions work in a bloated public sector, currency devalued, twin
deficits (fiscal and current account), and a mounting external debt? The
unemployed are credit-constrained, and have no assets. The government is unable
to solve any of these problems. They are not easy problems, however. I am
talking about Iraq in particular. A similar story is in Lebanon. Syria, Yemen, and
Libya, which have been in a state of war since 2011, face a more uncertain
future.
Iraq is a big
oil producer. It has about 145 billion barrels of proved oil reserves (twenty
percent of the Middle East total proved reserves), and 3.5 trillion cubic
meters proved natural gas (4.75 percent of the Middle East total proved gas
reserves). Iraq has a vast agricultural land in between the Tigers and the
Euphrates from the north to the south and from the far West to its east border
with Iran. The total area of agricultural land is 93,000 square kilometers, which
is 21 percent of the total land area. The population of Iraq is just short of
40 million; where people aged 15-64 (working age population) are a little more
than 22 millions.[1] The
oil price crash in 2014, followed by civil unrest, and COVID have paralyzed the
country, more so the government. Lebanon, which is not a state of war, now, has
similar economic problems, without the oil and smaller population and land,
however. Nonetheless, Lebanon has a relatively highly educated population.
The average
Iraqi and Lebanese person is in despair. There is no other way to describe it. Those
who have saved something will spend it soon. Those who have an asset they sell
it for cheap. The few rich people – mainly the politicians and their clients –
will buy assets at cheaper prices, get richer, or leave the country when all comes
to a grind. Most of the politicians have foreign citizenships and foreign bank
accounts.
What could be
done?
An immediate
transfer of ownership of land and resources from the government to the people will
solve most of the problems. The politicians will not like this idea because it
reduces their power. Their clients will not like it either because it will
reduce their rent. What is needed now is a law along the lines of the Homestead
Act(s) of the 19th century, whereby people in many countries (including
the United States) were given free land (with a title). People could use
the land for agriculture, sell it in an organized market, or rent it. Such
arrangements will generate income and ensure survival of families. In Iraq, oil
and gas wealth must also be transferred to citizens in an equal share just like
Russia and other Eastern European countries did after the fall of the Soviet
Union; a share per citizen. Each share is tradable (sold and purchased) in an organized
regulated market. This arrangement will create a market and an immediate
income.
For Iraq, such
private wealth transfer reduces the dependence of the budget on oil. It would
also reduce the people’s dependence on public sector unproductive jobs.
Private consumption and aggregate demand will increase over time. A
modernization of the existing tax system will be helpful. The wage bill will be
reduced significantly. Total government expenditures could be rationalized, and
the budget could be balanced.
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