Anarchy Boomtime

In Newsweek, Silvia Spring marvels that the Iraqi economy appears to be booming even while the country remains mired in violence.

People are often surprised that economies can thrive without a high degree of politically enforced social order, but history tends to show that too much government is more likely to cause economic stagnation than too little. Most 3rd-world business people face the worst of both worlds. The government does a very poor job of providing physical security and a fair judiciary (important to enforce contracts), yet it imposes strangling taxes, jealously guards its prerogatives to decide who can and cannot engage in any particular economic activity, and individual government agents usually extort vast sums. As a result, the descent of a country into mild anarchy usually improves the situation. The actual security situation may not be that much worse, but all the parasitic government activity disappears. The situation turns into a net gain. It is quite common to read reports from 3rd-world countries during a civil war that shops and other businesses seem more full and busy than they did in time of “peace.”

The legendary economy of Hong Kong from 1945 to 1999 arose in large part due to the laissez-faire approach that the British government blundered into as a result of geopolitical concerns. The British needed to keep Hong Kong as a full colony to protect it, but that meant they could not allow a full fledged local democracy with the moral authority to impose a welfare and regulatory state. So they ended up with just a bare-bones government appointed by Britain that never tried to lay its hand too strongly on the people of Hong Kong.

Business people in Iraq find themselves in something of the same environment. The occupation government did not wish to get involved in potentially contentious economic policy, and the same lack of experience and consensus that keeps the newly elected Iraqi government from wiping out the insurgency also prevents it from implementing destructive economic policies. Left to their own devices and with huge pent up demand the Iraqi people are driving their economy strongly forward.

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7 thoughts on “Anarchy Boomtime”

  1. The article is interesting. It mentions that unemployment is between 30 and 50 percent. Some would say that is not a good economy; I guess it depends on whether you’re among the one half who are unemployed. Also, the US puts tens of billions into the Iraqi economy whereas they imposed sanctions before. That, more than the lack of parasitic government activity, may have something to do with the growth of GDP, as the article points out.

    I remember one of the generals boasting about the number of cell phones in Iraq. A friend pointed out that the land line phone system was destroyed and hasn’t, I believe, been completely reconstructed.

  2. “I remember one of the generals boasting about the number of cell phones in Iraq. A friend pointed out that the land line phone system was destroyed and hasn’t, I believe, been completely reconstructed.”

    What purpose would it serve to reconstruct an early 20th century technology? Thin copper wires isn’t cutting edge technology.

  3. It’s difficult to grasp the extent of the carnage and suffering in Iraq. If it were happening here, in US population terms more than 850,000 people would have been killed in the last 3 years, about 18 million would have fled the country (including most professionals and those with assets) and 5 million would be displaced within the US. Not to mention that we would be plunged into civil war, or close to it. In those circumstances, it would be peculiar to praise economic growth that results. September 11 may have spurred a construction boom in Lower Manhattan, for example, but I’m sure Shannon is not happy about it.

  4. On the previous comment (also dropped on my blog), Iraq is listed as having a violent death rate of 12 per 100,000. The US as a whole has a rate of 5.3. The numbers here look large because … well, there are more people here. I suppose we could compare that to the population of India, China or Malaysia and get even more shockingly large number.

    As to the people fleeing, if everyone with assets really fled, the large rates of economic growth needs some explanation.

    Of course this misses the main point of a test bed demonstrating how regulation stifles economic growth.

  5. Are you sure about that? Around 100,000 people in Iraq have died in a population of 25 million. That’s 400 per 100,000.

    And my point was that if we had this kind of event in the US and, for instance, the IRS was disabled (nobody showed up for work), we wouldn’t be happy about it.

  6. I don’t think the 100k figure is accurate, but even if it is it’s mostly war deaths from 2003. The figure of 12 (or whatever) per 100k population is based on current rates, which while high compared to overall US figures are at nowhere near the level of an open war.

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