Of all the interlocking components of the massive project before us in Iraq, I believe that an early indicator of long-term success will be the way we handle the country’s oil properties. This wealth has been characterized as a “curse” and, in fact, it has been exactly that for all the oil-rich Arab states in the sense that it has allowed them to live in a fantasy world devoid of the disciplines of competitive commerce which would have better developed the skills, creativity, and enterprise of their people. As Margaret Thatcher has noted, “a country’s wealth need not depend on natural resources, it may even ultimately benefit from their absence”.
A pattern for the future can be established in Iraq that can send the right message about our intentions there as well as firmly establish the principles of a sound market economy, and it must be based on two components—privatization and empowerment. Privatization is very important so as to avoid all the well-known problems associated with government ownership—the patronage, the bureaucracy, the corruption, the inefficiency—and to optimize the productivity of the wealth. Full privatization has already been criticized as a radical approach and too revolutionary. This is nonsense; there is no such thing as private property rights that are too radical, as long as the privatization process is sound. And this brings me to the second component, empowerment. The process by which the country’s oil wealth is privatized should be one which is transparent and credible to the Iraqi people and which, along with the rule of law, will provide them with the empowerment to begin to build their own capital base and, ultimately, a strong middle class.
Various proposals on how to deal with Iraqi oil wealth have been floated, including the “Alaska model” and others, and the one I like best has been outlined by Susan Lee of the Wall Street Journal. She proposes an open auction with as many bidders as possible for the reserves and operating properties, which would be divided into the smallest manageable tracts, so as to provide the maximum competition and an opportunity for local entrepreneurs to bid. All proceeds would go directly to the Iraqi people who would be issued marketable certificates representing ownership of the properties. This has the beauty of circumventing the government, and meets my empowerment test better than anything I have seen. Whatever process is used, we should avoid any compromise with foreign or our own corporate interests on transparency and the strict adherence to private property rights directly vested in the Iraqi people.