Coalition Economic Policies in Iraq

Abstract

It is almost an article of faith that the U.S. administration lacked a postwar plan for Iraq. This chapter poses a challenge to this view, as it will be argued that, at least in the economic realm, the United States did have a plan, and the plan centered on the sweeping and simultaneous liberalization of labor and capital markets, reforms in taxation and foreign trade, and the privatization of state assets. The reforms were intended to open up Iraq’s relatively closed state-directed economy and, therefore, improve efficiency in the allocation of resources domestically, as well as to align Iraqi relative prices with international prices in order to expand the country’s consumption possibilities. In an immediate sense, the reforms have succeeded, for Iraq’s economy has now become one of the most open and unregulated in the world. Yet, sustainable gains in output remain elusive, as incoherent reforms have aggravated structural difficulties and cultivated the conditions for their own failure.