Mar 18, 2004

Are Institutions Enough?

by Liberty and Power

To be even handed I thought it might be interesting to seriously consider the Neo-Con arguments that rebuilding Iraq is possible, and desireable, for not only the U.S., but for the entire free world. Like you, I gag when I hear this rhetoric, but let's take them at face value for a moment.

One of the biggest complaints I've had in following the Iraq war has been a constant emphasis by the press on the political changes in the country. Every news outlet focuses obsessively on the new Iraqi Constitution, the Governing Council, or the caucus process. It's not unusual to have the media ignore the role of free markets, particularly since most journalists lean to the left, but in a country that had virtually no private sector economy before the invasion I thought even folk as anti-market as journalists might consider how to create jobs and enforce stability without relying on government.

There is however one way governments can help economic growth - they can promote it by staying the hell out of markets. Fred Barnes piece today in the Weekly Standard provides a nice list of new government policies that are surprisingly pro business, including free trade, low tax rates, and no price controls. So maybe the neo-cons have it right after all?

Well I'm still pretty skeptical, and not just because lap dogs like Barnes want to make Iraq seem all fine and well except for those pesky"foreigners" causing problems. Setting aside the issue of exactly who is killing all these civilians and the clear credibility problems our intelligence agencies have on this matter, I'd like to know what value these institutions alone have.

Fossilized Marxists who still populate American universities often dismiss the failure of the Soviet Union on the fallacy that the Russians just weren't"ready" for the utopia Marx had in mind. They implicitly make an important point. Can the simple installation of a set of institutions be enough in a country with no recent memory of markets or the rule of law? Experimental economics research of the type done by Nobel Prize winner Vernon Smith at George Mason University's ICES, suggest that it's as natural for humans to trade as it is for them to walk upright and raise families.

Are institutions enough? Will nature take hold? History suggests that overcoming Saddam's legacy will be tough. The Neo-cons backing it makes me very skeptical. But people tend to take to commerce like fish to water. The important question is how calm and safe the swimming pool will be for the Iraqi people.

More Comments:

Gus diZerega - 3/18/2004

I am impressed with the small number of those on the pro-market right who have noticed that planning and imposing a new political culture through force and violence is rather akin to planning an economy. Both cultures and markets are incredibly complex networks that cannot be adequately replaced by central control.

The task would be impossible for a centralized autocracy. But the fact that the plan to create a new Iraq, such as it was, has been hijacked by Halliburton and other crony capitalists to enrich themselves courtesy of the Republican party is evidence that democracies in particular are poorly situated to carry out long term complex guided transformations, primarily because the entry points open to others trying to turn the plan to their own advantage are so abundant.

With regard to democracy and socialist planning, F. A. Hayek observed Victor Laski saw the problem clearly and concluded that democratic freedoms would have to be limited in a socialist Britain. Laski of course thought the results would be worth it. Robert Heilbroner later wrote much the same, but after the fall of the Soviet Union admitted he was wrong.

It is no accident that the Bush administration has worked so hard to weaken democratic processes with respect to its foreign policy - for reasons akin to Laski's and Heilbroner's realization democracy would need to be limited to achieve central economic planning. And the probability of success in building democracy in a society like Iraq, even at the cost of weakening American democracy is as probable as the success of Laski and Heilbroner's visions of a socialist utopia.

In short, the Bush administration and its Republican and conservative allies are the new socialists of our time not just in their love of big government but also in their belief that government can completley recreate cultures and customs.

What of the Marshall Plan as a counter example? In that case the countries and cltures that were benefitted already had strong liberal traditions, even in Germany and to some degree Japan. Basically, the Marshall Plan provided resources and got out of the way. This is not possible in Iraq, where there is so much internal division on the basis of ethnicity and religion - problems not existing nearly so much in Europe and Japan.