The new edition of Muhammed-Ali Zainy’s The Iraqi Economy under Saddam Hussein: Development or Decline is composed of two sections. The first identifies factors that led to the economic development of the North Atlantic Basin (essentially Western Europe and North America) and distinguishes between economic growth and economic development. Zainy asserts that while economic growth simply reflects gross domestic product and per capita income, economic development is a far more complex notion, taking into account human-resource development, structural changes in the economy, alterations to production methods, and a variety of other social and political factors.
Dr. Zainy selects several indicators of economic development to assess Iraq’s economy as it stood in the mid-1970s. He examines per capita GDP, the extent of dependence on exports of primary production (crude oil in Iraq’s case), size of the labor force in the agricultural sector, expected age at birth, infant-mortality rate, literacy rate (the latter three representing the physical quality of life), population growth rate, and per capita energy consumption. Comparing these indicators with those of OPEC member nations and several developed countries, Zainy concludes that Iraq was clearly not on the road to positive economic development.
Discussing various five-year economic plans devised by Iraq in the period from 1950 to 1980, Zainy finds further dismal signs for Iraq’s economic future. The financial allocations to the economic plans were poor, partly due to Iraq’s limited absorptive capacity for investment capital. These limitations were a direct result of factors that plagued that period, including political instability, lack of sound planning, paucity of managerial talent, inadequacy of infrastructure, deficiency of skilled labor, institutional, social and cultural constraints, and a small domestic market resulting in low demand.
But despite the many impediments and adverse factors, Dr. Zainy concludes in the first section of this book, Iraq’s economy 1960-80 was actually quite vibrant, achieving a real GDP growth of around 8 percent per annum and a real per capita GDP growth of around 4.7 percent per annum; such growth rates were among the highest in the world during that 20-year period.
The second half of the book examines Iraq’s economy since 1980, the year it reached its pinnacle. It was in mid-1979 when Saddam Hussein assumed the presidency of Iraq to find a vigorously growing economy and a treasury replete with foreign exchange. But Saddam’s policies, horribly repressive to the Iraqi people and highly belligerent and hostile to Iraq’s neighbors, were inimical to economic stability and development. The nation’s economic growth halted with the start of the Iran-Iraq War in 1980, and the economy in general deteriorated thereafter, with Iraq turning from a creditor to a debtor country. With the Gulf War and the economic embargo, Iraq’s infrastructure crumbled; the dinar collapsed, hyperinflation set in, and the economy took a nosedive.
As a result of mushrooming military expenditures during the seventies, culminating in the Iran-Iraq War, Iraq found itself in an even more dire economic mess in the late eighties. Zainy asserts that these financial entanglements led directly to Iraq’s invasion of Kuwait. That action, of course, resulted in the Gulf War and even further economic distress for Iraq. The 130,000 tons of ordnance dropped on Iraq during forty-three days of intensive bombing in 1991 caused infrastructure damage worth around $232 billion.
Iraq’s GDP retreated from $44.36 billion in 1990 to only $9.48 billion in 1995, before recovering to $23.73 billion in 2000 as a result of the oil-for-food program and the resumption of oil exports in December 1996. Zainy estimates that, during the decade 1990-2000, Iraq lost around $170 billion in oil revenues. Additionally, Iraq’s GDP losses amounted to $380 billion. In a nutshell, as Dr. Zainy concludes in the chapter “Saddam and the Iraqi Economy,” Iraq’s GDP in the year 2000 was only 47 percent of what it had been in 1980. Iraq’s per capita GDP, which reached a high of $3.985 in 1980, declined to $1.097 in 2000.
The wars, economic sanctions and ensuing catastrophic degeneration in all aspects of Iraqi life, Zainy states, were the result of the destructive policies of a megalomaniac dictator obsessed with self-aggrandizement, who controlled his own people with a complete lack of accountability, who used a repressive police machine to achieve his ends, and who was aided by a client army virtually occupying the country, while Iraq’s real army was disabled and banished to the periphery.
In his book’s final chapter, Muhammed-Ali Zainy presents a comprehensive program for rebuilding the Iraqi economy, the first step being the removal of Saddam’s regime.
Then, he argues, the economy can be helped by reducing inflation to a reasonable level and stabilizing the Iraqi dinar at a reasonable exchange rate. In addition to stabilizing the economy through controlling hyperinflation, Iraq’s battered infrastructure needs to be rebuilt and the process of economic development resumed. These processes will all depend on foreign exchange. Since Iraq has no meaningful non-oil exports, the oil sector will remain, for a long time, Iraq’s main source of foreign exchange. The revenues from this oil, though, will have to pay for such obligations as general imports, reconstruction, foreign debts and war reparations.
Zainy concludes that, if Iraq has to pay for all of these obligations itself, it will be in the red for the first ten years after sanctions are lifted, and a $70-billion deficit will accumulate. With such a deficit, the Iraqi central bank will not be able to defend a reasonable exchange rate, and the Iraqi dinar will collapse again. Furthermore, under such a shortage of foreign currency, Iraq will not be able to rebuild its infrastructure and resume the process of economic development within a reasonable period of time unless sufficient inflow of foreign exchange is forthcoming in the form of foreign aid, foreign direct investment and/or other means.
To solve Iraq’s financial problems, Dr. Zainy strongly recommends that the war reparations be cancelled. After all, he states, the invasion of Kuwait was a crime perpetrated by Saddam himself. The helpless Iraqi people had no role in that and should not be punished for a crime committed by the country’s tyrant. He also recommends that, in order to rehabilitate Iraq into the international community, Iraq’s foreign debts should be addressed in ways favorable to Iraq, such by as cancelling accumulated interest or reducing it and cancelling or reducing principal debts, especially the debt accrued as a result of the Iraqi regime’s short-sighted armament program.
As the war against Saddam Hussein has revealed, Muhammed-Ali Zainy’s book was prescient. The Iraqi Economy Under Saddam Hussein: Development or Decline is a lucid, efficient and timely summary of how Iraq’s economy declined under Saddam. More important, it may serve as a blueprint for how the nation can be rebuilt now that the dictator has finally been removed.