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The Iraqi Impasse: Sustaining Economic Reconstruction During War-Time

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Abstract

Economic recovery is important for stability and peace in Iraq. The Iraq Study Group proposed financial aid to Iraq of around $5 billion annually, while President Bush has increasingly stressed the importance of job creation in that country. Unfortunately, significant economic progress in Iraq is unlikely unless part of a comprehensive strategy is designed to overcome several forces currently impeding reconstruction and economic recovery: (a) the growth and dynamics of the shadow or informal economy, (b) the deterioration in social capital, and (c) the evolving relationship between tribes, gangs and the insurgency. The dynamic interrelationship between these factors is causing a downward economic spiral. Progress in one or two areas alone will not be capable of generating significant economic gains. All these factors need to be addressed.
INTERNATIONAL JOURNAL ON WORLD PEACE
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THE IRAQI IMPASSE: SUSTAINING
ECONOMIC RECONSTRUCTION
DURING WAR-TIME
INTRODUCTION
In a significant policy statement1
released toward the end of 2005 the
United States outlined its strategy for
victory in Iraq. Victory is defined in
terms of a sequential set of completed
goals: (1) Short term, Iraq is making
steady progress in fighting terrorists,
meeting political milestones, building
democratic institutions, and standup
security forces; (2) Medium term, Iraq
is in the lead defeating terrorists and
providing its own security, with a fully
constitutional government in place and
on its way to achieving its economic
potential; and (3) Longer term, Iraq
is peaceful, united, stable and secure,
well-integrated into the international
community and a full partner in the
Economic recovery is important for
stability and peace in Iraq. The Iraq
Study Group proposed financial
aid to Iraq of around $5 billion
annually, while President Bush has
increasingly stressed the importance
of job creation in that country.
Unfortunately, significant economic
progress in Iraq is unlikely unless
part of a comprehensive strategy is
designed to overcome several forces
currently impeding reconstruction
and economic recovery: (a) the
growth and dynamics of the shadow
or informal economy, (b) the
deterioration in social capital, and
(c) the evolving relationship between
tribes, gangs and the insurgency. The
dynamic interrelationship between
these factors is causing a downward
economic spiral. Progress in one or
two areas alone will not be capable
of generating significant economic
gains. All of these factors need to be
addressed.
Professor of National Security Affairs
The Naval Postgraduate School
Monterey, California 93943
USA
Robert E. Looney is professor of National Security Affairs, and Associate Chairman of
Instruction, Department of National Security Affairs at the Naval Postgraduate School,
Monterey California. He received his PhD in Economics from the University of California,
Davis. He has been a consultant to the governments of Iran, Saudi Arabia, Japan, Mexico,
Panama and Jamaica as well as the World Bank, International Labor Office, Inter-American
Development Bank, Stanford Research Institute, Rand Organization, and the International
Monetary Fund. He specializes in issues relating to economic development in the Middle
East and has published twenty books including: Industrialization in the Arabian Gulf and
The Pakistani Economy: Economic Growth and Structural Reform.
Robert E. Looney
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4
war on terrorism.
The US strategy is essentially three pronged: developing democracy,
providing security and reviving the economy. In the economic area U.S.
and coalition efforts have focused on helping Iraq restore the country’s
neglected and damaged infrastructure with the goal of restoring and
expanding essential services. Other objectives include: the creation of a
market based economy, and greater transparency and accountability in the
public sector.2
Iraqis themselves have become increasingly skeptical of the ability of
this strategy to produce lasting economic gains and a semblance of stabil-
ity. Certainly the ability to complete infrastructure projects on time and
within budget has proven to be a nearly impossible task. As noted by the
U.S. Inspector General for Iraq Reconstruction infrastructure programs
in that country have been plagued by “violence, corruption and misman-
agement.”3 As a result, “the ambitious US reconstruction effort in Iraq is
likely to fall far short of its goals because soaring security costs and poor
management have slashed the amount of American money available for
rebuilding projects.”4 Just as serious is the all too apparent long lead time
before any tangible benefits in terms of improved living standards are seen
by the average Iraqi.
Implicit in Ambassador Bremer’s assessment is that the main flaw in
the US strategy has been its inability to deliver short-run economic gains to
large segments of the Iraqi population. Also complicating Iraq’s recovery
is the fact that we still don’t have a complete picture of the contemporary
dynamics of the Iraqi economy. Clearly, factors such as the “brain drain”
and the lack of commercial credit5 together with uncertainty due to the
security situation have largely brought investment in the formal segments
of the economy to a halt.6
A third of Iraq’s professional class is reported to have fled to Jordan, a flight
of skills worse than under Saddam. UN monitors now report 2,000 people
a day are crossing the Syrian border. Over a hundred lecturers at Baghdad
University alone have been murdered, mostly for teaching women. There
are few places in Iraq where women can go about unattended or unveiled.
Gunmen arrived earlier this month at a Baghdad television station and
massacred a dozen of the staff, an incident barely thought worth report-
ing. The national museum is walled up. Electricity supply is down to four
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
hours a day. No police uniform can be trusted. The arrival anywhere of
an army unit can be prelude to a mass killing…. All intelligence out of
Iraq suggests this is no longer a functioning state.7
Yet, from anecdotal accounts8 there are indications that many areas
of the shadow economy are prospering and, as during the period of sanc-
tions, successfully adapting to the harsh environment. On the other hand,
the shadow economy has provided a boon to criminal gangs and a major
source of funding for the insurgency.9
The importance of economic recovery was again stressed in the Iraq
Study Group’s assessment of conditions in Iraq:10
No political and security progress can be sustained in Iraq unless the Iraqi
people experience improvement in their daily lives. This will demand sub-
stantial progress on simple tasks like clearing garbage; as well as complex
tasks like rebuilding a shattered oil industry and establishing law and order.
To achieve these goals, Iraq will need assistance from the United States
and other countries that want to prevent a further slide towards chaos.
While the Iraq Study Group proposes financial aid to Iraq of around
$5 billion per annum, it is silent on the strategies likely to be most effec-
tive in sustaining economic recovery and growth. With these themes in
mind, the purpose of the sections that follow is to attempt to gain an
understanding of the forces at work in Iraq impeding reconstruction and
economic recovery.
ECONOMIC DYNAMICS OF POST-WAR IRAQ
Our working hypothesis is that any efforts to restore the economy will be
conditioned by a number of interrelated factors including: (a) the growth
and dynamics of the shadow or informal economy, (b) the deterioration in
social capital, and (c) the evolving relationship between tribes, gangs and the
insurgency as conditioned by the dynamic interactions with (a) and (b).
The Shadow Economy
When coalition officials arrived in Iraq after the war, they planned on turn-
ing Iraq into a free market economy—a model for capitalism in the Middle
East.11 As part of this plan, they expected private companies, both foreign
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6
and domestic, to play a leading role in jump-starting the economy. Free
market incentives driven by pent-up demand and a massive aid-financed
reconstruction program were thought to be sufficient to induce a massive
wave of investment and hiring of Iraqi workers.12 But violence, crime and
uncertainty over the future have undermined investor confidence, prevent-
ing market-driven mechanisms from playing their anticipated role. As a result
nominal GDP contracted by about 35 percent in 2003. It has recovered
little since then, despite the U.S.-led reconstruction efforts.
The only part of the economy to have survived both Saddam Hussein
and the post-2003 period of instability and insurgency is the country’s infor-
mal economy. In fact, there is ample evidence that the country’s informal
economy has expanded considerably
since Saddam’s overthrow. In this
regard, Iraq’s informal economy is
following a pattern seen in other
parts of the world—the informal
economy tends to grow during
periods of political, economic, and
social crisis.
Despite the obvious importance
of the informal economy, it is barely
mentioned in the many official eco-
nomic reports. In fact, few systematic
attempts have been made to integrate
the analysis and quantification of the
informal economy into an overall review of economic and military develop-
ments in Iraq. This gap in our knowledge has hindered the development
of a systematic framework for understanding and planning reconstruction
and counterinsurgency strategies in the contemporary Iraqi setting.
Preliminary analysis13 suggests a clear pattern exists whereby the rela-
tive size of a country’s informal economy (as a share of Gross National
Product) is related to its progress in opening up to the world economy.
Those countries that are relatively closed and inward-oriented (like Iraq
around the year 2000) tend to have large informal economies, while those
countries open to the pressures of globalization have much smaller informal
economies. Furthermore, the informal sector becomes significantly smaller
The only part of the
economy to have sur-
vived both Saddam
Hussein and the post-
2003 period of instability
and insurgency is the
country’s informal econ-
omy. In fact, there is
ample evidence that the
informal economy has
expanded considerably.
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
as countries increase their control over corruption.
As might have been expected, Iraq under Saddam was in a group
of countries with the highest probability of possessing a large informal
economy. The profile of these countries is an inward-oriented trade regime
with high levels of corruption. On this basis, Iraq’s shadow or informal
economy probably accounted for around 35 percent of Gross Domestic
Product (GDP) in 200014 with nearly 70 percent of the labor force employed
in informal activities.
Since the fall of Saddam, Iraq’s informal economy has been affected by
that country’s on-going crisis. Clearly, conflict and the insurgency have taken
a heavy tool on the formal economy. As private firms or public enterprises
are downsized or closed due to conflict, retrenched workers often find the
informal sector the only source of livelihood. Also, in response to conflict-
driven inflation or cutbacks in public services, households have often needed
to supplement formal sector incomes with informal earnings. In some parts
of the country such as al Anbar, the breakdown of law and order has led to
an expansion of criminal activity, some of which is carried out in the shadow
economy—street vendors selling stolen merchandise, etc.
A partial list of factors contributing to the current expansion of Iraq’s
shadow economy includes:
• Compared with the previous regime, there is considerable political
liberalization in Iraq. In transition economies, this normally results
in a larger informal economy.
• The demand for services and trade is particularly high due the
introduction of free trade soon after the fall of the Hussein regime.
Again, this factor would encourage the development of an informal
economy—petty retailing, street vending of imported goods, etc.
• Increased bureaucratic discretion and associated corruption are
greatly contributing to the informal economy.
• Because of Iraq’s insurgency, institutional enforcements have weak-
ened, thus allowing the incentives for informal activity to become
very high.
• The underdevelopment in the rule of law and related institutional
enforcement mechanisms have not improved to date. Given the
insurgency, the enforcement mechanisms may have even declined.
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• In Iraq’s case, the present extremely low tax structures should not
have been a contributing factor to the informal economy, but many
marginal firms do not like to pay any taxes.
• The macroeconomy has been relatively stable, but rising inflation
in some areas may be contributing to an expansion of the informal
economy.
Of the items noted above, the most critical factor affecting the size of
the informal economy is no doubt the inability of the Iraqi government
to control corruption. In addition, given the insurgency and uncertainty
surrounding political developments, it is safe to say that large segments of
the population have reverted to the
survival relationships characteristic
of the period of sanctions in the
1990s. This is confirmed daily with
the news coming out of Iraq describ-
ing economic mismanagement,15
vast black markets in gasoline,16
increased crime, and shortages of
critical inputs.17 These developments
do not bode well and suggests that
the current size of the informal
economy is considerably larger than
in the late 1990s. As noted above,
another ominous sign18 is a recently
released index of corruption for
2004. The prestigious Transparency
International Corporation ranks Iraq
as the most corrupt country in the
Middle East. In 2004 the country’s ranking was 129th out of 145 nations
worldwide. By 2005 it had fallen to 135 out of 158 countries.19
Based on these factors, it is likely that the size of the underground
economy has expanded significantly beyond the 35 percent of GNP figure,
noted above, for the end of the Hussein regime. A safe estimate, in light
of the insurgency and its detrimental impact on investment, electricity, and
transport, would put the informal economy at around 65 percent of Gross
The most critical fac-
tor affecting the size of
the informal economy
is no doubt the inability
of the Iraqi government
to control corruption. In
addition, given the insur-
gency and uncertainty
surrounding political
developments, it is safe
to say that large seg-
ments of the population
have reverted to survival
relationships.
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
National Product. This figure is reinforced by the unemployment stemming
from the disbanding of the army and the anti-Baathist campaign following
Saddam’s overthrow.
In addition to the factors noted above, the informal economy may be
growing simply because of the constraints limiting expansion of formal
economic activity. Just as private capital formation is often critical to the
development of a thriving modern economy, social capital creation may
be just as essential in creating the shift to more formal activities. Again,
corruption plays a significant role in structuring the informal—this time
through its effect on the country’s social capital. Figure 1 provides a brief
sketch of the factors contributing to the growth of the country’s infor-
mal/shadow economy.
The Deterioration in Social Capital
Social capital refers to networks of relationships that bind people together.20
Social capitalists distinguish such relationships from physical capital and the
attributes of individuals, or human capital.21 In the context of Iraqi recon-
struction and the establishment of a market economy, a key element of social
capital centers on a component of social capital, the notion of trust.
Growing literature22 on social capital stresses the importance of trust in
the institutional infrastructure of a market economy. The focus on trust is
inspired by its importance for business formation, which in turn seems to
be crucial for explaining the variation in economic performance in a large
cross-section of developing and transition economies. Entrepreneurship
cannot flourish in an environment of distrust, since many economic oppor-
tunities are closed off. As Nobel laureate, Kenneth Arrow, has noted:
Almost every commercial transaction has within itself an element of trust,
certainly any transaction conducted over a period of time. It can be plau-
sibly argued that much of economic backwardness in the world can be
explained by the lack of mutual confidence.23
The transition to a market economy experience of many of the former
Communist countries suggests successful modernization and development
take place through a web of diversified social life, mediated by families and
communities, and the personal relationships of people within them.24 In a
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10
Figure 1: Dynamics of Iraq’s Informal Economy
Educational
Curriculum
Bias Towards
Public Sector
Employment
Over-
Expansion
of Public
Sector
High Birth
Rates
Post-1986
falling oil
revenues-
sanctions
Uncertainty/
Insurgency
Effects on
Investment
Declining
Social
Capital
Under
Baathist
Centralized
Control
Declining
Rule of Law,
Increased
Corruption
Private Sector
Underdevelopment
Contstraints
on Public
Sector
Expenditures
Demographic
Youth Bulge
Increased
Unemployment
Decline in
Social
Capital,
Trust
Expanded
Child Labor
Contstraints
on Private,
Formal
Sector
Expansion
Increased
Economic
Pressure on
Women
Expanded
Informal/
Shadow
Economy
Expansion
of Criminal
Activities/
Networks
Economic
Collapse/
Retrenchment
of State
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
similar fashion, Fukuyama25 has identified trust as a central value in pros-
perous, highly productive societies. Trust is a cornerstone of individuals’
ability to subordinate their own interests to those of larger groups and to
associate and cooperate with each other to achieve economic purposes and
other social satisfactions.
Trust is such a critical factor in the development of modern economies
because it motivates contacts with others and opens access for the exchange
of goods and services. It facilitates cooperation. Cooperation, in turn, breeds
trust in a two way interaction necessary for the creation of long-term general-
ized norms for cooperation. Social capital thus represents a set of resources
rooted in networks of relationships
possessing the power to facilitate
economic progress. There are three
types of relationships among parties
to an economic transaction, giving
rise three different types of trust:26
1. Ascribed Trust. This first type
of relationship is found among
kinship groups and family
members. These relationships
dominate economic transactions in subsistence economies and still
characterize reproduction and the household economy (but also many
small-scale crafts and trades).
2. Process-Based Trust. This type of relationship is between individu-
als that have known each other for a long time, without sharing the
loyalty to a specific group. Most business networks are character-
ized by this type of repeated relationship and the prevalence of what
develops as a process-based trust.
3. Extended Trust. This relationship is between individuals who
enter into a transaction with only limited information about the
counterpart’s specific attributes. For economic exchange to take place
between these types of individuals, generalized or extended trust is
needed. The importance of this third type of relationship and the
correspondent economic transactions between largely anonymous
individuals is a key element of a modern economic system.
Trust is a critical fac-
tor in the development
of modern economies
because it motivates
contacts with others
and opens access for the
exchange of goods and
services.
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12
This topology suggests that the building of extended trust is a key
challenge in Iraq’s development to a modern economy. It is also important
to bear in mind the relationships between the various forms of trust. In
particular, extended trust could not exist without the experience of reci-
procity made in repeated interactions among family and other members
of a societal or business community. Where process-based trust is absent,
extended trust is unlikely to develop.
Moreover, it is unlikely that extended trust in economic exchange
could be sustained without the availability of third party enforcement by
the state. Clearly, trust in government institutions will be a necessary pre-
requisite before Iraq can expect any type of significant expansion of the
formal economy. Here is where the country’s problems lie. One of the main
impediments to a formal market in Iraq today is the absence of trust at
most levels. The Ba’athist government created a profound imprint on the
nature of formal and informal institutions in Iraq. Not only did Ba’athism
hamper the emergence of a market economy, it corrupted the judicial and
legal institutions needed to create and nurture trust.
In short, Iraqi values today are no longer those that were reported in
earlier accounts of the pre-Ba’athist period, which stressed the country’s
vibrant entrepreneurial spirit. Individual and managers’ values have been
affected by years of repression under authoritarian top-down decision-
making. In an environment of several decades of political and economic
insecurity, doubt and distrust are deeply entrenched in the individual mind.
They represent a major constraint against drawing entrepreneurs and indi-
viduals out of the safe, kinship-based informal economy.
One of the main criticisms of U.S. policy in post-war Iraq has been
its rejection, not only of social reform, but of the very state-centered
approaches that were critical to the reconstruction and subsequent economic
growth in post-war Japan and Germany. At the same time, fundamental
social reforms were ruled out.27 As might be expected, combined with the
demise of the state as a safety net, the lack of trust in the buying and selling
of goods and services has resulted in the contemporary Iraqi economy being
divided into segments of largely non-overlapping networks.
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
Ascribed Trust Networks
First and by far the largest in number in Iraq are the individual and business
networks built on ascribed trust. These are usually confined to the local,
informal economy. Most ascribed trust networks involve groups bound
together by family, tribal, or ethnicity, which facilitates business organiza-
tion built on oral contracts. Many of these networks have the potential to
expand through selective interaction with outsiders. However, such expan-
sion will take time in Iraq, especially under the current conditions of public
corruption and great uncertainty over the enforceability of contracts.
In today’s Iraq, many ascribed
trust activities fall in what is com-
monly referred to as the coping
economy—numerous economic
interactions during armed conflict
that provide benefits to the civilian
population, particularly the poorest
and most vulnerable. These func-
tions are even more important to
civilian livelihoods where the formal
economy and traditional livelihoods
are destroyed or rendered difficult
or impossible to sustain. The coping
economy includes a wide range of
activities including subsistence agri-
culture, petty trade, and various out
of the household businesses—cater-
ing, food processing, and the like.
Of the country’s three main economic sectors, it is reasonable to assume
that the coping economy contains a disproportionate share of the country’s
poverty. Recent data released by the Ministry of Labor and Social Affairs
indicate that about 5 million Iraqis are living under the poverty line, com-
pared with 143,000 in 1993.28 Significantly, the Ministry noted that more
than one million Iraqi women aged 25 to 40 were unmarried, while divorce
cases were increasing as was child labor. It is reasonable to assume that this
group of women is firmly entrenched in the coping economy.
The largest number of
Iraqi business networks
are built on ascribed
trust. These are usually
confined to the local,
informal economy. Most
ascribed trust networks
involve groups bound
together by family,
tribe, or ethnicity, which
facilitates business orga-
nization built on oral
contracts.
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14
Process-Based Trust Networks
Second, there are the process-based trust networks reliant on existing ties
between the previous members of the Ba’ath government and criminal
groups, like smugglers, that thrived during the sanctions period of the
1990s. Today, these activities are largely in the criminal area. The emergence
of pervasive criminality was readily apparent soon after the overthrow of
Saddam Hussein.
If anything, these problems have become increasingly severe. According
to a U.N. report, “The emerging crime problem is subtler and scarier: theft,
extortion, and drug- and arms-smuggling operations that have become
more sophisticated, more clandestine, and more organized. In Baghdad, one
team of thieves recently burned down a warehouse filled with the hot booty
of another group. It was one mob sending a message to another.”29
As in the case of the ascribed trust groups, the activities of these networks
have been affected by the insurgency. However, process-based networks’
activities often directly contribute to prolonging the insurgency through:
• The destruction or circumvention of the formal economy and the
growth of informal and black markets, effectively blurring the lines
between the formal, informal, and criminal sectors and activities;
• Pillage, predation, extortion, and deliberate violence against civil-
ians, used to extort ransoms, capture trade networks and diaspora
remittances, and exploit labor;
• High decentralization, both in the means of coercion and in the
means of production and exchange;
• The use of licit or illicit exploitation of trade in lucrative natural
resources;
• The reliance on cross-border trading networks, regional kin and
ethnic groups, arms traffickers, and mercenaries, as well as legally
operating commercial entities, each of which may have a vested
interest in the continuation of conflict and instability.
Scores of the cross-border relationships cultivated by the various smug-
gler/criminal groups in the 1990s are still in place and operational at the
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
present time. Goodhand observes that the shadow economy is frequently
already widespread before the outbreak of conflict and is a permissive fac-
tor for conflict when it contributes to violent state collapse. Or it serves
as a source of income to would-be rebels. Once conflict erupts, shadow
economies are easily captured by combatants and thus often become the
basis for the combat economy.30 This has happened in Iraq, with the cur-
rent wave of kidnappings and smuggling providing significant financial
assistance to the insurgency.31
Western intelligence agencies are becoming increasingly worried this
systematic strengthening of ties between terrorists and organized crime.
Stefan Maier of the German Institute for International and Security Affairs
confirmed that cooperation between
the two camps was on the rise, despite
their different political and economic
motives.32 As he observes: “Common
ground between terrorists and orga-
nized criminal groups can be found
primarily in two areas. First, the two
come together in money-laundering
activities: Terrorists often need to
park their money temporarily with
somebody else to cover up their
tracks. Secondly, they need weapons,
and they usually get them straight
from organized crime.”33
“With the lack of security mea-
sures, disorganized crime became organized crime,” said Hania Mufti,
Baghdad director of Human Rights Watch. “Then, at some point, there
was a merging between organized crime and political crime.”
In today’s Iraq, terrorist groups use many of the same channels for
their activities that the Iraqi government and associated criminal groups
used in the 1980s and 1990s. In this regard, Iraq is an ideal environment.
Decades of socialist and statist experiments of the Ba’ath Party regime,
together with subsequent wars and the consequences of UN sanctions, left
the Iraqi economy heavily damaged, distorted, and exposed to administra-
tive and political interference.34 Within this context, terrorists, insurgents,
The contention that Mid-
dle East divisions, con-
flicts, and chaos have
been harnessed by the
U.S. for its own interests
is supported only by cir-
cumstantial evidence. In
the case of Iraq, we can
find no master plan that
envisaged a divide-and-
dominate strategy.
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
16
and organized crime elements have been able to thrive through exploiting
various economic and institutional weaknesses.
Extended Trust Networks
While extended trust networks may involve some reliance on kinship and
family relationships, they are largely characterized by transactions between
largely anonymous individuals. As noted, they are a key element in a modern
economic system. Since the focus of the present analysis is on the informal
economy, these networks will not be treated in detail other than to note that
they are largely undeveloped outside the public sector and the national oil
industry. Some banking arrangements are moving in this direction, albeit
extremely slowly.35
Clearly, for Iraq, the key challenge facing the economy is developing
the conditions conducive to the creation and growth of extended trust
networks to encourage the growth and development of this type of network-
ing. Conversely, the lack of supporting institutions has constrained most
economic agents and those entering the labor market to informal activities
characterized by family/kinship-based ascribed trust.
Adding network and labor market conditions to the equation provides
additional insights to the factors shaping the overall size and, to some
extent, the composition of Iraq’s contemporary informal economy. These
are summarized in Figure 1, with the informal economy seen largely as a
function of fundamental supply and demand factors: (a) a youth population
bulge, (b) a long-standing state employment program providing incen-
tives for employment in the public, but not private sector, (c) a workforce
of diminished skills following a long period of sanctions, (d) little private
sector growth stemming from the instability and the insurgency following
the overthrow of Saddam Hussein (e) deficient social capital, especially in
the form of trust, thus confining most private sector transactions to the
informal market, and (f) openness to trade (neo-liberal reforms) makes
many potentially profitable firms unprofitable. In turn, the lack of a siz-
able private sector reduces the links often found between the informal and
formal economy.
Because the informal economy is largely the result of a convergence of
powerful long-run demographic and economic forces, it will be a fixture
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
for some time to come. At best, informal activities may evolve over the
next several years with some progression from ascribed-based networks to
process-based networks. If this transition is viewed as successful by Iraqi
entrepreneurs and the government makes significant strides in the gover-
nance area, then the progression to process-based networks and extended
modern networks is a distinct possibility, particularly if the security situation
stabilizes enough to support foreign direct investment.
However, a good case can be made that, under current conditions, the
development and evolution of organized networks may perpetuate and even
expand the informal/shadow economies. Many of the organized networks
today have evolved out of Ba’th party efforts to limit traditional centers
of tribal authority. In effect, the Ba’th party encouraged the growth and
proliferation of informal associational links locally.
EVOLUTION OF LOCAL NETWORKS36
More precisely, local-level kinship affiliation was increasingly encouraged
as the effects of the 1980s war with Iran and the sanctions of the 1990s
drained the power of the central government. Particularly after the 2001
Gulf War, the central government was weakened to the extent that it was
unable to perform many of its traditional military, economic and security
functions.37
The Ba’thist survival strategy during this period was for the party to
serve as a broad tribal unit with local associations performing in supporting
roles. By 1996, officially sanctioned “tribes” were responsible not only for
the maintenance of law and order locally, but also collected taxes on behalf
of the government, were appointed judicial powers and extended tribal
customary law to the extent of their territorial reach. They received arms
and ammunition, vehicles, and logistical support as payment for services
rendered to the party.
Local dominance of revived tribal networks was evident in the 1998
crisis involving the United States. At that time, heavily armed and equipped
Sunni tribal units were positioned in and around Baghdad to control the res-
tive urban population, a role formerly belonging to the Ba’th party militia.
With time the interests of the central government and local networks began
to diverge. Clan-based groups controlled the highways around Baghdad.
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18
They increasingly turned to criminal activities—looting, smuggling, and
hijacking throughout most of al Anbar province. Conditions deteriorated
to the extent that convoys were necessary even for basic travel in daylight
to avoid raids by tribal guerillas.
By 2000, policeman, judges, and party officials were subject to violent
tribal recriminations. Encounters between Iraqi soldiers and tribal irregulars,
especially those based in Al Anbar province escalated in terms of frequency
and scale. In this ever more lawless environment, tribal elements began to
take over many of the local, informal street-markets. These markets com-
prised a sub-stratum of the informal Iraqi economy that, as noted above,
began to grow in the early 1980s as a result of chronic resource scarcities
brought on by war, unrest, and a decade of sanctions.
In addition, Saddam Hussein’s selective distribution of increasingly
scarce resources created some of the underlying group rivalries that exist
today. By directing funds, rations,
government positions, electricity,
clean water, fuel and industrial invest-
ment toward specific villages in the
western Sunni regions in exchange
for service to the regime, and with-
holding resources to other villages as
a punitive mechanism, a local-level
competitive calculus developed that
was perpetuated by Hussein as an instrument for rule. Because the state-
level formal economy was dramatically curtailed by sanctions, this competi-
tion for resources further encouraged the growth of informal activities and
employment.
The tendency of corrupt party and state institutions to favor key
supporters and engage in fraud in the distribution of goods and services
encouraged those operating in the informal (and formal) economy to
rely on local level mediation by tribal groups. Because informal activity is
based in large part on social capital—the trusted familial and kinship ties
noted above—local tribal groups played a central role in the expansion
of the informal economy. By assessing fees for the settlement of disputes
and collecting taxes on local production, local tribal groups also began to
establish financial support free of state control.
Saddam Hussein’s
selective distribution
of increasingly scarce
resources created some
of the underlying group
rivalries that exist today.
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Tribal groups were also increasingly involved in criminal-type activi-
ties, especially in the western border regions. Illicit criminal networks were
initially based on the cross-border smuggling of animals, tea, alcohol, and
electronics. Later these activities began encompassing the drug trade. Tribal-
based organized criminal activities increased toward the end of Ba’thist rule
with many party members becoming involved due to declining opportuni-
ties to acquire official resources. By early 2002, the entire route along the
Euphrates River in Al Anbar had essentially developed into a sanctuary for
illicit traffickers and criminal entrepreneurs.
Resource scarcity and the stature of sub-tribal groups were both greatly
enhanced at the local level following the removal of Saddam Hussein:
• The Coalition Provisional Authority’s (CPA) early adoption of a
neo-liberal economic program impeded the growth of regulatory
and legal institutions. This institutional vacuum forced businesses
and those entering the labor market to rely on the trusted kinship
or extended family networks of the informal economy.
• Shortages of critical inputs such as electricity and fuel, and the dan-
gers of transportation further encouraged informal entrepreneurs
to rely on tribal and extended family associations for protection and
support.
• As noted above, endemic corruption and uncertainty have contrib-
uted to a dramatic increase in the informal sector following the 2003
invasion. As a result, approximately eighty percent of the labor force
is now engaged informally, accounting for nearly two-thirds of Iraq’s
gross domestic product.
• Growth of the informal economy is particularly evident in certain
areas west of the capital, where the destruction of the Sunni-oriented
military establishment and related industries has contributed to a
substantial contraction of formal activities and jobs.
• A principle driver of this growth has been a dramatic rise in criminal
activity related to he shadow economy and dominated by local-level
tribal elements, including the emerging economies based on the
distribution of scarce resources, kidnapping, trafficking in petrol,
narcotics, looted weaponry, and the targeting of coalition forces.
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20
• In areas beyond the control of the Iraqi government and lacking a
substantial coalition presence, the shadow economy is rapidly displac-
ing any legal or semi-legal structures that may have survived until
the present.
The removal of the Hussein regime and the actions of the CPA pre-
sented a range of opportunities and constraints that have in part determined
the manner in which street-level groups have mobilized and generated new
opportunities and constraints for both the original organizations and fol-
low-on groups over time. This evolution has gone through three distinct
phases: (1) March 2003-December 2003; (2) December 2003-January
2005; and (3) January 2005 to the present.
March 2003-December 2003
During this initial phase, the persistent lack of security and the policy
directives issued by the CPA accounted for the greatest opportunities for
armed groups to expand their positions locally. Within this period the
most prominent actors at the street-level in term of mobilization potential,
organization and stature within the surrounding community were those
legacy groups of local/kinship-based “tribal” associations reminiscent of
the period under sanctions.
These groups are composed of pre-existing social groups (some former
regime elements, and perhaps regime opponents) within the tribe that come
armed and equipped, and they are activated by conflict, inspired leadership
and the prospect of loot.
A second tier of gangs was comprised of those groups engaged in entre-
preneurial and organized criminal activities, also a legacy of the sanctions.
These gangs are largely based on local associations. While there is some
degree of overlap between these two tiers, the fact that many tribal groups
maintained militias precisely to protect their local economic interests from
Ba’th encroachment prevented an alignment between these two groups—at
least in the immediate aftermath of the invasion.
The chaotic lawlessness of this period presented a significant opportunity
for groups in both tiers to solidify and extend their presence locally. Hesi-
tation on the part of coalition forces to manage the deteriorating security
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
situation in most urban centers, particularly Baghdad, acted as a catalyst in
the very process of institutional devolution that had been occurring under
the Hussein regime. The vacuum that developed in the weeks following
the invasion increased the scale and intensity of this process as the role
of self-protecting mutual assurance groups responded to the precipitous
decline in law and order.
In sum, CPA policies of “de-Bathification,” disbanding of the Iraqi
national army, and the Coalition’s ambivalence toward the rise of militias
presented a second opportunity for street-level gangs to expand their influ-
ence and control of resources. By the closing months of 2003 the die had
been cast.
December 2003-January 2005
Hostilities between coalition troops
and local populations, the inability of
coalition forces to adequately repress
insurgent violence, and the return
of sovereignty to the Iraqi govern-
ment provided the most significant
opportunities for the various local
networks to expand during this sec-
ond period.
First, the dominant groups at
this stage reflected a three tiered
structure. The networks corresponding to the two most prominent groups
began exhibiting a high degree of overlap:
• The combination of tribally-based former security personnel and
criminal groups comprised the first tier.
• The second and third tiers were occupied by indigenous ele-
ments motivated by vendetta, and extremist Islamic ideologies,
respectively.
• Factors such as the collateral costs of the Fallujah operations and the
abuse of detainees at Abu Ghraib represented a substantial political
CPA policies of “de-
Bathification,” disband-
ing of the Iraqi national
army, and the Coalition’s
ambivalence toward the
rise of militias presented
a second opportunity
for street-level gangs to
expand their influence
and control of resources.
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22
opportunity by further legitimizing the existence of armed street-
level groups.
This environment facilitated the emergence of the second and third tier
of violent street-level actors. These actors, predominantly foreign in the latter
case, were easily absorbed by the expanding networks of street-level groups.
These groups provided both the means and an added incentive to engage
in anti-coalition targeting by offering generous monetary incentives.
This pattern of network evolution was further stimulated by shifting
budgetary patterns after June 2004—the time the CPA transferred control
of government portfolios and the national budget to Iraqi ministries. This
shift in budgetary authority represented a political opportunity for the
street-level groups. Specifically, the allocation of state assets reflected a new
budgetary dynamic that tended to favor those interests centered in Baghdad
over the remote provincial areas. As
a result, the capacity of the coalition
to respond to conflict conditions and
proceed with reconstruction was seri-
ously weakened.
Second, newly appointed minis-
ters fostered a climate of parochial-
ism by attempting to establish an
independent, self-supporting infra-
structure within the new institutions
under their control. The relationship
between the Ministries of Interior and
Defense is instructive. Both ministries
assumed control of an array of smaller “special” units comprised of thou-
sands of supporters and local affiliates, sustained by diverted funds intended
for aid and reconstruction.
January 2005 to the Present
In addition to a continuation of many of the dynamics noted above, this
period has been marked by a set of new opportunities created by elite cleav-
ages within the National Assembly, the increased politicization of militias
This environment facili-
tated the emergence of
the second and third tier
of violent street-level
actors. These actors,
predominantly foreign
in the latter case, were
easily absorbed by the
expanding networks of
street-level groups.
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and the continued expansion of the shadow economy.
Changes in the street-level dynamic have been consistent with the
opportunities for expansion. Again a first-tier of networks exists, possessing
a high degree of overlap between entrepreneurial and organized criminal
networks. They are comprised largely of Iraqis harboring some form of
vendetta or personal grievance against the coalition. A second tier of actors
is comprised of foreign and domestic Islamic extremists.
As in the earlier two periods, demand for weapons, stolen goods, and
hostages determine the roles and relationships between street-level actors
more so than ideological or political convictions. Yet in this phase, engage-
ment in the black market has not merely enabled sustained street-level
activity, it has in many cases become the activity itself, dominating collective
resources and driving group expansion in terms of capabilities and reach.
The shift is evident in certain portions of Al Anbar province where despite
frequency of anti-coalition targeting, criminal endeavors are now thought to
account for the bulk of street-level activity. Clearly the draw of the shadow
economy is a major factor tending to decrease the likelihood that Sunni
groups will participate more in the political process in the near term.
Summing up the evolution of local network development in Iraq, a
pattern emerges whereby during each phase of the post-war period the posi-
tion of locally-oriented armed groups has been solidified and expanded in
a manner consistent with the type and timing of the political opportunities
available. The most significant opportunities have included:
• The slow recognition of security conditions facilitated the establish-
ment of armed groups in the first phase. This first phase also rep-
resents the playing out of the structural conditions stemming from
the sanctions regime.
• An appreciable shift in the street-level dynamic in terms of the relative
predominance of certain actors in the second and third phases. This
transition has favored the position of indigenous groups radicalized
through interaction with the coalition, with a higher degree of overlap
between all groups and the shadow economy in the current phase.
State-level political openings may lure some elements of resistance
into the political process, but in the present phase, the draw of the shadow
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24
economy may be sufficiently strong to keep groups engaged in street-level
violence.
ASSESSMENT
Several years have passed since the removal of Saddam Hussein, yet there
are few indications that the degree of Sunni-led violence will decline. On
the contrary, violent activity has increased in frequency and scale.
The evolution of local insurgent/criminal networks in Iraq suggests
several mechanisms that that are consistent with this acceleration of violence.
One theory associated with the theory of third generation gangs, or the 3G2
model,38 provides valuable insights as to the manner in which these groups
are likely to evolve and the best methods to arrest their development.
Specifically, the 3G2 model suggests that armed groups function within
a rationally bounded and organized space that is responsive to forces affect-
ing the calculus and outcomes of group behavior. When modified by state
authorities, these forces represent potential opportunities to minimize,
deflect, or redirect the activities of the group.
Many of the structural conditions found in Iraq are key constructs
of the 3G2 model. In particular, the existence of violent networks in the
context of a state that is constrained by minimal capacity, poor economic
performance, and significant social and political disparities are key elements
of the model. The 3G2 model also assumes that self-protecting solidarity
groups are heavily engaged in the informal and criminal economies at the
local level. Insurgent/criminal networks in Iraq are analogous to the form
and functions performed by street-level gangs—the basic element of the
3G2 concept.
As the 3G2 model would predict, insurgent and criminal groups in
Iraq have expanded their economic and political positions vis a vis the state
through corruption and intimidation. Further, the model posits that 3G2
actors themselves initiate this process for the purpose of establishing lawless
areas and criminal enclaves or quasi-states.
On the other hand, certain causal relationships in Iraq differ from those
posited by the 3G2 approach. In particular, roles of local networks and
the state are reversed. Starting with Saddam in the 1980s, the incremental
decline of the capacity and presence of the Iraqi state, combined with the
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
sate-initiated scheme to retain power facilitated the expanded role the role
of local-level groups. In fact, Saddam’s approach during austere times was
to compel local groups to fill the political and security vacuum produced
by institutional retrenchment.
The process continued after Saddam’s fall—nearly all of the available
political space with the exception of state-level ministerial portfolios had
been effectively abandoned to local forces. In Iraq, the extent of corruption
and intimidation exercised by insurgent and criminal groups has resulted
from state retreat. As normally constructed, the 3G2 model assumes criminal
networks encroaching on the state.
The Iraq case suggests several
modifications of the 3G2 model are
necessary to better understand the
dynamics unfolding in that country.
In particular, the end-state of the
dynamic group processes currently
underway are groups of lawless crimi-
nal enclaves or quasi-states stemming
from the state’s inability to provide
essential social, economic and secu-
rity functions.
On the other hand the present
system may exhibit some stability.
As the quasi-states take on the local
functions of providing security and
access to resources, they tend to favor
a certain degree of stability and ever-increasing levels of market access.
The competitive dynamic between these quasi-states may produce a status
quo that preserves the structure of the declining state. The state structure
persists not in spite of the proliferation of quasi-states but precisely as a
result of this process. This dynamic may explain some of the stability and
security in Iraq in the absence of effective national government.
• First, insurgent group activity can be viewed as a cumulative effect
of the structural forces prevalent in Iraq. The choice to engage in
violence is one element of a strategic rational formed by conditions
Many of the structural
conditions found in Iraq
are key constructs of
the 3G2 model. In par-
ticular, the existence of
violent networks in the
context of a state that is
constrained by minimal
capacity, poor economic
performance, and signifi-
cant social and political
disparities are key ele-
ments of the model.
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26
of scarcity and the functions armed groups perform locally. This
rationale also shapes the competitive dynamic that drives political
and economic expansion.
• Second, the behavior of locally-based armed groups can be affected
by manipulating societal and local-level factors, the most significant
of which are: (a) economic conditions especially the growth of the
informal economy, (b) competition between entrepreneurial and
criminal/insurgent networks linked to the informal/shadow econo-
mies, and (c) the openness of the legitimate political sphere.
• Finally, these and other inputs into the 3G2 framework can be
expected to generate certain outcomes stemming from group/net-
work evolution from the street level.
The acceleration in violence in Iraq throughout most of 2006 sug-
gests that the informal and shadow sectors will continue to dominate the
economic landscape in the near term and will likely grow as the markets
associated with insurgent violence expand. The criminal economies based
on theft, weapons trading, mercenary kidnappings, black-market smuggling
and arbitrage that have become the cornerstone of insurgent mobilization
will continue to operate with very few constraints and will likely increase
in proportion to increasing levels of violence.
In the current phase, competition is actually fueling the expansion of
the underground economy in addition to the increased appropriation of
market segments by combatants. When viewed in the context of the 3G2
model, the structural setting presently observed in Iraq suggests the con-
tinuous and unconstrained expansion of insurgent group capabilities well
into the future:
1. The tendency of insurgent groups to capture sectors of the growing
informal and criminal economies will increase. This in combination
with the growing political stature of armed groups and a liberal-
izing Iraqi state favors some type of criminal enclaves or quasi-state
development in parallel to legitimate state structures.
2. Armed groups will function as the shadow or de-facto governments
within these enclaves providing the services and performing the tasks
reflective of their local orientation.
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
3. The structure of the legitimate Iraqi state will survive and may even
thrive in those areas outside insurgent influence.
4. Locally-oriented armed groups can be expected to expand from the
street to the sub-national level, evolving from mutually protective
solidarity groups into prominent political and economic actors.
The degree of intensity of insurgent violence is increasing and this trend
is likely to continue. Coalition forces confronting this challenge have been
thrust into an environment of great uncertainty. Coalition forces on the
ground are facing a variety of threats from across the spectrum of violent
actors. The different motivations and relationships between these groups
are gradually emerging:
• Indigenous and transnational actors are establishing links and mag-
nifying their capabilities in ways that are consistent with the rapidly
changing information-age environment.
• The traditional distinctions between violent groups seeking political
goals and those pursuing profit are becoming blurred.
Summing up, an adapted version of the 3G2 model provides useful
insights into the Sunni-led insurgency that the general guidelines currently
in use tend to overlook. Those guidelines depict the insurgent threat as a
discrete collection of actors motivated by a combination of nihilistic range,
primordial tribal grievances or a desire to restore the former grandeur of
the Ba’th party.
In contrast, the 3G2 model identifies the societal-level conditions affect-
ing the origins, development and orientation of armed groups, the political
role that these groups embrace over time and the relationships between
groups that span the local, regional and global levels of interactions.
These factors culminate most forcefully at the street level, where the
relationships between groups are characterized by violence and competition.
The integrated model highlights certain critical junctures where these rela-
tionships can be altered and exploited to better combat the insurgency.
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28
CONCLUSION—HOPE FOR THE FUTURE
The integrated model shows that insurgent-group activity can be viewed as
part of the continued effects of the structural forces prevalent in Iraq. The
choice to engage in violence is one element of a strategic rationale informed
by conditions of scarcity and the functions armed groups perform locally.
This rationale also shapes the competitive dynamic that drives the expansion
of insurgent groups into the political and economic realms. Therefore, the
behavior of locally-based groups can be affected by manipulating societal
and local-level factors, the most significant of which are the size and com-
position of the underground/shadow economy and the openness of the
legitimate political sphere. These areas comprise the key vulnerabilities of
the insurgent/criminal groups in Iraq:
Resolving critical shortages and introducing balanced reforms in the
formal sector will slow or reverse the growth of the informal and shadow
economies. These measures would significantly undercut street-level
mobilization structures by co-opting the functions of tribal and sub-tribal
groups while diminishing the pull of the shadow economy which fuels
insurgent activity. Openness at the political level would similarly undercut
or co-opt the rising political stature of armed leaders by channeling them
into a legitimate political process.
Clearly, greater emphasis should be placed on limiting the growth of
the informal and criminal economies, which are easily captured by criminal/
insurgent networks. Iraq’s present set of economic policies are legacies of the
Coalition Provisional Authority (CPA) period. As in many other developing
countries, they were intended to produce a thriving, free market economy.
These policies reflect much of the reform agenda commonly known as the
Washington Consensus, emphasizing fiscal discipline, re-prioritization of
public expenditures, privatization, trade liberalization, deregulation, foreign
direct investment, property rights and good governance in general.39 Three
years later many of these reforms are only partially or haphazardly in place,
contributing the expansion of the vibrant informal and shadow economies
at the expense of formal sector development.
One course of action is to try and press ahead with the completion of
market reforms. However, given the current political atmosphere in Bagh-
dad with so many government officials having a vested interest in preserving
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
their lucrative links to black markets and the underground economy, this is
unlikely to occur until major strides are made toward controlling corrup-
tion. Even price reforms will take time to begin slowing the growth of the
underground markets. For example, while gas prices are gradually rising as
part of an International Monetary Fund (IMF) program,40 the impact on
the shadow economy has been affected by the oil price differential between
Iraq and its neighbors.
Another approach is to re-introduce many of the pre-2003 state-based
social services with emphasis placed on slowing or reversing the impetus
to join the informal and shadow economies. These measures would sig-
nificantly undercut street-level mobilization structures by co-opting the
functions of tribal and sub-tribal groups while diminishing the pull of the
shadow economy that fuels insurgent activity.
A variant on this course of action would be the reorientation of eco-
nomic programs from the post-war centralized top-down orientation toward
one that is decentralized and inclusive. This reorientation is likely to erode
somewhat the popular or at least passive support for the insurgency—the
more people with a stake in the decision-making process and economic
outcomes, the more they will participate in building a new Iraq.
Notes
1. National Strategy for Victory in Iraq (Washington: National Security Council,
November 2005).
2. Ibid., p. 22.
3. Quoted in Tom Regan, “US Inspector General for Iraq Paints ‘Grim’ Picture of
Reconstruction Effort,” Christian Science Monitor, November 1, 2005.
4. Ibid.
5. Cf. Robert Looney, “Building from Scratch: The Transformation of Post-War
Iraq’s Financial System,” Middle East Policy 12:1 (Spring 2005), pp. 134-149.
6. “Unemployment Caused by Insecurity and Vice-Versa,” IRINnews.org (November
29, 2004).
7. Simon Jenkins, “America Has Finally Taken on the Grim Reality of Iraq,” The
Guardian, October 18, 2006.
8. For example: David Hecht, “Why War Zones Love Monopolies,” Fortune 149:11
(May 31, 2004), p. 66; Jeffrey Fleishman, “In the New Baghdad, Viagra a Hot Sell,” Los
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30
Angeles Times, June 17, 2004; Stanley Reed, “The Kurds Embrace a New Cause: Rivals are
Uniting Behind Economic Development in the Northern Iraqi Region,” Business Week,
January 12, 2004, p. 48.
9. Robert Looney, “The Business of Insurgency: The Expansion of Iraq’s Shadow
Economy,” The National Interest, Fall 2005.
10. James Baker and Lee H. Hamilton, “Beyond Today’s Headlines—Answers for
Iraq,” Houston Chronicle, December 9, 2006.
11. Cf. Robert Looney, “Iraq’s Economic Transition: The Neoliberal Model and Its
Role,” The Middle East Journal 57:4 (Autumn 2003), pp.568-587.
12. Ariana Eunjung Cha, “New U.S. Weapon: Jobs for Iraqi Men,” Washington Post,
February 22, 2004 p. A. 18.
13. Cf. Robert Looney, “Iraq’s Shadow Economy,” Rivista Internazionale di Scienze
Economiche e Commerciali (2005).
14. Ibid.
15. Sabri Zire Al-Saadi, “Iraq’s Post-War Economy: A Critical Review,” Middle East
Economic Survey XLVII:14 (April 5, 2004).
16. “Iraq: Report of Continuing Fuel and Electricity Shortages,” Noozz.com (Janu-
ary 23, 2005).
17. Dan Murphy, “In Iraq, a Winter of Discontent,” Christian Science Monitor, Janu-
ary 10, 2005.
18. Also see Adam Davidson, “Still on the Take: The U.S. Has Not Ended Iraq’s Cul-
ture of Corruption,” Los Angeles Times, May 2, 2004, p. M.1.
19. http://www.transparency.org/policy_research/surveys_indices/cpi/2005.
20. An overview of the literature on social capital can be found in Martin Paldam,
“Social Capital: One or Many? Definition and Measurement,” Journal of Economic Surveys
14:5 (December 2000), pp. 629-654.
21. Christopher Scanlon, “The Problems With Social Capital,” The Age (July 19,
2003).
22. The following draws on Robert Looney, “Economic Consequences of Con-
flict: The Rise of Iraq’s Informal Economy,” Journal of Economic Issues, XL:4 (December
2006).
23. Kenneth Arrow, Altruism, Morality and Economic Theory (New York: Russel Sage
Foundation, 1975).
24. B. Berger, The Culture of Entrepreneurship (San Francisco: ICS Press, 1991).
25. Francis Fukuyama, Trust: Social Virtues and the Creation of Prosperity (New York:
Free Press, 1995).
26. Martin Raiser, “Trust in transition” http://www.colmud/hu/honesty-trist.
27. Mark Selden, “We Aren’t Close to Doing What We Did in Japan,” http://hnn.
us./articles/5873.html
28. “Five Million Iraqis Live Under Poverty Line: Report,” Xinhua (February 12,
2004).
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THE IRAQI IMPASSE: SUSTAINING ECONOMIC RECONSTRUCTION
29. Mark Fritz, “Arms and Drug Smuggling Rise as Crime Gets Organized in the
New Iraq,” Associated Press, July 5, 2003.
30. Goodhand, op. cit.
31. Roshan Muhammed Salih, “Crime and Disorder Thriving in Baghdad,” Aljazeera.
net (April 3, 2004).
32. http://www.dw-world.de/dw/article/0,1564,1352140,00.html.
33. Ibid.
34. Robert Looney, “A Return to Ba’thist Economics,” Orient 45:3 (2004), pp. 385-
400.
35. Cf. Robert Looney, “Postwar Iraq’s Financial System,” Middle East Policy, XII:1,
Spring 2005.
36. This section draws heavily on Nicholas I. Haussler, Third Generation Gangs
Revisited: the Iraq Insurgency, Masters Thesis, Naval Postgraduate School, September
2005, pp. 33-41.
37. Excellent accounts of this period is given in: Joseph Braude, The New Iraq (New
York: Basic Books, 2003), and Stephen Glain, Mullahs, Merchants, and Militants: The
Economic Collapse of the Arab World (New York: St. Martin’s Press, 2004), ch. 5.
38. Best articulated in Max G. Mainwaring, “Street Gangs: the New Urban Insur-
gency.” Carlisle, PA: U.S. Army War College, Strategic Studies Institute publications,
March 2005. See also John P. Sullivan “Gangs, Hooligans, and Anarchists—the Van-
guard of Netwar in the Streets.” In John Arqilla and David Ronfeldt, eds. “Networks and
Netwars The Future of Terror, Crime and Militancy,” Santa Monica: Rand Corporation,
2001.
39. Cf. Robert Looney, “The Viability of Iraq’s Shock Therapy, Challenge, 47:5,
September-October 2004, pp.86-103.
40. Robert Looney, “The IMF’s Return to Iraq,” Challenge 49:3, May/June 2006.
Chapter
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The Problems With Social Capital
  • Christopher Scanlon
Christopher Scanlon, "The Problems With Social Capital," The Age (July 19, 200).
beyond Today's Headlines-Answers for Iraq
  • James Baker
  • Lee H Hamilton
James baker and Lee H. Hamilton, "beyond Today's Headlines-Answers for Iraq," Houston Chronicle, December 9, 2006.
Still on the Take: The U.S. Has Not Ended Iraq’s Cul-ture of Corruption
  • Adam Also
  • Davidson
Also see Adam Davidson, “Still on the Take: The U.S. Has Not Ended Iraq’s Cul-ture of Corruption,” Los Angeles Times, may 2, 2004, p. m.1.