Here's a recent WSJ editorial from counterinsurgency guru John Nagl and Dan Rice, a colleague from Iraq. Economic development in Iraq is the way to secure the security gains earned there; the authors propose an enterprise fund to help Iraqi businesses grow.
A Jump Start For Iraq’s Private Sector
WSJ July 7, 2009
WASHINGTON -- Now that we’ve withdrawn U.S. troops from Iraqi cities, American strategy must shift its emphasis from combat to post-conflict operations. As in post World War II Germany and Japan, economic development through employment is key to maintaining stability.
Yet current development programs in Iraq -- like the Commanders’ Emergency Response Fund, which lets senior military officials spend money on “urgent humanitarian relief and reconstruction” projects -- focus largely on short-term job creation, not on sustainable economic development that reduces unemployment in the long term. A more appropriate weapon would be an enterprise fund to help Iraqis invest in long-term growth.
American counterinsurgency doctrine recommends that the majority of effort be spent on economic development and governance, not on direct combat operations. To date, however, we have not followed our own advice: The U.S. still spends more than 90% of its investment dollars in Iraq on troops, equipment, weapons and logistics.
True, as security has dramatically improved, U.S. commanders on the ground have expended more than $4 billion in emergency response funds to provide Iraqis with jobs such as street cleaning, repair and garbage collection, and on essential services such as medical care and water treatment. But this pot of money was never intended to create long-term jobs, and commanders are restricted from investing the funds in private-sector enterprises.
Most of Iraq’s businesses were formerly state-owned enterprises. But we have dealt with this problem before. After the fall of communism in 1989, the U.S. helped Eastern European and Russian state-owned enterprises transition to the demands of a free-market economy. Ten enterprise funds were created in 10 different countries for a total of $1.3 billion. The United States Agency for International Development (USAID) made loans to private-sector fund managers who invested the funds in small to medium-sized businesses. In essence the U.S. government became a very large limited partner in a private-equity fund to create sustainable jobs. Twenty years after the fall of the Berlin Wall, Eastern Europe has a prosperous private sector in no small part because of the impact of these enterprise funds.
Private capital is already at work in Iraq, demonstrating the validity of this model both for economic development and for increasing employment. For example, Iraq currently imports over $100 million of tomato paste from its neighbors every year, despite the fact that it has enormous agricultural potential in the irrigated farmland between the Tigris and Euphrates rivers. Until recently, Iraqi farmers had no incentive to grow tomatoes on a commercial scale because there were no tomato-paste processing plants within reasonable transportation distances. In 2008, a private-equity fund invested in the Harir Tomato Paste and Juice processing facility, which had been defunct since the invasion in 2003. With only one Western employee and 200 direct Iraqi employees, the Harir plant is now profitable and has given thousands of Iraqi farmers a market for their produce.
This model could be replicated in factories throughout Iraq in multiple industries if an enterprise fund is approved by Congress. We suggest a $250 million Iraq enterprise fund. While this would only account for one-third of 1% of annual U.S. spending in Iraq, it would have an important amount of financial leverage; the sum could open 10 $25 million enterprises strategically located throughout the country. Instead of spending billions of taxpayer dollars for short-term programs, the enterprise funds could create long-term growth and employment in Iraq while giving U.S. taxpayers a return on their investment in the form of a share of profits going back to the USAID -- while appreciably diminishing support for the insurgency.
As we withdraw from Iraq’s cities we must seek to replace our bases with businesses. An enterprise fund for Iraq is a good way to start the process of achieving victory through economic development.
Dr. Nagl is the president of the Center for a New American Security. Mr. Rice is a partner and co-founder of The Marshall Fund. Both are graduates of West Point who have served in Iraq.
