Iraq Survives Sanctions With 'Cowboy' Capitalism

Facing economic hardship, Iraq is turning toward free enterprise.

In the six years since his defeat in the Gulf war, Iraqi leader Saddam Hussein has withstood United Nations sanctions aimed at forcing him to disarm. And despite near-total isolation, his regime is steady.

One key to Iraq's survival has been an economic shift. Once largely state-controlled, the economy is now bolstered by an emerging capitalism.

Government officials, for instance, once had an ample fleet of cars at their disposal. But last year, many received sudden notice that car privileges were gone. The government sold not only its vehicles, but warehouses of grain, auto parts, and other hardware. Even some factories were put up for sale to private Iraqi investors.

"This was to compete with private suppliers who were hoarding and forcing prices up," says an official with a nonprofit organization in Baghdad.

On the streets of Iraq, the trend toward free enterprise is obvious. From hospitals to banks, citizens have sought out alternatives to crumbling government services.

After the Gulf war, the Iraqi currency lost its value, and illegal money changers flourished. They competed with state-run banks for scarce foreign exchange. But in 1995, the government began to allow money changers to operate freely. Soon several private banks were created.

Private hospitals have sprung up, too. Before the war, most Iraqis used free government health care. But without medicines or other supplies due to the embargo, these centers had to turn patients away.

In their stead came new partnerships of senior doctors with the capital to invest and reputations to attract paying patients.

One such facility in a Baghdad suburb, with just 45 beds, is where young doctors like Moyed Khairy are now employed.

He has a part-time job in a state hospital. But by working afternoons in the private facility, he supplements his monthly government salary of 3,500 dinars ($3.50) by 15,000 dinars.

But other former government workers don't have these options. Iraqis from all walks of life say they left government service when their salaries couldn't keep up with inflation.

Even a teacher like Ali, fluent in English, is a small-time merchant now. He stands beside a makeshift cart piled with small vials of fragrant oil. "I can earn more selling than teaching," he says. "One bottle costs 200 dinars. Maybe I can sell four a day. Before I had a car, a house, and money.... After the Gulf war, I could not support my family on a teacher's salary."

But while some former civil servants are barely more than peddlers, a few Iraqis are profiting greatly from the economic isolation.

The regime has actively encouraged private enterprise by large-scale producers and traders. This more-open policy began in the 1980-88 Iran-Iraq war, but it has surged ahead under the strains of the embargo, which was extended by the United Nations last week as a part of its regular 60-day review. [The UN claims Iraq is still hiding chemical, biological, and ballistic weapons.]

In Baghdad, merchants and farmers now have a freer hand to furnish the nation with badly needed goods such as food, textiles, and machine parts.

"Many farmers are rich," says a Baghdad resident who gets government food rations. "They deserve what they have. They worked hard these years when we could not import."

But the richest of the new entrepreneurs are smugglers bringing goods across Iraq's borders.

"These profiteers were needed to do what the government could not do - import and export," says Khalid Amin Abdullah, a professor of finance at the Jordan University for Women in Amman.

"They work with the government's support, because they are doing its work."

Many observers agree that these free-enterprise efforts relieve the government of the burden of getting food to the people. In return, these merchants are well rewarded.

Omar, an Iraqi exile in Jordan, was once a businessman himself. He calls these traders "cowboys."

"They crossed the borders and took chances," he says. "We could not manage what they did."

And now that these new rich have begun accumulating capital, they are able to buy up the factories and other former government institutions.

They could become a class of industrialists unlike anything Iraq has ever seen.

But the shifting economic status quo doesn't appear to threaten the government's political control. "They do what Saddam tells them," says an observer with extensive experience in Iraq before the war.

"These new rich are rewarded with wealth," says a Jordanian merchant. "As long as they do [Saddam's] work, they can continue. They get material benefits, and that's all they want."

Some observers think Iraqi traders have to pay protection money to Saddam's clan members, who hold top positions throughout the nation.

But it's a price the newly rich seem willing to pay, especially as the state starts auctioning off more enterprises.

Besides selling certain factories outright, in December the government announced a new measure to auction off half of the shares in government-private companies to employees of the firms.

But privatization can only go so far. Could oil ever be put on the open market?

"No," says Mustafa al-Mukthar, a Baghdad economic consultant.

"State ownership of our oil is a principle. Changing this is out of the question."