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DEMOCRACY OR ECONOMIC LIBERTY: WHICH MATTERS MORE FOR IRAQ?
ADAM LOWTHER
THE AIR FORCE RESEARCH INSTITUTE
MAXWELL AIR FORCE BASE
The great struggles of the twentieth century between liberty and totalitarianism ended with a decisive victory for the forces of freedom—and a single sustainable model for national success: freedom, democracy, and free enterprise. —George W. Bush--The National Security Strategy of the United States of America (2002)
Introduction
In testimony before the House Armed Services Committee, then Deputy Secretary of Defense Paul Wolfowitz offered the Bush administration’s view of the situation in Iraq emphasizing progress toward democratization.[1] Little, however, was said of efforts to transform the economy of Saddam Hussein into a flourishing free market. While the National Security Strategy of the United States of America (2002) places a strong emphasis on free markets as a method of bringing peace and prosperity to areas of the globe where neither exists, progress in Iraq has been decidedly slow as the Bush administration and the democratically-elected Iraqi government continue to focus on rapid democratization.[2]
In the three years that have passed since former-Deputy Secretary Wolfowitz testified before Congress, Iraq has experienced dynamic change. A brief timeline of Iraq’s move toward democracy illustrates these events:
July 14, 2003—The Iraqi Interim Council meets for the first time.
March 1, 2004—The Interim Council agrees upon an Interim Constitution.
June 28, 2004—Iyad Allawi become Prime Minster of a sovereign Iraq.
January 30, 2005—Iraqis vote for a Transitional National Assembly.
April 2005—Parliament selects Jalal Talabani as President.
October 15, 2005—Iraqis vote for new Constitution.
April 22, 2006—Iraqis elect Jalal Talabani as President. Nouri al-Malaki becomes Prime Minister.
While Iraqi progress toward a free, fair, and functioning democracy is impressive, similar progress toward the establishment of a free market economy, which respects private property rights, limits government spending, reduces taxes, and returns decision-making to producers and consumers, has not been made.
This article focuses on a single question. Should the United States have focused on the democratization of Iraq prior to economic liberalization and the development of a free market economy? In order to answer this question democratic peace theory, which was a motivating factor for the invasion of Iraq, is examined. It is then compared to the economic liberalization literature, which suggests a, relatively, liberal economy is a necessary precursor to liberal democracy, if democracy it is to be sustainable.[3] A theoretical model of economic and political liberalization is then developed, which suggests that economic liberalization is initiated prior to political liberalization in authoritarian regimes when ill-liberal economic policies threaten regime stability. Further, it is suggested that there is a tit for tat relationship between economic and political liberalization. The article concludes with an analysis of American policy in Iraq and suggests that placing an emphasis on democratization rather than economic liberalization was a fundamental error.
Market Intervention
Since Adam Smith formalized classical economics in The Wealth of Nations (1776), economists have viewed economic liberty as an antecedent to political liberty.[4] The Austrian school suggests that markets are most efficient when they are unfettered by government intervention. Free markets produce efficient outcomes, which lead to the highest possible levels of economic growth. Since the satisfaction of basic needs such as food, shelter, and clothing is a function of economic activity, economic liberty must necessarily precede the satisfaction of higher order needs, like political liberty. Mazlow’s hierarchy of needs confirms this proposition and places political needs (speech, assembly, etc…) on a higher order. Simply stated, individuals will seek to achieve an optimal economic outcome—the satisfaction of material needs—prior to seeking the fulfillment of other (political) needs.[5] For this reason, political liberty becomes important when governments intervene in the affairs of rational self-interested individuals freely engaging in economic activities. The greater is the intervention (taxation, regulation, redistribution) the greater is the demand for political liberty by the individual.
The economy of Iraq under Saddam Hussein is an excellent example of the inefficiencies that are introduced when high levels of intervention preclude the development of an effective market mechanism, which, in a free market, efficiently determines prices and provides consumers the information needed to make rational economic decisions. Not only did the heavily controlled economy of Saddam’s Iraq ensure that average Iraqis were unable to efficiently allocate resources, but the rampant corruption, heavy regulation, high subsidies, and price controls made it difficult for the Iraqi economy to prosper.[6]
The ill effects of market distortions are not reserved to economic circumstances alone. As analysis of political conditions in the former East Bloc demonstrate, poor economic conditions led to unrest, which in turn led to greater limitations on political liberty.[7] Similar circumstances existed in Iraq as Saddam’s policies led to a declining economy, which, because of a feared coup, led Saddam to increasingly use economic regulation, subsidies, and other policies to reward loyal groups and create a system of dependency for all Iraqis.[8]Iraq’s economy was designed to maximize the regime’s survival.[9] This left the people of Iraq among the poorest in the world. Data on the Iraqi economy is, however, very limited. Leading studies regularly produced by the United Nations, World Bank, and Fraser Institute all fail to provide data for Iraq.[10] This is due to the highly secretive and closed system run by Saddam Hussein. Thus, there is no accurate basis on which we can compare the Iraqi economy, only anecdotal accounts of the inner workings of the Iraqi regime exist.
The Democratic Peace
In the immediate aftermath of the 9/11 attacks, the question of Iraq rose to prominence for the Bush administration. The administration began to develop a plan for the removal of Saddam Hussein from power. The rationale for regime change was based on morality, American security, and one of political science’s most successful theories, democratic peace theory. The moral argument was straight forward: Saddam Hussein is an evil man who kills his own people.[11] Equally simple was the security argument; Saddam possesses weapons of mass destruction, which he has used, and supports terrorists who hate the United States and her allies. When it came to the democratic peace, Iraq was to be the first liberal democracy in the Middle East. After democratization, Iraq would then positively influence other, less liberal, Middle East regimes. By invading Iraq in March 2003 the Bush administration clearly demonstrated its willingness to fight for the democratization of Iraq.
While the veracity of the moral and security reasons for invading Iraq will remain hotly debated, support for the democratic peace is substantial. In the wake of the Soviet Union’s collapse, interest in what is now called democratic peace theory expanded rather rapidly. Scholars sought to offer a useful paradigm for a post-Cold War world. With democracy proving victorious over Soviet-communism, it was only natural that the spread of democracy should be the focus of a new era in global politics. In the almost 200 year period between Immanuel Kant’s (1795) initial conception of the principles that are at the heart of the democratic peace and the collapse of the Soviet Union, scholarly work on the subject had largely been stifled, with the immediate post-World War I period the exception. Statistical analysis of the effect of democracy was first conducted little more than four decades ago.[12] In the years that followed, little additional research was conducted.[13]
It was not until the Soviet Union began to crumble in the late 1980s that scholarship on the democratic peace began to rapidly increase. The flux of scholarship examined a number of variables such as conflicts less than war[14] and the relationship between democracy and peacefulness.[15] Additional research examined the impact of economic interdependence and the level of democracy within dyads.[16]
Often described as the closest thing political science has to an empirical theory, much of the debate over the validity of the democratic peace is related to the definition of democracy used in various studies. Some define a democracy as: a nation that holds periodic elections, has competitive political parties, and allows at least 10% of the population to vote.[17] Others define democracy as: a liberal regime with a market economy, whose citizens have acknowledged rights, representative government, and where at least 30% of adult males are eligible to vote.[18] Later studies continue with this tendency to require increasingly larger percentages of the adult population have the right to vote.[19] For realists who challenge the validity of the democratic peace, they point to wars between democracies as examples of the theory’s weakness.[20] Advocates of the democratic peace argue that the conflicts cited by critics were not between two democracies, but between one democracy and one non-democracy or two non-democracies.
More recent research suggests that it is the least democratic state in a dyad that determines the probability of conflict.[21] The higher is the level of democracy in both states, the less likely is the probability of conflict, particularly with other democracies. Explanations for the democratic peace often focus on democratic norms and institutions.[22] Others, however, suggest that it is free markets that precede democracy and create the norms that explain the democratic peace.[23] While the democratic peace continues to build a wealth of scholarly support, economists have focused their attention on the need for developing nations to focus on building strong free market economies.
The impact of democratic peace theory is evident in the Bush administration’s approach to Iraq. While some scholars certainly disagree, the invasion of Iraq was, in part, premised on the notion that a democratic Iraq would further American efforts to spread democracy throughout the Middle East. A desire to spread democracy is, itself, support for the tenants of the democratic peace on the part of the Administration. As President Bush said, “And the reason why I’m so strong on democracy is democracies don’t go to war with each other. And the reason why is the people of most societies don’t like war, and they understand what war means…I’ve got great faith in democracies to promote peace. And that is why I’m such a strong believer that the way forward in the Middle East, the broader Middle East, is to promote democracy.”[24] Where many advocates of the democratic peace may disagree with the Bush administration is in the utility of using force to impose democracy.
Free Markets as a Criterion for Democratic Success
Among the earliest and most influential studies of democratization is that of Lipset (1959) which suggests that the sustainability of new democracies is dependent upon the level of economic development. Lipset concludes that industrialization leads to urbanization, which in turn increases individual wealth and the education level of subsequent generations. The size of the "moderate-middle class" increases and improves the chances for sustainable democracy. Later work finds that the stability of democracy is strongly correlated to the real gross domestic product, with positive spill-over impacting a number of additional variables.[25]
Barro (1991) finds support for convergence between economic growth and democracy with a robust correlation between GDP per capita and school enrollment. He also finds that states with higher levels of human capital also have lower fertility rates and higher rates of investment. And, as may be expected, states with lower growth rates have greater levels of political instability. These findings are consistent with more recent work which confirms Barro’s findings.[26]
In one study, economic growth and government consumption as a share of GDP were compared.[27] The study finds a robust (negative) correlation between economic growth and government consumption. A ten percent increase in government consumption led to a one percent decrease in economic growth. Among the 23 OECD states in the study, governments consumed 27% of GDP in 1960, but by 1996, government consumption rose to 48% of GDP. These results explain the precipitous decline in economic growth across Europe over the past four decades. They also lend support to work, which suggests that, when it comes to government spending, less is more. As Barro (1991) and Gwartney (1998) illustrate, the level of market distortion generated by government consumption plays a major role in reducing economic growth, when government consumption is high.
Ali and Crain (2002) look closely at the ill effects of market distortion. They distinguish the growth effects attributable to political liberty and those attributable to economic liberty. They demonstrate a robust relationship between economic liberty and economic growth. These results confirm previous work.[28] Interestingly, Political liberty and economic growth were not significantly correlated. Based on their results Ali and Crain conclude that it is economic rather than political liberty that most influences economic growth. They also conclude that most important among growth-promoting policies are strong private property rights, low levels of corruption, and a free financial system.
Where Ali and Crain and Easton and Walker do not focus their attention is on the role regime type may play in promoting or inhibiting growth. Helliwell (1994) examines the linkages between regime type and economic growth. He finds that there is a statistically significant correlation between GDP per capita and democracy. The positive relationship between economic growth and democracy is not well established as earlier work suggests that lower economic growth rates in democratic states are the result of high levels of taxation and redistribution.[29]
The work of Helliwell has been followed by more sophisticated efforts to understand the relationship between economic growth and regime type. Le Blang (1997) finds that democracy scores are positively correlated with economic growth. He also finds that as democracy scores increase, economic growth increases. What is uncertain, however, is the causal relationship between democracy and economic growth.
As the data above suggests, free markets and the broader economic liberties that accompany a free market economy are strongly correlated to economic prosperity. A brief look at the 2008 Index of Economic Freedom illustrates this point. Those countries with the highest levels of economic liberty are also among the wealthiest. Economic liberty is, however, relative. While many Americans consider Sweden a bastion of democratic socialism, it ranks 27th out of 162 countries in economic liberty. Recent reforms in many Middle East states have pushed formerly ill-liberal economic regimes into the top tier of the world’s free market economies. Interestingly, Bahrain now ranks above Taiwan in the Index of Economic Freedom, while it continues to remain a non-democracy.
Where the Democratic Peace Theorists and Bush Administration Went Wrong: A General Theory of the Interaction for Economic and Political Freedom
Few scholars will argue that democracy is less-desirable than its competitors. As Winston Churchill once remarked, “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” And, it may be true that democracies are less likely to fight one another. It has also been well established that democracy is more or less sustainable based on the economic prosperity of a state, with poorer countries less able to maintain fledgling democracy. What is not well established is the order in which democracy and free markets should appear, if economic and political liberalization are to be sustained. In the pages that follow a theoretical design that is descriptive of the relationship between economic and political liberalization in many, but certainly not all, authoritarian regimes is offered. Based on the theory’s design, it is then suggested that the Bush administration prematurely focused its efforts on building democracy in Iraq, when, instead, it should have focused on building a strong and durable free market economy, before turning to political liberalization. It is important to note, the theoretical model provided here is not descriptive of all transitions from authoritarianism to liberal regime. Instead, it offers a Lakatosian approach to theory creation. Each state, including Iraq, will deviate from the model in some way. This does not, however, invalidate the general theory.
A Theory of Interaction between Economic and Political Liberalization, in Authoritarian Regimes
Since the end of World War II there has been a substantial increase in the number of states with free market economies and democratic political systems. There are two significant reasons for the rapid expansion in the number of free market democracies: 1) the significant increase in the number of sovereign states due to decolonization 2) the move toward free market democracy by the newly sovereign states of the Former Soviet Union. In a number of states in Latin America and Asia, the move from authoritarianism toward democracy and the free market was fostered by internal decline rather than an exogenous shock, such as the collapse of empire, communism, or an American-led invasion. It is the transitions of these Asian and Latin American states that serve as the basis of the theoretical model offered here.