No More Charity: Making Iraq's Economy Work

Most of Iraq’s revenue comes from oil. But natural riches may also mean fewer political freedoms and a state that behaves like a charity toward its own people. This must change, an Iraqi economist Nagih al-Obeidi argues in this article from Niqash.

The economic and political theory on “rentier states” says that a nation that derives most of its income from one natural resource, such as oil, doesn’t need much other domestic economic activity. Taxes are not as important and the government is not held as accountable by electors.

The same theory indicates that one of the biggest challenges for a rentier state is to develop a democratic, civil society and to ensure that the central government is not autocratic or bloated. And it is often used to explain why oil-rich nations in the Middle East and Africa might not perform as well, in terms of general standards of living and political freedoms. Dr Najeh al-Ubaidi, an Iraqi economic researcher based in Berlin, discusses whether post-Saddam Hussein Iraq is becoming more or less of a rentier state, the dangers of this and the possible solutions.

Because of its dependence on one resource – oil - the Iraqi economy is usually described as a “rentier economy”. The Iraqi government has been controlling oil income for several decades and this has allowed it to redistribute that income in a way that serves only the interests of the ruling elites. A rentier state may not need to tax its citizens as heavily because it relies on the sale of oil supplies. It is estimated that internal tax revenues amount to only a few percentage points of the annual Iraqi state budget. And when it comes to expenditure, the state often behaves like a charity, distributing public money as though it were alms to citizens. But even the description - rentier economy – does not adequately describe the behaviour of the Iraqi state and the nature of its relationship with its citizens. While there is no doubt that Iraq’s oil wealth can be a key factor in achieving a better standard of living and welfare in Iraq, it is also the reason why the Iraqi government should be assessing its policies and its position.

Rentier Symptom #1: The State as Charity

Under the first system of government established in Islam, also known as a caliphate, the leader of the state – the caliph – could distribute state moneys more or less as he pleased. And it seems that Saddam Hussein’s regime contributed to this tradition. Today, the rise of a more Islamic political bloc to power seems to be continuing with this attitude.