Volume 3, Number 72
30 April 2003

How do we get out of Iraq?

Dear Friends,

President Bush and I have different perceptions of how the United States will exit from Iraq. By his assumption, "democracy" will be established, economic prosperity will follow, and other nations in the Middle East will see how successful it has been, and will follow suit.

My perception is that history does not unfold so fast. While "democracy" is an extremely complex condition, defined in many different ways, three historic conditions stand at its foundation. They are (1) the law of contract, (2) the rule of law, and (3) property rights. All these are cultural artifacts that must be evolved and cannot be changed by conquest. In addition, as the United States leaves Iraq, some decisions must be made about oil. They will be considered in the final section, below.

The Law of Contract

Every commercial society requires a law of contract: how promises are made, what happens if they are not kept, how debts are incurred, when and how they are paid, what happens if they are not paid, and so on. In the West, where this law was developed over centuries from Roman times until the present, contracts allow persons who do not know each other personally to do business together. Some contracts are void because they are not socially acceptable, for example a contract to commit murder.

Western contract law was mainly the product of merchant agreements. Two merchants would follow a certain set of procedures (such as what constituted delivery, when a debt should be repaid), they would continue to do business the same way, others would follow, and ultimately the legislative authority (city, county, state) would adopt the practices as formal law. Alternatively, a trade fair (such as the Champagne Fairs of the twelfth and thirteenth centuries) or the Hanseatic League (an agreement among German cities of the thirteenth to fifteenth centuries) might set rules of trade, and those who wished to follow them would be allowed to trade at the fair or with the League.

In Western law, contract usually assumes equal bargaining power of the two parties. For example, Bechtel, a large American corporation, contracted with the Government of Bolivia (GOB) to build an expensive water system in the City of Cochabamba. But the Cochabambinos, who had not been consulted, were unable to pay Bechtel's prices. They rioted, and the contract was canceled. Bechtel is now suing for breach of contract. Many argue that Bechtel, the stronger party, should swallow the losses. But the law treats the GOB as equal to Bechtel; its error was not to consult the Cochabambinos or predict the result of the contract. By Western principles, if the GOB does not live up to its contracts, further investment will not be forthcoming. Precisely that is happening now in Argentina, which has defaulted on government debt.

On the other hand, a contract made at the point of a gun would not be enforceable in a Western court. Clearly the parties were not equal.

Western governments have passed laws that violate contracts. In New York in 1905, an employer (Lochner) had freely contracted with an employee to work more than ten hours in one day, contrary to the Labor Law of New York. In Lochner vs. State of New York, the Supreme Court found the Labor Law of New York to be unconstitutional because it violated the contract. This decision has since been reversed, and states may pass labor laws intended to protect the general welfare but which void contracts at variance with the law. Libertarians still grimace over these decisions.

Before Saddam, Iraq possessed an advanced Civil and Criminal code, adapted from the French and Germanic legal systems. Its personal law was primarily Islamic (sharía). Before 1968, attempts to accommodate both modernization and Islamization were among the most innovative of the Middle East. With Saddam, all creative legal activity ended, and law became his personal property — to be exercised as he saw fit. Political opponents would be beaten physically. Torture and execution were frequent. Effectively, therefore, Iraq now has no law of contract. If it is to attract foreign investment — which it must do to develop its oil reserves and agriculture — it must adhere to such a law. Presumably it would have to adopt one of the laws of contract from the West (which, though they differ in different countries, are similar in principal respects).

However, the idea of living up to contract principles is cultural; it cannot suddenly be imposed by law. Those who have not been accustomed to adhering to Western principles may — being sovereign — simply say "to hell with them." For example, once foreign oil companies have contracted with the Iraqis, if a new dictator takes over, he might declare those properties nationalized and refuse to refund their investment. The only sanction the companies would have would be the refusal of other companies to do business with Iraq, on the ground that it did not live up to Western ideas of contract. (This is happening now in Argentina). Within the next years, we will see what happens.

The Rule of Law

Contract is not the only principle on which law must be developed. "The rule of law" requires that all citizens be treated alike, even the king or president. This rule was developed in medieval Europe, as courts were established independently of the sovereign. The newly developing common law agreed that kings may make the law, but once they had made it, they had to obey it.

Many governments today do not abide by the rule of law. For example, in Argentina it is possible to win a judgment by bribing the judge. In many countries one may "buy" a driver's license, even though the law requires passing a test. Multinational corporations have been known to obtain privileges by bribing the relevant government official. Some years ago, the United States passed a law making bribes by American corporations illegal. The corporations complained that this law put them at a disadvantage compared to foreign corporations that did not have the same constraint. So the United States and European countries signed a treaty extending this law to all corporations registered in their countries – no bribes by any company to foreign governments. The extent to which this treaty is obeyed, of course, can only be guessed, but at least it is a step toward universal enforcement of the rule of law.

Whether conquered Iraq will now abide by a uniform, impartial rule of law will depend on what government is selected. The candidates most be known to the Iraqi people, and the most capable were part of the Saddam Hussein government. Since they may be chosen in free elections, we must not suppose that "democracy" will be established all at once. A people that has lived under foreign rule (the Ottomans, then the British) and local dictators (Saddam) for so many centuries will not easily adapt to Western-style democracy. The people come to believe that a "strong ruler" is essential for their protection in a relatively lawless country, and when a new one takes over by force of arms, they quickly acquiesce. Finally, a nation accustomed to a religious state will not easily adopt Western democracy (except Israel, which grew out of the West).

We should therefore expect that a new dictator may take over in the near future. We must be careful neither to support him for our own political purposes (as we did Saddam) nor try to overthrow him. But it would be reasonable (as part of a peace treaty) to forbid weapons of mass destruction and to work out a way to enforce this prohibition.

Property rights

Property rights are essential to Western-style democracy. A producer (farm, manufacturing, or other) must have title to property in order to convert it into fungible assets, which can be mortgaged or sold, to raise capital for new ventures. Hernando de Soto of Peru has written about the poor people in less developed countries who do not have legal right to the land they live on. Largely through de Soto's efforts, the governments of Peru and Brazil are beginning to issue titles to poor people who have occupied slum land extra-legally for many years.

When a government expropriates property, forming state-owned enterprises, these are inefficient and contribute toward busting the budget. Likewise, collectivized farming has failed for lack of incentive by individual farmers, causing losses to governments and individual farmers as well. Iraqi oil wells have been owned by the government, and agricultural properties have been in the hands of large landowners, who collected taxes from the peasant farmers, and paid some of them to the central administration. After the 1958 revolution (which brought down the monarchy), the government expropriated land from the large holders to divide among peasant farmers. However, since the land expropriated greatly exceeded distributions, much land became held by the government, which collectivized it. Productivity failed to increase, so the government leased much of it in large plots to local and foreign Arab companies. Since then, productivity has remained low, and confusion reigns over who owns which land. Because of the chaos engendered by conflicting claims for land, it would be well to convene agricultural experts, farmers, and landowners to determine how the agrarian reform would proceed. However, this convention should lay down general principles only, leaving to its principals the final organization after the Americans have left. Once the Iraqis decide on land ownership, technical assistance to postwar farmers should be high on the U.S. aid agenda.


Many Iraqi oil wells are in poor shape, owing to years of disuse and abandon. These will take some years to repair.

I quote M.A. Adelman, the intellectual "dean" of oil studies, in The Wall Street Journal, 4/02/03: "In addition to the producing reserves and deposits, Iraq has 87 billion barrels of nonproducing reserves, of great but uncertain value. They [sh]ould be sold as discovery-production rights. . . ["Discovery-production" refers to land where oil is likely but not yet found. The companies buying the rights would produce whatever oil they found and would lose if they found none.]

"American and British oil companies possess the most discovery-production know-how. They will be willing to spend the most for such rights and will win most of the bids. Russian oil companies have had much recent experience, are flush with cash, and would bid too, perhaps heavily." To add to the Adelman scenario, I suggest that the dilapidated oil wells also be put to bid, to be repaired by the successful bidders.

In the Adelman scenario, which I favor, the oil will belong to the Iraqi government. Because of the politicization and waste of government companies, I would prefer that it belong to a private Iraqi company, but I do not see how that is going to happen. The government will offer it to the highest bidder, from any country. The government will keep the amounts bid, while the companies will reimburse themselves by selling oil. This will lead to a nominal profit for the oil companies and a huge bonanza for the government of Iraq. It would be reasonable for the conquerors to request that the government spend its winnings on reconstruction of administrative buildings, schools, hospitals, etc.) Thus the cost of reconstruction will be borne by the American taxpayer at first, until the oil starts flowing, and then by Iraqi oil.

To summarize this Letter: As much as is possible, Iraq should return to the systems in force before the Baath Party took power in 1968 (or, if you will, before Saddam Hussein became president in 1979). However, Western-style democracy lies decades or centuries in the future. In Europe and Japan, centuries were required for it to evolve. Perhaps it can evolve more quickly now, as its success is observed in other countries. But (Mr.Bush), don't hold your breath.

Please let me know what you think of this scenario.

Thank you, Friend,

Jack Powelson

Readers' Comments

Thank you for helping me learn about moral and spiritual dimensions of economic and political life. I wish that especially this letter could be published and read nationally beyond the TQE readership.

— Mark E. Roberts, Woodland Hills Foursquare Church of Tulsa (OK).

I've appreciated your pieces in Friends Journal. Though I consider myself something of a liberal, I don't like the way that unprogrammed Quakerism is so virtually indistinguishable with the far left. Especially on economic issues: I think liberals quite often have a knee-jerk reaction for, for example, raising the minimum wage because it feels like that would benefit the worst off. But I've always felt like there must be more complex economic realities at work that one would have to understand before having an opinion on things like the minimum wage. I'm glad you are still putting up with us liberals and making us question things we rarely question.

— Zach Alexander, North Shore MM (Beverly MA).

Susan Lee (Wall Street Journal, 4/30/2003, advocates distributing something like no-par stock certificates to all Iraqi citizens. These shares would be freely traded and or transferred. I'd be glad to read your comments in a future issue of TQE.

— Fred D. Baldwin, Carlisle (PA) Meeting.

Note: Russia did roughly the same, in privatizing its businesses. But most recipients, wanting an immediate return and not understanding their value, sold the certificates for a pittance. Very soon they ended up in the hands of the few powerful elite. — Jack

As your letter so aptly points out, any democracy requires established rules regarding ownership, business dealings, and conduct. Such rules must be transparent, consistent, and universally applicable if they are to be predictable and thus legitimate. Moreover, these rules most be enforced. This necessitates institutions to determine potential violations, pass judgments, and reprimand or rehabilitate the parties responsible for the violation. All of this requires some degree of understanding by all citizens, both those who are employed by the system and those who are accountable to it.

Which brings me to my point. What are we doing to invest in the people of Iraq? Our country is spending hundreds of millions of dollars on fixed capital, but does the administration have any plans to invest in human capital? Does it plan to invest in basic and vocational education? How do we plan to insure that the Iraqi people have the skills required to participate in democracy and in the ever-changing global society? As far as I know, the administration has made no such plans. Perhaps the Quaker community can help fill this void. If nobody is willing or able to address these concerns, then I fear that the plant of democracy may not take root, and the fruits of freedom and equality may once again be denied to the people of Iraq. We cannot allow that tragedy to occur.

— Paul Burkholder,Yardley (PA) Meeting.

Your capsulized description of what we hope the Bush administration will undertake is excellent. A very good combination of History 1 (Merriman's European history from Rome to the present} and Economics A. But remember George W was a C student, and at Yale.

Rumsfeld's speech today promising the establishment of a democracy in Iraq leaves open the question of what we are to do if the democratically selected new government represents people who want us out of there. I guess their self government stops at the Iraqi office of the Defense Department.

— Dick Wolf, Coral Gables (FL).

Note: Dick was a classmate of Jack's at Harvard.

You have sketched a foundation of democracy without showing its cracks and settling. The smooth image pictured doesn't exist on the ground. In capitalistic environments, political muscle clobbers democracies into unrecognizable servants of money.

— Jerry Scott, Salem (OR) Friends Meeting.


RSVP: Write to "tqe-comment," followed by "@quaker.org" to comment on this or any future Letter. (I say "followed by" to interrupt the address, so it will not be picked up by spam senders.) Use as Subject the number of the Letter to which you refer. Permission to publish your comment is presumed unless you say otherwise. Please keep it short. Letters will be edited for spelling, grammar, clarity, and brevity. Any letter over approximately 100 words may be returned without being read. Please mention your home meeting, church, or synagogue, if any (this is not required), and your location.

To subscribe or unsubscribe at no cost, please visit our Home Page.

Each letter of The Quaker Economist is copyright by its author. However, you have permission to forward it to your friends (Quaker or no) as you wish and invite them to subscribe at no cost. Please mention The Quaker Economist as you do so, and tell your recipient how to find it.

The Quaker Economist is not designed to persuade anyone of anything, although viewpoints are expressed. Its purpose is to stimulate discussions, both electronically and within Meetings.

Publisher and Editorial Board

Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board:

  • Roger Conant, Mount Toby Meeting, Leverett (MA).
  • Carol Conzelman, Boulder (CO).
  • Ann Dixon, Boulder (CO) Friends Meeting.
  • Virginia Flagg, San Diego (CA) Friends Meeting
  • Asa Janney, Herndon (VA) Meeting, Assistant Principal Editor.
  • Janet Minshall, Anneewakee Creek Friends Worship Group, Douglasvillle (GA).
  • Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor
  • J.D. von Pischke, a Friend from Reston, VA.
  • Geoffrey Williams, Attender at New York Fifteenth Street Meeting.

Members of the Editorial Board receive Letters several days in advance for their criticisms, but they do not necessarily endorse the contents of any of them.

Copyright © 2003 by John P. Powelson. All rights reserved. Permission is hereby granted for non-commercial reproduction.

Previous Letter | Home Page | Next Letter