Thursday, August 25, 2011

Economic Policy For A Post-Qaddafi Libya

Yesterday Juan Cole at posted "How to Avoid Bush's Iraq Mistakes in Libya," listing ten matters and noting that "arqana," or "Iraqization," is now an Arabic word, and is not used favorably by anybody anywhere, even if some neocons continue to attempt to turn the Bush-Iraq mess into something admirable. Of the ten points Cole makes (all of which I agree with to varying degrees), five have to do with economic policy.

Point 5 is that the Libyans should avoid "privatizing everything." In Iraq we brought in a bunch of young idealistic pro-free-marketers who attempted this, only to have many of these previously state-owned factories/enterprises, simply go out of business, thereby exacerbating the major economic problems facing Iraq. They should have learned from the transition from the Soviet model in the former Soviet bloc. Countries that attempted sudden privatizations, such as Russia, ended up with badly managed companies being bled dry by corrupt owners. More successful cases, such as Poland, engaged in gradual and carefully managed privatizations. Libya should follow that example, not the idiocy in Iraq (or Russia).

Point 6 is to consult with Norway about how to be an oil exporter and maintain a democracy (hopefully non-corrupt, an issue Cole does not discuss). This is wise, but also more difficult and problematic. For one thing, there is the matter of simply getting a democracy in Libya after not having had one. There are also many differences between Norway and Libya, but indeed, the effort to try to avoid the all-too-widespread phenomenon of corruption and dictatorship such as Libya has been an especial curse of major oil exporters.

Point 7 is to adopt the Alaska dividend system, in which oil profits (or some of them anyway) are distributed to the population as a dividend. This is something that was suggested for Iraq by such pro-free-market economists as Vernon Smith, but not adopted. But I see nothing wrong with this. Indeed, this is a way to make sure that some of the benefits of the oil production do get to the population and do not just end up going to a bunch of corrupt cronies of whomever ends up in charge, however they get to be in the position of being in charge. I support this one.

Point 8 is a warning to diversify to avoid "Dutch disease." On this one, I think that Cole is underestimating how hard this is to avoid. This looks like wishful thinking, good luck on it, Libya, but it is hard to do. Cole suggests encouraging education, and Libya does have a fairly well educated population, which is good in itself, but this will not necessarily overcome this very tough problem.

Point 10 is to go for alternative energy in the long run after they have gotten their act together in the shorter run, particularly solar and wind. They certainly have potential there, and I do not disagree with this one, but also figure that they will have a lot to do before they can focus on that. Again, I agree with the other non-economics points Cole makes, but will not list them here.


David Stern said...

We're having a big Dutch Disease problem in Australia and the government seems to have no clue even what to say about it.

Barkley Rosser said...

David, Yes, OZ is on the list of countries having to deal with it. Not easy.