As the day-to-day headlines make clear, security is still the overwhelming concern in Iraq. But beyond security issues, a transition to stability and democracy depends on success in rebuilding the economy. And here, the legacy of American policy could prove very damaging, according to an economist writing in the latest Milken Institute Review.
As described by Robert Looney of the Naval Postgraduate School in Monterey, Calif., efforts to bring free markets and prosperity to Iraq have gotten off to a rocky start.
"Iraq′s current economic malaise has its origins in a series of miscalculations by the Coalition Provisional Authority," he writes. "Too many decisions were made without examining the economic dimension."
Despite these challenges, however, Iraq′s interim government has put many important reforms in place that could lead to economic growth — once the country gets some "breathing room" from the violence.
"One hopes that improved security will bring more capital from abroad, stimulating reconstruction and job creation," Looney writes. "Accordingly, it is possible that growth and reform will fit into a virtuous circle, just as they did in the successful transition economies in Eastern Europe."
Also in the new Review, Martin Bailey, former chairman of President Clinton′s Council of Economic Advisers, and Diana Farrell, head of the McKinsey Global Institute, offer a strong defense of one of the recent political season′s hottest topics: outsourcing.
"Far from being a zero-sum game, offshoring is a story of mutual gain, benefiting both countries," they write. "Far from being bad for the United States, offshoring creates net value for the economy — to the tune of $1.12 to $1.14 for every dollar that goes abroad."
Other highlights from the 4th Quarter Review:
- Bill Gale of the Brookings Institution urges Washington to pay more attention to America′s children. "It′s time to stop separating children′s issues from other aspects of fiscal policy," he writes. "We are passing on huge fiscal burdens to future generations, and, at the same time, doing a wretched job of equipping the most at-risk members of the next generation with the tools they need to cope in today′s grab-it-while-you-can economy."
- Greg Rushford, editor of The Rushford Report newsletter on international trade and finance, throws some cold water on Washington′s enthusiasm for preferential trade agreements with individual countries. "The preferential trade approach offers a double whammy, both distorting efficient trade patterns and pitting friends against friends," he says. "The next occupant of the White House might want to reconsider the wisdom of using America′s leverage to negotiate one-sided economic treaties that will inevitably breed further resentment a world that is increasingly inclined to distrust United States′ motives about everything."
- Gregg Zachary, a former Wall Street Journal reporter, offers his insight on foreign aid in Africa — what works and what doesn′t. "Poor results largely follow from a failure to take advantage of Africa′s private sector, which is strikingly vibrant and cosmopolitan," he writes. "By leveraging the processes that produce business success, donors would inevitably shift their focus from parasitic to productive enterprises."
- Daniel Gross, the Moneybox columnist for Slate, explains why politicians haven′t made many inroads in garnering support from America′s investors. "There is no investor class. Instead, there are several, and each has it own interests," he writes. "Political candidates or parties that adopt a one-size-fits-all strategy with the hopes of harnessing the elusive investor vote are likely to garner disappointing returns."
- Anthony Buzelli, regional managing partner at Deloitte, describes how businesses can protect themselves from the globalization backlash. "We must think long-term," he writes. "Building global businesses, even as we hedge against deglobalization, isn′t just one choice among many. It is the only practical choice for the coming decades."
- Rob Koepp, a research fellow at the Milken Institute, says China is quickly making the transition to a technology-based economy, relying on the "technology parks" to get the job done faster and more efficiently. "China has only begun to challenge the advanced industrial economies on technological turf," he writes. "Yet China has the energy, ambition and human capital to join the big leagues."
This issue includes an excerpt from The New Division of Labor: How Computers Are Creating the Next Job Market, by economists Frank Levy of MIT and Richard Murnane of Harvard University, who describe how we can reap the benefits of computers without paying a heavy price in terms of displaced workers.
The Milken Institute Review is distributed to some 10,000 corporate and financial executives, policymakers, academics and journalists throughout the world. Its editor is Peter Passell, former economics columnist for The New York Times.
Go to 4th Quarter Review page. (Requires log-in to view articles.)