The Dutch Disease that plagues Rentier Iraq

The Dutch Disease that plagues Rentier Iraq

 

  • Some of the symptoms of Dutch disease are that it creates very rich countries but poor citizens, and high financial revenues with few job opportunities.
  • Oil export increase raises the value of the local currency but it makes the national industry less competitive with goods of other countries.
  • To worsen the situation, the government of oil-producing country is not linked to citizens as it does not need them, because it receives its vast resources from oil industry. 
  • Getting rid of the resource curse that has hit the economy of Iraq and infected its political system requires several solutions including the diversification of the country’s exports to be free of the single-source economy, which depends on oil. 

Iraq seems to be hit by many curses. Among those, the most serious is the resource curse, or what is so called (Dutch Disease).

This word was first used as a term in 1977 and can be defined as a set of negative effects that badly influence the establishment of proper economy. Some of the symptoms of Dutch disease are that it creates very rich countries but poor citizens.

It also provides greater financial revenues with few job opportunities. That’s applied in Iraq. This disease has previously struck other countries in addition to Netherlands, such as Spain, Australia and Nigeria.

Oil export increase raises the value of the local currency but it makes the national industry less competitive with goods of other countries. On the other hand, the oil market is unstable with volatile prices. Also this industry is one of those, which doesn’t absorb unemployment, requires intensive and immense capital and labor at professional level of skills.

Perhaps the most serious symptoms of Dutch disease are those related to the side effects of the disease, as the crisis transit from the field of economics to the field of political practice. Rentier states and those countries, whose economy depends entirely on oil, suffer from some governments that give all their efforts to the perpetuation of the existing political regime at the expense of the fundamental goals of the state.

In addition to this, the government of oil-producing country is not linked to citizens as it does not need him, because it receives its vast resources from oil industry. When citizens do not pay taxes, they have that feeling of separation along with their government, especially when the state/ Government turned into a shop that sells oil.

The government, then, is not afraid of citizen accountability, because citizen does not supply the country’s economy. Thereof, it is reflected in the political performance of the governments of such Rentier states. That actually leads to a political climate in which the authoritarian tendencies and dictatorial aspects are vivid in addition to mating between wealth and power.

So Dutch disease contributes to the creation of a more centralized state, through which the government spending is doubled. Moreover, it makes the citizen’s capability of formulation of public policies shrinks and that generates an atmosphere of discontent among those who are marginalized- the people, and helps the government to enhance its repressive means to keep the situation unchanged. This situation has plagued Iraq since several decades when oil was discovered. Current and previous governments of Iraq have abused the oil fortunes to create regimes and to ensure their stay in power as long as possible. These governments are used to distributing donations to those who are close and loyal to them neglecting the vast majority who is getting crumbs in their rich country.

Although the new political system in Iraq, after the fall of the former regime, is based on a democratic basis and a constitution, which guarantees the independence of the three powers (Legislative, Executive and Judiciary) and allow those powers to derive their legitimacy from the people as the source for all authorities, influential political blocs are formed. Those blocs collected fortunes through their political status, and acquired huge privileges concerning oil, as well as the exploitation of public money in the purchase of consciences especially in the election season to get the votes of the electorates, in addition to widespread administrative and financial corruption.

Getting rid of the resource curse that has hit the economy of Iraq and infected its political system requires several solutions including the diversification of the country’s exports to be free of the single-source economy, which depends on oil. It also requires a policy of decentralization in the organization of the oil industry and the applying the principle of transparency in handling this industry, in addition to the establishment of an oil fund that ensures a fair distribution of oil profits to the citizens along with developing a tax system in order to re- link the citizens to their government.

The article is written by Falah Mousa for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

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