Security, Economy in Iraq Improving From Local Level Up

By Jim Garamone
American Forces Press Service

Dec. 6, 2007 - A focus on security in local areas has brought about an improvement in security throughout Iraq, and officials believe the country's economy needs to follow a similar track, a Defense Department business transformation official said. "The security progress we've made in Iraq is because of our realization that everything in Iraq is local," Paul A. Brinkley, deputy undersecretary for business transformation, said in an interview. Brinkley leads the Task Force for Business and Stability Operations in Iraq.

And the security situation is improving. Attacks throughout the country are down, Multinational Force Iraq officials have said. Brinkley said the improvement was like someone flipped a switch. "I would never have forecast in September this suddenness of normal," he said.

He said the economic reconstruction in Iraq must follow the same path. Coalition officials made a mistake in 2003 by thinking that macroeconomic policies would work in Iraq, policies in Qaim, in the west, would also work in Basra, in the south, for example, Brinkley said. "We went in thinking it was a centrist, Baathist, Soviet-style centrally run economy; it wasn't," he said. He explained that every local sheikh or local leader had his own unique deal with the central government.

His task force learned this firsthand when they started operations in November 2006. "In every factory they went to, the situation and relationship with Baghdad was different," he said. "It ranged from near-capitalistic to completely centrally run; there was nothing in common."

Any economic policy must realize that Iraq is a very complicated, diverse society. "It's tribes; it's sects; it's local leaders; it's centuries of built-up relationships among people," he said. The country's economy will not respond to centrally issued edicts but instead needed more tailored efforts, Brinkley said.

In January 2007, the surge of U.S. troops into Baghdad allowed the coalition to begin working more at the local level, Brinkley said. Now economic planners must continue thinking locally, he added. "To get the economy going, you have to roll up your sleeves and do the hard work of understanding what exists locally and how you get it going again," he said. "That's just not a free lunch."

The United States has sufficient expertise at the high end, or macro-level, of the economy and the low end, or micro-level. Now the coalition needs to address the middle -- and largest -- part of the economy, Brinkley said.

Still, the Iraqi government and the coalition do have some macroeconomic work to do, he said. "Iraq needs a legal framework; it needs policy; it needs a central banking system; it needs justice, a legal framework, and a trade policy. That's what we do well," Brinkley said, adding that the Iraqi government is working on programs that will address these high-end portions of the economy eventually.

The low end (micro-level) of Iraq's economic issues includes humanitarian missions aimed at improving local conditions. The U.S. Agency for International Development and the Commander's Emergency Response Program help cover this aspect of coalition support to the Iraqi economy.

Long-term economic solutions in Iraq will include creating jobs for the vast number of people in the middle, getting private businesses to flourish, and spurring industry to reopen. "What was missing in Iraq was an acknowledgment that this was an industrial economy; we're not dealing with Afghanistan," Brinkley said. "There is an existing industrial economy; there is a well-educated workforce; there were engineers and accountants. (In 2003,) these were people who thought they were going to see their prosperity take off, and four years later they are still out of work."

A moribund industrial economy means that all businesses that rely on it are also on their knees. "Shut down a factory in Gary, Ind., it's not just the factory workers who suffer," Brinkley said. "It's all the surrounding infrastructure that supports the factory."

The task force is working to restart the economy and take the differences throughout the country under consideration. Officials intend to use as much of the $10 billion a month in coalition spending in Iraq to stimulate economic growth, Brinkley said.

The concepts are tied together. "All of our non-secure communications in Iraq were being done via satellite. It's the most expensive way to do communications," Brinkley said. "We've used DoD spending to light fiber optic circuits with a private Iraqi telecomm provider so now we're moving our non-secure traffic onto that fiber.

"By getting the fiber lit, that creates a backbone the rest of the Iraqi economy can take advantage of," he continued. "So now everybody doesn't have to mount a satellite dish on the roof to get access to a computer."

Banking is another example. "There's a consortium of 10 major financial institutions that have 160-plus bank branches open in Iraq today," he said. These banks are linked together, and the task force is steering Iraqi companies to open accounts with these financial institutions.

In September, coalition contracting officials let $400 million in contracts. Iraqi companies bid on these contracts, but if the companies want to be paid, they must have accounts in the Iraqi banks. "We're steering them to the process. We're not building it for them; we're 'incenting' them to use these practices," he said.

Iraq had a huge number of state-owned businesses. "We have restarted 17 state-owned factories between January and September," he said. "Opening 17 factories in Iraq wasn't easy; just try opening factories in America that have been shut-down for four years. We have 30 more in process that we will lay in between now and March of next year."

These factories run the gamut from labor-intensive garment factories, to mechanical assembly plants and tractor factories. Overall, for every job created in manufacturing, four or five related jobs are created in servicing the factory.

Addressing the 50 percent unemployment problem in Iraq is critical to fostering a stable and secure enough environment required to encourage reconciliation between the various groups, Brinkley said.

Regional differences abound even in state-owned businesses because of the nature of Saddam Hussein's regime, Brinkley said. "If you think of the way Saddam's regime worked, the knowledge work went to the Sunni areas, the labor (-intensive work) went to the Shiia areas," he said. This arrangement is why it is easier to create a larger number of jobs in the Shiia areas, which feeds Sunni concerns that they are being overlooked, Brinkley added.

The problem with the large factories, such as cement plants, being located in Sunni areas is that they are electricity intensive, and the Iraqi electric grid is not ready to handle restarting these factories, Brinkley said.

Brinkley is most excited about getting foreign capital interested in Iraq. There are only two ultimate outcomes in Iraq: chaos ... or extreme prosperity, he said. "The question is, how long is it going to take for them to become prosperous?"

Because of the oil treasure lying under the country, Brinkley said, people who support the hydrocarbon industry are going to do well in Iraq. "What we offer is a chance for businesses to come in at a time when security has improved dramatically and get in on the ground floor," he said.

Brinkley said his task force is a catalyst. The group can link interested businesses with appropriate Iraqi government agencies or private businesses. "Once private companies come in and start to close deals with the Iraqi government, we can all come home," he said.

"I have more optimism today in Iraq than I had in the 19 months we've been doing business there," he said.

The United States will deliver on industrial restarts and banking and other economic areas, Brinkley said. "We really have a moment where, if we can deliver that, (we're reaching) the tipping point," he said.