Baghdad, Iraq - Focus on the restructuring of Iraq has turned to MSU President M. Peter McPherson's effort to develop a market economy as leaders of the U.S. occupation authority here say it has restored civil order.
McPherson, while serving as senior U.S. adviser to Iraq's Finance Ministry, is challenged with rebuilding a country where state control was the rule for decades. He was given an unpaid leave of absence from the university in April.
McPherson and U.S. officials say much work remains on these challenges more than a month after the war ended, but say the time has come to begin a "new phase" of the occupation that would focus on reviving Iraq's economy through free trade and the eventual elimination of state subsidies that lowered the prices ordinary Iraqis paid for food, gasoline and other essentials.
"This place was probably affected less by the forces of supply and demand than any place I have ever seen," McPherson said. "This was an integrated economy - pathological, but integrated.
"You can't really take one piece out, fix it, and put it back. It will have to be taken all apart, and you will have to allow the forces of supply and demand to function."
Before its 1990 invasion of Kuwait, the Iraqi government spent close to $20 billion a year to import almost everything from staples to delicacies it then sold to merchants at bargain prices, lowering the cost to consumers.
Once sanctions were imposed, Saddam used the U.N. "oil-for-food" program to establish a highly popular food-distribution network relied upon by 60 percent of Iraq's 26 million people. He doubled rations before the recent war in an effort to build popular resistance to the U.S. invasion.
L. Paul Bremer III hailed the agency's progress in turning electric power back on in much of the country, putting Iraqi police on the streets and reviving some of the many looted government ministries.
"A free economy and a free people go hand in hand," said Bremer, who arrived weeks ago to run the occupation authority. "History tells us that substantial and broadly held resources, protected by private property, private rights, are the best protection of political freedom.
"Building such prosperity in Iraq will be a key measure of our success here."
But dismantling Iraq's state-managed system holds big risks for the occupation authority at a time when most Iraqis are struggling to get by.
During Saddam's 24 years as president, he and his Baath Party drew on Iraq's oil wealth to subsidize the cost of basic items, creating something like a welfare state, and people came to expect these low prices.
Many free-market advocates contend that subsidies distort economic incentives, retarding growth and ultimately harming consumers.
MSU economics Professor Charles Ballard said U.S. financial experts in Iraq have their work cut out for them until security in Iraq is stabilized.
"It's hard to do a whole lot if people are in fear that they might be caught in crossfire," Ballard said.
Fearing a resurgence of the Baath Party, Bremer has prohibited senior members from holding jobs in the new government and banned party symbols from public display. Bremer also recently outlawed heavy weapons and prohibited firearms in public without a permit to significantly reduce the violence that has plagued postwar Baghdad.
"That kind of fear can really paralyze economic activity," Ballard said.
Staff writer Sarah Frank and the Washington Post Foreign Service contributed to this report.
