Millions of protestors excoriated Operation Iraqi Freedom as a war only for oil. Now some are wondering if these complaints went far enough. As the US-backed Iraqi Governing Council proposes opening the country to unfettered foreign investment, critics now fear outside domination of entire economic sectors, from electricity to healthcare. Foreign businesses, for their part, fear investing money in an insecure environment. It seems the Iraqi authorities cannot please everyone—or anyone.

But total pessimism over the Iraqi rebuilding effort is misplaced. Both Iraqi citizens and foreign business seek the same thing: a stable government that makes Iraq safe for living and investing. Yet privatization, if executed as rapidly and sweepingly as officials suggest, could undermine stability while leaving Iraqis on the sidelines of their own country.

The privatization plan came not directly from Washington, but from Iraqi Provisional Finance Minister Kamil Mubdir al Gailani at a September 21, 2003, meeting in Dubai, United Arab Emirates. Al Gailani’s plan offered attractive opportunities for foreign investors. With no preference given to local firms, all investors could purchase 100 percent of every Iraqi economic sector except natural resources. Foreigners’ profits would be fully repatriated while tariffs would be capped at just five percent and corporate taxes at 15 percent. Until the tax plan starts in 2004, a corporate tax holiday would complete the seeming investment paradise.

Unlike the proposed privatization plan, however, a real paradise would focus investment on the Iraqi people. Many Iraqis already feel a lack of ownership in their own country. Full privatization could render them without ownership—literally— as Iraq becomes one of the world’s most economically open developing countries. One Iraqi businessman complained about the privatization plan: “Before, Saddam Hussein took our money out of the country, and now the big corporations do. …What’s the difference?”

One difference lies in those who profit. After months of foreign-led reconstruction, Iraqis are wondering whether foreigners really have Iraqi interests at heart. The US-based Bechtel Corporation won early civilian reconstruction contracts without bidding, while fellow US company Halliburton snagged rights to rebuild Iraq’s oil sector. Even the Iraqi Governing Council criticized the US authority’s recent moves, such as the US$1.2 billion spent for police training in Jordan despite lower costs in Iraq and offers from France and Germany to provide the training for free.

The Iraqis might have looked more favorably on foreign operations if they had been successful. However, while Bechtel has 49 bridges to fix, by October 2003 it had begun repairs on only three. Airports are still closed, telephone lines are still in disrepair, and electricity has yet to be restored in many areas. With the unemployment rate stuck at an estimated 60 percent, hostility seems to be rising among the Iraqi middle class, whose blessing is necessary for any new Iraqi government to succeed.

Unemployment was significantly lower in the former Soviet Union when the region transitioned to capitalism in the 1990s by employing “shock therapy” economics, a term that describes the current US-led Iraqi privatization plan well. But for many Russians, “shock therapy” has become synonymous with cronyism. The Russian economy is still recovering from almost decade-long unemployment, fallen output, and standard-of-living declines. Even less encouraging for Iraq, the United States invited Yegor Gaidar, architect of the Russian transition, to advise the Iraqi reconstruction. Gaidar, who has been much criticized for his decisions, offered few tips except this warning: “One has to study the situation but not hurry.” Should privatization precede the formation of a popularly supported Iraqi government, he added, destabilization could result.

That is a point that Washington, by its rhetoric, seems to understand. At a meeting with World Bank officials in late August 2003, chief US civil administrator Paul Bremer said total privatization would further upset an already unstable Iraq. Even US Treasury Secretary John Snow, in remarks supporting full-blown privatization, hit on the very reason to oppose it. “Capital is a coward,” he said. “Companies will not send employees to places that aren’t secure.”

Instead of rushing to privatize, the US administration and the Iraqi Governing Council should focus on providing the security that Bremer and Snow correctly identify as essential. Privatization should happen, but only partially and only after Iraq stabilizes. Al Gailani should have talked less and learned more during his visit to Dubai; in the prosperous, investment-friendly United Arab Emirates, companies must be at least 51 percent locally owned. Privatization must not sell off Iraq’s economy by the sector.

The success of nation-building in Iraq requires Iraqis to benefit from the foreign influence and to perceive those benefits. For Iraq’s economic and social stability, reckless privatization will harm both perception and reality.