Sunday, November 02, 2003

Is 87 billion enough?

Were weapons of mass destruction the primary reason for invading Iraq? Bush says no, so we have to take him at his word. To do otherwise might diminish the dignity of the presidency, and we all know how careful about that the Republicans were when Clinton was president. Perhaps the primary reason was to build a prosperous Muslim Middle Eastern democracy to show it can be done.

The largest part of the money requested by the administration will fund the military occupation. If that could be done more cheaply without increasing casualties, I don't know enough about it to say how. Its worth noting though that this money doesn't rebuild anything, just tries to keep things from getting worse.

Much less is being spent on rebuilding infrastructure. So many have pointed out that using Iraqi companies to rebuild instead of Haliburton and their ilk would not only be cheaper but create Iraqi jobs and help rebuild their industial capacity that I won't dwell on it here.

Instead, lets say we rebuild Iraqi schools, hospitals, and even oil fields. Say we even get them to stop killing us and each other while our troops are there. It's still not enough to generate prosperity, which history has shown required foreign investment. Other countries have all these things, and investors will still worry about civil war or perhaps anti business policies when we give the Iraqi government real power as we keep saying we will do. We need a stable industrial park in place, so Iraqi's learn to prize this sourse of jobs and investment, and others begin to think of Iraq as less of a gamble to build factories in and more of a calculated risk.

I don't see either Rebublicans or Democrats suggesting that rescinding the Bush tax cuts is only the beginning of what we need to do to make the Middle East part of the world economy. You can't blame them though. The last time Americans were proud to pay more taxes for the common good as patriotic Americans was, well, after Pearl Harbor. Then when World War II ended, people voted for statesmen who preferred the Marshall plans to tax cuts. Are the American people different than they were back then, or just their leaders? Or didn't we mean it when we said 9/11 was the beginning of a war that changed everything?

None of our politicans have a real plan to rebuild Iraq, but Stef Wertheimer is the man with the plan. Of course he was working on this well before the invasion of Iraq was under consideration, so we need an expanded version of this. Hat tip to the Economist.


EVEN an optimist would have to concede that this is an awkward moment to arrange business deals in the Middle East. Political antagonism is nastier than ever, the local economies are worse, and the rest of the world is as polarised about the region as it has been in decades. Yet on September 17th, Stef Wertheimer, a 77-year-old Israeli entrepreneur, arrived in Washington, DC seeking money and support to build industrial parks in the Arab world, and he had a full schedule of congressmen willing to listen, including the House majority leader, Tom DeLay.

If they are open minded, it is due at least as much to a despair about past efforts to animate Arab economies as it is with optimism about Mr Wertheimer's plan. It is hard to find any Arab country with an economic model capable of sustaining long-term growth. Those countries that are rich have oil and little else, and oil will not last forever; the countries without oil suffer from widespread deprivation. True, Dubai is turning itself into a tourism and banking hub, and one or two other Gulf states have other niche ambitions, but they are too small to transform the region. The only nation in the Middle East that has a sophisticated, dynamic economy is Israel—though much governmental meddling there means that even Israel is not exactly a model of free-wheeling capitalism. Still, despite decades of war and terrorism, and lacking natural resources, it has managed to develop world-class companies and a strong middle class. Yet its economic model has not been imitated elsewhere in the Middle East


Mr Wertheimer believes that this need not be so. He hopes to get America to help finance 100 private-sector industrial parks running around the eastern Mediterranean from Turkey to the Egyptian border. (Given America's struggle to finance the rebuilding of Iraq and Afghanistan, this is surely a long shot.) These, he believes, would foster export-oriented entrepreneurship and, ultimately, a change in world view. For a blueprint, Mr Wertheimer points to what he has already accomplished in Israel: four industrial parks with 162 companies, mostly start-ups, using Arab and Jewish workers. Collectively, they produce $600m annually in products, largely for export.

Mr Wertheimer is also part-owner of a park under construction in Gebze, near Istanbul, the first of two he hopes to build in Turkey. More strikingly, he has just signed an unprecedented deal that seemed to have fallen by the wayside during the Iraq war: within a year, Mr Wertheimer and a partner expect to have an industrial park under way near the airport in Aqaba, Jordan. Mr Wertheimer says that there are agreements in place for the park to produce components for DaimlerChrysler, Harmon International (audio components), and two machine-tool firms: South Korea's Taguetak and Germany's Gildemeister. Having already secured backing for this park, he wants to build, with local partners, four more in Jordan over the next five years—with the cost financed by an international consortium of governments he hopes that America will help assemble and by the private sector. Total employment in the parks, he estimates, could ultimately reach 12,500 and revenues could exceed $1 billion.

Mr Wertheimer's own experience with these parks dates back to 1982. In northern Israel, in an area inhabited mainly by goats, he built a complex of offices and factories to which he added basic utilities, transportation, schools and a central eating facility: what he calls a “capitalist kibbutz”. Access is provided to bankers, lawyers and people with business experience who can help other start-ups with taxes, regulations, finance and marketing—big challenges for entrepreneurs, especially in a tough business environment. Tenants must bring—and they are screened carefully—a viable product and likely customers. Rents are subsidised at first, then rise to market rates over five years with big winners encouraged to leave. “They get a party when they come, and a party when they go,” says Mr Wertheimer.

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