'Democracy promotion' and neoliberalism in the Middle East

By Adam Hanieh
All the eyes of the world are on Iraq … if there is not a successful transformation there, that will definitely bolster the arguments of all those people who are already marching on the streets against globalization, against the values of a free society, a market society and the possibility of creating capital.”—Hernando de Soto, June 2003.¹
Two dramatic structural shifts have taken place across the Middle East over the past two decades. First, since the mid-1980s, most countries have made far-reaching changes in their economic policies. Under the stewardship of the World Bank and International Monetary Fund (imf), governments have embraced privatisation, dismantling of state-owned industries, an end to guaranteed public employment, reductions in tariffs and taxes and an opening to foreign capital. The basic precepts of neo-liberalism are common to the economic policies of virtually all states in the area.
At the same time, the rapid succession of elections in Iraq, Lebanon, Egypt and Palestine is indicative of a political transformation occurring across the region. Alongside the growing pressures from below for democratisation, commentary from the Bush administration has praised the supposed “democratic winds” sweeping the Middle East region (with the pointed exception of Hamas’ recent victory in elections for the Palestinian Legislative Council).
What is the relationship between these two shifts in the context of us intervention in the region? Much has been written about us democracy promotion and its role in bringing to power pro-us individuals to reinforce imperial strategic interests in various parts of the world. In particular, William Robinson’s 1996 book, Promoting Polyarchy: Globalization, us Intervention, and Hegemony, provides a prescient analysis of the evolution and strategy behind us democracy promotion from the 1980s onwards.
Robinson argues that democracy promotion is aimed at strengthening polyarchy—the rule of a small minority in which mass participation consists of periodic choices in formally free elections managed by competing sections of the elite. He argues that polyarchy’s fixation with the formal act of voting serves to justify the influence and power that come with possession of material wealth. Democracy promotion thus plays an ideological role in legitimating the division between politics and economics predicated in liberal theory. By concentrating on the form of elections, it serves to justify prodigious concentrations of wealth both within and between nations.
Robinson documents a conscious shift of us foreign policy in the late 1970s-early 1980s towards a strategy based upon democracy promotion. Rather than solely providing military, economic and political support to unpopular military dictatorships, the us government moved towards attempting to influence and control social and political mobilisation “from below”. us government functionaries and political elites began to work at diffusing social tensions through a strategy of co-option and managed dissent.
Robinson and others have documented the mechanics of this strategy through us government institutions and semi-private and private organisations. Key to this strategy is the National Endowment for Democracy (ned), established in 1983 and funded by the us State Department through organisations such as usaid. The ned, in turn, supports other “democracy promotion” organisations such as the National Democratic Institute (ndi) and the International Republican Institute (iri)—linked to the Democratic and Republican Parties respectively—and bodies such as the Center for International Private Enterprise (cipe), and the Solidarity Center (affiliated to the afl-cio). A host of other private corporations and ngos are also involved.
The aim of this paper is to explore how us support for ‘democracy promotion’ in the Middle East is intimately connected with the spread of neo-liberalism throughout the region. Understanding us democracy promotion as one component of neo-liberal imperialism involves challenging a concept of democracy that does not envision real popular control of both politics and economics. How does democratisation—as it is understood by us foreign policy makers—facilitate the penetration and spread of foreign capital throughout the Middle East?

Understanding neo-liberalism in the Middle East

In the Middle East—and most of the Third World—international financial institutions such as the World Bank and imf have coordinated and led the implementation of neo-liberalism. Three basic assumptions guide the work of these organisations in the region:
(1) The central, explicit objective is the achievement of high levels of gdp growth. Growth in gdp is seen as necessary to alleviate poverty and also to absorb the coming population boom in the region. Without this sustained growth in gdp, poverty will worsen and already high levels of unemployment will skyrocket in the face of an expanding labour force participation rate.
(2) This gdp growth is best achieved through encouraging the unrestricted activity of the private sector, including international capital from outside the country.
(3) The role of the state and public sector is not to improve general welfare or ensure that social needs are met but, rather, to provide the best possible environment for the private sector. The private sector is “the main engine of growth” but the public sector must “facilitat[e] its ability to do this through strategic public investments in infrastructure and human resource development”.²
Every document published by the World Bank, imf, usaid and other international financial institutions contains these assumptions in some particular form. They are based upon a logic that draws upon neo-classical economics—in particular its restatement by the Austrian school—as well as classical liberal principles. This logic can be plainly summarised in the assertion that the unrestricted activities of self-seeking individuals in the capitalist marketplace will automatically lead to the best possible outcome. Any attempt to interfere with or alter the functioning of an unimpeded marketplace creates “rent-seeking” behaviour (individuals seeking to benefit from their control of political and economic power) and results in a sub-optimal outcome. Flowing from this is an understanding of the state as an institution whose sole responsibilities should be to ensure respect for the rules of the capitalist marketplace, guarantee the presence of an enforceable property rights regime and protect individual security and safety. Everything else is best left to the market.
These principles lead to the types of economic policies associated with the neo-liberal program: (i) the reduction of state and public spending on social welfare, privatisation and the commodification of state functions; (ii) restructuring the internal operations of the state and public sector to remove these from popular control and pressures; (iii) “deepening” financial markets through the promotion of liquidity, providing alternative means of raising capital and loosening government influence in these markets; and (iv) trade liberalisation, including the ending of taxes and tariffs on imports, abolition of state support to export goods or products that may compete with foreign imports and the permitting of the free repatriation of profits.
A particularly significant target of neo-liberalism in the Middle East is the first of these policies—cutting back the state sector and privatisation of public enterprises. The state has traditionally been a central feature of Middle Eastern political economy. The public sectors of most Arab governments absorb massive numbers of university-trained graduates with a guaranteed job and pension; consequently, these employees have provided a relatively stable social base for Arab nationalism.
In Jordan, for example, public sector employment constitutes more than 42 per cent of non-agricultural employment (36 per cent of total employment), and in Egypt the figure reaches 70 per cent (total 35 per cent).³ A 1994 review of World Bank work in Jordan exhorted the government to establish “longer-term goals in transforming the ownership structure of the public enterprises”, noting that, “without a significant shift in Jordan’s ownership structure, Jordan’s growth prospect would be fragile”.⁴ Subsequently, a series of three World Bank loans began in 1999 and resulted in the privatisation of thirty-four companies out of an original forty that were first identified. These privatisation deals included the sale of 40 per cent of the Jordan Telecommunications Company to French Telecom, a management contract of the Water Authority to the French multinational Suez and components of Royal Jordanian Airlines to British and Spanish companies. Privatisation receipts from 1994 to 2001 totalled $800 million, around 8.5 per cent of Jordan’s 2002 GDP.
In addition to privatisation, the World Bank has called for cuts to spending levels on education and health in Jordan through the increasing of class sizes, double-shift school days and the shifting of funding to the private hospital system by paying the poor to use their facilities instead of building public hospitals.⁵ A further set of World Bank loans in 2001 aimed at cutting back the size of public employment and “rationalizing those social expenditures that previous public expenditures reviews have identified as poorly managed”.⁶ A component of the conditionality agreements attached to these loans was a freeze in all civil service recruitment and the beginning of retrenchment.
Another important element of state cutbacks in the Middle East is the abolition of subsidies for basic food products like bread and other staples such as cheap energy. These state-supported food and energy subsidies have traditionally formed a key part of the legitimating strategy of Middle East regimes. A consistent feature of domestic neo-liberal policies has been the abolition of these subsidies and their replacement with ‘targeted safety-nets’ to prevent political upheaval. Subsidies have been highlighted as “inefficient and ineffective”⁷ because they maintain “unproductive” sectors of the economy that would otherwise fail if opened to international competition. An internal 1991 World Bank document noted that the aim of World Bank policy in Jordan was to double the price of electricity and increase the price of water by 140 per cent.8
Economic Democracy?
As elsewhere around the globe, public sector retrenchment and privatisation in the Middle East have been conducted under the rubric of “public sector reform”. This aims at a concentration of political and economic power in small, centralised departments with a wide and effective mandate and which lie outside of any popular control. While the functionaries of these departments are often described as “technocrats”, they are fully imbued with the neo-liberal ethos. They are also closely tied to institutions of international capital such as the World Bank and IMF.
This “reform” is linked closely to us-style democratisation. As an explicit feature of democratisation, the us government is tearing up the previous economic policies of Arab regimes in order to achieve a complete separation of economic policy from popular control. A coterie of us, eu and other financial institutions are then writing new policies for these regimes, and, in the process, institutionalising a separation of economic decision-making from accountable political structures.
In Egypt, for example, the World Bank has directly re-written finance, banking and tax policies. The bank identified the dominance of public ownership in the banking sector, lack of access to credit and weakly developed mortgage and insurance markets as the main obstacles. As a result, the bank’s activities from 2006 to 2009 will be directed towards reducing the share of publicly owned banks from 65 per cent to 40 per cent, to privatise at least one of the four major banks, diversify the mortgage market and streamline property registration.⁹ Central to this process is the development of a system of property rights registration for housing. Longer term plans include the consolidation of the banking sector by merger or closure of weak banks and the sale of one public insurance company.
Another example of financial restructuring in Egypt—this time led directly by a us government organisation—is a $60 million usaid project launched in 1989 to restructure the tax system. This project included the implementation of a general sales tax in 1991 that replaced the previous consumption tax, considered to “discriminate against imports” because it charged higher amounts on goods brought in from outside the country. The income tax structure was also changed, reducing the highest corporate tax rate from 78 per cent to 48 per cent. In early 2005, a new law was passed that dropped this to 20 per cent, with no differentiation between family businesses and large foreign corporations. The same law slashed the highest personal income tax bracket from 40 to 20 per cent. With only three brackets defined by the law, someone earning us$1000 a month is placed in the same category as a billionaire.¹⁰
Iraq provides a final, devastating example of this process. In this case, the us government outsourced the development of Iraqi neo-liberalism to a private company. In July 2003, usaid “… began a program to build the capacity of the Iraqi Government to manage the transition from a command economy to that of one that is market-driven”. The aim of this program was to carry out the “… reforms necessary to help Iraq establish a policy-enabling environment that fosters private sector led growth”.¹¹
As part of this program, usaid awarded the private company Bearing Point two contracts worth over $180 million.¹² Over the last decade, Bearing Point has been a key private company involved in the development of neo-liberal economic policies in regions earmarked for “democracy promotion”. Following its first foray into El Salvador during the early 1990s, Bearing Point began work in the former Yugoslavia in 1999. This included the creation of a ministry of finance in Kosovo and the development of privatisation guidelines across the region.¹³
In Iraq, Bearing Point’s contract with usaid required it to “… reform, revise, extract or otherwise advise on changes to the policies, laws and regulations that impact the economy … the contractor will provide … macroeconomic reform advice, with a focus on tax, fiscal, exchange rate, monetary policy and banking reform. Contractor will recommend changes to policies, laws and regulations that impede private sector development, trade and investment”.¹⁴
In a remarkably frank outline of us plans for the Iraqi economy, Bearing Point was required to “… assess state owned enterprises (soes) in Iraq in terms of their potential market value for sale as ongoing concerns … [the] contractor will also evaluate and recommend the potential for liquidation or dissolution of specific firms or industries, as necessary …. Based on contractor recommendations (and approved by usaid), the contractor will implement a privatization plan, focusing first if approved on strategic investors and on creating and supporting an institution responsible for privatization … If changes to legislation are required, contractor will assist legislative reform specifically to allow for the privatization of state-owned industries and firms and/or establishing a privatization entity. The contractor will implement usaid approved recommendations to begin supporting the privatization of strategic industries and appropriate privatization of public utilities, including potentially food distribution and agro-processing industries”.¹⁵
Decentralisation and local governance
While decisions over the direction of economic policy are being centralised in the hands of international capital and local elites, neo-liberalism has simultaneously promoted a decentralisation of governmental functions to the local level. Government departments are forced to compete against each other for funding that is distributed (and set) centrally. Departmental success is measured through a “performance budgeting” schema that is ultimately concerned with the cost effectiveness of outputs.
By creating this form of decentralised horizontal competition between government departments that are vertically constrained through budgetary controls set from the centre, neo-liberalism naturalises the cutting back of state activities as a normal part of everyday operations. This process of decentralisation also obfuscates the locus of power within state structures by shaping the “reform process” as a multitude of locally driven management decisions that are difficult to oppose and organise against because of their diffuse nature.
In Egypt, for example, decentralisation has been used as a state-facilitated strategy to reduce public expenditure and increase the extraction of wealth at the local level. This strategy is marketed as being “more efficient”, “less bureaucratic” and “more flexible” but essentially means that local staff take more responsibility for fiscal matters (both expenditure and revenue). Given the vast needs of the population and the general lack of resources, this displacement of fiscal control to the local level is primarily designed to facilitate the implementation of fees-based service provision, i.e. accelerate the commodification of public sector activities. The World Bank praises one example of this in Egypt, where a local authority has begun to collect fees for its services:
Some local administrations have negotiated the bureaucratic and legal space to tackle local development issues in a more flexible manner. For example, in Qena governorate, health care workers can draw supplemental income from funds generated by co-payments on health services imposed under the authority of the local Executive Council, leading to improved morale and better staffing and utilization of health care facilities.¹⁶
In Jordan, much of World Bank activity has focused on reconfiguration of the state through this centralisation-decentralisation dialectic. Control over the Jordanian budget has been tightly centralised in the General Budget Department, and considerable operational autonomy has been given to the different ministries and departments. Instead of funding these departments on the basis of annual estimates of input costs, a system of performance budgeting has been implemented in each sector and department. This means that departments should determine their strategic objectives and budget accordingly on the basis of expected measurable outputs on which they will be judged. In other words, instead of determining budgetary requirements on the basis of the service to be offered, the yardstick is the cost-effectiveness of the output achieved.
Coupled with the decentralisation of operational control to the local level, this emphasis on cost-effectiveness means a continual pressure to reduce costs, cut back services and find means such as marketisation of services to lower departmental budgets. This structural configuration means that the government can pass a central directive and leave each individual department to determine how it will meet these directives. In March 2004, for example, the Jordanian government issued a blanket directive requiring all ministries to cut utility bills by 20 per cent and ensure full payment of taxes for new projects unless donor financing requires tax exemption.¹⁷ This illustrates how a simple budgetary decision will have a variety of different practical implications for the Jordanian population depending upon the ways different departments choose to meet the new requirements. In this way, the process of neo-liberal “reform” is driven by the centre’s ability to frame the context of decentralised implementation through fiscal restrictions.
An understanding of this strategy is key to explaining the link between democracy promotion and neo-liberalism. Democracy promotion is intimately concerned with “local governance” and “decentralization”—often couched in the language of the left, emphasising “community action” and the priority of “locally determined” needs. Notwithstanding the language employed, the role of community organisations and NGOs as alternative service providers must be placed in the context of this neo-liberal program. Indeed, a strategic orientation towards rapid decentralisation may offer a quicker way to implement neo-liberal reforms that bypasses the need to tackle more entrenched state interests. A recent World Bank report for Egypt notes:
Consultations at the sub-national level proved useful in providing an appreciation of the scope for decentralising the delivery of public services in Egypt. Evidently, much can be done in a decentralised manner without necessarily changing the formal political structures that govern center-local relations in the country.¹⁸
A central institutional player in this strategy is the us-based private company, Research Triangle Institute (RTI). RTI has been awarded a very large number of usaid contracts in countries such as South Africa, El Salvador, Benin, Uganda, Bulgaria, and Indonesia. Any doubts over the way decentralisation/devolution is used to deepen neo-liberalism are quickly dismissed through an examination of usaid’s Decentralisation and Democratic Local Governance Programming Handbook (May 2000), written in close collaboration with RTI.¹⁹ The usaid handbook serves as a detailed recipe for promoting decentralisation in a variety of different national contexts where there may be resistance to such methods. A central theme of the handbook is shifting responsibility for public service provision away from the state and towards local governments. The handbook envisages a situation in which, “Local governments are doing more than merely cleaning streets; they are taking on a variety of non-traditional service responsibilities, such as assuring primary health care, basic education, public security, public utilities, environmental protection, and building regulation”.²⁰
In order to provide these services, local governments will be forced to raise their own revenues, and be given the power to introduce fees, privatise and borrow money on international capital markets. “They may employ new or innovative approaches, including public-private partnerships, proactive participation in development programs with the national government or donors, and contracting out for services.”²¹ This will shift revenue collection towards the local level and include the collection of fees for public services.²²
Identical themes are being repeated in Iraq. A 2003 usaid contract, awarded to rti, worth $230 million to date, required the company to: “Build sub-national administrative capacities to … develop performance-oriented, transparent and accountable budgets; and undertake local economic development … and strengthen local authorities’ capacity to engage in discussions on appropriate devolution of responsibility to local levels of government.”²³

The Greater Middle East Initiative

In early 2004, the us government presented a draft working paper to the G-8 countries entitled the Greater Middle East Initiative. Although the initial paper was meant to be confidential, it was leaked to the Arabic newspaper Al Hayat, which printed the document on February 13, 2004. Much was made of the outraged comments of Arab leaders such as Egyptian President Hosni Mubarak, who stated, “Whoever imagines that it is possible to impose solutions or reform from abroad on any society or region is delusional”.²⁴
What went largely unnoticed in the media uproar surrounding the leaked gmei document was the third section of the us-sponsored plan. While sections 1 and 2 advocated the usual trope of democracy promotion and good governance, section 3, entitled “Expanding Economic Opportunities”, put forward an economic program indistinguishable from the neo-liberalism advocated by the World Bank and IMF. Key to improving regional prosperity, according to the gmei, is “unleash[ing] the region’s private sector potential, especially small and medium enterprises, which are the primary engines of economic growth and job creation”.²⁵
Indeed, the recipe for Bearing Point’s Iraq contract described above is found almost word for word in the gmei: “Implementing reform plans that reduce state dominance of financial services; Removing barriers to cross-border financial transactions; Modernizing banking services; Introducing, refining, and expanding market-oriented financial instruments; and Building regulatory structures that encourage the liberalization of financial services”.
The leaked gmei text was widely condemned and subsequently revised in the final version adopted by the G-8 Sea Island summit in June 2004. Nevertheless, the essential thrust remained the same and continues to characterise us democracy promotion strategy in the region. Central to this strategy is the work of the National Endowment for Democracy.
The NED, CIPE and neo-liberalism
The NED was founded in 1983 following the backlash against covert CIA operations during the 1960s and 1970s. Its role is to provide guidance for political parties, movements, individuals and other civil groups in order to align them with us interests. Robinson quotes former cia director William Colby as stating, “Many of these programs which … were conducted as covert operations [can now be] conducted quite openly, and consequentially, without controversy”.²⁶ The chairman of the ned board, Vin Weber, is a founding member of the neo-conservative Project for the New American Century and was a signatory to that body’s 1998 letter to Bill Clinton urging an attack on Iraq to protect the interests of the us.
In his 2004 State of the Union address, Bush requested a doubling of ned funding, from $40 million to $80 million, with all of the new funding to be aimed specifically at democracy promotion in the Middle East. While usaid and companies like Bearing Point rewrite the economic rules governing Middle Eastern economies, NED’s role is to build an ideological base for such policies. Through its support for particular individuals and organisations that can effectively articulate a justification for these policies to a domestic audience, NED facilitates the necessary structural shifts under the mantle of democratic choice.
One of the ned’s “core” institutes, the Center for International Private Enterprise, clearly illustrates this role. In the case of Iraq, cipe notes that institutionalising an independent central bank able to direct financial policy in the country is key to the neo-liberal process. In doing this, what matters is how the public perceives such structural decisions being made:
… it would be better if [the Iraqis] could come to that conclusion themselves. We’ve seen this throughout the world, that various decisions that the government needs to take tend to have more buy-in from the public if they’re perceived as having been made domestically rather than imposed by the international organisations that control inflows of capital.²⁷
Established alongside ned in 1983 by the us Chamber of Commerce, the cipe vision clearly states that “market-oriented and democratic institutions … are essentially two sides of the same coin”.²⁸ In 2004, more cipe funds went to the Middle East than any other region in the world. Around 60 per cent of these funds came from the ned and another 35 per cent directly from USAID.
A major CIPE policy paper from 2004, entitled Democratic Governance: The Key to Political and Economic Reform, provides a defence of the link between democracy promotion and neo-liberalism. The paper argues that “… many citizens in emerging democracies are rejecting democratic, market based reforms and are embracing populism, socialism, and terrorism”.²⁹ The main reason for this rejection of the market economy, argues the CIPE, is the influence of “bad governance”. The document goes on to explain how this impacts the adoption of neo-liberal principles.
First, according to the CIPE, undemocratic regimes are not responsive to citizens’ needs because a “handful of elites design laws, policies, and regulations for their own benefit often to the detriment of the general population”.³⁰ This position sounds reasonable and would seem to be illustrated by the vast inequalities of wealth in most Third World countries. The massive protests that shook southern Jordanian cities in mid-1996—following a tripling in the price of bread and an increase in school fees as a consequence of an imf structural adjustment program—would seem to provide just one example from the Middle East.

Reading on, however, it becomes clear that the cipe did not have such an example in mind. The problems with undemocratic regimes are not related to increases in poverty resulting from neo-liberal polices. Rather, the problematic “laws, policies and regulations” are precisely those that obstruct the implementation of neo-liberalism. The CIPE gives the example of “regulations … that limit competition in certain sectors or [erect] barriers to entry”.³¹
The cipe goes on to argue that a lack of democratic governance “erodes legitimacy and support for democracy and key reforms”.³² Once again, this statement has a ring of truth about it. But digging a little deeper reveals that the CIPE is not concerned with democratic control per se. Rather, the lack of legitimacy for a government will make it difficult to gain support for “tough political and economic reforms, thereby hindering democratization and marketization”. In what appears to be a clear allusion to countries such as Venezuela and Cuba, the cipe goes on to express its fears that “… citizens may engage in coups or revolutions to dispose of illegitimate regimes, as has happened in a number of countries in Latin America”.³³
A further problem with an undemocratic regime, according to the cipe, is that it “squanders and misallocates foreign and domestic resources”.³⁴ Once again, this appears to be an accurate statement, and the vast theft of Iraq’s resources in the wake of the us occupation would appear to provide a clear example. Nevertheless, the cipe is not concerned with the outcome of privatisation. What concerns it are policies of state protectionism that may support domestic industries in the face of multinational corporate investment. These industries “produce for the domestic market [and] are able to convince the government to provide subsidies or barriers that erode competition”. Furthermore, governments must be dissuaded from embarking on “huge public works projects that may not be in the public’s best interest or that are provided at exorbitant costs at the taxpayers’ expense”.35
In summary, the cipe is wholeheartedly in favour of democratisation. It is a vision of democracy, however, primarily concerned with weakening the power of the state to reduce the predatory activities of multinational corporations and intervene in the economy. Democracy—understood in the narrow sense of regular electoral competitions between different sections of the elite—is necessary to prevent “coups or revolutions” and is aimed at providing popularly sanctioned legitimacy for neo-liberal economic measures.
cipe programs in Iraq reinforce this understanding. In June 2004, the cipe launched its Fountain of Economic Freedom Radio to “serve as a platform for business people, policy makers, academics, media, and others to explain economic policy issues and critically assess the progress of reform”.³⁶ Another cipe program in Iraq trains journalists to report on economic issues in order to “build support for market oriented economic policies”.³⁷
In July 2005, the CIPE began broadcasting a weekly Arabic-language TV show in Iraq, Economic Files (Malaffat Iqtisadiyya) to further promote neo-liberalism. The first episode, appropriately titled “The Private Sector”, presented an argument for the leading role of the private sector that is indistinguishable from the neo-liberal positions discussed above. Subsequent episodes defended privatisation, opening the country to foreign capital and reducing public sector employment. Economic Files is not a clumsy piece of neo-liberal propaganda; it presents itself as drawing upon a range of opinions as well as street interviews airing the concerns of the “average Iraqi”. In this manner, Economic Files works by presenting academic and government neo-liberal supporters as “expert opinion” working for the good of the population. By limiting the range of debate to different shades of neo-liberal policies, it serves to constrain thought within a narrowly defined neo-liberal paradigm while presenting itself as objective economic journalism.

NED and the Iraq Foundation

Another illustration of the link between NED-sponsored democracy promotion, us interests and neo-liberalism is the Iraq Foundation, established in 1991 by a group of Iraqi expatriates living in the us. In 2003, the foundation received $1,648,914 in funding from ned and the us Department of State. This figure was a massive increase from the paltry $265,000 the group received in 1998. Not only is the organisation heavily funded by the ned, but a former board member of the Iraq Foundation, Laith Kubba, is currently the senior ned program officer for the Middle East and North Africa.
The main objectives of the Iraq Foundation read like a classic democracy promotion handbook: “To expand the constituency for democracy among Iraqis … educate non-Iraqis about Iraq and strengthen support for a democratic new beginning … educate non-Iraqis about the potential for Iraq to become a major contributor to democratic reform and socio-economic development in the region in a climate of democracy and an open society.”³⁸ At first glance, the public face of the Iraq Foundation appears to have little to do with neo-liberalism. Its web site focuses on democracy promotion in Iraq—displaying a concern for handicapped children and constitutional and democratic rights.
Digging a little deeper, however, reveals powerful ties between the Iraq Foundation and the neo-liberal agenda. The two founders of the foundation are merchant bankers and currency traders. One of these individuals, Basil Al Rahim, heads MerchantBridge, one of the most high profile investment banking groups in the Middle East. MerchantBridge was the first private equity fund to focus on the Middle East and in 2004 was appointed by the Iraqi Ministry of Industry and Materials to advise on the leasing of state-owned firms to the private sector.³⁹
As was to be expected from his background, Al Rahim has emerged as a strong advocate of neo-liberal policies in Iraq. He has been a guest of the American Enterprise Institute and testified before the us Congress Joint Economic Committee (JEC) on the economic transformation of Iraq. In an economic paper for the Iraq Foundation, Al Rahim provides the classic neo-liberal argument: “The fact that the [Iraqi] state (through nationalization and expropriation) owns over 80% of the productive economic assets of the country must be recognized and immediately addressed. It is only by shifting these assets squarely back into the private sector that the economy will be properly invigorated and set on a path of sustainable long-term growth.”⁴⁰
In his address to the jec, Al Rahim said on the role of the state: “… no economic rejuvenation and vitalization can happen without empowering the Iraqi private sector, therefore the role of the State has to be that of a facilitator and enabler to create the framework for a new economy”. ⁴¹
Al Rahim advocates a simple six-step plan to phase out the Iraqi state sector and strengthen the private sector. His six guidelines—elimination of central planning, implementing laws to protect private property, eliminating debt and reparations, phasing in free markets, rebuilding the banking sector and rebuilding capital markets—coincide completely with the vision outlined in the GMEI.
Al Rahim’s co-founder of the Iraq Foundation and its current executive director is another merchant banker, Rend Rahim Francke. Following the us occupation of Iraq, Francke was appointed by the Iraqi Governing Council as its representative in Washington. In 2004, she was a guest of Laura Bush in the first lady’s box for the State of the Union address.
The connections between the Iraq Foundation and us empire building, however, go far beyond the activities of Basil Rahim and Rend Francke. The Iraq Foundation is a founding member of the Iraq-America Freedom Alliance, which, according to its manifesto, “… will provide Americans with a fuller picture of Iraq by giving voice to Iraqis who are grateful for their newfound freedom and working to secure democracy in their country”.⁴²
The Iraq-America Freedom Alliance is a project of the notorious Foundation for the Defence of Democracies (FDD), founded two days after the September 11 attacks. It would be difficult to conceive of an organisation more centrally connected to us corporate interests and the neo-conservative agenda. The FDD is funded by private donations from some of the wealthiest individuals and companies in the us.⁴³
Ameriquest Capital Corporation, the largest privately held mortgage company in the us, donated over $1.5 million to fdd in 2004. Ameriquest is headed by Roland Arnall, who with his wife Dawn has been the biggest contributor to the Bush campaigns since 2002. In 2005, Roland Arnall was appointed us ambassador to the Netherlands while his company was under investigation for predatory lending practices in the us. Leonard Ambramson, a member of the Board of Directors of nasdaq, the Board of Trustees of the Brookings Institution and the Board of Trustees of Johns Hopkins University, personally donated $250,000 to fdd in 2004. Steinhardt Partners, one of the largest hedge funds in the world during the 1990s, donated $250,000 to fdd in 2004. Jerome Goodman, a former director of Aetna Inc., one of the largest health insurers in the us, donated more than $240,000 to fdd in 2003. The Sarah Scaife Foundation, a well-known supporter of neo-conservative think-tanks which is financed by the Mellon oil and banking empire, donated $125,000 to the fdd in 2004. The Russel Berrie Foundation, which also funds “educational” programs for Israeli soldiers, gave $75,000 in 2004.
Appropriately enough—given that most of these names appear on the periodic lists of the wealthiest individuals and corporations in the US—Steven Forbes, CEO of Forbes Inc., sits on the three-person board of fdd. Forbes himself is a strident advocate of neo-liberal policies, in particular the introduction of a flat tax that would have him pay the same rate of tax as the poorest working people. Forbes is also a board member of the American Enterprise Institute, another neo-conservative think-tank. The “distinguished advisors” to the fdd board of directors include James Woolsey, former director of the cia, Louis Freeh, former director of the fbi, and rabid neo-conservative Newt Gingrich. In 2006, Tanya Gilly, a staff member of the fdd, was actually elected to the Iraqi National Assembly as a Kurdish representative. Gilly was highly placed at the fdd in the position of director of democracy programs.⁴⁴
It is worth recapping these relationships. The Iraq Foundation, an organisation funded almost entirely by the ned and us State Department, works in close alliance with a flagship, neo-conservative entity such as the fdd, which, in turn, is funded by some of the wealthiest individuals and companies in the us. Both the Iraq Foundation and fdd are closely linked to the us-backed Iraqi government. Rende Francke, executive director of the Iraq Foundation, is the representative of the Iraqi National Council in Washington dc, and Tanya Gilly, former fdd staff member, is an elected representative in the current Iraqi parliament. These links indicate that concern with “democracy”—the public face of both the Iraq Foundation and the fdd—is inseparable from the interests of us capital and neo-liberal policy makers.

Conclusion

Neo-liberalism is primarily concerned with removing a country’s economic decision making from any kind of popular control. The greatest possible area of human activities must be commodified and brought under the sphere of the private sector. The role of the neo-liberal state is to make sure this situation is sustained through the maintenance of property rights and the rules of the market place.
As Bush himself puts it, the cornerstone of us democracy promotion efforts in the Middle East are “free elections and free markets”.⁴⁵ The drive for democratisation is inseparable from the implementation of neo-liberalism. By making “state control” synonymous with “bad governance”, democratisation serves to legitimate privatisation, the dismantling of state sectors and all of the miseries that inevitably follow in the wake of neo-liberalism.
us-style democratisation emphasizes the act of voting in formally free elections that are duly sanctioned by “neutral” observers flown in from outside the country. Simultaneously, economic policy making is removed from any kind of popular control. Central banks and finance departments staffed by neo-liberal technocrats work with imf and World Bank strategies to make sure the economy is “free”. In an Orwellian paean to privatisation, a country’s economic structure may actually be designed by large multinational companies following “democratic regime change”. Political competition serves only to achieve a supposedly democratic mandate for a structural separation between politics and economics. William Robinson is fond of quoting Joseph Schumpeter in this respect: “Democracy means only that people have the opportunity of accepting or refusing the men who are to rule them.”⁴⁶
In the place of state control, us-style democratisation emphasises decentralisation, devolution and local governance. While these phrases may sound liberating, in reality they hide atomisation and massive disempowerment. When a country’s resources are passed into the hands of large international companies through a supposedly democratic mandate, no amount of neighbourhood consultations can determine how those resources are utilised. Local governance in a context of centrally driven neo-liberal austerity will most likely mean a dismantling of public health and education and the introduction of fees for those least able to pay. Instead of building popular strength across a country, devolution of power in this context deliberately sets up different regions, groups and individuals against each other—forced to compete for scarce resources. Fragmentation inevitably follows neo-liberal democratisation.
This strategy is clearly articulated in World Bank, imf and usaid position papers as a way of compelling local communities to choose democratically the commodification of previously state run services. In the case of Iraq, this understanding explicitly runs through the us-sponsored contracts to restructure the economy. It is a point deserving further exploration given the clear pressures towards a highly decentralised federalism now taking shape across Iraq.
All of these policies require ideological sustenance and support. A plethora of democracy promotion ngos, think-tanks and private companies are funded by us institutions such as the ned in order to make sure that those who think the right way come to power—and the rest of the population is sufficiently confused so as to not get in the way. As the case of the Iraq Foundation demonstrates, the link between the us government, democratisation, neo-liberalism and the heights of us capital is as close as the next board meeting.
Challenging these policies requires a rejection of liberal democracy’s claim that politics and economics are separate. It is impossible to have any real political democracy without economic democracy. Democracy means being able to control the what, where and how of production and in whose interests this production occurs. The truth behind the myth of free markets is that they provide freedom only to the largest and most powerful corporations to make a profit. As long as free markets are synonymous with free elections, then democratisation will also remain an elusive myth.

Notes

1. Quoted in Rob Lever, “US faces daunting task in building Iraqi economy”, Middle East Online, June 25, 2003, <http://www.odiousdebts.org/odiousdebts/index.cfm?DSP=content&ContentID=7755>.
2. World Bank, Report No. 32190-EG International Bank for Reconstruction and Development and International Finance Corporation, Country Assistance Strategy for the Arab Republic of Egypt for the Period FY06-FY09, Washington DC: World Bank, 2005, pp. 5-6.
3. Gardner, Edward, “Creating Employment in the Middle East and North Africa”, International Monetary Fund, 2003, <http://www.imf.org> accessed June 2005 (figures for 2000).
4. World Bank, Report No. 26875-JO The Hashemite Kingdom of Jordan Country Assistance Evaluation, Washington dc: World Bank Operations Evaluation Department, 2003, p. 43.
5. Ibid., p.10.
6. Ibid., p.73.
7. World Bank, Report No. 32190-EG, op. cit., p.14.
8. World Bank, Report No. 32190-EG, op. cit., p.44.
9. World Bank, Report No. 26875-JO, op. cit.
10. El-Amrousi, Salah, “Egypt: Revolution by the Rich”, Al Ahram, August 6, 2005.
11. USAID, “Assistance for Iraq: Economic Governance”, <http://www.usaid.gov/iraq/accomplishments/econgov.html>, accessed February 14, 2006.
12. A number of writers have provided excellent analysis and investigative reports of the Bearing Point contract and the broader us economic plans for Iraq. In particular, Antonia Juhasz has written extensively on these matters (much of her work is available from the International Forum on Globalization, <http://www.ifg.org/analysis/globalization/aboutglobal.htm>), as has Naomi Klein (see her articles in Harpers Magazine, September 2004, and Nation, May 2, 2005). Research centres such as the Center for Public Integrity (<www.publicintegrity.org>), and CorpWatch (<http://www.corpwatch.org>) provide excellent summaries of individual corporations and right-wing think-tanks and individuals.
13. Centre for Public Integrity, “Windfalls of War—Bearing Point”, <http://www.publicintegrity.org/wow/bio.aspx?act=pro&ddlC=5>.
14. usaid Contract with Bearing Point Inc., Economic Recovery, Reform and Sustained Growth in Iraq, July 25, 2003, <http://www.usaid.gov/iraq/contracts/pdf/BearingPoint.pdf>, pp.5-6.
15. Ibid., p. 7.
16. World Bank, Report No. 32190-EG, op. cit., p. 15.
17. International Monetary Fund, “Letter of Intent and Memorandum of Economic and Financial Policies from the Jordanian Government to the IMF”, June 15, 2004, <http://www.imf.org>, accessed July 2005.
18. World Bank, Report No. 32190-EG, op. cit., p. 20.
19. Available at <www.usaid.gov/our_work/democracy_and_governance/ publications/pdfs/pnach300.pdf>.
20. USAID, Decentralization and Democratic Local Governance Programming Handbook, 2000, p. 11.
21. Ibid., p. 13.
22. Ibid., p. 40.
23. usaid, “Request for Proposal IRAQ Sub-National Governance and Civic Institution Support Program”, 2003, <http://www.usaid.gov/iraq/pdf/web_governance.pdf>, p. C4.
24. Quoted in “U.S. Plan for Mideast Reform Draws Ire of Arab Leaders”, New York Times, February 27, 2004.
25. The text of the gmei is available from the Al Hayat web site at <http://english.daralhayat.com/>.
26. Robinson, William, Promoting Polyarchy: Globalization, US Intervention, and Hegemony, Cambridge University Press, 2006 p.88.
27. Center for International Private Enterprise, The Iraqi Constitution from an Economic Perspective, 2005, p.4, <http://www.cipe.org>.
28. Center for International Private Enterprise, Annual Report, Washington, dc, 2004, p. 4.
29. Center for International Private Enterprise, Democratic Governance: The Key to Political and Economic Reform, Washington dc, 2004, p. 1.
30. Ibid., p. 5.
31. Ibid.
32. Ibid.
33. Ibid..
34. Ibid.
35. Ibid..
36. Iraqi Virtual Business Association Network, <http://www.ivban.net/site_eng/programs/fefr.htm>.
37. Iraqi Virtual Business Association Network, <http://www.ivban.net/site_eng/programs/ejt.htm?menu_option=2>.
38. Iraq Foundation, <http://www.iraqfoundation.org/foundation.html>.
39. See MerchantBridge web site at <http://www.mbih.com>.
40. Al Rahim, Basil, Notes on Iraq: Reconstruction & Vitalization, 2003, available at <http://www.iraqfoundation.org>.
41. Al Rahim, Basil, “Transforming the Iraq Economy: The Phoenix Plan”, testimony to the US Joint Economic Committee, June 11, 2003.
42. Iraq-America Freedom Alliance, <http://www.untoldiraq.org/>.
43. This information is taken from public irs 990 forms available on non-profit organizations, including the fdd, from the GuideStar web site, <http://www.guidestar.org>.
44. It is interesting to note one further example of deliberate deceit by the corporate media in respect to Gilly. An article in the Washington Post from January 2005 described the “joy” of Iraqis as they voted. One of the Iraqis interviewed by the Post was Gilly, who supposedly broke down in tears while excercising her right to vote. The Post neglected to mention who she is or her relationship with the fdd, portraying her instead as an average citizen whom it just happened to encounter at the polling booth. <http://www.washingtonpost.com/wp-dyn/articles/A45588-2005Jan28.html>.
45. Address to the Library of Congress, February 4, 2004. http://www.whitehouse.gov/news/releases/2004/02/20040204-4.html
46. Robinson, op. cit, p.49.

[Adam Hanieh is an activist with Al Awda Right of Return Group (Toronto) and the Coalition Against Israeli Apartheid. He is co-author of Stolen Youth: The Politics of Israel’s Detention of Palestinian Children (Pluto Press, 2004).]