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Volume :6 Issue : 22 1980      Add To Cart                                                                    Download

THE 1964 NATIONALIZATION OF PRIVATE INDUSTRY IN IRAQ

Auther : By: Mihssen Kadhim

 
 

In July 1964, the government of Iraq promulgated several so-called “Socialist Laws” according to which all banks, insurance and reinsurance companies and some thirty commercial and industrial firms were nationalized.  The Government took position that ample incentives and appropriate atmosphere for private investment in industry already existed but that empirical evidence demonstrated that the private sector remained hesitant, fragile, and unresponsive.  Moreover, in contradistinction to the public sector, private industry consists in the main of small establishments, which are generally inefficient.  This labor productivity in the private sector is substantially lower that its counterpart in the public sector.

Nationalization, it was argued, permits merger of small private establishments thereby creating the necessary conditions for reaping the benefits of large-scale production.  The newly created public enterprises may not only pay higher wages but also make higher profits.  These profits, moreover, need not go into speculative activities but could be ploughed into industry thereby widening the industrial base.  To the extent that higher efficiency is translated into lower prices for the commodities produced the consumers will emerge as the direct beneficiaries of nationalization.

This paper subjects these arguments to rigorous analysis in an attempt to clarify the following question: Was there a valid economic justification for nationalizing private industry in Iraq?  It must be stressed that the resolution of this question is not only of a historical interest but is also important for shaping present government policies towards private industry and for ascertaining the desirable degree of government intervention in the economy of Iraq.

The analysis presented here demonstrated that there is no valid economic justification for nationalization of private industry in Iraq.  The government in fact never created the necessary conditions and the appropriate atmosphere for a flourishing private sector.  The limited contribution of the private sector to industrialization must bee traced to shortage of capital and skilled labor, lack of industrial awareness and inherent difficulties involved in industry as well as inconsistent and inefficient government policies and political instability.  To impute the lack of significant industrial expansion to the unresponsiveness and possible sinister attitude of the private sector is grossly inaccurate.

The analysis also shows that nationalization cannot be advocated on the basis of comparative efficiency of the public and private sectors, provided, of course, that efficiency is correctly defined in terms of the capital/output ratio.  To define efficiency in terms of labor productivity is misleading, since labor in Iraq, during the period under consideration, is not the scarce factor of production.

The examination of the Iraqi experience suggests that mass nationalization of private industry, which evidently is not directed against a few clearly inefficient enterprises, tends to have detrimental rather than beneficial economic consequences.

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