Iraq and Germany

by Russ Roberts on April 7, 2008

in Podcast, War

As the aftermath of the Iraq war continues to be chaotic, there is a tendency to hope that this is just a passing phase and that time and action, such as the surge, will lead to better outcomes in the future. This article by David Stafford in the Washington Post, looks at the parallels between post-war Iraq and post-World War II Germany. In both cases, there was looting, anarchy, and disappointment at the pace of progress. There was also a political struggle over how to deal with those who had been involved in an evil government before the war.

But as Chris Coyne points out in this week’s EconTalk (and as Stafford mentions briefly in his article), there are crucial differences between Germany and Iraq. And between Iraq and Japan, the other successful result of US attempts to export democracy after war. Coyne also examines numerous other failures of US efforts to export democracy–Cuba, Somalia, and Haiti, just to name three, that failed miserably because the basic institutional infrastructure for democracy could not be created from scratch.

Coyne argues that most interventions hoping to create democracy don’t just fail, they make things worse. He argues for non-intervention and free trade as the best hope of helping people living under miserable conditions.

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M. Hodak April 7, 2008 at 12:28 pm

Of course, there are differences in every situation, and intermediate-term outcomes are highly sensitive to initial conditions. That's what makes social sciences so messy.

Germany and Japan were clearly worth the post-war investment by the U.S. in their recovery. The fact that Iraq doesn't have Germany's pre-Nazi democratic heritage, or the Japanese homogeniety represent hindsight observations for why a democratic experiment wouldn't work in Iraq so well. The fact is that there have been several examples in history of basic institutions of democracy being created from scratch, as well as many failures.

In the case of Iraq, think what was predictable–and amply predicted–was how laughable the notion that the Arabs would be grateful for our invasion would prove to be. That's not to say that Iraq won't be better off in the long run than they otherwise might have been evolving from Saddam. And that's not to say that, even if they do get there, it will have been a worthwhile investment in blood and treasure for America.

Brian-NJ April 7, 2008 at 2:58 pm

I think the only parallel between post WWII Germany and modern Iraq is the presence of US troops. It is an unfortunate reality with motives that elude me. For me, I cannot get past the glaring fact that Germany and Japan were solid nations with citizens willing to commit to reconstruction based on their strong national pride. Iraq became a country when a committee drew some lines in the sand around a bunch of people who happened to be inside, there can never be solidarity after invasion of a region like that simply because they need to acquire the national pride first and this can only come from acquiring their own nation, which is what they are trying to carve out between themselves now.

It can be a success, and it will take time, to calculate the time add the number of years it took for German reconstruction, then add the number of years it took for the initial German rise and fall, that should just about do it, twenty to twenty five years.

The irony in it all is the frenzy the US public was whipped up into against militant Islam, the romance of democracy in Iraq, and now that the dream is fulfilled, our troops are fighting for The Supreme Islamic Iraqi Council, and the Parliament needs to negotiate through Iran (recognized as terrorist organization by US Senate) to end violence between the Iraqi government and the Mahdi Army. Reconstruction becomes almost a joke and fuels the likes of Naomi Klein in their battle to convince us of a disaster capitalism plot.

It becomes very difficult to discern between motives, and the reality of the situation when logic clearly gets abandoned in some of the decisions. At this point I really have no problem with a withdrawal, I am not concerned with war and bloodshed, it was an inevitable outcome invasion or not.

muirgeo April 7, 2008 at 3:33 pm

Again just a great contrast between good planning (The Marshall Plan) and poor planning ( Bush and company ). They thought they'd wipe the slate clean and let the free market and spontaneous order take over.

I know, I know.. way too oversimplfied. But then there is also Bosnia… good planning works.

I'll look forward to listening on tomorrows hike.

JT April 7, 2008 at 4:14 pm

I read the book after it was referenced in another podcast. Unfortunately, the book seems to answer a question nobody asked — should we invade countries to create democracy. He cites a few who think this might be a good idea, but nobody with serious influence is suggesting this, certainly not Presdient Bush, Secretaries Rice or Powell or even Donald Rumsfeld. Afghanistan, Iraq (both times), Panama, Grenada and earlier interventions were all primarily about security. We certainly didn't invade Germany and Japan to create democracy. The opportunity to replace a dictatorship with democracy was a strategy to deal with the country after the war, not a justification for invading in the first place.

A key question is, if we opened free trade with Afghanistan and Iraq instead of invading, would all have been well? If not and they were harboring terrorists (which Afghanistan certainly was), what should we do? This is not answered in the book.

Further, the book does not address what the US should do when faced with a genocide, as was ocurring in Bosnia, Rwanda and now in Sudan. Free trade? Sit and watch?

The book does a good job of looking at how to engage countries when security is a secondary concern. I struggle with opening trade with Cuba (my Master's degree is in Russian studies so I have a strong adversion to coddling or propping up totalitarians), but share the author's view that free trade is powerful and should be used and that invading with the primary goal of "creating democracy" is simply not justified.

The book is really best as a counterpoint to the silly anti-trade rhetoric of Obama and Clinton. It makes it clear that they cannot promise to re-engage with the world while promising to cut trade ties.

Russ Roberts April 7, 2008 at 4:37 pm


What are you talking about?

Where is the evidence that anything the US is doing in Iraq shows a faith in spontaneous order and the free market?

FreedomLover April 7, 2008 at 4:51 pm

The fact is that Iraq is a quagmire and a disaster. The initial invasion and toppling of the Hussein regime was good, the next 4 years and 10 months a disaster of "nation building". You can't build 1 nation out of 3 that hate each other.

Charlie (Colorado) April 7, 2008 at 5:28 pm

Does he anywhere discuss what should be done against a fascist totalitarianism that's already engaged in hostilities?

muirgeo April 7, 2008 at 6:25 pm


Sorry about a Wiki reference but I think this stuff is pretty well documented. Also I'd recommend also recommend the documentary No End in Sight if you haven't already seen it.

The Coalition Provisional Authority under Bremer issued 100 Orders, which they define as "binding instructions or directives to the Iraqi people that create penal consequences or have a direct bearing on the way Iraqis are regulated, including changes to Iraqi law".[35] The economic policies are largely based on free market ideas, emphasizing protection for foreign investors and contractors, while replacing the tax system with a flat tax.

Order #39 allows for the following:
privatization of Iraq's 200 state-owned enterprises;
allow up to 100% foreign ownership of Iraqi businesses;
national treatment of foreign firms;
unrestricted, tax-free remittance of all profits and other funds; and
40-year ownership licenses.

Order #40 turns the banking sector from a state-run to a market-driven system overnight by allowing foreign banks to enter the Iraqi market and to purchase up to 50% of Iraqi banks.

Order #49 drops the tax rate on corporations from a high of 40% to a flat rate of 15%. The income tax rate is also capped at 15%.

Order #12 enacted on June 7, 2003 and renewed on February 24, 2004, suspended all tariffs, customs duties, import taxes, licensing fees and similar surcharges for goods entering or leaving Iraq, and all other trade restrictions that may apply to such goods.

Order #17 grants foreign contractors, including private security firms, full immunity from Iraq's laws.

Sanjiv April 7, 2008 at 7:17 pm

I agree with Coyne when he says that the basic institutional infrastructure for democracy cannot be created from scratch.
Am currently reading this nice book by William Easterly where he convincingly drives home the point that "piecemeal changes" from the bottom-up are always more successful and last longer than compared to changes imposed from the top.

Brian-NJ April 7, 2008 at 8:29 pm

"piecemeal changes" from the bottom-up are
always more successful and last longer than
compared to changes imposed from the top."

Darwinism at its finest!

Jay April 7, 2008 at 8:45 pm

"Again just a great contrast between good planning (The Marshall Plan) and poor planning ( Bush and company )."

Here comes Muirdonkey. If only we had the "right" people in charge with 20/20 foresight.

John Thacker April 7, 2008 at 9:34 pm

the other successful result of US attempts to export democracy after war.

"The other?" Well, if you don't count Panama, Grenada, South Korea (since it took 20+ years later for democracy, but surely being a US ally worked out better for them, as it did for Taiwan), and a few others.

Admittedly several had been more or less democratic before, though that's true of Japan and Germany as well. Several of them are smaller, though, or had less brutal wars, etc. But still there are more than two examples.

SheetWise April 7, 2008 at 11:38 pm

How can we look at the history of intervention without looking at the other side? Jimmy Carter and Iran is one example. He said he acted because of the civil rights violations of the Shah — but failed to note that those types of violations were the norm where leaders were placed by bullets instead of ballots. Were the despots "ballots" better?

Was McArthur wrong on Korea? There's a pretty stark experiment in predicted outcomes — and yet "The Peoples Republic of Korea" still considers the South as being "occupied".

We may be right, we may be wrong — but there's little evidence that we're aggressors.

I see it in many ways like Child Protective Services at the State level. There's no shortage of horror stories — because the State was not asked to intervene by the aggrieved party. I'm not sure it means they shouldn't have. It's also fairly clear they'll never be welcome by the adults. It usually means that the issue will be either awkwardly resolved or forgotten.

It's that forgotten thing that gets us in trouble.

Russ Roberts April 8, 2008 at 12:08 am


And the price controls on gasoline? The food rationing? The government control of oil? How does that fit into your empirical claim?

It's bizarre that you think the Bush Administration takes its economic cues from Hayek. The essence of the war in Iraq and the rebuilding is top-down attempts to control rather than bottom-up emergence. And yes, there may be some steps toward economic freedom. But please don't suggest Iraq is some laissez-faire free market experiment.

SheetWise April 8, 2008 at 1:48 am

The essence of the war in Iraq and the rebuilding is top-down attempts to control rather than bottom-up emergence.

I can't get my arms around this. Correct me if I'm wrong — but a top down attempt to control is absolute statism. A bottom-up emergence is freedom.

Is your opinion that the essence of the war on Iraq is to subvert freedom (which existed when?) by the imposition of a new state? As if state is a new concept!

Help me here.

muirgeo April 8, 2008 at 1:48 am


I would agree that it is unfair to consider this an "experiment" in laissez-faire economic policy. I do beleive the administration thought it was doing it's equivalent of "opening the markets" however ill-informed with regards to forgetting who's country it was. To have done it properly they would have had to let the locals run their own markets while we Americans simply kept law and order. But certainly much of their indiscretions seem to be related to greed, nepotism and cronyism, sometimes the same things that happen state-side which, in my opinion put those "outside of the circle" at a disadvantage.

SheetWise April 8, 2008 at 2:28 am

muirgeo –

I don't believe the administration was "opening markets", or forgot "who's country it was" — these countries were overrun by thugs. Period. It was like Chicago under Al Capone — pure fear.

These pseudo-markets didn't need "free markets", they needed to be liberated from market vultures. They needed some rule of law. Natural markets are free markets.

Nobody forgot "whose country it was" — we still remember whose country it is. If we didn't, we would have simply taken it (oil and all).

It seems conquering would have been a more defensible position from your perspective. And if we were who you say we are — how stupid of us not to have taken it.

SheetWise April 8, 2008 at 3:16 am

;) Muirgio

On the other hand — I understand your faulting US markets –

I just don't understand your defense of our enenmies …

Neal Phenes April 8, 2008 at 9:20 am

If we just end all military operations, ignore artificially drawn borders hemming in global entrepreneurs and open trade with Iran and Syria, we can eradicte Muslim enmity towards the West and focus on the real issues (as well as bring down the deficit).

While we may have to rebuild some buildings now and then due to irrational acts of Muslim fringe characters, bury some innocent Americans that happen to go to work at the wrong place at the wrong time and kiss off Israel as a trading partner or name of a place on the map, we can leave the governance of the Middle East to those who really know how to do it much better than us. To boot, it would drive down the price of oil and clean up the planet.

Love of free trade and free market capitalism cannot cloud your recognition of certain realities. Whatever the root cause, I see some rabid terrorists (please offer a better term) intent on the death of anyone, anywhere that represents Western culture and mores for political, psychic and cosmic benefit. And I want them stopped in order to protect my family.

muggsie April 8, 2008 at 1:23 pm

Germany was a solid country? It was an amalgamation of a number of medieval kingdoms. Even then the North was Protestant and the South was largely Catholic. Bismarck was the one who produced a united Germany. The German borders in 1919 were set by the same group of leaders who outlined the Iraqi borders. Read the book Paris 1919 by Margaret Macmillan to understand better.

Brian-NJ April 8, 2008 at 4:01 pm

–"Germany was a solid country? It was an amalgamation of a number of medieval kingdoms. Even then the North was Protestant and the South was largely Catholic. Bismarck was the one who produced a united Germany. The German borders in 1919 were set by the same group of leaders who outlined the Iraqi borders. Read the book Paris 1919 by Margaret Macmillan to understand better."– muggsie

Thank you for the book recommendation, I am always open to understanding better, as I am not a leading authority on the history of Germany. As far as what I was suggesting to be a solid Germany, was its passionate nationalistic unity during the decade leading up to WWII; juxtaposition that to Iraq's status since having borders drawn in the sand, Iraq never gained unity or solidarity under Saddam in the way Germany did Hitler.

I guess I imagine 1930's Germany like the solidarity of Ohioans as they muster together and rally against NAFTA. In swoops a leader, perhaps like Hillary Clinton, who will guide them to the fight against NAFTA, using their power as industrial workhorses to build cars like no other and fire them like missiles at the nations taxpayers. Their identity as workers and Ohio natives binds them like cement.

Sorry for the tangent, but what I mean to say is, after the first Gulf war decimated Iraq Saddam had it in his power to build a strong nationalistic state. There was something like 40 bridges destroyed and countless other handicaps, the scene was ripe for a strong leader to rise, unite, and re-enter the world. This didn't happen, I sometimes wonder if Saddam knew it impossible to unite his people, regardless it went over the way it did.

andy April 8, 2008 at 5:03 pm

The difference between Germany and Iraq? There was capitalism in germany before WWII. There were institutions – government, justice. After WWII the Germans could say a word – and they did act against the US occupation (the Erhard example). There were democratic countries all over the Europe and the germans could see that it worked. People did travel and saw what works and what does not.
Institutions in Iraq are historically driven by some respected people, not formal institutions. If you have democracy in homogene society, it might somehow work. If you have democracy in any non-homogeneous society, it is very likely that the winner will try to liquidate the others – just use his newly acquired power. This is a systems that could have been repeatedly observed in most of Aftica.

The reason why democracy kind of works in western countries is homogenity of the countries and respect to property rights. Unfortunately, respect for property rights is not result of democracy, but more or less result of the history of Europe. As the democracy evolves, the respect is getting smaller and smaller. If you try to force democracy onto country without people respecting property rights, it cannot work – democracy doesn't lead to property rights. Rather, people who respect property rights tend to choose democracy.

Eric April 8, 2008 at 5:06 pm

JT — The US invaded Grenada and Panama for security reasons?

That is a surprise. I'm not convinced that Grenada posed much of a threat. Sure, their nuclear program was ramping up but there wasn't any evidence they were trying to upset the geo-strategic balance in the Western Hemisphere.

Or not.

JT April 8, 2008 at 11:32 pm

Eric, if you remember at the time, Grenada was building an airbase suitable for the Bear strategic bomber but unsuitable for commercial traffic. The Soviets were also using Grenada to ship arms to various insurget groups throughout the region. Whether this was actually happening or not (although it is very clear that it was), this was the reason given at the time.

Panama has a canal you may have heard of that has some strategic significance. There was concern about maintaining access to the canal.

Russell Nelson April 9, 2008 at 1:35 am

Russ: good luck trying to talk to muirgeo. Logic is not his strong point.

Neal: why do you presume that these loonies can be stopped? The trend is towards more and more personal command of violence. The fewer people who command violence, the greater a possibility that rationality is not a factor. These are the times we live in, and nothing short of a time machine will correct that. Should we give up our freedom? Should we take away other people's freedom?

andy April 9, 2008 at 6:12 am

JT, it seems to me that free trade would do much better job then invading those countries. If you trade with the people, those people get richer, which means they have more means to protect themselves. Many people get better deal when they engage in trade then with fighting. And I guess most people really don't like fighting anyway.
If the USA had free trade with Cuba, Castro wouldn't have been dictator for a long long time. The businessmen would have bribed him to stop with the crazy idea of socialism…

What most people think is that free trade means 'trade with government' and embargo means 'stop trading with government'. Actually, free trady is mostly 'trade with people' and embargo usually means 'forbidden to trade with people'.

If there was open trade with Iraq and Afghanistan it wouldn't be well. Nothing is ever well. It would have been much better then now.

Gil April 9, 2008 at 8:20 am

Last time I looked, free trade means 5% or less price control between countries.

Max April 9, 2008 at 10:35 am

While we see the differences, let's not forget the common things. Both new regimes feed largely on a beaurocratic basis that is moled through by former Nazis and we in Germany have still problems with people sympathetic with the old regime and a "simpler time". It is less the racist part of this legacy, but the nationalistic and socialistic part that clings to Germany's institutions.
I had hoped the US would have learned from their mistake not to punish all high-ranking beaurocrats of the Hitler-regime…

That it was a success in German is largely due to Germans and the availability of pre-war democratic ideals and (on the other hand) a lot of technical knowledge and ready entrepreneurs. I think if Ludwig Erhard hadn't come along, Germany would still cling to similar levels that other locations of US intervention show off today.
It was most of all the economic boom that helped forge a different view on the 3rd Reich. Otherwise, the "democratic institutions" would have been eroded easily.

Mark Brady April 9, 2008 at 12:16 pm

Mopey writes, "If free trade would end Castro's dictatorship why hasn't free trade with the world minus the US ended the Castro's reign?"

Don't forget that the U.S. has imposed comprehensive sanctions against foreign firms that trade with Cuba. Think Helms-Burton Act of 1996.

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