An analysis of the Economic System of the Kurdistan Region of Iraq
According to a longitudinal study of 135 countries, one fact comes to the surface; the total duration/lifespan of those democratic countries where the GDP per capita is one thousand dollars or less is merely 13 years old; however, the duration/lifespan of those democracies becomes 60 years when the GDP per capita is measured 3,000 or 6,000 dollars. Likewise, no democratic system with 6,000 thousand dollars in GDP per capita has ever collapsed. This study conducted by Adam Przeworski has concentrated on democratic systems but it is possible that the findings apply to non-democratic systems as well, indicating the possibility that - a low-income authoritarian regime is more likely to collapse than a high-income authoritarian regime. Put briefly, one could establish a correlation between political stability and the state of the economy. This implies that to extend the lifespan/duration of a political system, efforts must be made to ensure a robust, stable economic system. Moreover, two other scientifically valid conclusions could be established.
Firstly, for political structures to be long-lasting, they must be aided by a robust economy. Secondly, contra, if one is to maintain a robust economy, the political structure must be built in a manner that accommodates and fosters economic development.
Simply put, economic growth refers to the strengthening of economic structures in the production of goods, creating job opportunities, and increasing the country's Gross Domestic Product, to build a strong and independent economic system. Economic growth, on the other hand, refers to income inflation; when income does arrive in the country but is not conducive to improving the economic system or changing the economic structure.
Economic development is measured by GDP per capita. Reliable data that measures GDP per capita in the KRI is not available, indicating that the extent of economic development in the region remains questionable. What does take place in the Kurdistan Region is economic growth, not economic development. Because, although the number of capitalists has increased, the economic system and structure remain the same as before. The number of wage earners has increased and not decreased, as have unemployment and poverty; the same goes for low levels of domestic production and high levels of imports. Creating a market for foreign products weakens the economy and does not strengthen it. Attracting foreign investment and not encouraging domestic investment does not strengthen the economy either, because in times of crisis, with the slightest threat, foreign investors retract their payments and capital.
In discussing the social prerequisites of a democratic system that make a country more receptive to democracy, Seymour Martin Lipzd prescribes four main dimensions: capital, industry, education, and urbanization. For a country with substantial capital, which also has developed industry and a proper, modern education system, as well as a healthy urbanization process, the possibility of democratization is much stronger, compared to a country that does not encompass these four dimensions. These four principles, because they are the four dimensions of civil society in the modern state, make the middle class efficient and impactful. Democracy as a system denotes a two-dimensional relationship between the people and the power-holders. The first dimension is - that those in power must respond to the demands of the people, and secondly, the people can, relatively, influence decision-making. The aforementioned principles serve to bring the people closer to the power holders and the political structure. In that, a form of stability is achieved, wherein neither of the two main constituents (the people and the power-holders) are a threat to one another; neither does the political structure threaten the people's welfare, nor do the people threaten the stability of the political structure.
According to IMF and World Bank figures, at least four of the Gulf countries are among the world's richest in terms of GDP Per capita – the lowest being Bahrain at 49,020$ and Amman at 4,3847$ US dollars. According to global statistics on democracy and freedoms, the Gulf countries are all undemocratic and unfree. One could ask why have the Gulf countries not stepped towards democracy and freedom. Does capital really affect changes in the political system? The answer is that the oil-rich Gulf countries are rentier states, which means that most or all of the national income comes from renting domestic assets to foreign customers. (Hussein Mahdavi used this theory for the first time in the 1960s).
There are four characteristics that qualify a country as a rentier state, as the political scientists Hazim Bablawi and Giacomo Luciani have detailed: First, the country is dominated by foreign rents, second, the the entire economy relies on foreign income, thus the country does not require a strong domestic investment sector. Third, only a small portion of the labor force participates in generating income. Fourthly and most importantly, the government or the state is the main beneficiary of external rents. This also hinders economic development, seeing that economic development requires domestic revenue, the existence of a domestic investment sector, a labor force, and a free market. These four attributes of a rentier state distort the order of the political structure, Why exactly does that occur? Because the natural relationship between the economic system and the political structure is disrupted.
Consequently, the 23 countries with the largest oil and gas revenues have stagnant and undemocratic political structures. In a rentier state, there are two factors that hiddenly weaken state institutions: first, that the revenues come from abroad, and second, that the incoming revenue goes directly to the state.
Citizens of these countries rely solely on the state and resort to the state's institutions to find employment, secure wages, and improve their living conditions. This puts the official institutions of the state under pressure (the main function of the state is thus reduced to salary distribution). In such circumstances, the survival of the state relies on one thing; buying legitimacy. That takes place through selling oil to foreign buyers. Such a political system is completely weak because to secure public revenues and protect itself, the state relies on external income and power. The source of economic and political stability is not its market, its people, or its legitimacy, but it is another power.
Therefore, oil can improve the quality of life, but it leaves the economic structure weak. This is what distinguishes most oil-rich countries; significant economic growth without economic development.
There are many factors that hinder economic development, but the most important is the phenomenon of (owner and buyer) or (master and customer). Such a phenomenon is what prevents the existence of a free market because it prevents a fundamentally independent private sector. In the Gulf countries, this unhealthy dynamic prevents the emergence of an independent private sector. (It is also the reason why Gulf countries do not head towards political liberalization).
What has happened, both in the Kurdistan Region as a preliminary process and in the Gulf countries as a result of this process has been the transfer of jobs and investment in areas previously monopolized (in the Kurdistan Region, they were monopolized by the government or political parties) to partners, collaborations/assistants of the state or those who administer it. The private sector has certainly become more prosperous in the Kurdistan Region, but because it is not independent, and because it is not self-sufficient, it has not been able to take charge in times of political crisis. What is especially remarked in the Kurdistan region is that, instead of providing aid, the private sector is responsible for some of the economic issues that the region suffers from.
If the private sector and the power center become closer with the goal of operating together, contrary to what is understood, both will suffer losses; Neither the government can perform its functions to ensure legitimacy, nor can the private sector strengthen the economic structure, which is again the goal of the private sector. Both will suffer instead. As is clear in the region, the collapse of one will ensure the collapse of the other. The main reason is that the private sector has expanded haphazardly and without restriction, becoming an extension, and even a replacement of the public sector.
The private sector has not been independent in the sense that many units of the private sector were either directly or indirectly owned by those in power, meaning those in power did not permit the private sector to be independent. Rather, the private sector has been, more or less under their dominion, and the private sector has been dependent on the rulers. Therefore, it became apparent that when the government faced an income crisis, it had an immediate impact on all units of the private sector in the region. Most projects in development were stopped and an increasing number of contractors declared bankruptcy. So, to protect the region, we must look at the economic system and the political structure, and more importantly, how they relate and interact, by reorganizing the functions of the public sector and the services and investments delivered by the private sector. The most important point is to draw a line between the private and public sectors. Neither should cross the boundaries of the other. Currently, the private sector has crossed the boundaries of the public sector, which must be amended. The second point is to limit foreign investment, Taking into account the political situation in the region, it is a guaranteed loss to bring foreign investment into the country at the expense of domestic investments. It was seen that most foreign investors fled at the sight of emerging threats.
The fundamental solution is to support and encourage domestic investment, and for the government to fulfill its main function, which is monitoring the work of domestic investors. Because the government can take a number of measures against domestic investors, but it cannot do so with foreign investors. The economic system of the region needs a fundamental overhaul, but any kind of reform must take two things into account; first, the social structure, and second, the political structure. Without a proper reading and understanding of these two issues, it is unlikely that any economic reform will have remarkable results.
Works Cited
Beblawi, Hazem. “The Rentier State in the Arab World.” Source: Arab Studies Quarterly, vol. 9, no. 4, 1987, pp. 383–398,
Hazem Beblawi, and Giacomo Luciani. The Rentier State. Routledge, 16 July 2015.
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Lipset, Seymour Martin. “Some Social Requisites of Democracy: Economic Development and Political Legitimacy.” The American Political Science Review, vol. 53, no. 1, 1959, pp. 69–105.
Mahdavy, H. The Patterns and Problems of Economic Development in Rentier States: The Case of Iran. 1963.
“Open Knowledge Repository.” Worldbank.org, 2019, openknowledge.worldbank.org.
Przeworski, Adam. Democracy and Economic Development*. 2000.