John  Browne

The current situation in Iraq is a modern tragedy. But in more practical terms it is a very stark illustration of the folly of central planning and the limits of state power in the face of entrenched traditions and proven history. Although the parallels aren't perfect, the rapid dissolution of the puppet Iraqi state can offer some stark lessons to those who are optimistic about our current experiment in central bank dominated economic planning.

The modern state of Iraq was formed primarily by Franco-British decree after the defeat of the Ottoman Empire in the First World War. While the Age of Empire was clearly at an end, Britain and France nostalgically played the game in the Middle East by indiscriminately drawing lines on a map. Often this was done regardless of the cultural and religious differences or the feelings of the local people.

The boundaries of modern Iraq were simply drawn to support the interests of the colonial powers and their preferred local rulers. This was the first mistake of central planning. Following the brutal military regicide of the 23-year old King Faisal II and members of his family on July 14, 1958, a series of men, culminating in Saddam Hussein of the Ba'athist Party, ruled Iraq.

While no one much liked Hussein or his brutal government, the dictator was able to provide stability in a largely ungovernable situation, which in turn provided a bastion against the fundamentalist revival that swept through Iran in the 1970s. But then Saddam himself began believing too strongly in his own invincibility, and foolishly invaded neighboring Kuwait in the fall of 1990.

The Western response was decisive. President George H. W. Bush and Prime Minister Thatcher encouraged an impressive grouping of allies, including many Arab nations into providing a massive military force. The effective diplomacy was complemented by a sensible tactical plan that accomplished the coalition's aims without leaving chaos within Iraq itself. Most impressively, President Bush saw the wisdom, unpopular in many circles, of preserving Saddam Hussein in power as a stabilizing and anti-Iranian force.

In the ensuing years, rather than admit the obvious, that a tyrant like Saddam was the only means capable of holding together a fractious, poorly-designed country, many in our enlightened capitals began to believe that they had the ability to craft a better country through force of arms and power of persuasion. This is the second failure of central planning.


John Browne

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.