Worst use of Middle East leverage is insistence on Iraq reparations

Robert Kuttner

March 05, 1991|By Robert Kuttner

"Reparations" have figured prominently in the United States insistence that Iraq surrender rather than merely withdraw its forces. The United Nations resolutions require, among other conditions, that Iraq pay for damage inflicted upon Kuwait.

As a military tactic, it does make sense for President Bush to insist on a virtually unconditional Iraqi surrender. And the jTC demand for reparations serves that tactical end--for it is a condition to which Iraq can hardly agree. But as economic policy, insistence on actual payment of Iraqi reparations would be self-defeating.

Reparations, as a major diplomatic objective, were imposed on Germany by the allied powers at the Versailles conference of 1919 as a way of punishing Germany and compensating Britain and France. In 1921, the allied Reparation Commission determined that Germany owed about $33 billion--a staggering sum, given Germany's own war damage and its weakened economy.

The Weimar Republic's hyper-inflation soon ensued, followed by Hitler. In the end, very little reparation was paid, and a second war compounded the damage of the first.

The situation in the Middle East, of course, is not entirely comparable. As the Gulf conflict has just demonstrated, Iraq has only the power to provoke regional war, not world war. And where Germany was a diversified industrial power, Iraq normally is a net oil exporter, whose oil profits indeed might be tithed to pay war damage.

But the fact remains that Iraq has been devastated by a decade of war, and Iraq is a far poorer country than Kuwait. If Saddam Hussein could be made to pay reparations personally, that might serve justice. But taxing the Iraqi people to pay for his aggression makes little sense.

After World War II, the victorious allies, having learned from the catastrophic error of Versailles, did not attempt to extract reparations from the defeated Axis powers. On the contrary, they included Germany, Italy and Japan among the recipients of postwar reconstruction aid.

The reason, at least in part, was a new threat--Soviet communism. Were it not for the imperative of containing communism, the American taxpayers undoubtedly would have been far slower to extend economic aid to nations they had just fought.

In the Persian Gulf, the enemy is not communism but radical nationalism and deepening chaos. Yet the strategy of assistance rather than tribute made sense after World War II, and it makes sense now. The post-conflict Middle East needs a broad program of economic development funded by redistribution from the Have nations of the region to the Have-Nots.

Despite our rhetoric of defending freedom, the Middle East is divided--not primarily into democratic and undemocratic nations --but into rich and poor ones. Those divisions are the legacy of maps drawn by the British in the 1920s as part of a colonial strategy to protect land and sea routes to British India. It is hardly surprising that few Arabs regard them as legitimate.

Before the Gulf War, Jordan had a per-capita annual income of $1,700; Syria about $1,000; Egypt just $630. By contrast, Saudi Arabia enjoyed a per-capita income of over $7,000, Kuwait $16,400, and the United Arab Emirates over $18,000.

(Iraq--the most populous of the oil exporters--had a relatively modest per-capita income. Conditions there have not been normal for a decade; the World Bank believes Iraq's per-capita annual income was between $1,500 and $3,500 and about 40 percent of it has gone to make war.)

This largely arbitrary division of wealth and poverty underlies much of the deep conflict in the Middle East. Rather than insisting on reparations from Iraq, it would make much more sense to tax some of the oil wealth enjoyed by all of the region's oil-rich nations to finance the development of the poorer ones.

At $25 per barrel, Middle East oil brings in earnings of roughly $100 billion a year, mostly for a small number of the region's people. A tax of $2 a barrel would produce about $9 billion dollars for regional development.

Two of the root causes of the Gulf War are the instability of energy price and supply, and the chasms of wealth and poverty in the region. The war's end is not a time to transfer still more money from the poor to the rich. Rather, we should use our leverage to create the preconditions for enduring peace and economic well-being.

Robert Kuttner writes regularly on economic matters.

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