Zakaria: Iraq Needs an 'Economic Surge'

We are now fighting a war intelligently in Iraq. The only problem is, it's the last war, not the present one. The United States has gambled all its efforts on a troop surge that tackles the conflict that defined Iraq from 2003 to 2005—the insurgency—rather than the civil war now raging across the country. Worse, in trying to solve yesterday's problem we are exacerbating today's. In Baghdad, Shiite militias have melted away. Almost all U.S. military operations are now directed against Sunni insurgents. If those are successful, the picture could look less violent in six months, but it will be a dangerous stasis. A senior U.S. military officer, who is not allowed to speak on the record on these matters, said to me, "If we continue down the path we're on, the Sunnis in Iraq will throw their lot behind Al Qaeda, and the Sunni majority in the Arab world will believe that we helped in the killing and cleansing of their brethren in Iraq. That's not a good outcome for the security of the American people."

We don't intend to side with anyone. We're trying to be evenhanded and build a single, democratic nation. But this attempt at neutrality is collapsing in Iraq's bloody sectarian reality. Last week's uproar over allegations that Shiite policemen in Baghdad had raped a 20-year-old Sunni woman vividly illustrates how trust between the two communities has been shattered. Shiite Prime Minister Nuri al-Maliki first ordered an investigation, then 12 hours later declared the woman a liar, freed and rewarded the alleged rapists and later fired a Sunni official who had called for an unbiased investigation. Meanwhile we're stuck in the middle, promising to uncover the truth while both sides are convinced that we've betrayed them. This is the definition of a no-win strategy.

The United States needs to find fresh approaches that won't feed the sectarian dynamic and will address the needs of ordinary Iraqis, not the political elites who are jockeying for power. Most important, we need to find a strategy whose costs are sustainable. Militarily this means drawing down our forces to around 60,000 troops and concentrating on Al Qaeda in Anbar province. The surge we should be pushing instead is a political one, and even more critically, an economic one.

An economic surge is long overdue. One of the less-remarked-upon blunders of the Coalition Provisional Authority was that—consumed by free-market ideology—it shut down all of Iraq's state-owned enterprises. This crippled the bulk of Iraq's non-oil economy, threw hundreds of thousands of workers into the streets and further alienated the Sunnis, who were the managerial class of the country. The economic effects of this decision have been seismic. For example, Iraq's agricultural productivity has plummeted because fertilizer plants were summarily closed. Unemployment in non-Kurdish Iraq remains close to 50 percent, which helps explain why so many young men are joining gangs, militias and insurgent groups. For the moment at least, democracy in Iraq has sharpened the country's divisions. Capitalism and commerce can make them less relevant. That is the lesson of many conflict-ridden countries from Northern Ireland to Mozambique to Vietnam.

Paul Brinkley, a talented deputy under secretary of Defense, is trying to get the bulk of these state-owned factories up and running. He's already restarted a bus factory in Iskandariyah, south of Baghdad, and the experience has been telling. Hundreds of workers still in the area showed up for work and the machines are now humming busily. There have been no attacks on the factory. "The insurgents attack people working for the police, Army or the Americans. They do not want to alienate locals trying to make ends meet," said one official working on the project.

Of the original 193 state enterprises, 143 could be restarted soon, says Brinkley. Management and workers are desperate to get jobs. The problem is money. Brinkley points out that his next target, a ceramics factory in Ramadi, is only waiting for two generators before it can reopen. They cost $1 million each. But funds for this purpose are hard to find. Washington has pledged more than $18 billion to fund "reconstruction" in Iraq but will not appropriate a cent to start up state-owned Iraqi companies. The Iraqi government has billions in oil revenue of its own but is so dysfunctional that it cannot move a new project through the system. So the factory is idle. A major global consulting firm has reviewed Iraq's state-owned enterprises and estimated that it would cost $100 million to restart all of them and employ more than 150,000 Iraqis—$100 million. That's as much money as the American military will spend in Iraq in the next 12 hours.