The "stealth" war is still being waged in Iraq. But already a familiar cry can be heard from the left. The only victors from this horrific mess will be those ravening beasts of capitalism--U.S multinational companies. This is a "corporate war," the protesters argue--a war driven by Big Oil rather than by democratic idealism, a chance for President Bush's corporate cronies to get a return on their investment.

Look, they say, at the $100 billion worth of rebuilding contracts that will be divvied up over the next few months. Look at the way that a subsidiary of Halliburton, Vice President Dick Cheney's old company, landed a contract to fight oil-well fires. And look at all the money that the defense giants will make from replacing the bombs and bullets that rained down on Baghdad.

There are lots of possible retorts to this sort of conspiracy-mongering. For instance, that Iraq's eventual return to the world oil market will surely push oil prices downward--which is hardly good news for Big Oil. Indeed, most businesspeople abhor the fog of war and the disruption that it brings.

Yet the best answer is a much simpler and far less defensive one.  Companies, and lots of them, are exactly what Iraq (and indeed the whole Arab world) needs. Developing private-sector corporations is the key to unlocking the Arab world's economic potential. This will also help unleash a powerful liberal force in a society that has tasted too little freedom and has relied too much on incompetent, narrow-minded, egotistical and uneducated politicians.

How do you deal with this century long quagmire?

"Islamic finance" may well be the ultimate venue for turning around the Arab world into a "powerhouse" the same way the "venture capital industry" built Corporate America in what it is today. Some of the reasons:

Reflect for a moment on the history of the past 500 years and you discover that the much-vilified private-sector company has been the West's secret weapon. In 1500, the Arab world was ahead of Europe in terms of its commercial development. Contrary to all the current mythology about Islam being "anti-business," the Prophet Muhammad, who was himself a trader, looked on commerce far more favorably than has the Christian church.

Yet the Arab world failed to develop private-sector companies in the same way that the West did. The decisive break came in the mid-19th century, when Victorian Britain passed a series of Companies Acts making it easy to establish limited-liability private-sector companies. Capital that had been trapped in fragile family partnerships or stodgy state-approved monopolies was suddenly free to roam. In the West and Japan (the only Asian country to embrace the form), these new "Ltds," "Incs" and so on revolutionized productivity, showered consumers with a relentless series of innovations and drove the first great age of globalization.

The Arab world's failure to adopt this revolution meant that it fell ever further behind the West. Islamic inheritance law--dividing estates among sons--made it difficult for partnerships to grow to a size where they needed outside capital. The state still dominated the economy. When the Arabs did try to catch up with the West, inspired by "the Lion of Egypt," Gamal Abdel Nasser, they chose to imitate the centrally planned economies of the communist world, further marginalizing private companies. Nasser, a devoted reader of Le Monde and Britain's New Statesman, would have been better off studying the Harvard Business Review.

The result is a region mired in stagnation. Leave aside oil, and the total exports of the major Arab countries are smaller than Finland's. Economies such as those of Saudi Arabia and Kuwait are dominated by nationalized oil companies that specialize in providing jobs and wealth for the ruling families.

The Arab world spins all sorts of vile conspiracy theories to explain Israel's high standard of living, while its own people are condemned to unemployment and declining incomes. It would do better to examine the way that high-tech companies power that tiny country's economy.

But is the Arab world at large ripe for the wonders of the company? Skeptics produce two arguments. The first is that new companies in the Arab world will come only in the form of foreign oil multinationals, but not something that will convert ordinary Arabs into entrepreneurs. The second is that oil economies are lousy at producing popular capitalism; that oil and monopolies go together like love and marriage.

There is some truth in the first criticism. Foreign companies can bring a wealth of capital and expertise . But they will not necessarily bring a sense of ownership and entrepreneurship. George W. Bush keeps saying "the oil belongs to the Iraqi people." The U.S. must go out of its way to encourage Iraq to produce indigenous companies to manage that oil wealth.

The second criticism--that oil has to mean big companies--is more dubious. Look at the capital city of America's oil industry, Houston, and you discover that the oil economy is not necessarily synonymous with giant monopolies. The city is a hive of entrepreneurial zeal and highly skilled small energy companies. In 1999, Houston still managed to add jobs, despite a slump in the oil price to $10 a barrel and a fall in the number of oil wells in America to its lowest point in living memory. Separate the oil industry from the iron grip of state monopolies and it is subject to the same forces that are breaking the rest of the corporate world into smaller and nimbler pieces.

Introducing corporate capitalism to any country is difficult--as Russia shows. President Boris Yeltsin tried to unleash entrepreneurship by both selling and giving people shares in former state monopolies, but he forgot about the importance of antitrust laws. Too much power has ended up in giant companies, mostly run by former Soviet apparatchiks, like Lukoil and Gazprom. On the other hand, there are plenty of other industries, such as beer, in which regular capitalism, with multiple companies, competition, branding, marketing and so on, is beginning to take hold.

The argument for introducing private-sector companies to the Arab world should not just be about productivity. One of the many virtues of companies is that they provide a constraint on the power of the state. As Peter Drucker has noted, the joint-stock company was "the first autonomous institution in hundreds of years, the first to create a power center that was within society yet independent of the central government of the nation state."

Companies, on an individual basis, are capable of appalling abuses. But in the aggregate, these "little republics" bolster the civil society that makes democracy work. So let the corporation rip in the Arab world. It is one of that unfortunate region's best chances of transforming itself into a prosperous, democratic region--and of acting again as a beacon of light to the entire world.

© Copyright 1997-2004 United States Committee For A Free Lebanon. All rights reserved.

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