Mideast’s Economic Future in Cross Hairs

If the latest round of missile attacks doesn’t unseat Saddam Hussein and install a better government in Iraq, U.S. influence in the Middle East will be diminished, not enhanced, when the smoke clears.

This attack, in which U.S. and British missiles and warplanes are hitting strategic targets in Iraq, will be the last. There will be no international support for future attacks. Indeed, Russia, China, France and other countries are already edging toward renewed business with Saddam Hussein’s regime, eyeing Iraq’s immense oil and gas reserves.

U.S. influence is eroding. “Our ability to control events within Iraq is slipping from our grasp,” says Loren Thompson of the Lexington Institute, an Arlington, Va., research organization that advises the Pentagon.

Russia and the others are looking ahead. They know that the current world oil glut won’t last more than a year or two and that Iraq’s reserves will have great value in the future.

But the economic story of the Middle East goes beyond oil. Countries of the region now have some of the world’s highest population growth rates. From Iran to Morocco, populations are growing at double the rates of European, North and South American and even most Asian countries. Most of the 200 million-plus people in the Middle East, including the 22 million of Iraq, are under 15 years of age.

The area’s young people are a wave about to break upon the world, either in the form of productive citizens in growing economies and markets or as restless, underemployed people, seething in unrest at home or streaming up to Europe for jobs.

So now, more than ever, the Middle East needs stability and economic modernization. The region needs U.S. economic influence and international investment. But if Saddam Hussein remains in power, needed change won’t come. Instead, the Middle East will remain mired in hostility and stagnation.

And the region can no longer afford to stagnate. In most countries, whether ancient monarchies or socialist states, governments have been the main providers of jobs and economic projects. But now even oil-rich governments can’t afford to make jobs for their rising populations.

The region’s young people, in any case, want a better life. They can see that their counterparts in Asian countries, even with current economic troubles, live better than most people in the Middle East. Closer to home, the lesson is before them every day that brains and modern industry are worth a lot more than oil. Israel, with an economy that mixes agriculture and high technology, has double Egypt’s annual output of goods and services--even though Egypt has 10 times Israel’s population.

And Israel’s output is more than five times that of Iraq, a once-prosperous country that desperately needs help because 20 years of rule by Saddam Hussein have impoverished it.

A decade ago, after Saddam’s ruinous war with Iran but before the Gulf War, Iraq’s annual output of goods and services totaled $54 billion, calculated in current dollars. Today that gross domestic product is roughly $18 billion.

“It’s a tragic country,” says economist Laurie Brand, an expert on the Middle East who teaches at USC. “Iraq had everything going for it--water, agriculture and oil.” Also, Iraq had one of the most advanced economies in the Middle East, led by educated men and women who created modern medical care and other advanced institutions in Baghdad.

The resources are still there, of course--the water of the Tigris and Euphrates rivers, the fertile land. Iraq, like most oil-rich countries, neglected its agriculture to the point that it had to import food even before U.N. sanctions embargoed its trade.

Still, if this final U.S. and British effort can lead to the fall of Saddam and his replacement by a responsible government, Iraq’s promise could be restored. Investment would make sense in such a country.

First, oil investment would rush in. “You’d see every Halliburton and Baker-Hughes in there” fixing wells, says oil expert Albert Anton Jr., mentioning major oil service companies.

Today’s low oil prices will force cutbacks of high-cost production in Canada, the Gulf of Mexico and many other areas, says Anton, a partner of Carl H. Pforzheimer & Co., a New York investment firm specializing in energy. So if Iraq opens up, the French companies “Elf Aquitaine and Total, along with Texaco and many other oil companies,” will rush in, he says.

The rebuilding of Iraq’s middle-class economy would attract capital. And, a point for Westerners to keep in mind about Iraq and other countries: The Islamic religion is no bar to investment.

Indeed, Islam’s economic tenets, reflecting the fact that the prophet Muhammad was a small-businessman, might have been written in a productivity handbook. Capital must be fully employed, is one rule. Land should be drained to grow as large a crop as possible, and there should be no monopolies to restrain trade.

Sure, governments and politics often distort the tenets of Islam. But governments do that with the rules of all religions.

As with Middle Eastern turning points dating to the Gulf War, the question remains how to bring about the fall of Saddam Hussein. U.S. efforts so far, including the current bombing, “seem like a whirlpool, full of destructive power but going nowhere,” says analyst Jerrold Green of Rand Corp., the Santa Monica-based defense think tank.

Still, the unstated aim of this attack series is to bring Saddam’s government down. President Clinton said Wednesday that a “new Iraqi government” would be the best way to bring peace to the Middle East.

More is riding on the success of these attacks than is acknowledged in U.S. debate and discussion. If the attacks end and Saddam is still there, with no real change, “U.S. credibility will be shot,” says William Niskanen, head of the Cato Institute, a conservative Washington policy organization. And if U.S. influence is diminished, the outlook would also dim for constructive change in the region.

The high stakes in the battle over Baghdad are testament to how critical is Iraq, an Arab state capable of leading the Arab world for good or ill. Freed from despotism, Iraq could bring the stability and development the Middle East needs to create jobs for its young people.

Eight years ago at the end of the Gulf War, President Bush declared a “new world order” in the region. Saddam outlasted Bush and, needless to say, that order has not dawned yet.

Let us hope he doesn’t now outlast Clinton.

James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.