September 30, 2008
Marshall Plan vs Iraq War: Costs
Another trivia about costs: Several sources indicate the war in Iraq has cost about $550 billion so far. Comparatively, the Marshall Plan which helped repel communism in Western Europe by bringing prosperity and stability there, cost $13 billion, which in today’s money is equivalent to anywhere between $100 and $750 billion. Applicability of such a plan in MENA today vs. post war Europe?
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To quote my colleague: two words -- human capital.
Posted by: matthew hogan at September 30, 2008 11:17 PM
with the Iraq War, don't forget a great deal of the expenses for that have not gone directly to the Pentagon, but have been funded towards contractors - ie, Blackwater and KBR, although their 'troops' make up almost half of the American occupying force, are largely paid through the State Dep't - & I believe Joseph Stiglitz and several other economists said that the true costs were over $1.5 trillion, soon to be $2 trillion.
One other thing that's been running through my mind about Germany and post-WWII Europe - ie, the Marshall Plan: having the country destroyed by bombing was almost a benefit for allowing reconstruction on a systematic basis, leading to the well-organized (every town of ~100,000 in Western Europe has a decent transit system, including buses and trains) - and a massive influx of Turks and other willing workers didn't hurt.
Iraqis are (especially if one considers the ex-pat population) well-educated and have more than enough engineers to do the jobs that have been done by the 'Coalition' Forces, if they were trusted and approached wisely. I think especially of the fact that 100 days after Gulf War 1, in 1991, Saddam had the electric towers re-established all over Iraq. (His methods were harsh, but then Abu Ghraib and associated torture prisons were hardly friendly gestures either)
Posted by: dawud at September 30, 2008 11:32 PM
To quote my colleague: two words -- human capital.
That's one of the rare points on which I disagree with said colleague. Or to be more accurate, I disagree on the explanatory power of the issue taken in isolation (beyond general lack of awareness of basic pre-requisites for successful entrepreneurship). One of the characteristics of highly successful start-ups is their own ability to attract and/or develop human capital, and importing adequate human capital to MENA is not that difficult on a per company basis.
BTW, I've known a few successful European entrepreneurs from the post-war generation - and few were that sophisticated in comparison to anything educated you'd find in MENA today.
Let me elaborate one step further, on my disagreement with L.'s assertion re human capital which I find too broad.
Seed capital and entrepreneurs are not meeting. Entrepreneurs do not need to come up with the latest high tech innovation to answer a market need in or from MENA. International labor arbitrage or local markets underdevelopment alone are sufficient to create a myriad of opportunities. Mere imitation is often more than enough. If not, small incremental improvements or simple adaptation to environment should make it. That kind of thinking and entrepreneurial spirit are not lacking in MENA, I've seen them repeatedly.
OTOH, entrepreneurial energy alone is not enough. Would be entrepreneurs fail to remotely meet the minimum requirements for professional/sophisticated seed funding and can only rely on love money, which in MENA is scarce and usually does not stand the test of initial failures or negative cash flows. The picture is even worse: it isn't that they would visit an angel investor who would tell them, "sorry, not good enough". It's that they don't even have a clue as to their existence. If they did, the situation of entrepreneurs not finding capital would be temporary since at least part of them would upgrade their skills/experience/networks to the necessary level.
Now, maybe there's some way the market could get around this failure by itself, I don't know. But going back to this entry, if the US is willing to spend so much money, then using it to upgrade would be entrepreneurs or reduce risk/cost of failure to professional seed investors to make them meet would definitely be a very effective development tool in MENA. In fact, it could be done in a way that is actually profitable, businesswise even and not just securitywise, to the US.
Foreign Policy in Focus,
webpage link : fpif.org/fpiftxt/5565
(or click on the name for the link to the review quoted below)
It takes half a million dollars per year to maintain each sergeant in combat in Iraq. Thanks to a Senate committee inquiry, an authoritative government study finally details the costs of keeping boots on the ground. The Congressional Budget Office (CBO), in its report Contractors' Support of U.S. Operations in Iraq, compared the costs of maintaining a Blackwater professional armed guard versus the U.S. military providing such services itself. Both came in at about $500,000 per person per year.
News reports of the study have largely focused on the total cost of U.S. contractors. The 190,000 contractors in Iraq and neighboring countries, from cooks to truck drivers, have cost U.S. taxpayers $100 billion from the start of the war through the end of 2008.
Posted by: dawud at October 2, 2008 12:25 PM
Well, I don't really disagree with your disagreement.
Seed capital and entrepreneurs are not meeting. Entrepreneurs do not need to come up with the latest high tech innovation to answer a market need in or from MENA. International labor arbitrage or local markets underdevelopment alone are sufficient to create a myriad of opportunities. Mere imitation is often more than enough. If not, small incremental improvements or simple adaptation to environment should make it. That kind of thinking and entrepreneurial spirit are not lacking in MENA, I've seen them repeatedly.:
Here absolutely, brining incremental change in a lower cost environment is often enough to win very decent - not US California style but decent venture returns.
The match up of seed capital to entrepreneurs is not easy even in a US style environment. In areas of very weak contract enforcement, the issues get far, far worse.
How to resolve the intermediation issue, I am not sure. I do maintain that the overall depth of human capital available is not great and seems to be misallocated. But this requires a ponder.
Posted by: The Lounsbury at October 4, 2008 10:01 AM
I do maintain that the overall depth of human capital available is not great and seems to be misallocated.