Iraqi Kurdistan’s Clientelistic Economy: Linkages Between Political Parties, Market, and Individuals in Iraqi Kurdistan

1 year agoANALYSIS

By Mohammed Hussein

In Iraq and the Kurdistan Region of Iraq, political parties and their leaders use public funds and economic resources to widen their popular bases and support. They also use their political and administrative positions in the Federal Government of Iraq (FGI) and Kurdistan Regional Government (KRG) to increase their wealth market stakes. In turn, they also use the wealth accumulated in this way to stay in office. This relation between money and power, known as clientelism, has worked in an uncontrolled and concerning way in FGI and KRG as well. Analysing this relationship assists understanding most of the financial, political and economic issues facing the both governments. This paper is an attempt to analyse financial and political issues facing the both governments. It also aims to discuss how this model has come about in different levels of state institutions.

Convenience and Money in Erbil and Baghdad
Recently, Baghdad and most of the other Shia majority cities have faced a wave of popular discontent and protests. The protesters are mainly from Shia majority areas that have, for the last 16 years, supported and voted for the current Iraqi ruling elite. Angry, hungry and unemployed, they are now demanding to change the entire political regime of Iraq with new constitution, laws, and new institutions being ushered in. They believe that the current political system has achieved nothing except for impoverishing ordinary Iraqi people. It is noteworthy that much of the political literature that has been published in Iraq since 2003 discusses the current political system as an elitist model that is propped up through corruption and favouritism. In particular, it notes that current leaders distribute employment, benefits, amongst their loyal sectarian supporters, which are in the same protesting areas. However, given that the ongoing protests, arisen against them in their back yards, there is a significant problem with this political system and economic model. 
The economic model that governs both FGI and the KRG is a patron-client model. This model manages natural and financial resources in a manner that forces individuals to align with political parties and social groups to survive. Each individual needs a patron to gain access for jobs and public benefits. The patrons can be political parties, wings and groups within political parties or politically linked tribes and families. 
In this system, there is a patron (political leader) that distributes economic opportunities through salaries, employment, benefits, business and investment opportunities. This individual can be any political leader that has control over state institutions. On the other hand, the clients are individuals who feed off the political leader and benefit from the opportunity he/she provides. In essence, these individuals sell their support for the opportunities provided by their respective leaders.  

While In any normal society and market, productive work is the main source of income generation, in such a clientelism being loyal to ruling political groups is one of the key determinants of income. It is basically what determines to which to which quantiles of income distribution you are standing. If an individual or family falls out of favour with their patron, they would be at high risk of poverty as a result of unemployment and missing opportunity.
In Iraq and the Kurdistan Region of Iraq, where about 9 million people live under poverty line (according to the World Bank poverty rate is at 22.5 percent) there were individuals who were employed full time in three separate state roles; till implementing the KRG’s biometric state employee registration system, (1). Currently, there are hundreds of thousands of the so-called “ghost employees” in Iraq - individuals who are employed by state institutions but do not physically work. (2)
Economic systems of this kind often develop in third world countries, usually those that are dependent on the sale of natural resources. Due to the weakness of their political, economic and legal systems, whoever controls the major political parties and thereby control state institutions also control the state’s income. Moreover, they can use the revenue to serve their personal and party interests with minimal oversight. Ultimately, state resources would be used by these parties to buy population’s support. (3) Naturally, most leaders and politicians prefer to use state’s resources and public expenditures to increase their support bases. In developed countries, political parties are restricted from doing this because of strong state institutions; however, for the states in question, this is easy due to institutional weakness. 
Historically, the patron-client economic system in Iraq and Kurdistan dates back to the Baathist Era in 1970s, after nationalizing Iraq’s oil sector. An irresponsible system with poor management of oil-revenue started to use public resources for buying political supports. During the Nuri al-Maliki government, this system reached its peak as the state and military were filled with members and supporters of the Iraqi Dawa Party and their coalition partners. It reached to a point when in 2015 (when Maliki was forced to resign) the number of state employees (including military and security forces) reach 6 million, 70 percent of the countries entire workforce (4). 
In Kurdistan, while the patron-client model has been with the Kurds from the beginning, it did not become an issue until 2003, when the KRG gained access to significant Iraqi oil wealth following the fall of Baathist Regime. However, as soon as it began receiving its share of the Iraqi budget, the patron-client model accelerated. The political parties became so wealthy that the ability to become a patron trickled down to KRI’s power hierarchy. Even members of parties’ leadership councils were able to provide employment and economic opportunities to their clients.
Besides, the region’s private sector is dominated by the ruling parties and governed by the patron-client model. According to the KRG’s department for statistics, approximately 50 percent of the region’s total workforce work in the public sector (45 percent male and 80 percent female). (5) In contrast, the total national workforce working in the public sector is 15.3 percent in United States, 12.4 percent in Turkey, and10.6 percent in Germany. (6)

Undoubtedly, the causal factors of the management of natural resources in this way are human, economic and institutional underdevelopment in a given state. It is not right to argue that natural resource wealth in itself is a curse. Much has been written about the so-called oil curse in the last thirty years. This line of thinking concentrates on the relationship between oil wealth and human, social, and democratic underdevelopment. However, it is important to note that the possession of natural resources in Canada and Norway, for example, has not become a curse for these nations, when at the same time similar natural resource wealth in Iraq and Libya, for example, has brought these states to the brink of collapse. Therefore, the only difference between these two examples is the economic systems that govern natural resource.

Concerns of the Patron-Client Economic Model 
Most of the research and publications available describe the patron-client economic model as a cause of bad governance, reason for institutional weakness, obstacle to economic development, inequality, and restrictions on civil liberties and freedoms. In some states, such as Iraq and Libya (7) the system has brought about an oligarchy, wherein a small group have gained control over all power-centres and resources. Due to internal rivalry and competing interests, these groups have caused political and security instabilities in their respective nations.

It is for this reason that political and economic problems prevalent in both FGI and KRG. Here, a small group of oligarchs govern, whose interests are often in conflict with one another and; consequently, they have put governments at risk of internal conflicts, the breakdown of stability, and economic collapse. If we take the tensions between Baghdad and Erbil, the war against the Islamic State, the crackdown on protestors, and the purging of Maliki’s opponents as examples, this pattern becomes evident. 

Therefore, the patron-client model not only weakens economic and human development, but it also increases the bulk of corruption and increases security risks at national levels. (8) As the system only serves the elite and their patronage networks, those who have been dispossessed are always looking for an opportunity to change the whole economic and political arrangement in their favour, trying to re-define their relationship with power in the way they would see them empowered. Simply put, this creates competition between political elites as this pattern is often played out between a group of different elites who are competing for a limited source of wealth. The wealth available is not enough to serve all their interests, and as a result, competitions between them turn to conflict and violence. 
In this type of economic system, violent conflict is an ever-present possibility to resolve political differences because state institutions are weakened as they only serve the interests of the ruling elite. Here, election manipulation is commonplace; the courts and institutions serve the oligarchs. All these together create a hostile and power-struggle environment in which only the elite can win. Hence, it is the power and ability of these elites that allows them to remain on top of the state pyramid and not its support base. 
In this hostile political environment, any disagreement or competition within the governing elite or oligarchy raises the possibility of significant political crisis and economic collapse similar to the chain of crises that hit the KRG in 2014. For example, data from the World Bank reveals that the poverty rate in the KRI until 2012 was 3 percent; however, in 2014 (when hostilities between leaders in Baghdad and the Kurdistan reached their peak) this figure increased to 12.5 percent. (9) If the population of the Kurdistan is 6 million, then these figures would suggest that the number of people who fell under poverty line raised from 180,000 in 2012 to 750,000 in 2014. This raise may be unbelievable to someone who has not lived in the region because it is unprecedented for a country that not faced natural disasters.
Other than risks to stability, the creation of unnecessary jobs in public sector is another consequence of the patron-client economic model. In the KRG, almost 50 percent of the workforce is employed in the state institutions. However, the region’s leaders look abroad for services they require in education and health. The KRG has contracted an international accounting firm called Delloite to manage its oil accounts. Therefore, as the public sector has been unnecessarily overcrowded, the quality of its services decreased. 
Another risk associated with the patron-client model is increased corruption. This model makes controlling corruption difficult since it creates a state in which only oligarchs who accumulated huge wealth can survive. (10) The whole economic model and that factor that allow it to continue can be seen as a type of corruption, which has put Iraq on the list of the world’s most corrupt countries.
In respect to the Kurdish social map and class divisions, the patron-client economic model plays an influential role. When the international oil price was at its peak, the KRG’s income and politics were considered good. The system was able to support the process of urbanisation and the migration of the agrarian classes to the cities. This allowed for social mobility, pushing them into the middle classes. The government was able to do this through the distribution of state jobs. It is for this reason tribal leaders in the Kurdistan’s agricultural heartlands were able to continue to wield their influence in the new economy. In return, the Iraqi and the Kurdish political parties have been able to take advantage of these tribes by utilising them to increase their respective influence and support base. Ultimately, this relationship has worked to elevate the status of some tribal leaders to the region’s business and economic leaders (11). 

Weakening State Institutions
The patron-client economic model is an outcome of certain political willingness, but its engine is public funds and fiscal domination. Generally, this system reduces economic growth, increase corruption, and put employment and business opportunities in hands of oligarchs. Therefore, the role of state-institutions gets weakened with the continues power struggle among oligarchs. 
The term of institutions, in this context, covers all laws, social norms, and political values organize economic and political activities in a certain state. When the institutions weakened, the market can not function through normal means and property rights get weekend. Markets become a stage for political mafias’ competition rather than free-market competitions. This creates an environment hostile to foreign investment, and employment opportunities remain in the hands of political leaders and their armed forces. Labour market of armed groups becomes the first point of call for the territories youth looking for employment opportunities. Hence, in its first attempt to meet the protestors’ demands, the outgoing Iraqi Prime Minister Adil Abdul Mahdi promised that he would create employment opportunities within the Iraqi armed and security forces.  
When the role of institutions is weakened, economic growth would also slow down, foreign investments can’t enter the country, private enterprises get weekend unless they become politically linked company. Here, they all stop from creating employment for the population due to its inability to compete in the market. That is why the model leads to bad governance and work to increase corruption, which conspires to weaken state institutions. (12) 
Sometimes the patron-client model is defended and described as an economic model with some benefits, in that it does not let corrupt funds and money gained from oil wealth leave the home country. Furthermore, it is sometimes seen as a mechanism to redistribute money through the provision of salaries for lower classes. However, these advantages do not serve all people equally as the patrons cannot make the whole population their clients. Simply put, if they were able to satisfy the whole population, then they would not have needed to rely on the patron-client model to secure support. (13)
Meanwhile, many of the jobs been awarded to people in the state sector are low-level jobs with very low incomes. Plus, they are not productive and efficient. Currently, the both FGI and the KRG cannot collect bills of its subsidised water and electricity to public. Put another way; the governments are unable to get people pay for the subsidised services. This is one of the simplest but clearest examples of the inherent weakness of the Iraqi and Kurdish state sectors. According to Fatih Baerol, Head of International Energy Agency, 40 percent of the public electricity in Iraq is wasted the money for the service is not returned to the Iraqi government. In this, Iraq has broken records, as in the most underdeveloped regions of Africa, electricity wastage is at 14 percent of total energy provision. (14)

Kurdistan Is More Vulnerable to the Effects of The Patron-Client Model
Kurdistan Region, as it is weak strategically in front of its neighbours, its institutional weakness has made it more vulnerable towards all the issues the same patron-client model created. The region’s market is totally monopolized by a bunch of politically linked companies. If you look at the companies’ that billions dollars-worth projects, you immediately see the shadows of leaders who have stakes in these companies. Even though there is no reliable data on the net worth of Kurdistan based companies, the shape and look of the market show us how a few companies, connected to the Kurdish leaders, have monopolised the market. This is true across the market from the energy and natural resources to the telecommunications, food, tobacco and medicines.
Existing literature and data on this model show how the such an oligarch system have the ability to increase productivity in their respective companies compared to those that luck political support.
In the KRG, there are no rules, institutions, and polices to protect the poor against the greedy monopolistic companies. Moreover, the general rights and benefits, consumer rights, rights of future generations have not been taken into consideration in the current market polices of the region.
On the key issues of the KRG and the FGI is luck of the role of unions and NGOs. These organisations can play a significant role in opposing economic inequality and injustice; however, they are trapped under the influence of the political elite. Trade unions, elsewhere, have shown that they can play a great role in reducing the gap between rich and poor. (15) 
A large portion of the contracts and projects that have been given to politically linked companies based on the patron-client model organized under the title of investment and privatization. This process, apart from what its ideological enemies and supporters saying, might cause immense problems if it is done in a proper way. Following the collapse of the Saddam Hussein regime in 2003 the Paul Bremer administration brought privatisation and free market regulations to Iraq. It wanted to duplicate the model that has been implemented in the Post-Soviet Eastern European countries in Iraq. However, in Iraq the privatisation caused economic problems due of a number of structural and historical factors that left Iraq underprepared for such a shift toward market economy. These factors include; the weakness and collapse of the Iraqi infrastructure that followed thirty years of conflict and instability, the weakness of Iraqi companies when it came to market competition, the poor security and later high unemployment. (16) 
While in the Kurdistan Region of Iraq the process of privatisation went hand in hand with a policy of promoting international investment and developing the private sector, to date it has only increased corruption. In other countries, the process of privatisation is followed for a set of objectives such as increasing efficiency, restricting state and political interference in the markets, increasing the quality local production, acquiring funds for the state by selling off unutilized public assets. It is clear that the Iraqi and Kurdish privatisation in no way follows these aims and objectives. 
Many of the polices and regulations that were passed in support of the privatisation, such as the KRG’s investment law and the Kurdistan oil and gas law, have been used in favour of the oligarchs and to consolidate the patron-client model. Many of the investment projects (with respect to scale) were for housing projects because, in the housing sector, there are great profits to be made in a short time period with little risk. This was at a time when Kurdistan would have benefitted from investment in its industrial, and tourism sectors as growth in these sectors would have seen significant increases in employment. No one can live in a nice vela or apartment alone, they also need a job to source income. 
The investment law, as a result of the patron-client model, created geo-economic inequality. Sulaimaniyah Province, which is equal in size and population to Erbil, only received 26.7 percent of investment projects when Erbil received 44.4 percent. (17) These figures make it clear that investment in the region has been divided unfairly between the provinces. This inequality has been created by bad policies and poor management. Put simply; it is the result of the patron-client economic system. It is not just the rules and regulations that have created this unequal distribution; it is rather those political leaders that have directed investment based on this model in the past 12 years. 
Hence, it is important to note that good policy alone is not enough if there is no proper market and political environment to implement it. Any policy or plan towards privatisation will only benefit the oligarchs and the elite if it will not address the needs of poor society and the market. 

The patron-client economic model, which has for the last forty years been the dominant economic model in Iraq and the Kurdistan Region of Iraq, has created a number of political, economic and fiscal problems. These problems range from corruption and bad governance to reduce efficiency of public sector; ultimately, it has been widening the gap between the rich and poor in society.
These problems have become the cause of significant degradation in the country’s political, economic and security situation. The size and scale of crises, created by this model, in Iraq and Kurdistan have increased on a daily basis, so the quality of political leadership also decreased. If the patron-client economic model in other contexts only lowers economic growth, here it has empowered a bunch of oligarchs whose ruling system has generated instability. 

2019. Iraq’s Economic Update. April. Accessed October 2019.
2- Hussein, Mohammed. 2019. Political Parties Thwart Iraq’s Anti-Corruption Efforts. June 22. Accessed October 7, 2019.  
3- Roniger, Luis. 2004. “Political Clientelism, Democracy, and Market Economy.” Comparative Politics 36 (3): 353-375. 
4- Jiyad, Sajad. 2015. The Employment Crisis in Iraq. April 28. Accessed October 8, 2019.
5- ده سته ی ئاماری هه رێمی كوردستان. ٢٠١٩. هێزى كار.
 Accessed ٢٠١٩.
6- Pariona, Amber. 2017. The Best Countries For Employment In The Public Sector. August 15.
7- Kamal, Ebney Ayaj Rana and Mustafa. 2018. “Does Clientelism Affect Income Inequality? Evidence from Panel Data .” Econpapers (Econpapers) 26 (1): 1-24. 
8- Wilson, James Q. 1961. “The Economy of Patronage.” Journal of Political Economy (The University of Chicago Press) 69 (4). 
9- Ibid. 
10- Singer, Matthew M. 2009. Buying Voters with Dirty Money: The Relationship between Clientelism and Corruption. August 29.  
11- Leezenberg, M.M. 2006. “Urbanisation, Privatisation and Patronage: the Political Economy of Iraqi Kurdistan.” In The Kurds: Nationalism and Politics, 151-179. Londen: Saqi Books. 
12- Robinson, Daron Acemoglu and James A. 2012. Why Nations Fail . Profile Books .
13- Verdier, James A. Robinson and Thierry. 2013. “The Political Economy of Clientelism.” The Scandinavian Journal of Economics (Wiley on behalf of The Scandinavian Journal of Economics) 115 (2). 

14- HEUVELEN, BEN VAN. 2019. Q&A: Fatih Birol, head of the International Energy Agency. April 24. Accessed October 8, 2019.
15- Brennan, Jordan. 2016. “Rising Corporate Concentration, Declining Trade Union Power, and the Growing Income Gap.” Levy Economics Institute of bard College , March .
16- Abboud, Samer. 2008. “Failures (and successes?) of neoliberal economic policy in Iraq.” International Journal of Contemporary Iraqi Studies Volume 2 Number 3.
17- Fatah, Rabin. 2019. KRG’s Challenges to Return to Its Pre-Crisis Investment Level. July 24. Accessed October 09, 2019.

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