Moral Hazard in Iraq?

One domestic and one foreign policy issue have dominated public concern for the last week or so. The domestic issue is the mortgage crisis created by the issuance of so-called sub-prime loans—generally large loans to people financially unqualified for and unable to meet the long-term requirements of those loans—on housing. The policy question is what to do about the ensuing rush of home foreclosures that threatens lending institutions and homeowners about to be dispossessed. The foreign policy issue is the renewed outbreak of sectarian violence in Iraq, which threatens to upset the fragile tranquility contributed to the surge of American troops in the country.

Do these two events have anything in common? On the surface, they do not, but it may be possible to create a conceptual link between them. That link is the notion of moral hazard.

The concept of moral hazard is normally associated with economics, and refers, in a general way, to the problem of what to do when economic institutions act foolishly or imprudently in ways that threatens the economic well-being of themselves and others, such as investors. The problem is what to do when this occurs, and one common way to dissipate the effect of these bad economic decisions is in the form of some kind of bailout that reimburses those who have lost as a result of unwise actions. The rationale for subsidy is to avoid both grievous losses to innocent victims (investors who did not know what was being done, for instance) and the economy more generally. The moral hazard arises because the act of subsidizing those who have committed errors in effect rewards them for their bad behavior and sends a message that reckless behavior not only may not be punished in the future, but may be rewarded. Does one send that message, or let the economy and individuals suffer? That is the dilemma that faced the political system at the time of the saving and loan (S&L) crisis of the middle 1980s, at the time of the Asian financial crisis of 1998, and again today.

The same logic can be applied to reacting to the upsurge in inter-Iraqi violence this past week. The fighting has unglued one fundamental part of the reduced violence equation that has underpinned claims the surge is “succeeding” in reducing violence. The three argued pillars of reduced violence have been the introduction of additional American forces (the surge), the defection of Sunnis from support to opposition to Al Qaeda in Iraq (thereby allying them with the Americans—at least for the time being), and the ceasefire by the Mahdi Army of Sheikh Muktada al-Sadr. Al-Sadr’s forces have broken their part of the arrangement, engaging in battle with Iraqi armed forces (which are, to many observers, simply extensions of other Shiite factions in the country).

What is the United States to do? The first reaction has been support for the so-called “pause” in reductions of American forces as force numbers are returned to pre-surge levels. While the advertised idea is to see what happens after a modest troop reduction in terms of violence, the effect is also to provide something of a buffer against more inter- and intra-communal violence by keeping as many Americans as possible in a position to suppress that violence.

But does that approach not amount to another form of moral hazard? For Iraqis, the effect of more Americans staying is to suppress levels of violence by putting the screws to the warring factions. But is this not rewarding the Iraqis for their bad behavior? If it is, that is the essence of moral hazard.

Why would the U.S. gravitate toward this form of moral hazard? For the same reason that the U.S. government will end up pumping money into the housing market to protect imprudent borrowers and predatory lenders from their bad behavior: it is politically more acceptable to commit the ethereal, hypothetical sin of moral hazard than to kick people out of their homes or to take punitive actions that may deepen the recession. Similarly, the “pause” may reward bad Iraqi behavior, but it also avoids an imminent collapse of the surge-argued peace and allows proponents—whether they are outgoing presidents who do not want the legacy of having “lost” Iraq or aspiring presidential candidates wedded to the cause—to avoid embarrassing consequences.

Is moral hazard in war any more palatable than it is in peace?

Shiites Versus Shiites and the Presidential Election

Fighting between Shiite elements in Iraq—the Iraqi army loyal to the al-Maliki government and dissident members of the Mahdi army loyal to Muktada al-Sadr—adds another complication both to popular conceptualizations of what is evolving in that country and to the contentious debate over the effects of American withdrawal from Iraq. Because whether or when to withdraw is the most visible foreign policy in the 2008 U.S. presidential election, Shiites fighting Shiites resonates in the American political debate as well.

What exactly happened in Iraq last week? Without going into details not widely available, the ceasefire between al-Sadr and the government which has been one of the three pillars of the downturn in violence in Iraq recently (mentioned earlier in this blog space, “Moral Hazard in Iraq?”) broke down. Al-Sadr, from his exile in Iran, apparently ordered his followers (the Mahdi army) into the streets of Basra and later Baghdad to force the al-Maliki government to accede to certain demands regarding suppression and incarceration of some of his followers. Al-Maliki responded by unleashing the Iraqi army on the Mahdi army, and the result was a week of street fighting, with the United States supporting the government forces. It ended on March 31, 2008 with the declaration of another ceasefire by al-Sadr. On the ground, neither side convincingly won (itself a setback for the government, as al-Maliki had vowed to push the Basra campaign to a military victory over the Mahdi army).

What does all this mean? At one level, it demonstrates that Iraq is internally still a very unstable place and that the sources of instability run deeper and are more complex than the simple Shiite vs. Sunni vs. Kurd vs. Al Qaeda depictions with which all have become familiar. In case anyone had missed it previously, the fighting revealed that the Shiite majority in Iraq is not a monolith, but is instead a faction rife with contending sub-factions willing to use violence to achieve their ends. If the political tapestry of Iraq were not already complicated enough, this simply showed how Byzantine the whole landscape is.

What does this mean to the United States, and especially the prospects of American withdrawal? The response of the American political campaigns to these events is revealing, if almost entirely predictable.

The McCain campaign, as discussed in a March 31, 2008 New York Times article by Michael Cooper and Larry Richter (“Iraq Offensive Revives Debate for Campaigns”), reacted by arguing that the incident was both encouraging and cautionary. It was encouraging because, McCain said, the government’s response “is a sign of strength” of the government. On the other hand, McCain’s senior foreign policy advisor, Randy Scheunemann, argues the incident demonstrates that “there are very powerful forces that still remain that do not want to see the success of the central government and that would relish the prospect of the American withdrawal so they could fight or shoot their way to power.” He concludes with the debatable rhetorical question, “Would you rather have the Maliki government in control, or the Iranian-backed groups in control, or Al Qaeda in control?” This set of options is debatable—to say the least—because the Iranians have support among and have backed essentially all the Shiite movements in Iraq, and because no one seriously thinks Al Qaeda in Iraq will be a serious player in the struggle for post-American occupation Iraq.

The Obama and Clinton campaigns, predictably enough, see the whole incident as additional evidence of why withdrawal is the right policy. For Obama, it demonstrated that the presence—including the continuing presence—of American troops does not change the underlying calculus of power in Iraq. That presence, he says, “has not resolved the underlying tensions that exist in Iraq.” The Clinton campaign agrees. Lee Feinstein, her national security director, concludes from the outbreak that “the only way to get the Iraqis to accept responsibility for their future is by no longer extending them an indefinite blank check.”

Does this incident, or response to it, clarify anything about what to do in Iraq? Not really, because no matter what lessons one derives about Shiite versus Shiite violence in March 2008 for the future, it requires extrapolating into a future that cannot be entirely known. Projections are thus easy to make when there are no facts against which to measure them. As former State Department official Aaron Miller puts it in the NYT article, “It’s very much a question of what the ending is and whether it is clear cut.” Since hardly anything in Iraq is ever clear cut, that leaves plenty of room for speculation.

Iraq and the Inelasticity of the AVF

Five years experience with the All-Volunteer Force (AVF) in Iraq has revealed one stark and unexpected characteristic of American military forces organized around the all-volunteer concept: their inelasticity. Put simply, the dynamics of the AVF have shown that reliance on an entirely volunteer military force does not allow the United States to increase measurably the size of those forces in times of conflict. In practical terms, this has meant the United States has been unable to enlarge the forces available and needed to conduct a comprehensive, effective occupation of Iraq. Presumably, the continued reliance on the AVF concept after Iraq will mean the United States will face similar constraints in the future. Does the United States want to increase the ability to expand its forces as exigency seems to dictate (make them more elastic)? If so, how can it accomplish that end? Or, alternatively, does the inelasticity of the AVF provide a useful constraint on the spurious, even promiscuous use of that force in the future?

Elasticity is another way of saying flexibility, at least in military terms. Certainly, one can take any given sized force and make it more capable through training and armaments (so-called force multipliers), and this was the intent of the Rumsfeld reforms of the early 2000s. There are, however, limits to force enhancement, and as the rigors of occupying Iraq have so amply demonstrated, for some tasks there is no substitute for a large armed force: more muddy boots on the ground. All the major candidates seems to recognize this problem, since all of them (McCain, Obama, and Clinton) have called for increases in troop size after their election (as discussed in What After Iraq?). Calls for larger and presumably more capable forces beg the question of larger forces for what?

It is possible, after all, to think of the inelasticity of the current force as a self-limiting virtue: it keeps the United States from pursuing military adventures it should avoid anyway. The United States, after all, could not have become mired in Vietnam had it not been for the apparently endless supply of conscripts to implement the policy, and presumably no one is likely to be foolish enough to propose another Iraq-style occupation with the forces currently in uniform. Do they want more troops so that the United States can occupy somewhere else? They haven’t said.

Greater elasticity in the force requires enlarging or at least planning to enlarge the current force for some more manpower-intensive effort. How could this be done within the AVF concept? Essentially there are three options (all discussed in some detail in What After Iraq?). They are enhanced recruitment, conscription, and privatization. All these options are objectionable, for different reasons.

Enhanced recruitment means reaching out to potential recruits not currently being recruited. In practical terms, this means potential recruits who do not meet current standards, which in turn means people with lower educational attainments than current force members or people with (presumably minor) criminal records. Both amount to diluting or “dummying down” the force, and the Army (which needs more recruits the most) does not want them, because they dilute the quality of the force. Recruiters may not mind dilution, but drill sergeants do. Conscription, of course, is the obviation of the AVF concept, and even to propose it is to commit political hara kiri. Privatization—turning over military functions to private contractors—has been tried in Iraq (Blackwater), and the results have been less than optimal, as the late 2007 Blackwater scandal demonstrated. Moreover, the regular military has issues over control of these very expensive forces.

Inelasticity may simply be a limitation the United States will have to accommodate as long as it adheres to the AVF concept. Despite the limitations it has imposed on actions in Iraq and the constraints it may place on future strategic options, no one is seriously proposing abandonment of the AVF concept. Like it or hate it, inelasticity is simply part of the strategic environment.

The Logic and Language of the Iraq War

“‘War is the continuation of political activity by other means,’ the Great Prussian strategies Carl von Clausewitz wrote over a century and a half ago. His famous dictum, so disarmingly simple and straightforward, is mimicked constantly in discussions about the role of military force in accomplishing the goals of groups or states. Despite its obvious truth and power, it is a statement shallowly comprehended and constantly forgotten.” Dennis Drew and I wrote those words to begin the 2000 edition of our joint collaboration From Lexington to Desert Storm and Beyond (Armonk, NY: M. E. Sharpe), and the statement remains equally true as we ask questions about the outcome of the Iraq War.

The campaign of Republican John McCain has brought into stark relief the question of what constitutes the purpose of the American military action in Iraq. Senator McCain talks about the necessity of something he calls victory, but what does he mean by that assertion? How exactly can we tell when (or if) we have achieved success sufficient in extent to constitute victory? What will the battlefield look like? What will the political situation in Iraq be like? If we are to stay in Iraq until victory is achieved, when will we know we can come home?

Senator McCain’s pronouncements on the subject have not been entirely helpful in answering these questions. Although one can debate the veracity of his claims, he is much more explicit about the consequences of not winning, which he sometimes conflates with losing. Thus, the United States, he argues, cannot abandon Iraq prematurely because the results would be disastrous: Iraq would likely spin into violence and chaos, the terrorists (presumably Al Qaeda in Iraq) would proclaim victory over the United States, and worst of all, they would even pursue retreating American forces back to U.S, soil to carry out terrorist attacks that continued American vigilance in Iraq would presumably prevent. Defeat, he thus argues, is unacceptable.

These evocations are very vivid and colorful, but they do not speak to what the victory he extols would look like. Clausewitz can be helpful here. The major import of the Prussian dictum is that war is a political act, and that the use of military violence is one way for a state to achieve its political objectives (in the historical American mind, force as a last resort when all other methods fail, a rejoinder not clearly followed in Iraq). Clausewitz drew the distinction between the logic and language of war. The logic of war referred to the reasons for going to war and is expressed in the achievement of the political objectives (generally speaking, political conditions or policies the opponent would be forced to accept). By this measure, war is won when its logic prevails: when the enemy either accepts or is compelled to accept the reasons for which war against it was waged in the first place. As discussed at length in What After Iraq? these objectives have various been publicly described as ridding Iraq of WMD and terrorism and instituting political democracy to unexpressed goals like controlling Iraqi oil. The language of war refers to the military actions taken to contribute to achieving the political objectives. The key notion here is the contributory nature of military action: military success (sometimes confused with victory per se) can contribute to victory by facilitating achievement of the political goals. The language of war does not, however, substitute for the logic.

When Senator McCain talks about victory (including the negative statement of avoiding defeat), he seems to concentrate on actions related to the language of war. How can we know that we are moving toward victory, for instance? The answer is that the surge is working. But the surge is an expression of the language, not the logic, of war. It is not enough to say that the United States is enjoying some success in moving toward conditions where it may be possible to advance the political agenda toward some conditions that might constitute achievement of the logic of the war. First, one has to specify where the logic leads. Until that is done, the assertion of progress must be met with the question, “progress toward what?” Your answer, Senator?