4. Livelihoods and Poverty

The impact of sanctions on Iraq's macroeconomy is of concern ultimately because of the effects of sanctions on living conditions. In this section we document and analyze changes at the micro-level in the livelihoods and the command over resources of various groups of the Iraqi population. For most groups (particularly public-sector employees), changes in prices translate into a roughly similar decline in the real value of income left after the purchase of the ration. Trends in wages and earnings are examined in section 4.1. The price of the ration basket has been revised upwards only periodically and by a margin well below the inflation rate. The ration system has been for most Iraqi households the principal cushion against starvation. The details of the ration system and its crucial role in preventing deprivation are outlined in Section 4.2. In section 4.3 we document some observations about the kind of survival strategies employed by households to make the ends meet. Some specific factors in vulnerability are discussed in section 4.4.

4.1. Trends in Wages and Earnings

As we have noted above, a benchmark period for "normal" economic conditions in Iraq is hard to specify. Prior to the invasion of Kuwait which triggered the sanctions, Iraq had been in a war with Iran for the best part of the 1980s. The pattern of employment of the labour force was heavily influenced by that war and what it would have been under the conditions of peace is difficult to specify. For what it is worth, the 1987 census showed that the largest employer by far, accounting for nearly half of all workers, was the service sector.¹⁸ Nearly a quarter of all workers were employed by the government, and a large proportion of those by the armed forces and the security services. Sectors with significant numbers of the self-employed, such as agriculture and wholesale and retail trade, accounted for a small proportion of the labour force, around 12 per cent and 6 per cent respectively.

The 1977 census, the last one under peace conditions, gave the proportion of agricultural workers as around 30 per cent, and the proportion of wage-employees in the workforce as around 60 per cent.¹⁹ It would be fair to conclude that before the Gulf War, and even prior to the Iran-Iraq war, Iraq was a fairly urbanised society, with a relatively small proportion of the workers engaged in agriculture and a large proportion of the workforce reliant on salaried employment for their livelihoods.

In August 1991, one year after the imposition of sanctions, the employment pattern showed clear effects of the defeat in the Gulf war and the sanctions. First, there were obvious signs of a massive demobilization, implying a large reduction in the number of government employees. Secondly, there had been a large decline in formal sector regular employment in the private sector because of the downturn in economic activity and enterprise closures. This decline appeared to have been more or less compensated by a rise in informal private sector activities including petty trade, casual labour, and various forms of self-employment. Thirdly, there were no retrenchments in the civilian public sector and the nominal salaries of public sector employees had remained unchanged for a year. Fourth, a large number of foreign workers had departed from Iraq. On the basis of these developments, the 1991 study concluded that employment had stagnated, as had nominal earnings, and that, abstracting from the subsidised rations, real incomes had declined more or less in line in the inflation rate. There had been a huge rise in prices, and according to the food price index, real earnings had declined to between 5 to 7 per cent of their pre-sanctions levels.

It was quite remarkable, that for a whole year after the imposition of sanctions, nominal earnings had remained frozen. The first major pay rise following the sanctions was made in September 1991, when the government increased the salaries of public employees across the scale. This was followed by regular increases till December 1995 when the first pay cuts were announced. To get an idea about changes in real wages and earnings, it is important, of course, to use some relevant deflator. One possibility is to use a food price index of the type presented in Figure 2 above. Prices in Iraq at the time of our survey, however, were extremely volatile. Day to day changes in the exchange rate were reflected very rapidly in changes in food prices, and also in the casual wage rates. Since we are interested in comparing changes in earnings between different types of activities, it would be helpful to use a deflator that Iraqis themselves are likely to use as a benchmark for wages and other prices. In Table 3 we present all wages and earnings in terms of wheat flour equivalents.

In terms of wheat flour equivalent, there was a marked decline in wages and earnings between 1991 and 1996. The decline was the most pronounced for public sector salaried employees. The salary of a middle ranking civil servant, for example, which commanded 80 kilograms of wheat flour in 1991, was equivalent to only 16 kilograms in May 1996. Other people on government salaries such as pensioners, workers in public sector enterprises and army soldiers also saw declines of the order of sixty per cent. Among public employees the best protected were professional army officers, whose real incomes declined by 45 per cent.

Public sector salaries are revised periodically by the government to compensate for inflation, but only partially. Even public sector factories and other economic enterprises generally run at a loss because the prices of many of their outputs are administratively controlled. Public sector wages are not good indicators of the decline in economic activity in the private sector. Private sector salaried employees were better protected against inflation but not unemployment. Skilled textile workers, for example, appeared to have lost by only 17 per cent. Similarly, unskilled factory workers in the private sector saw their real wages decline by 43 per cent. The informal private sector saw losses of a similar magnitude. Daily wages of casual unskilled labourers as well as earnings from petty vending declined by around 40 per cent.

One group of self-employed workers, namely those in agriculture, are prima facie better placed than most other workers to protect themselves against price rises. Incomes in agriculture depend on the quality of the harvest and the price of the output.²⁰ Real incomes of farm households, therefore, ought not to be adversely affected by rises in food prices, if the market for agricultural produce operated without restriction. In Iraq, however, there is a state-controlled system of grain procurement, under which the government buys the entire harvest at set prices.

There has been almost no change in the relative procurement price ratios of the various foodgrain crops (including barley, rice and three grades of wheat). We can take the procurement price for Class 1 Wheat as the benchmark. Before the sanctions, farmers received 270 dinars per ton. In terms of the market exchange rate, this was equivalent to around . In 1991 the procurement price was 800 dinars, or around 0. The nominal price kept rising till 1995, but these increases did not keep up with the depreciation of the dinar. By 1994 the procurement price had been raised to 35,000 dinar, but was equivalent to less than . In 1995 the price was raised further to 105,000 dinars per ton. At the market exchange rate of 2,000 dinar per dollar in the middle of 1995 (the wheat crop is harvested in May) the real price was just over . In 1996 the procurement prices remained unchanged, and this implied a real gain for farmers as the exchange rate had improved considerably in the dinar's favour.²¹ In dollar terms then, the 1996 price was exactly the same as the price in 1991 -- i.e around 0 per ton.²²

Although procurement prices, and therefore agricultural incomes, fluctuated like other incomes over the last six years, they were no lower in 1996 than they had been in 1991, and were, indeed higher than they had been in 1990. This does not necessarily imply that farmers' real purchasing power was higher in 1996 than before the sanctions. Even if we do not consider the effect of sanctions on the quality of the harvest, the purchasing power of a dollar was much greater in 1990 than in 1996 since a large number of essential consumer goods were costed at the overvalued official exchange rate.²³ The fact that since the sanctions, agricultural workers have been somewhat protected against price rises is particularly significant given that there has been a large reported rise in the proportion of the workforce now employed in agriculture. According to the estimates of the Ministry of Labour and Social Welfare, nearly 40 per cent of the workforce were now engaged in agriculture in some way or another.²⁴

Many public sector employees supplement their incomes with a second job or self-employment in the informal sector. For those with jobs in the public sector, recourse to secondary employment might imply that they make only token attendance at their main job. For certain groups of public employees, however, this can have serious consequences. It is perhaps not surprising that professional army officers, for instance, were among the few groups in the public sector whose salaries kept pace with the rest of the economy. We also came across several cases of professionals such as doctors or teachers who could afford to do their jobs only because they had other sources of income in the family.

Petty trading and unskilled casual labour are, in general, "bottom line" activities which have virtually free entry. There appeared to have been a dramatic rise in the number of people, including young children who were involved in these activities. We discuss this further in section 4.3 below. Here it is worth noting the extremely low rate of remuneration in these activities. An unskilled labour in Iraq can expect to earn the equivalent of 3 kilograms of wheat flour for a day's work. In comparison, unskilled agricultural labourers in West Bengal, one of the poorest states of India, can expect to earn the equivalent of 6 kilograms of rice, the staple food in that area.²⁵

4.2. Importance of the Monthly Ration

The importance of the state ration system in providing sustenance to the Iraqi population was recognised in the 1991 study. It was found then, that given the extremely low levels of incomes, the food ration was the main factor in preventing the onset of large-scale hunger and starvation in Iraq. Five years hence, the situation remains the same, and in fact, the importance of the food ration system as a lifeline for ordinary Iraqis has increased considerably.

Each family is registered with a ration agent (a private grocery store) in its locality, who maintains a detailed record of households (the number and ages) receiving the ration. The family's ration bundle consists of equal entitlements for each of the members aged over one year of various food and other items, and a fixed monthly ration of infant formula milk for each child aged up to one year.²⁶ There has been little change in the quantities of various items included in the ration (Table 4). While there has been a decline in the ration amount for some items (wheat flour, rice, sugar and baby milk), there has been an increase in supply of other goods (cooking oil, tea, soap and washing powder).

The value of the ration bundle for a family of six (including one infant) in terms of wheat flour equivalents (i.e. in terms of the market value of the bundle denominated in terms of the market price of wheat flour), has gone down from 88 to 79 kilograms -- a reduction of around 9 per cent. The nominal cost to the family has declined from around 4.6 kilograms of wheat flour to 2.5, so that the subsidy element in the ration has declined somewhat less than the total value (Table 4). Given the decline in real earnings of the order of 40 per cent or so, the relative value of the ration to Iraqi families has, nevertheless, increased. For an unskilled worker who supports a family of six, and who manages to find work 25 days in a month at the going wage (3 kg of wheat flour), the value of the ration is equal to his entire month's earnings. A professional army officer with a relatively high salary for the public sector earns about a third less than what the ration provides.

In comparison with levels of food consumption prevalent in Iraq before the Gulf War, the ration covered only around one-third of the total. The average monthly consumption of wheat flour, for example, was around 24 kilograms per person, compared with the ration entitlement of 8 kilos.²⁷ A household consumption survey from the early 1970s estimated monthly per capita wheat flour consumption as just under 15 kilogramme.²⁸ While the differences in these consumption estimates might be due to differences in methodology and data sources, the rise in food consumption between the early 1970s and the late 1980s is consistent with the growth in per capita incomes over this period, and the extremely low food prices in Iraq before the war.

It can be argued that the pre-sanctions food consumption is not a good indicator of food needs, since Iraqis were, in some sense over-consuming.²⁹ Judging by a more frugal standard of consumption, the ration does indeed cover a greater proportion of needs. In 1996, for example, the adult ration supplied the equivalent of 1290 kcal a day, down from 1417 kcal per day in 1991. It is helpful to compare these figures with a conservative benchmark for need, say the notional calorie entitlement associated with the poverty line in India. This is set at 2100 kcal per person a day for urban adults.³⁰ The Iraqi ration corresponded to 67 per cent of this benchmark in 1991, and to 61 per cent in 1996. This appears to be consistent with the current consumption patterns of Iraqi households, who report that the ration covered between a half and two-thirds of the monthly consumption of the main food items.³¹

4.3. Survival Strategies

Our assessment of livelihoods, purchasing power and entitlements in Iraq is supported by a number of observations of a qualitative nature. These observations relate, in particular, to strategies adopted by Iraqi families to maintain a minimum consumption level in the face of dramatic declines in their purchasing power.

It is common now in Iraq for workers to be engaged in several types of low income activities. Although there has not been any retrenchment from the public sector, a large number of people have left voluntarily as they find the salaries too low for subsistence. Most of those who have stayed try to complement their meagre salaries by getting involved in other self-employment or casual employment activities.³²

It is apparent that there has been a very dramatic rise in the number of people who engage in "bottom line" economic activities such as casual labour and petty trading. There is free entry into these activities, so long as a person is reasonably healthy, but rates of remuneration are now extremely low (see Table 3).

A visible phenomenon is the rise in the number of children working as petty vendors. It is not clear if the children who work as petty traders take up these activities outside of school hours, or whether they have dropped out of school altogether. In our interviews with families whose children are involved in petty vending, the parents generally claimed that their child did attend school, and did the petty trading in his spare time.³³ In economic terms, these activities, such as selling from a carton of cigarettes, are extremely low in value added, and are mainly of a marginally redistributive nature. The fact that a large number of people, both adults and children, are prepared to spend a large amount of their time trying to earn a narrow margin on a transaction of small turnover, indicates that this is not a positive economic opportunity, but a measure of some desperation.

The same remarks apply to another, largely redistributive activity, that was uncommon in Iraq before the war. There are now, in all major towns and cities, special markets for the exchange of used goods of all descriptions. These markets usually held on specific days of the week in public places were virtually non-existent before the war, but attract a very large number of buyers and sellers now. The items bought and sold at these markets range from bulky household durable goods such as cookers and refrigerators, down to used items of clothing, old door fittings, and even used transistor circuit boards. As in the case of petty vending, in the flea markets also, many transactions involve extremely low turnovers. Here, too, the willingness of people to spend the entire day hoping to make a narrow margin on these transactions reveals the absence of alternative opportunities for remunerative employment.

Many of the vendors are older people and pensioners selling their assets in order to finance current consumption. As an illustration of how, in an initially wealthy economy, there might be some scope for such marginal activities to be sustained, consider the following case observed in the main flea market in Basrah. A pensioner was trying to sell his cooker and hoping to raise around 20,000 dinars for it. His plan was then to purchase a smaller (also used) cooker for 10,000 dinar and to use the difference in the two values to finance current consumption. He was well aware that soon he might have to repeat this cycle with the smaller cooker that he was hoping to buy, in exchange for something of even lower value.

We were able to observe another "bottom line" activity that is generally to be found amongst the poorest people in low income countries -- namely, post-harvest gleaning.³⁴ En route to Basrah we came across several cases of groups of women going through recently harvested fields and manually collecting individual grains of wheat left behind.

4.4. Vulnerability

The present economic situation in Iraq does not allow easy generalisations about patterns of vulnerability and deprivation. It is true, of course, that some groups such as those with access to foreign currency (sent by relatives working abroad), or who own productive assets, or have marketable skills, as well as those with good connections both within the country and outside, are relatively well-protected. The same is true of those with access to farm land, or other forms of self-employment in occupations that do not rely too heavily on imported inputs. Conversely, people with few assets to use or sell, elderly people with little family support, and others reliant on fixed nominal salaries are particularly vulnerable.

A notable aspect of the situation in Iraq, however, is that small apparent differences in some economic or demographic variable can lead to large differences in consumption levels. Large families that rely mainly on the earnings of a single worker (usually male) - as is common in Iraq - can experience dramatic turns for the worse if that sole breadwinner is unable to work through illness or some other misfortune. Sanctions thus have affect on incomes and livelihoods, not only due to the economic recession, but also through the failure of public interventions in public health and health care services.

Regional contrasts are quite striking in this regard. In many towns and cities of southern Iraq, for instance, where the sewage system has broken down. We visited several homes inundated with sewage from the street. Visibly the area around Basrah seemed to be far worse off than the rest. This is due, not only to the fact that the area bore main brunt of the Gulf war, but also to the fact that it was the main battle ground during the 8 year war with Iran. The region seemed to have received little investment since the beginning of the 1980s.