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Harvard guru helps Gadhafi on new path

Col. Moammar Gadhafi is moving to open Libya's decrepit, closed economy to world markets, and has hired American consultants led by a Harvard business guru to guide the way.
To match feature LIBYA-BOOM/
With international sanctions lifted, consumer goods are quickly appearing in Libyan stores, including watches like this one with Moammar Gadhafi's likeness.Louafi Larbi / Reuters
/ Source: The Associated Press

Col. Moammar Gadhafi still warns Libyans that the United States aims to colonize them and plunder their oil. But now he is moving to open the country's decrepit, closed economy to world markets, and has hired American consultants led by a Harvard business guru to guide the way.

It is a radical experiment for one of the world's most isolated nations, which has lived for 30 years under Gadhafi's rigid rule. Billboards adorning the streets of the capital show pictures of the Libyan leader and slogans from his political tome, the "Green Book", such as, "Without rule of the people, there is only death."

Gadhafi has made clear that sharing power is not on his agenda. But opening the economy will inevitably risk change. It could also create strains — from conservatives opposed to change or from reformers who want it to come faster.

"If you don't pay attention, you don't know where or how strong the volcano will be once you open up," said Khalifa al-Mahdawi, a prominent figure in Libya's network of non-governmental organizations.

Gadhafi's change of heart on the economy comes after dramatic changes in Libya's foreign policy in the past few years. He renounced weapons of mass destruction in 2003 and promised to pay compensation to 1988 Pan Am bombing victims, and won a lifting of economic sanctions.

Transformation to a market economy could prove more difficult.

Oil has made Libya the richest country in North Africa, with a gross domestic product of nearly $75 billion. Despite that, hospitals, schools and roads are in poor condition. Unemployment is estimated as high as 40 percent and 1 million of the 5.6 million people live in poverty. Of those with jobs, 97 percent work for the government.

Thinking like capitalists
A top goal of the program is to encourage Libyans to become entrepreneurs, opening their own businesses or linking up with foreign investment.

The government would privatize banks and other state firms. Tens of thousands of government workers would be encouraged to leave their jobs with promises of three years' salary and training to open businesses. The hope is to build up sectors like construction and tourism — using Libya's extensive Phoenician, Roman and Islamic antiquities as a draw.

By any standard, Libya has a long way to go.

Beyond oil, there is little industry. Gadhafi himself has complained in recent speeches that "nothing is produced in Libya."

Corruption is widespread. In the ranks of the bureaucracy and state-owned companies, some workers hold multiple jobs, collecting paychecks for all but rarely showing up at any.

In theory, Libya is democratically governed by the "rule of the masses," outlined by Gadhafi in his 1976 "Green Book." All citizens participate in Popular Congresses that form government policies.

In practice, it is highly centralized — putting ultimate power in the hands of Gadhafi. But at the lower levels, the control breaks down.

Five years in the making
"You have a situation where no one knows who's in charge, so nobody's in charge," said Michael Porter, a competitiveness expert at the Harvard School of Business who is part of a team of American consultants called in to help draw up the reform plans with the Libyan government.

Ironically, Porter was a top adviser to President Reagan, Gadhafi's nemesis in the 1980s.

"The Gadhafi family has signaled very consistently to me that this reform will happen," Porter told The Associated Press. "They reached out to me five years ago and said, 'Would you help us create a different kind of market economy.'"

As a first step, a Libyan Economic Development Board was created in February to help new startups, and 250 Libyan businessmen and government workers underwent training to be "entrepreneurs of the future," Porter said.

"The challenge is to introduce a market economy while avoiding the mistakes that have led to the dramatic inequalities," such as occurred in some Eastern European countries as they privatized after the Soviets' fall, Porter said.

Libya has an advantage because it has huge amounts of oil money, some $100 billion in profits tied up in investment funds abroad, and a comparatively small population.

The government is setting up a network of new programs to help the poor, including savings and retirement accounts for all citizens, seeded with state funds.

Foreign investment on rise
With U.S. and U.N. sanctions lifted, oil companies have rushed to invest in Libya's oil fields. Since 2003, foreign investment has risen from $278 million to some $21 billion in 2006, mostly in oil.

Throughout, Gadhafi has kept up his tough rhetoric against the West, warning recently that the United States would try to use Libyan exiles to "colonize" the country.

"As long as the strong are continuing to plot," he told Libyans, "you must be alert to the fact that this nation has oil, it has wide open spaces, it has wealth they seek to control."

But economic change can be seen in the first skyscrapers on Tripoli's cityscape. A stylish luxury hotel has risen over the Mediterranean seafront. Down the street stands an ultra-modern, glass tower housing the headquarters of the Libyan leader's son, Seif al-Islam Gadhafi, who is overseeing the privatization plan.

If it succeeds, Libya could become "the Norway of North Africa" — that is, a country with a thriving private sector but an almost socialist distribution of wealth, said Anthony Giddens, the former head of the London School of Business. Giddens is not involved in the reform program but has been observing it closely.