It is the intention of the Bush Administration to transfer executive and legislative power to a new Iraqi government, elected through some kind of democratic process, by the end of June. The President is convinced that "Freedom and democracy will always and everywhere have greater appeal than the slogans of hatred." Unfortunately, the transfer, as it is conceived, may not dissipate the ethnic, religious, and tribal divisions but rather aggravate them and lead to political extremism and conflict. At this time, national elections surely will not produce a secular, pro-American, democratic market order.

Iraqi society is deeply divided into various ethnic and religious groups loathing each other. Old conflicts cut across Shiites, Sunnis, Kurds, and Turkmens, and old injuries call for revenge. Shiites who represent a 60 percent majority suffered cruel oppression by Saddam Hussein and his Sunni minority, as did the Kurdish minority in the north. A history of strife has left its mark on the country, which was kept together by a brutal dictator. Liberated from his tyranny, a few Islamic clerics now are vying for power. Needless to say, they are intensely anti-American, anti-secular, and anti-women's rights. Free and fair elections, under such conditions, will allow imams and muftis to come to power.

This observer would focus on the development of local democracy rather than a national government. Local self-government can be achieved readily in all communities with little ethnic diversity; town and city elections do not pit one ethnic group against another but tend to be harmonious and peaceful. In some communities, former government officials may emerge as the elected officials, as mayors and lawmakers. But as long as the occupation authorities ensure fair elections, a free press, and basic human rights including the freedom of movement throughout the country, democratic institutions are bound to develop. They may vary from town to town, from region to region, and differ greatly in political and economic structure.

The differences, as they would emerge following local elections, probably would be significant. A few communities may actually welcome several political parties despite the long tradition of one-party rule. They may even develop free-market institutions despite more than 40 years of Baath socialism. But it is unlikely that they will liberate Iraqi women, for their position is clearly circumscribed by the Koran. Some communities probably would elect fundamentalist Islamic clergy who would want to reshape their districts along Islamic lines. Their economics textbook is the Koran which prohibits two important sources of individual productivity and human well-being: interest income on savings and investments (riba) and entrepreneurial profit from uncertainty, risk, and speculation (ghara). Both prohibitions, where religiously enforced, would obstruct economic production and lead to poverty for many. Wide differences in social and economic policies would lead to significant divergences in local productivity and economic well-being. Free market communities soon would prosper and grow while regimented localities undoubtedly would stagnate and decline. The difference would be visible to all and cause many to vote with their feet. It would teach powerful lessons of economics and may even lead to early changes in power structure and economic order.

Experience is an important teacher of democracy. Having practiced it for a while on a local level, the people may be ready for new lessons on a regional level. Such elections, conducted a few months later, probably would avoid most ethnic problems that plague the nation.

National elections would be more onerous by far facing the old schism between Shiites, Sunnis, and Kurds. With Shiites in the majority, they may be tempted to avenge the injuries suffered in the past; they may do to the Sunnis what was done to them under Saddam Hussein. If all groups are forced to participate in proportional power-sharing, which would formally acknowledge and perpetuate the divisions, it would harden group identities and guarantee more conflict to come. Therefore, national elections probably should be delayed until the market order, which has no borders and makes no ethnic or religious distinctions, has brought peace and harmony to Iraqi society.

An inexhaustible source of conflict undoubtedly will be the country's oil, the main source of Iraqi wealth. Our sense of justice calls for a return of the property to the discoverers and developers who, under Saddam Hussein, suffered confiscation and nationalization without fair compensation. But such a delivery of the industry to private corporations, European and American, undoubtedly would irate not only the Muslim world but also the vocal advocates of economic class warfare in the West. They all insist that Iraqi natural resources remain in the hands of government, preferably Iraqi government. Oil wells, pipe lines, and refineries, they remind us, are easy targets for saboteurs and terrorists, which negates their market value at any rate. Unfortunately, although the industry may operate perfunctorily in the hands of government, it is bound to remain a source of massive corruption and destructive group conflict. Natural wealth in the hands of government may prove once again to be a curse rather than a blessing.