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There is a reason, beyond the visual images, that the toppling statues of Saddam Hussein should remind one of what happened in 1989-91. As communism fell in Eastern Europe and the Soviet Union, countries such as Poland, Hungary and Russia became known as “transition economies,” the transition being from communism to market economy. Iraq can be seen as the newest addition to this list.

Just like the transition economies of the 1990s, Iraq faces immense economic challenges. Some 35 years of Baathist rule have devastated the economy. The GDP has shrunk by 75 percent since 1979. Yes, the country has oil, lots of it. But an estimated $100 billion in reconstruction costs and more than $350 billion of debt and reparations far exceed what even a rehabilitated oil industry can generate in the next few years.

These circumstances provide plenty of reasons for a pessimistic view of what might be ahead—an Iraq destabilized by political conflict, terrorism and violence, and by religious extremism and ethnic strife. This is the scenario in which, while the war was won in weeks, the peace is lost over the years—leaving the economy in long-term disarray.

There is a relevant, alternative view, however, that deserves attention. It is not the traditional one from the Middle East but one seen through the framework of the commanding heights—the story of the sweeping changes that transformed Asia from the poorest continent in the world four decades ago to the forefront of economic dynamism, that turned international trade and globalization into engines of economic growth and brought the former communist countries into the market economy.

After all, Baathist Iraq modeled its economy on Eastern European communism. It had the whole rigmarole—central planning, price controls, extensive state ownership and grinding regulation of every nook and cranny of activity. In the 1960s, Iraq even collectivized its agriculture, with predictably disastrous results. As Leszek Balcerowicz, the architect of Poland's post-communist reforms and one of the world's leading experts on transition economies, recently observed, “Iraq's present condition is no more difficult than that of the Central European countries 12 years ago.”

As a transition economy, Iraq has several strengths, beginning with a well-educated, technologically adept population. Long before the Baath Party took over, Iraq had strong trading and entrepreneurial traditions, and those have survived. It can also benefit from the large number of Iraqis outside the country—equivalent to almost 20 percent of the population. The obvious analogy is China, whose stunning economic growth has been partly driven by the “overseas Chinese” from Taiwan, Singapore and elsewhere who have gone back to mainland China with capital, technology and links to the world economy. The overseas Iraqis could do exactly the same, often working through their family ties. Their contribution will be amplified by neighbors from Kuwait, Saudi Arabia and other Persian Gulf countries who, building on old trading links, are likely to be the early providers of capital and services. When the heavy hand of state control is pulled back, the incentives for corruption will be reduced and there will be much more room for innovation, flexibility and responsiveness. Driving it all will be an enormous need for investment and a huge, pent-up demand for goods and services. All of  this could help Iraq come back sooner than  expected.

Certainly immense challenges lie ahead. At this point, the country does not even have a national currency. As the Russians found in the 1990s, to move from a “bazaar” to a market economy requires the establishment of the rule of law, the sanctity of contracts and respect for property rights—which does not happen overnight. A whole body of law needs to be created, and it is not at all clear how or when that will happen.

Yet one of the most important lessons of the transition economies is the restorative powers that can arise from that natural human tendency succinctly identified by Adam Smith more than two centuries ago, “the propensity to truck, barter and exchange one thing for another.” For this to work, of course, there must be relative security and political stability. But, as the latest of the transition economies, Iraq could succeed economically more readily than many might now imagine.

Daniel Yergin, chairman of Cambridge Research Associates, is executive producer of the PBS series "Commanding Heights: the Battle for the World Economy," which will begin a new national broadcast on PBS in the United States on May 15.

This article first appeared in the May 4, 2003 edition of the Washington Post.

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