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Selling (Off) Iraq | The Nation

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Selling (Off) Iraq

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Research support was provided by the Investigative Fund of the Public Concern Foundation.

Privatization as Panacea

About the Author

Tim Shorrock
Tim Shorrock is the author of Spies for Hire: The Secret World of Intelligence Outsourcing. He was raised in Japan and...

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Many who advocate a rapid transition to a free-enterprise system see AID, despite the lucrative contracts it has handed out, as an obstacle. Their criticisms reflect the struggle in the Administration between Colin Powell's State Department, which runs AID and in Iraq and Afghanistan is following the traditional path of government-funded development projects, and the Pentagon, which is pressing AID to adopt what Hoffmann calls an "enterprise-driven, market-economy-directed thrust."

That dispute went public in April, when Newt Gingrich, the former Speaker of the House and a close ally of Rumsfeld, derided AID's rebuilding efforts in Afghanistan as an "absolute failure of American entrepreneurial efforts" that must be avoided in Iraq. Although Gingrich's remarks reportedly irritated President Bush, there is no doubt about the Administration's goals. On May 9, for example, Bush proposed the creation of a US/Middle East free-trade area within ten years. "By replacing corruption and self-dealing with free markets and fair laws, the people of the Middle East will grow in prosperity and freedom," he said.

AID spokesperson Ellen Yount said critics like Hoffmann and Gingrich should "reserve judgment" on AID until they see the agency's economic governance contract, which will guide the Administration's program in Iraq. "We think it will very much reflect an understanding and concern for private-sector development," she said. That contract has been put out for bid, and the company widely expected to win is BearingPoint Inc., a consulting company formerly known as KPMG, which contracted with AID for similar projects in Bosnia and Afghanistan. Patrick Bryski, a managing director at BearingPoint, emphasized in a May 5 speech what he sees as needed in Iraq: "We've got to get assets out of the hands of the government and into the hands of the private sector."

That's exactly what the Treasury Department, which has a team in Baghdad assessing Iraq's financial system, is trying to do. "It's very important to get a good system of rule of law and property rights in a way very conducive to foreign investment," John Taylor, Treasury's Under Secretary for International Affairs, explained at the May 1 conference where Woolsey spoke.

The conference, held at the Center for Strategic and International Studies, was another good indication of the corporate interest in Iraq. It was co-sponsored by AIG and Booz Allen and attended by senior executives from at least sixty-seven companies and law firms, including Babcock International Group, BAE Systems North America, Cummins Power Generation, DynCorp, Goldman Sachs, KBR-Halliburton, Stevedoring Services of America (SSA), the law firm White & Case and two of Japan's largest trading companies.

One of the first targets for private development, Taylor said, will be the UN's oil-for-food program, which before the war was largely run by traders employed by Iraq's central government. "There's got to be large-scale privatization of retail food distribution with the transition," he said. That was of great interest to the transportation companies in the audience, including Menlo Worldwide of California, which is providing logistics services at the port of Umm Qasr and coordinating the US military's efforts to bring in humanitarian aid. Because of the congestion at Iraq's only seaport, Menlo is developing long-term plans to use alternative routes for importing food and other supplies, said a Menlo executive who asked that his name not be used. "We're looking--and this is no secret--at Turkey, Jordan, Kuwait and Bahrain," he said. "Certainly getting in at the ground floor will be a great opportunity."

AID's contract at Umm Qasr with SSA, a Seattle-based port operator, is an example of how US contracts can benefit a company. Under the $4.8 million contract, SSA is preparing the port to handle cargo from ships and tankers. It won the contract over two experienced foreign rivals, England's P&O and Hong Kong's Hutchison Whampoa. "SSA is playing with the big boys now," said Larry Hansen, president of the Seattle local of the International Longshore and Warehouse Union, which had bitter disputes with SSA over outsourcing and other issues when West Coast shipping companies locked out the ILWU last summer. Bob Watters, SSA's vice president for the Middle East and Asia, said his company, which took control of the port on May 23 from the British Army, has no plans for a long-term presence in Iraq. "That's totally up to AID," he said. But since SSA does little business in the region, its contract for Iraq will "clearly help it establish a presence in the Middle East," said David Olson, a maritime expert at the University of Washington. Umm Qasr "will become a significant transshipment point for goods on Iraq's north-south routes, and SSA will be the main player," he added.

Bechtel said it will not be directly involved in any privatization projects, which have been a major part of its global business for decades. "Bechtel is phasing out most of its activities in this area," said its chief spokesman, Jonathan Marshall. "I don't see any reason to believe Bechtel would be involved in running or operating facilities."

Wild, and Wide Open

Weeks after the end of the war, Iraq remains in chaos, with armed gangs robbing citizens and stripping government agencies--except for the well-guarded oil ministry--of equipment. Bush recently named L. Paul Bremer, a former managing director of Kissinger Associates and an expert in counterterrorism, to take over the Pentagon's Office of Reconstruction and Humanitarian Assistance in Iraq. Bremer has put off the formation of an interim government and told Iraqis that the United States will remain in control for an indefinite period. His financial adviser is Peter McPherson, a former Bank of America executive and a close friend of Cheney who ran AID during the Reagan Administration. On May 26 Bremer used Umm Qasr as a backdrop to declare that Iraq was "open for business" and, following Rumsfeld's lead, said he would like to see the "privatization of key elements" of the economy.

But the Administration's zeal for free markets may clash with Iraqi realities. Iraqis have grown accustomed to the benefits of a state-run economy that employed about 30 percent of Iraq's work force and provided the population with food rations and low-cost gasoline. Already, international observers are saying that the shock of a sudden shift to a market economy may be difficult for Iraqis to bear, particularly after a harrowing invasion and the subsequent breakdown in civil order. The United States "cannot force an ideological process too much" in Iraq, Ramiro Lopes da Silva, the UN's humanitarian coordinator in Iraq, told the London Guardian on May 27. Pointing to the recent US decision to release 400,000 Iraqi soldiers without a re-employment program, the Portuguese diplomat warned of the potential for further instability and "a low-intensity conflict" if Bremer--who also approved layoffs of more than 100,000 civil servants--continues these policies.

Congress is also watching closely. During a contentious Senate Foreign Relations Committee hearing on May 22, lawmakers repeatedly criticized Wolfowitz for the dismal US performance in postwar Iraq. "The planning for peace was much less developed than the planning for war," said committee chair Lugar, who called the Administration's stabilization and reconstruction efforts "inadequate." Senator Joseph Lieberman and Representative Henry Waxman, both Democrats, are demanding inquiries into the Administration's secretive contracting practices.

But it's going to take more than Congressional oversight to insure that Iraqi citizens--and not Rumsfeld and his business and political cronies--determine Iraq's future. Some US labor groups that opposed the war, for example, are investigating whether SSA, MCI and other US corporations doing business in Iraq are respecting UN-recognized labor rights. Now that the fighting's over, corporations may be having their way. But out of the gloom, a new activist agenda may emerge that combines opposition to Bush's foreign policy with earlier, but still relevant, concerns about the social consequences of corporate-led globalization. Perhaps the battle of Baghdad has just begun.

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