"The Profits of Escalation" and the Price of Privatization

by Dollars and Sense

In a recent (January 10th) article in Counterpunch, "The Profits of Escalation: Why the US is Not Leaving Iraq," Ismael Hossein-Zadeh exposes the economic interests, beyond oil, that are driving escalation in Iraq. Some highlights:

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The fact is that not everyone is losing in Iraq. Indeed, while the Bush administration's wars of choice have brought unnecessary death, destruction, and disaster to millions, including many from the Unites States, they have also brought fortunes and prosperity to war profiteers. At the heart of the reluctance to withdraw from Iraq lies the profiteers' unwillingness to give up further fortunes and spoils of war.

Pentagon contractors constitute the overwhelming majority of these profiteers. They include not only the giant manufacturing contractors such as Lockheed Martin, Northrop Grumman and Boeing, but also a complex maze of over 100,000 service contractors and sub-contractors such as private army or security corporations and "reconstruction" firms.[1] These contractors of both deconstruction and "reconstruction," whose profits come mainly from the US treasury, have handsomely profited from the Bush administration's wars of choice.

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The rise of the fortunes of the major Pentagon contractors can be measured, in part, by the growth of the Pentagon budget since President George W. Bush arrived in the White House: it has grown by more than 50 percent, from nearly $300 billion in 2001 to almost $455 billion in 2007. (These figures do not include the Homeland Security budget, which is $33 billion for the 2007 fiscal year alone, and the costs of the wars in Iraq and Afghanistan, which are fast approaching $400 billion.)

Large Pentagon contractors have been the main beneficiaries of this windfall. For example, a 2004 study by The Center for Public Integrity revealed that, for the 1998­2003 period, one percent of the biggest contractors won 80 percent of all defense contracting dollars. The top ten got 38 percent of all the money. Lockheed Martin topped the list at $94 billion, Boeing was second with $81 billion, Raytheon was third (just under $40 billion), followed by Northrop Grumman and General Dynamics with nearly $34 billion each.[2]

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This is key to an understanding of why the US ruling elite is reluctant to pull US troops out of Iraq. The reluctance or "difficulty" of leaving Iraq stems not so much from pulling 140,000 troops out of that country as it is from pulling out more than 100,000 contractors. As Josh Mitteldorf of the University of Arizona recently put it, "There are a lot of contractors making a fortune and we don't want that money tap turned off, even though it is borrowed money, which our children and grandchildren will have to repay."[13]

It follows that US troops will not be withdrawn from Iraq as long as antiwar voices are not raised beyond the premises and parameters of the official narrative or justification of the war: terrorism, democracy, civil war, stability, human rights, and the like. Antiwar forces need to extricate themselves from the largely diversionary and constraining debate over these secondary issues, and raise public consciousness of the scandalous economic interests that drive the war.

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Read the full article in Counterpunch.

Meanwhile, the New York Times has recently covered the other side of this profiteering: the shuttering of state-owned industries. Referring to Iraq as "a country that looters have ravaged since 2003"—a phrase that takes on a different meaning in light of Hossein-Zadeh's article—James Glanz of the Times recounts the "insistence by the initial American occupation authority that once [state-owned factories were] closed, vibrant free markets would spring into existence to fill the void," and Iraqis' recent efforts to re-open the factories. Click here (or see below) for the full text of the article. See also early coverage by Dollars & Sense on profiteering in Iraq and the role of oil.

THE STRUGGLE FOR IRAQ; Aging and Shut, Iraq Factories May Reopen and Mitigate Ills

By JAMES GLANZ
Published: January 18, 2007 [New York Times]

Inside a huge shuttered factory on the gritty western fringes of this outlaw desert town, thousands of ornate porcelain sinks, toilets and other fixtures sit in row after row next to the automated ovens and assembly lines that once churned out the products but lie silent under a thin film of yellow desert dust.

However, neither the fancy ceramics nor the machines appear to be damaged, a miracle that no one can quite explain in one of the most dangerous cities of a country that looters have ravaged since 2003.

Whatever the explanation, some American and Iraqi officials believe that surviving factories like this one—once considered inefficient, government-subsidized behemoths—could present a last chance of sorts for dealing with two problems that have remained stubbornly unsolved since the invasion: Iraq's reconstruction and its insurgency.

The factories, state-owned enterprises under Saddam Hussein's government, would appear to be the unlikeliest of saviors—things like a bus factory in an ethnically riven area south of Baghdad, a tomato paste factory in the Kurdish north, and a second plant in Ramadi that makes floor tiles with silk-screened floral patterns. The factories went dark after the invasion for a variety of reasons, including an insistence by the initial American occupation authority that once they closed, vibrant free markets would spring into existence to fill the void.

But neither those markets nor the expected commercial and social benefits of the $30 billion American-financed reconstruction program have materialized. So a few officials and local leaders are returning to the shuttered plants in hopes of finding a cheaper way to help the economy and perhaps create jobs to attract young men who might otherwise join the insurgency.

The dusty old plants are more evocative of guys with lunch pails than the big thinkers who once believed that expensive American reconstruction projects would remake the face of Iraq. ''Any opportunity to re-employ more people and give the government a chance to get income from these factories is important,'' said Sheik Abdul Sattar Buzaigh al-Rishawi, an Anbar tribal leader, as he toured the porcelain and tile factories in his flowing black-and-gold robes. ''Especially in this time when Anbar is experiencing terrorism.''

The sheik added, in reference to the idle Iraqis who put the unemployment rate at anywhere from an estimated 30 percent to 60 percent, ''They are normal human beings—they would rather work than make violence.''

In Ramadi on Tuesday, Sheik Sattar and several Iraqi officials, including the Anbar governor and the manager of the ceramics plant, met with Paul A. Brinkley, a senior Pentagon official who, following up on a tip from the American military command, has taken it upon himself to push the revival of state-owned enterprises that he thinks can be restarted with modest financing.

''That factory could be running in a week,'' Mr. Brinkley said just after the visit. ''It's amazing to me in this city, after all that this city has gone through, that a factory with that level of robotic equipment is still in that kind of condition.''

Still, the meeting—in an unheated second-floor conference room within a ransacked office building next to the plant—revealed some of the barriers that this last-ditch effort is likely to face. Those barriers include vast inertia within the Iraqi government bureaucracy and questions about whether even the small amounts of cash needed for the effort will be forthcoming from either Iraqi or American sources.

There are also serious questions on whether officials in the focus of the United States presence in Iraq, within the fortified Green Zone in Baghdad, are ready to support factories that were seen as no more than relics of an era that American ingenuity and reconstruction were going to make forever obsolete.

As with so much else in Iraq, there is no clear measure of how extensive the network of state-owned industries is, although the government lists at least 192 companies outside the energy and security sectors. Government and business officials estimate that more than 600,000 employees are still receiving at least some of their salaries, even though almost all of the factories are closed.

After presiding over the collapse of that network in the early days of the war, the United States now appears ready to lend some help to Mr. Brinkley's efforts to revive parts of it. Maj. Gen. Darryl A. Scott, who leads the Joint Contracting Command for Iraq and Afghanistan and is based in Baghdad, said in an interview that he was making a push to use Iraqi companies for supplying things like housing and basic services for the American military here.

General Scott said that although his prime goal was not revitalizing factories, if one of the companies Mr. Brinkley was working with made the right product, it would be given fair consideration. ''It's kind of a version of matchmaking,'' he said.

How far that process will take Mr. Brinkley's effort is unclear. Zalmay Khalilzad, the American ambassador, said in a recent interview that he was in favor of using military purchases to give Iraqi companies a boost, but that ultimately the United States would promote private enterprise over government entities. "That's obviously the right thing to do,'' he said. ''The question is, how do you get from here to there?''

But a senior United States official said he believed that at least until recently, officials at the center of American power here, in the Green Zone, had retained their unbending orientation toward privatization. The official said that he asked Americans in the Green Zone why they were buying buses abroad for use in Iraq when a struggling state-owned Iraqi firm in Iskandariya, south of Baghdad, was making a similar vehicle.

''The answer was shocking,'' the official said. ''It was, 'We've denied these people access to the global free market for 15 years; I'm not going to go back to them and say that you've got to buy buses from some state-owned enterprise.' ''

During a visit last week to Erbil, in Iraq's Kurdish north, Mr. Brinkley said in a meeting with local officials that when the enterprises ''are laying idle due to our policy of shutting them off, we have an obligation to restore them to the Iraqi people.''

Each of the factories comes with different and highly specific challenges, a fact illustrated by the closed tomato paste factory in Erbil, which Mr. Brinkley also visited. With distribution across Iraq before the invasion, the factory limped along for a while afterward and as recently as 2004 produced 804,210 cans—''without loss of one can due to quality,'' said the plant engineer, Satar S. Mustafa.

Since then, a financial group in Erbil has bought the modest-sized factory, with its shiny chutes, choppers, ovens and other equipment. But the operation is still waiting for what the Erbil group hopes is an American investor, said Azzat M. Othman, who is the group's executive manager and says he worked on Wall Street in various capacities for 25 years before returning home to Kurdistan.

''What we are really looking for is an investor who has an interest in this type of operation,'' said Mr. Othman, who estimates that the factory will generate 100 to 150 jobs.

The porcelain factory is another case entirely. When a worker unlocks a set of big metal doors and slides them back with a boom, a darkened interior perhaps 100 yards in either direction shelters machinery that looks as if it had just been purchased. Half-finished sinks sit in rows along the assembly lines like sculptures left by some artist who intended to return and complete the work with a few strokes of the chisel.

And there is inventory. An assessment by the American occupation officials who shut this factory concluded that it was too small and inefficient to turn a profit in a competitive marketplace, but sinks with paisley and vine patterns look as if they could be sitting on shelves at Home Depot. The toilets are sturdy.

The Iraqis, who intend to keep the plant within the government and say that it could start up again if given an allocation of electricity, insisted that an American take one of the sinks as a sample. It was shoved into one of the armored vehicles belonging to the American military unit that brought the officials here.

But even if everything else here works perfectly, the question hovering over the project is whether the factory will be attacked now that it is associated with Americans. Sheik Sattar, who has already gained fame in Iraq for leading a coalition of Anbar tribes against Al Qaeda, said that would not be a problem.

After all, he said, the factory has remained in good condition until now. ''We protected it,'' he said. Whether the same assurances can be given for the other factories around the country remains to be seen.

Labels: Iraq, privatization, profiteering

 

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1/27/2007 01:02:00 PM