Confessions of an Economic Hit Man

by John Perkins

  Bruno Zambotti had accepted a high-level position at the Inter-American Development Bank. He agreed to serve on the IPS board and to help finance the fledgling company. We received backing from Bankers Trust; ESI Energy; Prudential Insurance Company; Chad-bourne and Parke (a major Wall Street law firm, in which former U.S. senator, presidential candidate, and secretary of state Ed Muskie, was a partner); and Riley Stoker Corporation (an engineering firm, owned by Ashland Oil Company, which designed and built highly sophisticated and innovative power plant boilers). We even had backing from the U.S. Congress, which singled out IPS for exemption from a specific tax, and in the process gave us a distinct advantage over our competitors.

  In 1986, IPS and Bechtel simultaneously—but independently of each other—began construction of power plants that used highly innovative, state-of-the-art technologies for burning waste coal without producing acid rain. By the end of the decade these two plants had revolutionized the utility industry, directly contributing to new national antipollution laws by proving once and for all that many so-called waste products actually can be converted into electricity, and that coal can be burned without creating acid rain, thereby dispelling long-standing utility company claims to the contrary. Our plant also established that such unproven, state-of-the-art technologies could be financed by a small independent company, through Wall Street and other conventional means.1 As an added benefit, the IPS power plant sent vented heat to a three and one-half–acre hydroponic greenhouse, rather than into cooling ponds or cooling towers.

  My role as IPS president gave me an inside track on the energy industry. I dealt with some of the most influential people in the business: lawyers, lobbyists, investment bankers, and high-level executives at the major firms. I also had the advantage of a father-in-law who had spent over thirty years at Bechtel, had risen to the position of chief architect, and now was in charge of building a city in Saudi Arabia—a direct result of the work I had done in the early 1970s, during the Saudi Arabian Money-laundering Affair. Winifred grew up near Bechtel’s San Francisco world headquarters and was also a member of the corporate family; her first job after graduating from UC Berkeley was at Bechtel.

  The energy industry was undergoing major restructuring. The big engineering firms were jockeying to take over—or at least to compete with—the utility companies that previously had enjoyed the privileges of local monopolies. Deregulation was the watchword of the day, and rules changed overnight. Opportunities abounded for ambitious people to take advantage of a situation that baffled the courts and Congress. Industry pundits dubbed it the “Wild West of Energy” era.

  One casualty of this process was MAIN. As Bruno predicted, Mac Hall had lost touch with reality and no one dared tell him so. Paul Priddy never asserted control, and MAIN’s management not only failed to take advantage of the changes sweeping the industry but also made a series of fatal mistakes. Only a few years after Bruno delivered record profits, MAIN dropped its EHM role and was in dire financial straits. The partners sold MAIN to one of the large engineering and construction firms that had played its cards right.

  While I had received almost thirty dollars a share for my stock in 1980, the remaining partners settled for less than half that amount, approximately four years later. Thus did one hundred years of proud service end in humiliation. I was sad to see the company fold, but I felt vindicated that I had gotten out when I did. The MAIN name continued under the new ownership for a while, but then it was dropped. The logo that had once carried such weight in countries around the globe fell into oblivion.

  MAIN was one example of a company that did not cope well in the changing atmosphere of the energy industry. At the opposite end of the spectrum was a company we insiders found fascinating: Enron. One of the fastest-growing organizations in the business, it seemed to come out of nowhere and immediately began putting together mammoth deals. Most business meetings open with a few moments of idle chatter while the participants settle into their seats, pour themselves cups of coffee, and arrange their papers; in those days the idle chatter often centered on Enron. No one outside the company could fathom how Enron was able to accomplish such miracles. Those on the inside simply smiled at the rest of us, and kept quiet. Occasionally, when pressed, they talked about new approaches to management, about “creative financing,” and about their commitment to hiring executives who knew their way through the corridors of power in capitals across the globe.

  To me, this all sounded like a new version of old EHM techniques. The global empire was marching forward at a rapid pace.

  For those of us interested in oil and the international scene, there was another frequently discussed topic: the vice president’s son, George W. Bush. His first energy company, Arbusto (Spanish for bush) was a failure that ultimately was rescued through a 1984 merger with Spectrum 7. Then Spectrum 7 found itself poised at the brink of bankruptcy, and was purchased, in 1986, by Harken Energy Corporation; G. W. Bush was retained as a board member and consultant with an annual salary of $120,000.2

  We all assumed that having a father who was the U.S. vice president factored into this hiring decision, since the younger Bush’s record of accomplishment as an oil executive certainly did not warrant it. It also seemed no coincidence that Harken took this opportunity to branch out into the international field for the first time in its corporate history, and to begin actively searching for oil investments in the Middle East. Vanity Fair magazine reported, “Once Bush took his seat on the board, wonderful things started to happen to Harken—new investments, unexpected sources of financing, serendipitous drilling rights.”3

  In 1989, Amoco was negotiating with the government of Bahrain for offshore drilling rights. Then Vice President Bush was elected president. Shortly thereafter, Michael Ameen—a State Department consultant assigned to brief the newly confirmed U.S. ambassador to Bahrain, Charles Hostler—arranged for meetings between the Bahraini government and Harken Energy. Suddenly, Amoco was replaced by Harken. Although Harken had not previously drilled outside the southeastern United States, and never offshore, it won exclusive drilling rights in Bahrain, something previously unheard of in the Arab world. Within a few weeks, the price of Harken Energy stock increased by over twenty percent, from $4.50 to $5.50 per share.4

  Even seasoned energy people were shocked by what had happened in Bahrain. “I hope G. W. isn’t up to something his father will pay for,” said a lawyer friend of mine who specialized in the energy industry and also was a major supporter of the Republican Party. We were enjoying cocktails at a bar around the corner from Wall Street, high atop the World Trade Center. He expressed dismay. “I wonder if it’s really worth it,” he continued, shaking his head sadly. “Is the son’s career worth risking the presidency?”

  I was less surprised than my peers, but I suppose I had a unique perspective. I had worked for the governments of Kuwait, Saudi Arabia, Egypt, and Iran, I was familiar with Middle Eastern politics, and I knew that Bush, just like the Enron executives, was part of the network I and my EHM colleagues had created; they were the feudal lords and plantation masters.5

  CHAPTER 29

  I Take a Bribe

  During this time in my life, I came to realize that we truly had entered a new era in world economics. Events set in motion while Robert McNamara—the man who had served as one of my models—reigned as secretary of defense and president of the World Bank had escalated beyond my gravest fears. McNamara’s Keynesian-inspired approach to economics, and his advocacy of aggressive leadership, had become pervasive. The EHM concept had expanded to include all manner of executives in a wide variety of businesses. They may not have been recruited or profiled by the NSA, but they were performing similar functions.

  The only difference now was that the corporate executive EHMs did not necessarily involve themselves with the use of funds from the international banking community. While the old branch, my branch, continued to thrive, the new version took on aspects that were even more sinister. During the 1980s, young men a
nd women rose up through the ranks of middle management believing that any means justified the end: an enhanced bottom line. Global empire was simply a pathway to increased profits.

  The new trends were typified by the energy industry, where I worked. The Public Utility Regulatory Policy Act (PURPA) was passed by Congress in 1978, went through a series of legal challenges, and finally became law in 1982. Congress originally envisioned the law as a way to encourage small, independent companies like mine to develop alternative fuels and other innovative approaches to producing electricity. Under this law, the major utility companies were required to purchase energy generated by the smaller companies, at fair and reasonable prices. This policy was a result of Carter’s desire to reduce U.S. dependence on oil—all oil, not just imported oil. The intent of the law was clearly to encourage both alternative energy sources and the development of independent companies that reflected America’s entrepreneurial spirit. However, the reality turned out to be something very different.

  During the 1980s and into the 1990s, the emphasis switched from entrepreneurship to deregulation. I watched as most of the other small independents were swallowed up by the large engineering and construction firms, and by the public utility companies themselves. The latter found legal loopholes that allowed them to create holding companies, which could own both the regulated utility companies and the unregulated independent energy-producing corporations. Many of them launched aggressive programs to drive the independents into bankruptcy and then purchase them. Others simply started from scratch and developed their own equivalent of the independents.

  The idea of reducing our oil dependence fell by the wayside. Reagan was deeply indebted to the oil companies; Bush had made his own fortune as an oilman. And most of the key players and cabinet members in these two administrations were either part of the oil industry or were part of the engineering and construction companies so closely tied to it. Moreover, in the final analysis, oil and construction were not partisan; many Democrats had profited from and were beholden to them also.

  IPS continued to maintain a vision of environmentally beneficial energy. We were committed to the original PURPA goals, and we seemed to lead a charmed life. We were one of the few independents that not only survived but also thrived. I have no doubt that the reason for this was because of my past services to the corporatocracy.

  What was going on in the energy field was symbolic of a trend that was affecting the whole world. Concerns about social welfare, the environment, and other quality-of-life issues took a backseat to greed. In the process, an overwhelming emphasis was placed on promoting private businesses. At first, this was justified on theoretical bases, including the idea that capitalism was superior to and would deter communism. Eventually, however, such justification was unneeded. It was simply accepted a priori that there was something inherently better about projects owned by wealthy investors rather than by governments. International organizations such as the World Bank bought into this notion, advocating deregulation and privatization of water and sewer systems, communications networks, utility grids, and other facilities that up until then had been managed by governments.

  As a result, it was easy to expand the EHM concept into the larger community, to send executives from a broad spectrum of businesses on missions previously reserved for the few of us recruited into an exclusive club. These executives fanned out across the planet. They sought the cheapest labor pools, the most accessible resources, and the largest markets. They were ruthless in their approach. Like the EHMs who had gone before them—like me, in Indonesia, in Panama, and in Colombia—they found ways to rationalize their misdeeds. And like us, they ensnared communities and countries. They promised affluence, a way for countries to use the private sector to dig themselves out of debt. They built schools and highways, donated telephones, televisions, and medical services. In the end, however, if they found cheaper workers or more accessible resources elsewhere, they left. When they abandoned a community whose hopes they had raised, the consequences were often devastating, but they apparently did this without a moment’s hesitation or a nod to their own consciences.

  I had to wonder, though, what all this was doing to their psyches, whether they had their moments of doubt, as I had had mine. Did they ever stand next to a befouled canal and watch a young woman try to bathe while an old man defecated upriver? Were there no Howard Parkers left to ask the tough questions?

  Although I enjoyed my IPS successes and my life as a family man, I could not fight my moments of severe depression. I was now the father of a young girl, and I feared for the future she would inherit. I was weighed down with guilt for the part I had played.

  I also could look back and see a very disturbing historical trend. The modern international financial system was created near the end of World War II, at a meeting of leaders from many countries, held in Bretton Woods, New Hampshire—my home state. The World Bank and the International Monetary Fund were formed in order to reconstruct a devastated Europe, and they achieved remarkable success. The system expanded rapidly, and it was soon sanctioned by every major U.S. ally and hailed as a panacea for oppression. It would, we were assured, save us all from the evil clutches of communism.

  But I could not help wondering where all this would lead us. By the late 1980s, with the collapse of the Soviet Union and the world Communist movement, it became apparent that deterring communism was not the goal; it was equally obvious that the global empire, which was rooted in capitalism, would have free reign. As Jim Garrison, president of the State of the World forum, observes:

  Taken cumulatively, the integration of the world as a whole, particularly in terms of economic globalization and the mythic qualities of “free market” capitalism, represents a veritable “empire” in its own right… No nation on earth has been able to resist the compelling magnetism of globalization. Few have been able to escape the “structural adjustments” and “conditionalities” of the World Bank, the International Monetary Fund, or the arbitrations of the World Trade Organization, those international financial institutions that, however inadequate, still determine what economic globalization means, what the rules are, and who is rewarded for submission and punished for infractions. Such is the power of globalization that within our lifetime we are likely to see the integration, even if unevenly, of all national economies in the world into a single global, free market system.1

  As I mulled over these issues, I decided it was time to write a tell-all book, Conscience of an Economic Hit Man, but I made no attempt to keep the work quiet. Even today, I am not the sort of writer who writes in isolation. I find it necessary to discuss the work I am doing. I receive inspiration from other people, and I call upon them to help me remember and put into perspective events of the past. I like to read sections of the materials I am working on to friends, so I may hear their reactions. I understand that this may be risky, yet I know no other way for me to write. Thus, it was no secret that I was writing a book about my time with MAIN.

  One afternoon in 1987, another former MAIN partner contacted me and offered me an extremely lucrative consulting contract with Stone & Webster Engineering Corporation (SWEC). At that time, SWEC was one of the world’s premier engineering and construction companies, and it was trying to forge a place for itself in the changing environment of the energy industry. My contact explained that I would report to their new subsidiary, an independent energy-development branch modeled after companies like my own IPS. I was relieved to learn that I would not be asked to get involved in any international or EHM-type projects.

  In fact, he told me, I would not be expected to do very much at all. I was one of the few people who had founded and managed a successful independent energy company, and I had an excellent reputation in the industry. SWEC’s primary interest was to use my résumé and to include me on its list of advisers, which was legal and was consistent with standard industry practices. The offer was especially attractive to me because, due to a number of circumstances, I was considering s
elling IPS. The idea of joining the SWEC stable and receiving a spectacular retainer was welcome.

  The day he hired me, the CEO of SWEC took me out to a private lunch. We chatted informally for some time, and as we did so I realized that a side of me was eager to get back into the consulting business, to leave behind the responsibilities of running a complicated energy company, of being responsible for over a hundred people when we were constructing a facility, and of dealing with all the liabilities associated with building and operating power plants. I had already envisioned how I would spend the substantial retainer I knew he was about to offer me. I had decided to use it, among other things, to create a nonprofit organization.

  Over dessert, my host brought up the subject of the one book I had already published, The Stress-Free Habit. He told me he had heard wonderful things about it. Then he looked me squarely in the eye. “Do you intend to write any more books?” he asked.

  My stomach tightened. Suddenly, I understood what this was all about. I did not hesitate. “No,” I said. “I don’t intend to try to publish any more books at this time.”

  “I’m glad to hear that,” he said. “We value our privacy at this company. Just like at MAIN.”

  “I understand that.”

  He sat back and, smiling, seemed to relax. “Of course, books like your last one, about dealing with stress and such things, are perfectly acceptable. Sometimes they can even further a man’s career. As a consultant to SWEC, you are perfectly free to publish that sort of thing.” He looked at me as though expecting a response.