Neo-Conned! Again

by D Liam O'Huallachain

  More sobering still is a recent statement from John Perkins, author of Confessions of an Economic Hit Man, who has detailed the inner workings of debt-reduction and structural-adjustment schemes that the U.S. has sponsored for the last quarter century, the most famous being the deal struck with Saudi Arabia to dollarize oil sales in exchange for guaranteed military, infrastructural, and technological benefits. Perkins told Amy Goodman that “in Iraq we tried to implement the same policy that was so successful in Saudi Arabia, but Saddam Hussein didn't buy.” The rest, sadly, is history: “… the third line of defense, if the economic hit men and the [CIA] jackals fail … is our young men and women, who are sent in to die and kill, which is what we've obviously done in Iraq.” As if any of this contributes to “Iraq's being better off than it was.”

  CHAPTER

  11

  Risky Business:

  The Perils of Profitmongering in Iraq

  ………

  Naomi Klein

  IT WAS 8:40 a.m. on December 3, 2003, and the Sheraton Hotel ballroom thundered with the sound of plastic explosives pounding against metal. No, this was not the Sheraton in Baghdad, it was the one in Arlington, Virginia. And it was not a real terrorist attack, it was a hypothetical one. The screen at the front of the room was playing an advertisement for “bomb resistant waste receptacles”: this trash can is so strong, we were told, it can contain a C4 blast. And its manufacturer was convinced that given half a chance, these babies would sell like hotcakes in Baghdad-at bus stations, Army barracks and, yes, upscale hotels. Available in Hunter Green, Fortuneberry Purple, and Windswept Copper.

  This was ReBuilding Iraq 2, a two-day gathering of 400 business people itching to get a piece of the Iraqi reconstruction action. They were there to meet the people doling out the cash, in particular the $18.6 billion worth of reconstruction aid approved in November 2003 (as part of an $87 billion Iraq appropriation) to be dispensed in the form of contracts to companies from “coalition partner” countries. The people to meet were from the Coalition Provisional Authority (CPA), its Program Management Office, the Army Corps of Engineers, the U.S. Agency for International Development, Halliburton, Bechtel, and members of Iraq's interim Governing Council. All these players were on the conference program, and delegates had been promised that they would get a chance to corner them at regularly scheduled “networking breaks.”

  There have been dozens of similar trade shows on the business opportunities created by Iraq's decimation, held in hotel ballrooms from London to Amman. Though the early conferences (by all accounts) throbbed with the sort of cash-drunk euphoria not seen since the heady days before the dotcoms crashed, by the time of ReBuilding Iraq 2 it was apparent that something was not right. Sure, the conference's organizers did the requisite gushing about how “non-military rebuilding costs could be near $500 billion” and that this was “the largest government reconstruction effort since Americans helped to rebuild Germany and Japan after the Second World War.”

  But for the under-caffeinated crowd staring uneasily at exploding garbage cans, the mood was less gold rush than grim determination. Giddy talk of “greenfield” market opportunities had been supplanted by sober discussion of sudden-death insurance; excitement about easy government money had given way to controversy about foreign firms being shut out of the bidding process; exuberance about CPA chief Paul Bremer's ultra-liberal investment laws had been tempered by fears that those laws could be overturned by a directly elected Iraqi government.

  At ReBuilding Iraq 2 it seemed finally to have dawned on the investment community that Iraq was not only an “exciting emerging market”; it was also a country on the verge of civil war. As Iraqis protested layoffs at state agencies and made increasingly vocal demands for general elections, it was becoming clear that the White House's pre-war conviction that Iraqis would welcome the transformation of their country into a freemarket dream state may have been just as off-target as its prediction that U.S. soldiers would be greeted with flowers and candy.1

  I mentioned to one delegate that fear seemed to be dampening the capitalist spirit. “The best time to invest is when there is still blood on the ground,” he assured me. “Will you be going to Iraq?” I asked. “Me? No, I couldn't do that to my family.”

  He was still shaken, it seemed, by the afternoon's performance by ex-CIAer John MacGaffin, who had harangued the crowd like a Hollywood drill sergeant. “Soft targets are us!” he had bellowed. “We are right in the bull's-eye …. You must put security at the center of your operation!” Lucky for us, MacGaffin's own company, AKE Group, offered complete counter-terrorism solutions, from body armor to emergency evacuations.

  Youssef Sleiman, managing director of Iraq initiatives for the Harris Corporation, had a similarly entrepreneurial angle on the violence. Yes, helicopters were falling, but “for every helicopter that falls there is going to be replenishment.”

  I began to notice that many of the delegates at ReBuilding Iraq 2 were sporting a similar look: Army-issue brush cuts paired with dark business suits. The guru of this gang was retired Maj. Gen. Robert Dees, at that point freshly hired out of the military to head Microsoft's “defense strategies” division. Dees told the crowd that rebuilding Iraq had special meaning for him because, well, he was one of the people who broke it. “My heart and soul is in this because I was one of the primary planners of the invasion,” he said with pride. Microsoft was helping develop “e-government” in Iraq, which Dees admitted was a little ahead of the curve, since there was no g-government in Iraq – not to mention functioning phones lines.

  No matter. Microsoft was determined to get in on the ground floor. In fact, the company was so tight with Iraq's Governing Council that one of its executives, Haythum Auda, served as the official translator for the council's Minister of Labor and Social Affairs, Sami Azara al-Ma'jun, during the conference. “There is no hatred against the coalition forces at all,” al-Ma'jun said, via Auda. “The destructive forces are very minor and these will end shortly …. Feel confident in rebuilding Iraq!”

  The speakers on a panel about “Managing Risks” had a different message: feel afraid about rebuilding Iraq, very afraid. Unlike previous presenters, their concern was not the obvious physical risks, but the potential economic ones. These were the insurance brokers, the grim reapers of Iraq's gold rush.

  It turned out that there was a rather significant hitch in Paul Bremer's bold plan to auction off Iraq while it was still under occupation: the insurance companies weren't going for it. Until that point, the question of who would insure multinationals in Iraq had not been pressing. The major reconstruction contractors like Bechtel were covered by USAID for “unusually hazardous risks” encountered in the field. And Halliburton's pipeline work was covered under a law passed by Bush on May 22, 2003, that indemnified the entire oil industry from “any attachment, judgment, decree, lien, execution, garnishment, or other judicial process.”

  But with bidding having started on Iraq's state-owned firms, and foreign banks ready to open branches in Baghdad, the insurance issue was suddenly urgent. Many of the speakers admitted that the economic risks of going into Iraq without coverage were huge: privatized firms could be renationalized, foreign ownership rules could be reinstated and contracts signed with the CPA could be torn up.

  Normally, multinationals protect themselves against this sort of thing by purchasing “political risk” insurance. Before he got the top job in Iraq this was Bremer's business – selling political risk, expropriation, and terrorism insurance at Marsh & McLennan Companies, the largest insurance brokerage firm in the world. Yet in Iraq, Bremer oversaw the creation of a business climate so volatile that private insurers – including his old colleagues at Marsh & McLennan – were simply unwilling to take the risk. Bremer's Iraq was, by all accounts, uninsurable.

  “The insurance industry has never been up against this kind of exposure before,” R. Taylor Hoskins, vice president of Rutherford International insurance company, told the delegates apologeti
cally. Steven Sadler, Managing Director and Chairman at Marsh Industry Practices, a division of Bremer's old firm, was even more downbeat. “Don't look to Iraq to find an insurance solution. Interest is very, very, very limited. There is very limited capacity and interest in the region.”

  It was clear that Bremer knew Iraq wasn't ready to be insured: when he signed Order 39, opening up much of Iraq's economy to 100 percent foreign ownership, the insurance industry was specifically excluded. I asked Sadler, a Bremer clone with slicked-back hair and bright red tie, whether he thought it strange that a former Marsh & McLennan executive could have so overlooked the need for investors to have insurance before they enter a war zone. “Well,” he said, “he's got a lot on his plate.” Or maybe he just had better information.

  Just when the mood at ReBuilding Iraq 2 couldn't sink any lower, up to the podium strode Michael Lempres, vice president of insurance at the Overseas Private Investment Corporation (OPIC). With a cool confidence absent from the shell-shocked proceedings so far, he announced that investors could relax: Uncle Sam would protect them.

  A U.S. government agency established in 1971, OPIC provides loans and insurance to U.S. companies investing abroad. And while Lempres agreed with earlier speakers that the risks in Iraq were “extraordinary and unusual,” he also said that “OPIC is different. We do not exist primarily to generate profit.” Instead, OPIC exists to “support U.S. foreign policy.” And since turning Iraq into a free-trade zone was a top Bush policy goal, OPIC would be there to help out. Earlier that same day, President Bush had signed legislation providing “the agency with enhancements to its political risk insurance program,” according to an OPIC press release.

  Armed with this clear political mandate, Lempres announced that the agency was now “open for business” in Iraq, and was offering financing and insurance – including the riskiest insurance of all: political risk. “This is a priority for us,” Lempres said. “We want to do everything we can to encourage U.S. investment in Iraq.”

  The news, at the time unreported, appeared to take even the highest-level delegates by complete surprise. After his presentation, Lempres was approached by Julie Martin, a political risk specialist at Marsh & McLennan.

  “Is it true?” she demanded.

  Lempres nodded. “Our lawyers are ready.”

  “I'm stunned,” Martin said. “You're ready? No matter who the government is?”

  “We're ready,” Lempres replied. “If there's an expropriation] on January 3, we're ready …. I don't know what we're going to do if someone sinks a billion dollars into a pipeline and there's an expro.”

  Lempres didn't seem too concerned about those possible “expros,” but it was a serious question. According to its official mandate, OPIC functioned “on a self-sustaining basis at no net cost to taxpayers.” But Lempres admitted that the political risks in Iraq were “extraordinary.” If a new Iraqi government were to expropriate and re-regulate across the board, OPIC could be forced to compensate dozens of U.S. firms for billions of dollars in lost investments and revenues, possibly tens of billions. What would happen then?

  At the Microsoft-sponsored cocktail reception in the Galaxy Ballroom that evening, Robert Dees urged us “to network on behalf of the people of Iraq.” I followed orders and asked Lempres what would happen if “the people of Iraq” decided to seize back their economy from the U.S. firms he had so generously insured. Who would bail out OPIC? “In theory,” he said, “the U.S. Treasury stands behind us.” That meant the U.S. taxpayer. Yes, them again: the same people who had already paid Halliburton, Bechtel et al, to make a killing on Iraq's reconstruction would have to pay these companies again, this time in compensation for their losses. While the enormous profits being made in Iraq were strictly private, it turned out that the entire risk was being shouldered by the public.

  For the non-U.S. firms in the room, OPIC's announcement was anything but reassuring: since only U.S. companies were eligible for its insurance, and the private insurers were sitting it out, how could they compete? The answer was that they likely could not. Some countries might decide to match OPIC's Iraq program. But in the short term, not only had the U.S. government barred companies from non-“coalition partners” from competing for contracts against U.S. firms, it had made sure that the foreign firms that were allowed to compete would do so at a serious disadvantage.

  The reconstruction of Iraq has emerged as a vast protectionist racket, a neocon New Deal that transfers limitless public funds – in contracts, loans, and insurance – to private firms, and even gets rid of the foreign competition to boot, under the guise of “national security.” Ironically, those firms were initially handed this corporate welfare so they could take full advantage of CPA-imposed laws that stripped Iraqi industry of all its protections, from import tariffs to limits on foreign ownership. As Michael Fleisher, onetime head of private-sector development for the CPA, said to a group of Iraqi business people (explaining why these protections had to be removed), “Protected businesses never, never become competitive,” he said. Somebody should have told that to OPIC and Paul Wolfowitz.1

  The issue of U.S. double standards came up again at the conference when a CPA representative took the podium. A legal adviser to Bremer, Carole Basri had a simple message: reconstruction was being sabotaged by Iraqi corruption. “My fear is that corruption will be the downfall,” she said ominously, blaming the problem on “a thirty-five-year gap in knowledge” in Iraq that had made Iraqis “not aware of current accounting standards and ideas on anti-corruption.” Foreign investors, she said, must engage in “education – bring people up to world-class standards.”

  It is hard to imagine what world-class standards she was referring to, or who, exactly, was supposed to be doing this educating. Halliburton, with its accounting scandals and its outrageous over-billing for gasoline in Iraq? The CPA, whose inspector general generated a report in mid-2004 that triggered 27 criminal cases, and which was reported in early 2005 as having failed to account properly for some $9 billion?2 On the final day of ReBuilding Iraq 2, the cover headline in our complimentary copies of the Financial Times (a conference sponsor) was “Boeing linked to Perle investment fund.” Perhaps Richard Perle – who had supported Boeing's $18 billion refueling-tanker deal and extracted $20 million from Boeing for his investment fund – was the one to teach Iraq's politicians to stop soliciting “commissions” in exchange for contracts.

  For the Iraqi expats in the audience, Basri's was a tough lecture to sit through. “To be honest,” said Ed Kubba, a consultant and board member of the American Iraqi Chamber of Commerce, “I don't know where the line is between business and corruption.” He pointed to U.S. companies subcontracting huge taxpayer-funded reconstruction jobs for a fraction of what they were getting paid, then pocketing the difference. “If you take $10 million from the U.S. government and sub the job out to Iraqi businesses for a quarter-million, is that business, or is that corruption?”

  These were the sorts of uncomfortable questions faced by George Sigalos, director of government relations for Halliburton KBR. In the hierarchy of Iraqi reconstruction, Halliburton is king, and Sigalos sat onstage, heavy with jeweled ring and gold cufflinks, playing the part. But the serfs were getting restless, and the room quickly turned into a support group for jilted would-be subcontractors.

  “Mr. Sigalos, what are we going to have to do to get some subcontracts?”

  “Mr. Sigalos, when are you going to hire some Iraqis in management and leadership?”

  “I have a question for Mr. Sigalos. I would like to ask what you would suggest when the Army says, 'Go to Halliburton,' and there's no response from Halliburton?”

  Sigalos patiently instructed them all to register their companies on Halliburton's website. When the questioners responded that they had already done so and still hadn't heard back, Sigalos invited them to “approach me afterward.”

  The scene afterward was part celebrity autograph session, part riot. Sigalos was swarmed by at least fif
ty men, who elbowed each other out of the way to shower the Halliburton VP with CD-ROMs, business plans and resumes. When Sigalos spotted a badge from Volvo, he looked relieved. “Volvo! I know Volvo. Send me something about what you can achieve in the region.” But the small, no-name players who had paid their $985 entrance fees, there to hawk portable generators and electrical control paneling, were once again told to “register with our procurement office.”

  There were and are fortunes being made in Iraq, but it seems – as illustrated not least by my experience at the Arlington Sheraton – they are out of reach to all but the chosen few.

  1. The fact that according to a BBCNews report of April 4, 2005, only 20% of the $18.6 billion earmarked for reconstruction had been spent, with half of that going for security, would seem to confirm the point. And Chicago Tribune correspondent, Cam Simpson, reporting from Amman, Jordan, at the Rebuild Iraq 2005 conference (held 4–7 April, 2005), noted in her article (“Graft, Fear Bind Iraqis Trying to Do Business,” April 10, 2005, online) that many entrepreneurs still fear to cross the border into Iraq “because of continuing violence.” Though the nation remains in “dire need of foreign investment,” she pointed out, it “still can't offer legitimate letters of credit to foreign business people. Banking is a mess, telecommunications and electricity remain unreliable, and there are still few rules governing commerce.”—Ed.

  1. It is worth remembering that the Pentagon, via a December 5, 2003, directive issued by Deputy Secretary of Defense Paul Wolfowitz, barred French, German, and Russian companies from competing for contracts to be awarded as part of the $18.6 billion reconstruction aid package (Douglas Jehl, “A Region Inflamed: The Reconstruction; Pentagon Bars Three Nations From Iraq Bids,” New York Times, December 10, 2003, p. 1).—Ed.