"Ain't Gonna Study War No More"

My Photo
Location: Brooklyn, New York, United States

Right-To-Life Party, Christian, Anti-War, Pro-Life, Bible Fundamentalist, Egalitarian, Libertarian Left

Monday, September 27, 2004

Douglas Feith: Portrait of a Neoconservative

Feith served as the number three civilian in the George W. Bush administration's Defense Department, under Donald Rumsfeld and Paul Wolfowitz. Undersecretary for Policy Feith had previously served in the Reagan administration, starting off as Middle East specialist at the National Security Council (1981-82) and then transferring to the Defense Department where he spent two years as staff lawyer for Assistant Defense Secretary Richard Perle. In 1984 Feith advanced to become Deputy Assistant Secretary of Defense for Negotiations Policy. Feith and Perle were among the leading advocates of a policy to build closer U.S. military and diplomatic ties with Turkey and to increase the military ties between Turkey and Israel. (21)

Feith left DOD in mid-1986 to found the Feith & Zell law firm, based initially in Israel, whose clients included major military contractor Northrup Grumman. In 1989 Feith established another company, International Advisors, Inc., which provided lobbying services to foreign clients including Turkey.

Feith's private business dealings raised eyebrows in Washington. In 1999, his firm Feith & Zell formed an alliance with the Israel-based Zell, Goldberg & Co., which resulted in the creation of the Fandz International Law Group. According to Fandz's web site, the law group "has recently established a task force dealing with issues and opportunities relating to the recently ended war with Iraq.and is assisting regional construction and logistics firms to collaborate with contractors from the United States and other coalition countries in implementing infrastructure and other reconstruction projects in Iraq." Remarked Washington Post columnist Al Kamen, "Interested parties can reach [Fandz] through its Web site, at www.fandz.com. Fandz.com? Hmmm. Rings a bell. Oh, yes, that was the Web site of the Washington law firm of Feith & Zell, P.C., as in Douglas Feith [the] undersecretary of defense for policy and head of—what else?—reconstruction matters in Iraq. It would be impossible indeed to overestimate how perfect ZGC would be in 'assisting American companies in their relations with the United States government in connection with Iraqi reconstruction projects'." (9) (15)

A vocal advocate of U.S. intervention in the Middle East and for the hard-line policies of the Likud party in Israel, Feith has been involved in or overseen the activities of two controversial Pentagon operations—the Defense Policy Board, whose former head Richard Perle resigned after concerns arose about conflicts of interest between his board duties and business dealings, and the Office of Special Plans (OSP), which allegedly misrepresented intelligence on Iraq to support administration policies. Feith's office not only housed the Office of Special Plans and other special intelligence operations associated with the Near East and South Asia (NESA) office and the Office of Northern Gulf Affairs but also the office of Undersecretary of Defense for Intelligence Stephen Cambone, who directed military policy on interrogations of the Guantanamo Bay detainees and then arranged for the transfer of the base's commanding officer, Maj. General Geoffrey Miller to the Abu Ghraib prison in an effort to extract more information from Iraqi prisoners.

Feith & Israel

Feith cannot be described by just one label. He is a longtime militarist, a neoconservative, and a right-wing Zionist. According to Bob Woodward's book, Plan of Attack, Feith was described by the military commander who led the Iraq invasion, Gen. Tommy Franks, as "the f---ing stupidest guy on the face of the earth," referring to the bad intelligence fed to the military about Iraq and the extent of possible resistance to a U.S. invasion.

Feith also has a reputation as a prolific writer, having published articles on international law and on foreign and defense policy in The New York Times, Washington Times, Washington Post, Wall Street Journal, Commentary, and New Republic.

His militarism—and close ties with the military-industrial complex—were evident in his policy work in the Pentagon working with Richard Perle in the 1980s and then part of the Vulcans along with Rumsfeld, Wolfowitz, and Cheney in the Bush II administration; his work as a corporate lobbyist in the 1990s for Northrup Grumman along other military contractors; and his prominent role in the Center for Security Policy and in the Jewish Institute for National Security Affairs (JINSA). His political orientation is distinctly neoconservative, as evident in his affiliations with such groups as the Middle East Forum, Center for Security Policy, and Institute for Advanced Strategic and Political Studies (IASPS). Feith has also been associated with the National Institute for Public Policy (NIPP), a policy institute that promotes missile defense, space weapons, and nuclear weapons development. Feith, along with Max Kampelman, were team leaders for NIPP initiatives, funded by the right-wing Smith Richardson Foundation, for studies advocating the implementation of ambitious missile defense systems.

Feith served as chairman of the board of directors of the Center for Security Policy, a policy institute that promotes higher military budgets, missile defense systems, space weapons programs, and hard-line policies in the Middle East and East Asia. CSP was founded in 1988 by Frank Gaffney, a fellow neocon and, like Feith, a former DOD official in the Reagan administration. Feith helped Gaffney organize CSP's large advisory board, which includes leading neocons, arms lobbyists, and the leading congressional members linked to the military-industrial complex. Feith has also served as an adviser to the Jewish Institute for National Security Affairs, which aims to foster closer working relationships between the Israeli military, the U.S. military, the Pentagon, and military contractors in both countries.

Feith has supported lobbying efforts aimed at persuading the United States to drop out of treaties and arms control agreements. Wrote one journalist in The Nation, "Largely ignored or derided at the time, a 1995 [Center for Security Policy (CSP)] memo co-written by Douglas Feith holding that the United States should withdraw from the ABM [antiballistic missile] treaty has essentially become policy, as have other CSP reports opposing the Comprehensive Test Ban Treaty, the Chemical Weapons Convention and the International Criminal Court." (8) (14)

Feith is a self-proclaimed Zionist—not a Labor Zionist but a right-wing Zionist close to the Likud party and the Zionist Organization of America.

In the 1990s, Feith was an outspoken critic of the Middle East policies of both the Bush and Clinton administrations which he said were based on the faulty "peace now" and "land for peace" policy frameworks. Instead, he called for a "peace through strength" agenda for Israel and the United States—invoking a phrase promoted by the neoconservatives since the mid-1970s, which became the slogan of the Center for Security Policy.

The Middle East Information Center described Feith as an "ideologue with an extreme anti-Arab bias," remarking that "during the Clinton years, Feith continued to oppose any agreement negotiated between the Israelis and Palestinians: Oslo, Hebron and Wye." Feith "defined Oslo as, "one-sided Israeli concessions, inflated Palestinian expectations, broken Palestinian solemn understandings, Palestinian violence.and American rewards for Palestinian recalcitrance."(5)

In 1991, Feith, together with Frank Gaffney (founder of the Center for Security Policy), addressed the National Leadership Conference of the State of Israel Bonds Organization. In Feith's view, it was foolish for the U.S. government and Israel to negotiate with the Palestinians over issues of land given that contrasting principles—not differences over occupied lands—fueled the Israeli-Arab conflict. He notes that, even before Israel was established, Western political leaders mistakenly thought that "the vast territories newly made available for the fulfillment of Arab ambitions for independence would make it easier to win acceptance within the region of a Jewish state in Palestine." According to Feith, no matter what they say publicly or at the negotiating table, the Palestinians have always rejected the principle of legitimacy, namely "the legitimacy of Zionist claims to a Jewish National Homeland in the Land of Israel." Criticizing the George H. W. Bush administration's attempt to broker a land for peace deal, Feith warned, "If Western statesmen openly recognized the problem as a clash of principles, they would not be able to market hope through the launching of peace initiatives." (16)

In 1997 the Zionist Organization of America honored Dalck Feith and Douglas Feith at its annual dinner. It described the Feiths as "noted Jewish philanthropists and pro-Israel activists." The father was awarded the group's special Centennial Award "for his lifetime of service to Israel and the Jewish people," while Douglas received the "prestigious Louis D. Brandeis Award." (17)

Dalck Feith was a militant in Betar, a Zionist youth movement founded by Ze'ev Jabotinsky, an admirer of Mussolini. Betar, whose members wore dark brown uniforms and spouted militaristic slogans modeled after other fascistic movements, was associated with the Revisionist Movement, which evolved in Poland to become the Herut Party, which later became the Likud Party. (18)

In 1999 Douglas Feith wrote an essay for a book entitled The Dangers of a Palestinian State, which was published by ZOA. Also in 1999 Feith spoke to a 150-member ZOA lobbying mission to Congress that called, among other things, for "U.S. action against Palestinian Arab killers of Americans" and for moving the U.S. embassy from Tel Aviv to Jerusalem. The ZOA lobbying group also criticized the Clinton administration for its "refusal to criticize illegal Palestinian Arab construction in Jerusalem and the territories, which is far more extensive than Israeli construction there." (19)

Initially, Feith strongly supported the Netanyahu government controlled by the Likud party. Immediately before Netanyahu took office, Feith in a Washington Times op-ed wrote: "His Likud party is in general about as radical as our Republican Party. Mr. Netanyahu favors diplomatic, defense, and economic policies for Israel similar in principal to the kind of policies that Reaganites favored (and favor) for the United States." In the opinion piece, Feith echoed the Likud position on peace negotiations and occupied territories. According to Feith, "Israel is unlikely over time to retain control over pieces of territory unless its people actually live there. Supporters of settlements reason: If Israelis do not settle an area in the territories, Israel will eventually be forced to relinquish it. If it relinquishes the territories generally, its security will be undermined and peace therefore will not be possible."

Feith wrote that the Likud party's policies were guided by the "peace-through-strength principle." Feith took the opportunity of the op-ed to explain that both Israel and the United States would benefit from a strong commitment to missile defense. According to Feith, Israel would directly benefit from the installation of a sea-based, wide-area missile defense system, which would supplement Israel's own national missile defense system that the U.S. helped develop. Noting the symbiosis of U.S. and Israeli interests, Feith wrote that Netanyahu knew that "if he encourages Israel's friends in Congress to support such programs, he will create much good will with the broad-based forces in the United States, led by the top Republicans in Congress, that deem missile defense the gravest U.S. military deficiency." Feith didn't see fit to mention that, along with Israel, the main beneficiary of such a global missile defense system would be military contractors such as the ones he represented in his law firm, including Northrup Grumman. (20)

Feith is also well known for his participation—along with neoconservative big wigs Richard Perle and David Wurmser—in a 1996 study organized by the Israel-based Institute for Advanced Strategic and Political Studies, which urged scrapping the then-ongoing peace process. The study, titled "A Clean Break: A New Strategy for Securing the Realm," advised Prime Minister-elect Benjamin Netanyahu "to work closely with Turkey and Jordan to contain, destabilize, and roll back" regional threats, help overthrow Hussein, and strike "Syrian military targets in Lebanon" and possibly in Syria proper.

Three of the six authors of the report—Perle (who was IASPS team leader), Wurmser, and Feith—helped set the Middle East strategy, including strong support for Sharon's hard-line policies in the Israeli-Palestinian conflict, in the Bush II administration. Perle chaired the DOD's Defense Policy Board, Feith became undersecretary of defense for policy, and Wurmser became Vice President Cheney's top Middle East adviser after leaving the State Department where he worked under Undersecretary of State for Arms Control John Bolton.

Other members of the IASPS study group on "A New Israeli Strategy Toward 2000" included James Colbert of the Jewish Institute for National Security Affairs, Meyrav Wurmser of the Middle East Media Research Institute (MEMRI), and Jonathan Torop of the Washington Institute for Near East Policy, a neoconservative think tank founded by a director of the American Israeli Public Affairs Committee (AIPAC). At the time the report was published, David Wurmser was an associate of IASPS.

As guiding principles for a new framework of Israeli-U.S. policy in the Middle East, the report advocated that the new Likud government do the following:

Change the nature of its relations with the Palestinians, including upholding the right of hot pursuit for self defense into all Palestinian areas and nurturing alternatives to Arafat's exclusive grip on Palestinian society.
Forge a new basis for relations with the United States—stressing self-reliance, maturity, strategic cooperation on areas of mutual concern, and furthering values inherent to the West.
Israel has the opportunity to make a clean break; it can forge a peace process and strategy based on an entirely new intellectual foundation, one that restores strategic initiative and provides the nation the room to engage every possible energy on rebuilding Zionism, the starting point of which must be economic reform. (13)
By 1997 Feith and other right-wing Zionists in the United States were expressing their disappointment that the Netanyahu government had not "dismantled the Oslo process," as Feith wrote in Commentary, the neoconservative magazine of the American Jewish Committee. Feith then proceeded to outline a radical break with what he characterized as the "peace now" framework of negotiations. Instead, Feith recommended that Netanyahu fulfill his "peace through strength" campaign promise. "Repudiating Oslo would compel Israel, first and foremost, to undo the grossest of the errors inherent in the accords: the arming of scores of thousands of PA 'policemen'." Feith asserted that the "PA's security force has succeeded primarily in aggravating Israel's terrorism problem." What is more, Feith argued for Israel "to deflate expectations of imminent peace" and to "preach sobriety and defense." (21) It was not until a new Likud government was formed under Ariel Sharon and when Feith and other Zionists such as Paul Wolfowitz, Elliott Abrams, and Michael Rubin, together with militarists such as Rumsfeld and Cheney, took over control of Middle East policy during the Bush II administration that Israel, supported by the United States, made a "clean break" from the Oslo framework.

Typical of other neoconservatives, Feith in public statements has not made reference to his own Zionist convictions. Rather in congressional testimony and in op-eds in major media, Feith has instead argued that U.S. policy in the Middle East should be guided by concerns about human rights and democracy. Israel, according to Feith, should never enter into good-faith negotiations with Arab countries or the PA because they are not democratic. Moreover, human rights violations in Syria, Iran, and Iraq justify aggressive U.S. and Israeli policies aimed at ousting undemocratic and repressive regimes. Israeli occupations are justified in the name of ensuring the national security of democratic Israel. (22)

In addition to his close ties with the right-wing ZOA, Douglas Feith before assuming his current position as the third ranked civilian in the Pentagon cofounded One Jerusalem. Alarmed at the conciliatory direction of the Camp David peace talks, prominent Israelis and Jewish Americans founded One Jerusalem with the objective of “saving a united Jerusalem as the undivided capital of Israel.” Other cofounders of this Jerusalem-based organization are David Steinmann, chairman of the Jewish Institute for National Security Affairs, board member of the Center for Security Policy, and chairman of the executive committee of the Middle East Forum; Dore Gold, a top adviser to Prime Minister Sharon; and Natan Sharansky; Israel’s Minister of Diaspora Affairs and current chairman of One Jerusalem.

Although an organization of American Jewish and Israeli right-wing Zionists, One Jerusalem actively courts the involvement of Christian Zionists. In May 2003, One Jerusalem hosted the Interfaith Zionist Summit in Washington, DC, bringing together such Christian Zionists as Gary Bauer of American Values and Roberta Combs of the Christian Coalition with Daniel Pipes of Middle East Forum and Mort Klein of the Zionist Organization of America. (27)

Intelligence Operations and Scandals

Feith is no stranger to intelligence scandals. In 1982 he left the National Security Council under the shadow of an FBI investigation of administration officials suspected of passing intelligence information to Israel. (30) During the Bush II administration, investigative reports by Seymour Hersh in the New Yorker focused public attention on the Office of Special Plans that came under Feith's supervision. (23)

In the days after the September 11 terrorist attacks, Feith and Wolfowitz started cooking intelligence to meet the needs of the radically new foreign and military policy that included regime change in Iraq as its top priority.

One might have thought that the priority for a special intelligence would have been to determine the whereabouts of the terrorist network that had just attacked the homeland. But Deputy Defense Secretary Wolfowitz and Undersecretary of Defense Feith, working closely with Defense Secretary Donald Rumsfeld and Vice President Richard Cheney, had other intelligence priorities. This loosely organized team soon became the Office of Special Plans directed by Abram Shulksy, formerly of RAND and the National Strategy Information Center (NSIC). The objective of this closet intelligence team, according to Rumsfeld, was to "search for information on Iraq's hostile intentions or links to terrorists." OSP's mission was to create intelligence that the Pentagon and vice president could use to press their case for an Iraq invasion with the president and Congress.

About the same time the Pentagon took the first steps toward launching a counterintelligence operation called the Office of Strategic Intelligence to support the emerging security doctrine of preventive war. But this shadowy office, whose very purpose was to create propaganda and to counter information coming out of Iraq, was quickly disbanded. Congressional members expressed their concern that a counterintelligence office would not limit itself to discrediting the intelligence of U.S. adversaries. Such a secret counterintelligence office, critics warned, either intentionally or inadvertently might spread disinformation to the U.S. public and policy community as part of the build-up to the planned invasion.

Feith oversaw these efforts to provide the type of "strategic intelligence" needed to drive this policy agenda. As the Pentagon's top policy official in Middle East affairs, Feith had oversight authority of the DOD's Near East and South Asia bureau (NESA). That office came under the direct supervision of William Luti, a retired Navy officer who is a Newt Gingrich protégé and who has long advocated a U.S. military invasion of Iraq.

The OSP worked closely with Ahmed Chalabi and others from the Iraqi National Congress (INC), an expatriate group promoted by the neoconservatives to replace the Hussein regime once U.S. troops were in Baghdad. Chalabi assured the Pentagon that a U.S. invasion would be supported by widespread Iraqi resistance, leading to claims by top administration officials and neocon pundits that the invasion would be a "cakewalk." The OSP also relied on intelligence flows about Iraq from a rump unit established in the offices of Prime Minister Ariel Sharon—who like Chalabi was a proponent of a U.S. military invasion and had close relations with neocons like Wolfowitz and Feith. (24)

Feith became embroiled in a new intelligence scandal in late August 2004 when it was reported that the FBI had for the past two years been investigating intelligence leaks to Israel from the Pentagon. The Pentagon official named in the media reports is Lawrence Franklin, who was brought into the Office of Special Plans from the Defense Intelligence Agency. Franklin, who had served in the military attache's office in the U.S. Embassy in Tel Aviv in the late 1990s as a colonel in the Air Force Reserve, is suspected of passing classified information about Iran to the American Israeli Public Affairs Committee and Israel.

The Israeli government and the American Israeli Public Affairs Committee have denied that they engaged in any criminal operations involving classified Pentagon documents about Iran. Israeli cabinet minister Natan Sharansky, a cofounder with Feith of the right-wing Zionist organization One Jerusalem, said, “There are absolutely no attempts to involve any member of the Jewish community and any general American citizens to spy for Israel against the United States.” He observed that the investigation of DOD Office of Planning staff most likely stemmed from an interagency rivalry within the U.S. government. (29)

And Michael Ledeen told Newsweek that the espionage allegations against his close friend Franklin were “nonsensical.” (25) The FBI is also investigating whether Franklin and other DOD officials passed classified information to Ahmed Chalabi and the Iraqi National Congress. Ledeen and other neocons, like Sharansky, see the investigations as instigated by the State Department and the CIA to undermine the credibility of the neoconservatives and to obstruct their Middle East restructuring agenda, including regime change in Iran. According to one neocon interviewed by the Washington Post, "This is part of a civil war with the administration, a basic dislike between the old CIA and the neoconservatives." (26)


(1) U.S. Department of Defense: Undersecretary of Defense for Policy

(2) PRWatch.org

(3) Center for Security Policy

(4) People for the American Way

(5) Middle East Information Center

(6) Zionist Organization of America

(7) United States Institute for Peace

(8) Center for Security Policy 98-D139

(9) FANDZ International Law Group

(10) Statement of the Honorable Douglas J. Feith, Undersecretary of Defense for Policy Senate Armed Services Hearing on the Nuclear Posture Review

(11) The Middle East Forum

(12) Jim Lobe, “Pentagon Office Home to Neocon Network,” IPS, August 7, 2003

(13) "A Clean Break: a New Strategy for Securing the Realm," IASPS

(14) Jason Vest, “The Men from JINSA and CSP,” The Nation, August 15, 2002

(15) Al Kamen, “Feith-Based Initiative,” Washington Post, September 10, 2003

(16) Douglas Feith, ""The Historical Perspective on 'Land for Peace," National Leadership Conference on the State of Israel, October 14, 1991

(17) "News Release," Zionist Organization of America, October 13, 1997

(18) "Jabotinsky—A Brief Biography & Quotes"

(19) "News Release," Zionist Organization of America, August 31, 2004

(20) Douglas J. Feith, "About as radical as the Reaganites," Washington Times, June 18, 1996

(21) Douglas J. Feith, "A Strategy for Israel," Commentary, September 1997

(22) See, for example, Testimony by Douglas Feith before the House Human Rights Caucus," April 24, 1991

(23) Seymour M. Hersh, "Selective Intelligence," New Yorker, May 12, 2003; Seymour M. Hersh, "The Stovepipe," New Yorker, October 27, 2003

(24) Robert Dreyfus, "More Missing Intelligence," The Nation, July 7, 2003

(25) Michael Isikoff and Mark Hosenball, "And now a mole," Newsweek, September 6, 2004

(26) Susan Schmidt and Robin Wright, "Leak Probe More Than Two Years Old," Washington Post, September 2, 2004

(27) OneJerusalem.org

(28) James J. Zogby, “A Dangerous Appointment,” April 26, 2002

(29) “Israeli Held Meetings with U.S. Analyst,” New York Times, August 30, 2004

(30) Stephen Green, “Serving Two Flags: Neo-cons, Israel, and the Bush Administration,” CounterPunch Special Report, February 28/29, 2004

Tom Barry | September 3, 2004

Washington Turns its Back on Haitian Catastrophe

Nature has dealt a cruel blow to the people of Haiti, deepening the intense suffering and oppression that centuries of imperialist domination have inflicted upon the Caribbean nation’s impoverished population.

Tropical Storm Jeanne has buried Gonaives, the birthplace of Haiti’s struggle to cast off slavery and colonialism 200 years ago, in a sea of mud. Over 1,700 bodies have been recovered and dumped in mass graves. Thousands more people in the city as well as in cut-off rural areas are presumed dead.

Tens of thousands have been left with nothing to eat. The stench of rotting corpses and raw sewage hangs over the city. The lack of clean drinking water poses a mounting threat of deadly cholera or typhoid epidemics sweeping through the population.

Like all so-called natural disasters, the impact of the storm is a function not merely of wind and rain, but of social conditions. The poorest nation in the hemisphere, with 80 percent of the country’s population living on less than $150 a year, Haiti is the least capable of resisting the impact of such a storm. Moreover, the deforestation of the country’s hills, a centuries-old destructive process driven by rural poverty, has created the conditions for deadly floods and mudslides.

In response to this humanitarian catastrophe, Washington issued the following statement, posted on the web sites of both the American embassy in Port-au-Prince and the US Agency for International Development:

“On September 21, 2004, US Ambassador James Foley issued a disaster declaration due to the damage caused by Tropical Storm Jeanne. In response, USAID [US Agency for International Development] is providing $50,000 to CARE to distribute hygiene kits, cooking sets, blankets, water containers and other relief supplies to those most affected by the floods. USAID has dispatched a two-person team from the Office of US Foreign Disaster Assistance to help coordinate the United States relief efforts with local disaster officials. USAID has also secured an aircraft through Air Serv International to provide aerial assessments and transport of personnel and relief supplies.

“The most effective way to help is to make cash contributions to humanitarian organizations that are conducting relief operations.”

The total aid package, valued at $60,000, drew a shocked response from around the world. Foreign government officials and directors of humanitarian aid agencies rubbed their eyes in disbelief at the miniscule figure.

Washington’s response stood in stark contrast with that of other nations. The government of Venezuela, for example, made an immediate offer of $1 million, while the European Union pledged $1.8 million. Trinidad approved an allocation of $5 million for assistance to Haiti, though its government does not recognize the US-installed regime in Port-au-Prince.

The US offer amounted to about 25 cents each for the more than 250,000 people left hungry and homeless by the storm. It would barely count as a mid-sized corporate contribution to the Bush-Cheney campaign fund.

One can only guess at the grotesque discrepancy between Washington’s obscene aid offer and the sums allocated to organize the ouster of the country’s elected president, Jean-Bertrand Aristide, last February. Working in collusion with paramilitary thugs from Haiti’s former dictatorships, US officials kidnapped and forcibly evicted Aristide from the country, and then brought in some 1,500 Marines in to prop up a pro-US puppet government. The cost of this operation must have run into the hundreds of millions.

When he announced the US intervention in February, Bush declared that the US military was occupying the country to “bring order and stability to Haiti.” He said his government believed it was “essential that Haiti have a hopeful future.”

Life since the US-backed coup has been a nightmarish ordeal for the people of Haiti, marked by deepening poverty and continued brutality at the hands of the right-wing paramilitaries who still hold sway in large parts of the country.

The reaction to the devastation of Tropical Storm Jeanne is the clearest demonstration of the real attitude of US imperialism to the fate of the Haitian people.

Two days after its $60,000 insult to Haiti, the USAID amended its offer, pledging $2 million and sending an additional $153,000 in supplies. The press reported that the shift was in response to widespread international criticism.

The money is still grossly inadequate. Faced with far less severe damage in the US from Hurricane Ivan, the Bush administration rushed last week to put together a package of $5 billion in relief.

What convinced Washington to raise the ante in Haiti? It is hardly credible that it was suddenly moved by the horrible suffering of the storm’s survivors. After all, US imperialism is creating thousands of corpses every month in Iraq, and does not even bother to estimate the number of its victims.

Nor is it simply a matter of embarrassment over the wealthiest nation in the world—with a history of repeated military occupations of Haiti—being shunned for its callous indifference.

Rather, the Bush administration reacted to a perceived threat to US interests. With Europe and countries like Venezuela and Trinidad—both of which vehemently opposed the overthrow of Aristide—offering 20 to nearly 100 times as much aid as the US, the Bush administration feared that the damage done by Jeanne could spread from the charnel house of Gonaives to the arena of world politics. It saw that its open contempt for the people of Haiti could have consequences, threatening Washington’s claim to undisputed hegemony in its “own backyard.”

Bill Van Auken
25 September 2004

Harnessing Halliburton

The Army's recent decision to break up Halliburton's logistics contract doesn't make a dent in the war profiteer's monopoly. And despite evidence that the giant corporation was vastly overcharging taxpayers for services it provides, it still has almost exclusive access to many contracts in Iraq. The good news is that there's a bipartisan proposal in the Senate to create a war profiteering oversight committee. Corporate policy expert Charlie Cray explains.

Charlie Cray is the director of the Center for Corporate Policy and a collaborator on Halliburton Watch. His book, The People’s Business: Controlling Corporations and Restoring Democracy, (co-authored with Lee Drutman) will be published by Berrett-Koehler in November.

Criminologist Edwin Sutherland could not have imagined the heights of war profiteering reached by Halliburton in Iraq. In his 1949 groundbreaking study White Collar Crime, Sutherland wrote about the role of corporations in last century’s world wars. He observed that: “…the large corporations in time of war, when Western civilization was endangered, did not sacrifice their own interests and participate wholeheartedly in a national policy, but instead they attempted to use this emergency as an opportunity for extraordinary enrichment of themselves at the expense of others. …Profits are more important to large corporations than patriotism.”

As the largest contractor in the war on terror, Halliburton deserves all the scrutiny it has received—disregarding the partisan expectation that any resulting scandal would rub off on ex-CEO Dick Cheney.

Recently, John Kerry finally took off the gloves and used the H-word in a blistering attack on the Bush administration’s Iraq quagmire.

“As president,” Kerry said, “I will stop companies like Halliburton from profiting at the expense of our troops and taxpayers. … And as commander in chief, I will have two words for companies that cheat the U.S. military: ‘You're fired.'”

Leading Pentagon watchdogs have been calling for Halliburton’s debarment or suspension from Pentagon contracts since August. At that time the Defense Contract Audit Agency (DCAA) issued a memo complaining that Halliburton could not account for more than $1.8 billion of $4.3 billion of work in Iraq and Kuwait. For the third time, the DCAA recommended that the Pentagon not pay Halliburton until it coughed up all the receipts.

The long list of waste, fraud, bribery and other abuses associated with Halliburton’s Iraq contracts now fill volumes. Vigilant oversight by Rep. Henry Waxman’s office and Pentagon investigators—with the help of company whistleblowers—have uncovered attempts to charge taxpayers $45 per case of soda, $100 per bag of laundry, $10,000 a day to use five-star hotels in Kuwait. (Meanwhile, the troops are sweating it out in tents in the desert). There’s been $167 million worth of price gouging for imported gasoline, and $186 million charged for meals that were never served to the troops, and a $6 million kickback to two employees (fired by the company) from a subcontractor.

Nor has the company’s record in Iraq been the only basis for calls for debarment, which come not only from members of Congress but also from watchdog groups like the Project on Government Oversight. POGO is a Washington, D.C.-based non-partisan non-profit organization with more than two decades experience monitoring Pentagon contracts.

Halliburton’s Rap Sheet

In fact, there have been so many Halliburton scandals that it’s been hard to keep up (go to www.HalliburtonWatch.org for an up-to-date rap sheet). A few of the bigger ones:

U.S., Nigerian and French government officials continue to investigate bribery allegations involving a natural gas consortium directed by Halliburton in Nigeria. Jack Stanley—the former head of KBR (the Halliburton subsidiary that also does most of the company’s contracting with the military)—was let go after it was discovered that $5 million was siphoned off into a personal bank account. The Financial Times recently reported that while Dick Cheney was CEO the company forced its consortium partners to reappoint a business agent believed to have masterminded the scheme, which involved the use of offshore subsidiaries and Swiss bank accounts.

For years, Halliburton has been questioned about circumventing a ban on conducting business with the government of Iran, a member of Bush and Cheney’s so-called “axis of evil.” After the Treasury Department referred the case to the Department of Justice, a grand jury in Houston opened up an investigation. During Cheney’s time as CEO, the company also did business with Saddam. Cheney also led an effort to lobby against the sanctions. “The problem is that the good Lord didn’t see fit to put oil and gas reserves where there are democratically elected regimes friendly to the interests of the United States,” Cheney once explained.

The company recently agreed to pay the SEC more than $7.5 million in penalties for securities violations for certain accounting irregularities. After the SEC settled the case, a new civil suit was filed against the company (Cheney is not a defendant in the case, though it covers a period when he was CEO). It’s no surprise that Cheney has been railing against “frivolous lawsuits” on the campaign trail—obviously intended as a jab at John Edwards and a sop to his friends at Halliburton and other companies who have been pushing for relief from asbestos liability and other lawsuits. (As one comedian put it during the RNC, “they hate trial lawyers because they hate trials.”) No one has asked how many of the 151-plus claims the company filed while Cheney was Halliburton’s CEO are “frivolous,” but in August the Houston Chronicle slammed the company for deciding to sue retirees who complained about the company's termination of health insurance benefits. "It was a blunder on a par with the cattle industry's decision to sue Oprah Winfrey, or Fox News' lawsuit against author and liberal talk radio host Al Franken for using 'fair and balanced' in the title of his latest book."
Suspension and debarment are not unusual remedies for serious contractor abuse and corporate crime. After cooking the books, for example, Enron, WorldCom and Arthur Andersen were all suspended from federal contracts for a period of time.

But when it comes to the contractor abuses witnessed in Iraq, it seems like all has been forgiven. Even the most egregious cases have failed to result in a suspension. For example, CACI International received an extension of its contract even after its role in the Abu Ghraib prison scandal was revealed. There are at least 25 ongoing criminal investigations related to the Iraq reconstruction contracts. Wanna bet how many result in suspension?

Another reason for the lack of action is the lack of any clear standards for the debarment penalty. Soon after assuming the presidency in 200, Bush quietly repealed a Federal Acquisition Regulation (FAR) standard that provided guidance for suspension or debarment. Without the rule, contracting officers admit that such decisions are subject to all kinds of political pressure and other considerations.

Yet short of debarment there are few effective penalties for waste, fraud and abuse. (No one has talked about a war profiteering tax or criminal sanction like the one enacted before WW I.) Although Pentagon auditors have repeatedly advised withholding payments to Halliburton for its work in Iraq, the company essentially has the Army in a bind, since it has threatened to withhold payment to its subcontractors in the event that it doesn’t get paid. And that can mean an interruption in service. Army spokespeople have warned against any action that might affect the troops.

But as Marie deYoung, a former Halliburton/KBR employee and Army captain, put it in a Senate hearing earlier this month, poorly planned contracts like those managed by Halliburton “can compromise military readiness and operational security.” Describing low morale among foreign contract workers whose loyalties could shift under pressure, problems with information security, and the hiring of thousands of truckers and civilians who have had to drive and work in the line of fire without the capacity or legal right to defend themselves in the face of insurgents who have attacked the convoys (dozens of Halliburton employees have died in Iraq), de Young concluded that “the Bush-Cheney administration compromised our military security by commercializing and outsourcing the military’s command and control of all phases of planning and management of combat service support missions for Operation Iraqi Freedom.”

Just before the Senate hearing, the military announced that it would be breaking up Halliburton’s big logistics contract (known as the LOGCAP) so that other bidders could compete, an acknowledgment of the fundamental problem: Halliburton has a virtual monopoly on the work it is doing in Iraq. What they didn’t say was that this monopoly was created in 1992 by then-secretary of Defense Dick Cheney, who characteristically justified the decision with a still-classified study that the Pentagon paid KBR to conduct.

Halliburton CEO David Lesar’s reaction to the Army’s announcement that it would break up the massive LOGCAP work (worth up to $9.4 billion so far for Halliburton): “If we do choose to rebid, we're going to jack the margins up significantly.”

Lesar’s response reveals just how little competition the company expects to result from the announcement.

That should be no surprise. It’s hard to imagine how anyone else will be able to seriously compete with the company given all the advantages it has from its existing work, presence in the region and familiarity with the byzantine Pentagon contracting bureaucracy. Given the plan to establish up to 14 permanent bases in the country and reports of low troop reserves, there will likely be as much work for Halliburton in Iraq and elsewhere in the coming years as it can handle, even if a few token task orders are thrown to another company.

Anyone who isn’t convinced should look back at the Pentagon’s record in reforming the oil restoration contracts (worth up to $8.2 billion for the company so far) after the original no-bid contract was “opened up” to the competition. At the Senate hearing on the Iraq contracts, the former head of Bechtel’s bidding team described the process that resulted as a “sham,” ultimately resulting in Bechtel’s withdrawal from the bidding process.

“In their conduct of the entire (Restore Iraqi Oil) program, I believe Pentagon officials, up and down the chain of command, ignored our federal laws and regulations and the procedures that normally ensure fair play,” the former Bechtel employee concluded. “I never saw anything approaching the arrogant and egregious ways in which the Corps treated Halliburton’s competitors and violated federal laws and regulations to ensure KBR kept its RIO work.”

Meanwhile, in June, GAO investigators confirmed that Pentagon officials had broken competitive contracting requirements and overruled objections from one of the army’s own lawyers to grant the first oil-related work order to Halliburton before the war. The decision, which was made by political appointees working under the direction of Under Secretary of Defense for Policy Douglas Feith, was “coordinated w VP’s office,” according to an Army Corps of Engineers e-mail that surfaced around the same time.

Toward the Future

The good news is that a bipartisan proposal has been introduced by Sens. Durbin, D-Ill., and Craig, R-Idaho, to re-establish a special committee that would have oversight over the contracts awarded in the war on terrorism. Modeled after Sen. Harry Truman’s famously successful World War II committee on war profiteering, the proposal would provide much-needed oversight over the war profiteers, a task that a timid and partisan Congress has so far been reluctant to undertake.

“By any measure you want to use, Halliburton has been a great success story over the last few years,” Dick Cheney said before he was sworn into office. Despite Cheney’s dubious claim during his debate with Joe Lieberman that the millions he made had “nothing to do” with the government, it’s clear that that success has been borne at the expense of U.S. taxpayers. (Last year, Cheney claimed that he has “no ongoing financial ties” to the company on national television, despite continuing to receive deferred compensation payments.)

By no means is Halliburton the only company that should be investigated by such a committee (Bechtel’s handling of water and electricity contracts also bears investigation, as does the attempt to privatize the country’s state-owned industries—a move by Paul Bremer that experts in international law have suggested is a violation of the rights of an occupying power under the Geneva Convention). There are many issues that should be investigated, alas, but only partisan interests could stop the committee from prioritizing an investigation into the nation’s leading war profiteer.

Charlie Cray
September 27, 2004

Pillaging Iraq in Pursuit of a Neocon Utopia

Baghdad Year Zero

It was only after I had been in Baghdad for a month that I found what I was looking for. I had traveled to Iraq a year after the war began, at the height of what should have been a construction boom, but after weeks of searching I had not seen a single piece of heavy machinery apart from tanks and humvees. Then I saw it: a construction crane. It was big and yellow and impressive, and when I caught a glimpse of it around a corner in a busy shopping district I thought that I was finally about to witness some of the reconstruction I had heard so much about. But as I got closer I noticed that the crane was not actually rebuilding anything—not one of the bombed-out government buildings that still lay in rubble all over the city, nor one of the many power lines that remained in twisted heaps even as the heat of summer was starting to bear down. No, the crane was hoisting a giant billboard to the top of a three-story building. SUNBULAH: HONEY 100% NATURAL, made in Saudi Arabia.

Seeing the sign, I couldn’t help but think about something Senator John McCain had said back in October. Iraq, he said, is “a huge pot of honey that’s attracting a lot of flies.” The flies McCain was referring to were the Halliburtons and Bechtels, as well as the venture capitalists who flocked to Iraq in the path cleared by Bradley Fighting Vehicles and laser-guided bombs. The honey that drew them was not just no-bid contracts and Iraq’s famed oil wealth but the myriad investment opportunities offered by a country that had just been cracked wide open after decades of being sealed off, first by the nationalist economic policies of Saddam Hussein, then by asphyxiating United Nations sanctions.

Looking at the honey billboard, I was also reminded of the most common explanation for what has gone wrong in Iraq, a complaint echoed by everyone from John Kerry to Pat Buchanan: Iraq is mired in blood and deprivation because George W. Bush didn’t have “a postwar plan.” The only problem with this theory is that it isn’t true. The Bush Administration did have a plan for what it would do after the war; put simply, it was to lay out as much honey as possible, then sit back and wait for the flies.

* * *

The honey theory of Iraqi reconstruction stems from the most cherished belief of the war’s ideological architects: that greed is good. Not good just for them and their friends but good for humanity, and certainly good for Iraqis. Greed creates profit, which creates growth, which creates jobs and products and services and everything else anyone could possibly need or want. The role of good government, then, is to create the optimal conditions for corporations to pursue their bottomless greed, so that they in turn can meet the needs of the society. The problem is that governments, even neoconservative governments, rarely get the chance to prove their sacred theory right: despite their enormous ideological advances, even George Bush’s Republicans are, in their own minds, perennially sabotaged by meddling Democrats, intractable unions, and alarmist environmentalists.

Iraq was going to change all that. In one place on Earth, the theory would finally be put into practice in its most perfect and uncompromised form. A country of 25 million would not be rebuilt as it was before the war; it would be erased, disappeared. In its place would spring forth a gleaming showroom for laissez-faire economics, a utopia such as the world had never seen. Every policy that liberates multinational corporations to pursue their quest for profit would be put into place: a shrunken state, a flexible workforce, open borders, minimal taxes, no tariffs, no ownership restrictions. The people of Iraq would, of course, have to endure some short-term pain: assets, previously owned by the state, would have to be given up to create new opportunities for growth and investment. Jobs would have to be lost and, as foreign products flooded across the border, local businesses and family farms would, unfortunately, be unable to compete. But to the authors of this plan, these would be small prices to pay for the economic boom that would surely explode once the proper conditions were in place, a boom so powerful the country would practically rebuild itself.

The fact that the boom never came and Iraq continues to tremble under explosions of a very different sort should never be blamed on the absence of a plan. Rather, the blame rests with the plan itself, and the extraordinarily violent ideology upon which it is based.

* * *

Torturers believe that when electrical shocks are applied to various parts of the body simultaneously subjects are rendered so confused about where the pain is coming from that they become incapable of resistance. A declassified CIA “Counterintelligence Interrogation” manual from 1963 describes how a trauma inflicted on prisoners opens up “an interval—which may be extremely brief—of suspended animation, a kind of psychological shock or paralysis. . . . [A]t this moment the source is far more open to suggestion, far likelier to comply.” A similar theory applies to economic shock therapy, or “shock treatment,” the ugly term used to describe the rapid implementation of free-market reforms imposed on Chile in the wake of General Augusto Pinochet’s coup. The theory is that if painful economic “adjustments” are brought in rapidly and in the aftermath of a seismic social disruption like a war, a coup, or a government collapse, the population will be so stunned, and so preoccupied with the daily pressures of survival, that it too will go into suspended animation, unable to resist. As Pinochet’s finance minister, Admiral Lorenzo Gotuzzo, declared, “The dog’s tail must be cut off in one chop.”

That, in essence, was the working thesis in Iraq, and in keeping with the belief that private companies are more suited than governments for virtually every task, the White House decided to privatize the task of privatizing Iraq’s state-dominated economy. Two months before the war began, USAID began drafting a work order, to be handed out to a private company, to oversee Iraq’s “transition to a sustainable market-driven economic system.” The document states that the winning company (which turned out to be the KPMG offshoot Bearing Point) will take “appropriate advantage of the unique opportunity for rapid progress in this area presented by the current configuration of political circumstances.” Which is precisely what happened.

L. Paul Bremer, who led the U.S. occupation of Iraq from May 2, 2003, until he caught an early flight out of Baghdad on June 28, admits that when he arrived, “Baghdad was on fire, literally, as I drove in from the airport.” But before the fires from the “shock and awe” military onslaught were even extinguished, Bremer unleashed his shock therapy, pushing through more wrenching changes in one sweltering summer than the International Monetary Fund has managed to enact over three decades in Latin America. Joseph Stiglitz, Nobel laureate and former chief economist at the World Bank, describes Bremer’s reforms as “an even more radical form of shock therapy than pursued in the former Soviet world.”

The tone of Bremer’s tenure was set with his first major act on the job: he fired 500,000 state workers, most of them soldiers, but also doctors, nurses, teachers, publishers, and printers. Next, he flung open the country’s borders to absolutely unrestricted imports: no tariffs, no duties, no inspections, no taxes. Iraq, Bremer declared two weeks after he arrived, was “open for business.”

One month later, Bremer unveiled the centerpiece of his reforms. Before the invasion, Iraq’s non-oil-related economy had been dominated by 200 state-owned companies, which produced everything from cement to paper to washing machines. In June, Bremer flew to an economic summit in Jordan and announced that these firms would be privatized immediately. “Getting inefficient state enterprises into private hands,” he said, “is essential for Iraq’s economic recovery.” It would be the largest state liquidation sale since the collapse of the Soviet Union.

But Bremer’s economic engineering had only just begun. In September, to entice foreign investors to come to Iraq, he enacted a radical set of laws unprecedented in their generosity to multinational corporations. There was Order 37, which lowered Iraq’s corporate tax rate from roughly 40 percent to a flat 15 percent. There was Order 39, which allowed foreign companies to own 100 percent of Iraqi assets outside of the natural-resource sector. Even better, investors could take 100 percent of the profits they made in Iraq out of the country; they would not be required to reinvest and they would not be taxed. Under Order 39, they could sign leases and contracts that would last for forty years. Order 40 welcomed foreign banks to Iraq under the same favorable terms. All that remained of Saddam Hussein’s economic policies was a law restricting trade unions and collective bargaining.

If these policies sound familiar, it’s because they are the same ones multinationals around the world lobby for from national governments and in international trade agreements. But while these reforms are only ever enacted in part, or in fits and starts, Bremer delivered them all, all at once. Overnight, Iraq went from being the most isolated country in the world to being, on paper, its widest-open market.

* * *

At first, the shock-therapy theory seemed to hold: Iraqis, reeling from violence both military and economic, were far too busy staying alive to mount a political response to Bremer’s campaign. Worrying about the privatization of the sewage system was an unimaginable luxury with half the population lacking access to clean drinking water; the debate over the flat tax would have to wait until the lights were back on. Even in the international press, Bremer’s new laws, though radical, were easily upstaged by more dramatic news of political chaos and rising crime.

Some people were paying attention, of course. That autumn was awash in “rebuilding Iraq” trade shows, in Washington, London, Madrid, and Amman. The Economist described Iraq under Bremer as “a capitalist dream,” and a flurry of new consulting firms were launched promising to help companies get access to the Iraqi market, their boards of directors stacked with well-connected Republicans. The most prominent was New Bridge Strategies, started by Joe Allbaugh, former Bush-Cheney campaign manager. “Getting the rights to distribute Procter & Gamble products can be a gold mine,” one of the company’s partners enthused. “One well-stocked 7-Eleven could knock out thirty Iraqi stores; a Wal-Mart could take over the country.”

Soon there were rumors that a McDonald’s would be opening up in downtown Baghdad, funding was almost in place for a Starwood luxury hotel, and General Motors was planning to build an auto plant. On the financial side, HSBC would have branches all over the country, Citigroup was preparing to offer substantial loans guaranteed against future sales of Iraqi oil, and the bell was going to ring on a New York?style stock exchange in Baghdad any day.

In only a few months, the postwar plan to turn Iraq into a laboratory for the neocons had been realized. Leo Strauss may have provided the intellectual framework for invading Iraq preemptively, but it was that other University of Chicago professor, Milton Friedman, author of the anti-government manifesto Capitalism and Freedom, who supplied the manual for what to do once the country was safely in America’s hands. This represented an enormous victory for the most ideological wing of the Bush Administration. But it was also something more: the culmination of two interlinked power struggles, one among Iraqi exiles advising the White House on its postwar strategy, the other within the White House itself.

* * *

As the British historian Dilip Hiro has shown, in Secrets and Lies: Operation ‘Iraqi Freedom’ and After, the Iraqi exiles pushing for the invasion were divided, broadly, into two camps. On one side were “the pragmatists,” who favored getting rid of Saddam and his immediate entourage, securing access to oil, and slowly introducing free-market reforms. Many of these exiles were part of the State Department’s Future of Iraq Project, which generated a thirteen-volume report on how to restore basic services and transition to democracy after the war. On the other side was the “Year Zero” camp, those who believed that Iraq was so contaminated that it needed to be rubbed out and remade from scratch. The prime advocate of the pragmatic approach was Iyad Allawi, a former high-level Baathist who fell out with Saddam and started working for the CIA. The prime advocate of the Year Zero approach was Ahmad Chalabi, whose hatred of the Iraqi state for expropriating his family’s assets during the 1958 revolution ran so deep he longed to see the entire country burned to the ground—everything, that is, but the Oil Ministry, which would be the nucleus of the new Iraq, the cluster of cells from which an entire nation would grow. He called this process “de-Baathification.”

A parallel battle between pragmatists and true believers was being waged within the Bush Administration. The pragmatists were men like Secretary of State Colin Powell and General Jay Garner, the first U.S. envoy to postwar Iraq. General Garner’s plan was straightforward enough: fix the infrastructure, hold quick and dirty elections, leave the shock therapy to the International Monetary Fund, and concentrate on securing U.S. military bases on the model of the Philippines. “I think we should look right now at Iraq as our coaling station in the Middle East,” he told the BBC. He also paraphrased T. E. Lawrence, saying, “It’s better for them to do it imperfectly than for us to do it for them perfectly.” On the other side was the usual cast of neoconservatives: Vice President Dick Cheney, Secretary of Defense Donald Rumsfeld (who lauded Bremer’s “sweeping reforms” as “some of the most enlightened and inviting tax and investment laws in the free world”), Deputy Secretary of Defense Paul Wolfowitz, and, perhaps most centrally, Undersecretary of Defense Douglas Feith. Whereas the State Department had its Future of Iraq report, the neocons had USAID’s contract with Bearing Point to remake Iraq’s economy: in 108 pages, “privatization” was mentioned no fewer than fifty-one times. To the true believers in the White House, General Garner’s plans for postwar Iraq seemed hopelessly unambitious. Why settle for a mere coaling station when you can have a model free market? Why settle for the Philippines when you can have a beacon unto the world?

The Iraqi Year Zeroists made natural allies for the White House neoconservatives: Chalabi’s seething hatred of the Baathist state fit nicely with the neocons’ hatred of the state in general, and the two agendas effortlessly merged. Together, they came to imagine the invasion of Iraq as a kind of Rapture: where the rest of the world saw death, they saw birth—a country redeemed through violence, cleansed by fire. Iraq wasn’t being destroyed by cruise missiles, cluster bombs, chaos, and looting; it was being born again. April 9, 2003, the day Baghdad fell, was Day One of Year Zero.

While the war was being waged, it still wasn’t clear whether the pragmatists or the Year Zeroists would be handed control over occupied Iraq. But the speed with which the nation was conquered dramatically increased the neocons’ political capital, since they had been predicting a “cakewalk” all along. Eight days after George Bush landed on that aircraft carrier under a banner that said MISSION ACCOMPLISHED, the President publicly signed on to the neocons’ vision for Iraq to become a model corporate state that would open up the entire region. On May 9, Bush proposed the “establishment of a U.S.-Middle East free trade area within a decade”; three days later, Bush sent Paul Bremer to Baghdad to replace Jay Garner, who had been on the job for only three weeks. The message was unequivocal: the pragmatists had lost; Iraq would belong to the believers.

A Reagan-era diplomat turned entrepreneur, Bremer had recently proven his ability to transform rubble into gold by waiting exactly one month after the September 11 attacks to launch Crisis Consulting Practice, a security company selling “terrorism risk insurance” to multinationals. Bremer had two lieutenants on the economic front: Thomas Foley and Michael Fleischer, the heads of “private sector development” for the Coalition Provisional Authority (CPA). Foley is a Greenwich, Connecticut, multimillionaire, a longtime friend of the Bush family and a Bush-Cheney campaign “pioneer” who has described Iraq as a modern California “gold rush.” Fleischer, a venture capitalist, is the brother of former White House spokesman Ari Fleischer. Neither man had any high-level diplomatic experience and both use the term corporate “turnaround” specialist to describe what they do. According to Foley, this uniquely qualified them to manage Iraq’s economy because it was “the mother of all turnarounds.”

Many of the other CPA postings were equally ideological. The Green Zone, the city within a city that houses the occupation headquarters in Saddam’s former palace, was filled with Young Republicans straight out of the Heritage Foundation, all of them given responsibility they could never have dreamed of receiving at home. Jay Hallen, a twenty-four-year-old who had applied for a job at the White House, was put in charge of launching Baghdad’s new stock exchange. Scott Erwin, a twenty-one-year-old former intern to Dick Cheney, reported in an email home that “I am assisting Iraqis in the management of finances and budgeting for the domestic security forces.” The college senior’s favorite job before this one? “My time as an ice-cream truck driver.” In those early days, the Green Zone felt a bit like the Peace Corps, for people who think the Peace Corps is a communist plot. It was a chance to sleep on cots, wear army boots, and cry “incoming”—all while being guarded around the clock by real soldiers.

The teams of KPMG accountants, investment bankers, think-tank lifers, and Young Republicans that populate the Green Zone have much in common with the IMF missions that rearrange the economies of developing countries from the presidential suites of Sheraton hotels the world over. Except for one rather significant difference: in Iraq they were not negotiating with the government to accept their “structural adjustments” in exchange for a loan; they were the government.

Some small steps were taken, however, to bring Iraq’s U.S.-appointed politicians inside. Yegor Gaidar, the mastermind of Russia’s mid-nineties privatization auction that gave away the country’s assets to the reigning oligarchs, was invited to share his wisdom at a conference in Baghdad. Marek Belka, who as finance minister oversaw the same process in Poland, was brought in as well. The Iraqis who proved most gifted at mouthing the neocon lines were selected to act as what USAID calls local “policy champions”—men like Ahmad al Mukhtar, who told me of his countrymen, “They are lazy. The Iraqis by nature, they are very dependent. . . . They will have to depend on themselves, it is the only way to survive in the world today.” Although he has no economics background and his last job was reading the English-language news on television, al Mukhtar was appointed director of foreign relations in the Ministry of Trade and is leading the charge for Iraq to join the World Trade Organization.

* * *

I had been following the economic front of the war for almost a year before I decided to go to Iraq. I attended the “Rebuilding Iraq” trade shows, studied Bremer’s tax and investment laws, met with contractors at their home offices in the United States, interviewed the government officials in Washington who are making the policies. But as I prepared to travel to Iraq in March to see this experiment in free-market utopianism up close, it was becoming increasingly clear that all was not going according to plan. Bremer had been working on the theory that if you build a corporate utopia the corporations will come—but where were they? American multinationals were happy to accept U.S. taxpayer dollars to reconstruct the phone or electricity systems, but they weren’t sinking their own money into Iraq. There was, as yet, no McDonald’s or Wal-Mart in Baghdad, and even the sales of state factories, announced so confidently nine months earlier, had not materialized.

Some of the holdup had to do with the physical risks of doing business in Iraq. But there were other more significant risks as well. When Paul Bremer shredded Iraq’s Baathist constitution and replaced it with what The Economist greeted approvingly as “the wish list of foreign investors,” there was one small detail he failed to mention: It was all completely illegal. The CPA derived its legal authority from United Nations Security Council Resolution 1483, passed in May 2003, which recognized the United States and Britain as Iraq’s legitimate occupiers. It was this resolution that empowered Bremer to unilaterally make laws in Iraq. But the resolution also stated that the U.S. and Britain must “comply fully with their obligations under international law including in particular the Geneva Conventions of 1949 and the Hague Regulations of 1907.” Both conventions were born as an attempt to curtail the unfortunate historical tendency among occupying powers to rewrite the rules so that they can economically strip the nations they control. With this in mind, the conventions stipulate that an occupier must abide by a country’s existing laws unless “absolutely prevented” from doing so. They also state that an occupier does not own the “public buildings, real estate, forests and agricultural assets” of the country it is occupying but is rather their “administrator” and custodian, keeping them secure until sovereignty is reestablished. This was the true threat to the Year Zero plan: since America didn’t own Iraq’s assets, it could not legally sell them, which meant that after the occupation ended, an Iraqi government could come to power and decide that it wanted to keep the state companies in public hands, or, as is the norm in the Gulf region, to bar foreign firms from owning 100 percent of national assets. If that happened, investments made under Bremer’s rules could be expropriated, leaving firms with no recourse because their investments had violated international law from the outset.

By November, trade lawyers started to advise their corporate clients not to go into Iraq just yet, that it would be better to wait until after the transition. Insurance companies were so spooked that not a single one of the big firms would insure investors for “political risk,” that high-stakes area of insurance law that protects companies against foreign governments turning nationalist or socialist and expropriating their investments.

Even the U.S.-appointed Iraqi politicians, up to now so obedient, were getting nervous about their own political futures if they went along with the privatization plans. Communications Minister Haider al-Abadi told me about his first meeting with Bremer. “I said, ‘Look, we don’t have the mandate to sell any of this. Privatization is a big thing. We have to wait until there is an Iraqi government.’” Minister of Industry Mohamad Tofiq was even more direct: “I am not going to do something that is not legal, so that’s it.”

Both al-Abadi and Tofiq told me about a meeting—never reported in the press—that took place in late October 2003. At that gathering the twenty-five members of Iraq’s Governing Council as well as the twenty-five interim ministers decided unanimously that they would not participate in the privatization of Iraq’s state-owned companies or of its publicly owned infrastructure.

But Bremer didn’t give up. International law prohibits occupiers from selling state assets themselves, but it doesn’t say anything about the puppet governments they appoint. Originally, Bremer had pledged to hand over power to a directly elected Iraqi government, but in early November he went to Washington for a private meeting with President Bush and came back with a Plan B. On June 30 the occupation would officially end—but not really. It would be replaced by an appointed government, chosen by Washington. This government would not be bound by the international laws preventing occupiers from selling off state assets, but it would be bound by an “interim constitution,” a document that would protect Bremer’s investment and privatization laws.

The plan was risky. Bremer’s June 30 deadline was awfully close, and it was chosen for a less than ideal reason: so that President Bush could trumpet the end of Iraq’s occupation on the campaign trail. If everything went according to plan, Bremer would succeed in forcing a “sovereign” Iraqi government to carry out his illegal reforms. But if something went wrong, he would have to go ahead with the June 30 handover anyway because by then Karl Rove, and not Dick Cheney or Donald Rumsfeld, would be calling the shots. And if it came down to a choice between ideology in Iraq and the electability of George W. Bush, everyone knew which would win.

* * *

At first, Plan B seemed to be right on track. Bremer persuaded the Iraqi Governing Council to agree to everything: the new timetable, the interim government, and the interim constitution. He even managed to slip into the constitution a completely overlooked clause, Article 26. It stated that for the duration of the interim government, “The laws, regulations, orders and directives issued by the Coalition Provisional Authority . . . shall remain in force” and could only be changed after general elections are held.

Bremer had found his legal loophole: There would be a window—seven months—when the occupation was officially over but before general elections were scheduled to take place. Within this window, the Hague and Geneva Conventions’ bans on privatization would no longer apply, but Bremer’s own laws, thanks to Article 26, would stand. During these seven months, foreign investors could come to Iraq and sign forty-year contracts to buy up Iraqi assets. If a future elected Iraqi government decided to change the rules, investors could sue for compensation.

But Bremer had a formidable opponent: Grand Ayatollah Ali al Sistani, the most senior Shia cleric in Iraq. al Sistani tried to block Bremer’s plan at every turn, calling for immediate direct elections and for the constitution to be written after those elections, not before. Both demands, if met, would have closed Bremer’s privatization window. Then, on March 2, with the Shia members of the Governing Council refusing to sign the interim constitution, five bombs exploded in front of mosques in Karbala and Baghdad, killing close to 200 worshipers. General John Abizaid, the top U.S. commander in Iraq, warned that the country was on the verge of civil war. Frightened by this prospect, al Sistani backed down and the Shia politicians signed the interim constitution. It was a familiar story: the shock of a violent attack paved the way for more shock therapy.

When I arrived in Iraq a week later, the economic project seemed to be back on track. All that remained for Bremer was to get his interim constitution ratified by a Security Council resolution, then the nervous lawyers and insurance brokers could relax and the sell-off of Iraq could finally begin. The CPA, meanwhile, had launched a major new P.R. offensive designed to reassure investors that Iraq was still a safe and exciting place to do business. The centerpiece of the campaign was Destination Baghdad Exposition, a massive trade show for potential investors to be held in early April at the Baghdad International Fairgrounds. It was the first such event inside Iraq, and the organizers had branded the trade fair “DBX,” as if it were some sort of Mountain Dew?sponsored dirt-bike race. In keeping with the extreme-sports theme, Thomas Foley traveled to Washington to tell a gathering of executives that the risks in Iraq are akin “to skydiving or riding a motorcycle, which are, to many, very acceptable risks.”

But three hours after my arrival in Baghdad, I was finding these reassurances extremely hard to believe. I had not yet unpacked when my hotel room was filled with debris and the windows in the lobby were shattered. Down the street, the Mount Lebanon Hotel had just been bombed, at that point the largest attack of its kind since the official end of the war. The next day, another hotel was bombed in Basra, then two Finnish businessmen were murdered on their way to a meeting in Baghdad. Brigadier General Mark Kimmitt finally admitted that there was a pattern at work: “the extremists have started shifting away from the hard targets . . . [and] are now going out of their way to specifically target softer targets.” The next day, the State Department updated its travel advisory: U.S. citizens were “strongly warned against travel to Iraq.”

The physical risks of doing business in Iraq seemed to be spiraling out of control. This, once again, was not part of the original plan. When Bremer first arrived in Baghdad, the armed resistance was so low that he was able to walk the streets with a minimal security entourage. During his first four months on the job, 109 U.S. soldiers were killed and 570 were wounded. In the following four months, when Bremer’s shock therapy had taken effect, the number of U.S. casualties almost doubled, with 195 soldiers killed and 1,633 wounded. There are many in Iraq who argue that these events are connected—that Bremer’s reforms were the single largest factor leading to the rise of armed resistance.

Take, for instance, Bremer’s first casualties. The soldiers and workers he laid off without pensions or severance pay didn’t all disappear quietly. Many of them went straight into the mujahedeen, forming the backbone of the armed resistance. “Half a million people are now worse off, and there you have the water tap that keeps the insurgency going. It’s alternative employment,” says Hussain Kubba, head of the prominent Iraqi business group Kubba Consulting. Some of Bremer’s other economic casualties also have failed to go quietly. It turns out that many of the businessmen whose companies are threatened by Bremer’s investment laws have decided to make investments of their own—in the resistance. It is partly their money that keeps fighters in Kalashnikovs and RPGs.

These developments present a challenge to the basic logic of shock therapy: the neocons were convinced that if they brought in their reforms quickly and ruthlessly, Iraqis would be too stunned to resist. But the shock appears to have had the opposite effect; rather than the predicted paralysis, it jolted many Iraqis into action, much of it extreme. Haider al-Abadi, Iraq’s minister of communication, puts it this way: “We know that there are terrorists in the country, but previously they were not successful, they were isolated. Now because the whole country is unhappy, and a lot of people don’t have jobs . . . these terrorists are finding listening ears.”

Bremer was now at odds not only with the Iraqis who opposed his plans but with U.S military commanders charged with putting down the insurgency his policies were feeding. Heretical questions began to be raised: instead of laying people off, what if the CPA actually created jobs for Iraqis? And instead of rushing to sell off Iraq’s 200 state-owned firms, how about putting them back to work?

* * *

From the start, the neocons running Iraq had shown nothing but disdain for Iraq’s state-owned companies. In keeping with their Year Zero?apocalyptic glee, when looters descended on the factories during the war, U.S. forces did nothing. Sabah Asaad, managing director of a refrigerator factory outside Baghdad, told me that while the looting was going on, he went to a nearby U.S. Army base and begged for help. “I asked one of the officers to send two soldiers and a vehicle to help me kick out the looters. I was crying. The officer said, ‘Sorry, we can’t do anything, we need an order from President Bush.’” Back in Washington, Donald Rumsfeld shrugged. “Free people are free to make mistakes and commit crimes and do bad things.”

To see the remains of Asaad’s football-field-size warehouse is to understand why Frank Gehry had an artistic crisis after September 11 and was briefly unable to design structures resembling the rubble of modern buildings. Asaad’s looted and burned factory looks remarkably like a heavy-metal version of Gehry’s Guggenheim in Bilbao, Spain, with waves of steel, buckled by fire, lying in terrifyingly beautiful golden heaps. Yet all was not lost. “The looters were good-hearted,” one of Asaad’s painters told me, explaining that they left the tools and machines behind, “so we could work again.” Because the machines are still there, many factory managers in Iraq say that it would take little for them to return to full production. They need emergency generators to cope with daily blackouts, and they need capital for parts and raw materials. If that happened, it would have tremendous implications for Iraq’s stalled reconstruction, because it would mean that many of the key materials needed to rebuild—cement and steel, bricks and furniture—could be produced inside the country.

But it hasn’t happened. Immediately after the nominal end of the war, Congress appropriated $2.5 billion for the reconstruction of Iraq, followed by an additional $18.4 billion in October. Yet as of July 2004, Iraq’s state-owned factories had been pointedly excluded from the reconstruction contracts. Instead, the billions have all gone to Western companies, with most of the materials for the reconstruction imported at great expense from abroad.

With unemployment as high as 67 percent, the imported products and foreign workers flooding across the borders have become a source of tremendous resentment in Iraq and yet another open tap fueling the insurgency. And Iraqis don’t have to look far for reminders of this injustice; it’s on display in the most ubiquitous symbol of the occupation: the blast wall. The ten-foot-high slabs of reinforced concrete are everywhere in Iraq, separating the protected—the people in upscale hotels, luxury homes, military bases, and, of course, the Green Zone—from the unprotected and exposed. If that wasn’t injury enough, all the blast walls are imported, from Kurdistan, Turkey, or even farther afield, this despite the fact that Iraq was once a major manufacturer of cement, and could easily be again. There are seventeen state-owned cement factories across the country, but most are idle or working at only half capacity. According to the Ministry of Industry, not one of these factories has received a single contract to help with the reconstruction, even though they could produce the walls and meet other needs for cement at a greatly reduced cost. The CPA pays up to $1,000 per imported blast wall; local manufacturers say they could make them for $100. Minister Tofiq says there is a simple reason why the Americans refuse to help get Iraq’s cement factories running again: among those making the decisions, “no one believes in the public sector.”[1]

This kind of ideological blindness has turned Iraq’s occupiers into prisoners of their own policies, hiding behind walls that, by their very existence, fuel the rage at the U.S. presence, thereby feeding the need for more walls. In Baghdad the concrete barriers have been given a popular nickname: Bremer Walls.

As the insurgency grew, it soon became clear that if Bremer went ahead with his plans to sell off the state companies, it could worsen the violence. There was no question that privatization would require layoffs: the Ministry of Industry estimates that roughly 145,000 workers would have to be fired to make the firms desirable to investors, with each of those workers supporting, on average, five family members. For Iraq’s besieged occupiers the question was: Would these shock-therapy casualties accept their fate or would they rebel?

* * *

The answer arrived, in rather dramatic fashion, at one of the largest state-owned companies, the General Company for Vegetable Oils. The complex of six factories in a Baghdad industrial zone produces cooking oil, hand soap, laundry detergent, shaving cream, and shampoo. At least that is what I was told by a receptionist who gave me glossy brochures and calendars boasting of “modern instruments” and “the latest and most up to date developments in the field of industry.” But when I approached the soap factory, I discovered a group of workers sleeping outside a darkened building. Our guide rushed ahead, shouting something to a woman in a white lab coat, and suddenly the factory scrambled into activity: lights switched on, motors revved up, and workers—still blinking off sleep—began filling two-liter plastic bottles with pale blue Zahi brand dishwashing liquid.

I asked Nada Ahmed, the woman in the white coat, why the factory wasn’t working a few minutes before. She explained that they have only enough electricity and materials to run the machines for a couple of hours a day, but when guests arrive—would-be investors, ministry officials, journalists—they get them going. “For show,” she explained. Behind us, a dozen bulky machines sat idle, covered in sheets of dusty plastic and secured with duct tape.

In one dark corner of the plant, we came across an old man hunched over a sack filled with white plastic caps. With a thin metal blade lodged in a wedge of wax, he carefully whittled down the edges of each cap, leaving a pile of shavings at his feet. “We don’t have the spare part for the proper mold, so we have to cut them by hand,” his supervisor explained apologetically. “We haven’t received any parts from Germany since the sanctions began.” I noticed that even on the assembly lines that were nominally working there was almost no mechanization: bottles were held under spouts by hand because conveyor belts don’t convey, lids once snapped on by machines were being hammered in place with wooden mallets. Even the water for the factory was drawn from an outdoor well, hoisted by hand, and carried inside.

The solution proposed by the U.S. occupiers was not to fix the plant but to sell it, and so when Bremer announced the privatization auction back in June 2003 this was among the first companies mentioned. Yet when I visited the factory in March, nobody wanted to talk about the privatization plan; the mere mention of the word inside the plant inspired awkward silences and meaningful glances. This seemed an unnatural amount of subtext for a soap factory, and I tried to get to the bottom of it when I interviewed the assistant manager. But the interview itself was equally odd: I had spent half a week setting it up, submitting written questions for approval, getting a signed letter of permission from the minister of industry, being questioned and searched several times. But when I finally began the interview, the assistant manager refused to tell me his name or let me record the conversation. “Any manager mentioned in the press is attacked afterwards,” he said. And when I asked whether the company was being sold, he gave this oblique response: “If the decision was up to the workers, they are against privatization; but if it’s up to the high-ranking officials and government, then privatization is an order and orders must be followed.”

I left the plant feeling that I knew less than when I’d arrived. But on the way out of the gates, a young security guard handed my translator a note. He wanted us to meet him after work at a nearby restaurant, “to find out what is really going on with privatization.” His name was Mahmud, and he was a twenty-five-year-old with a neat beard and big black eyes. (For his safety, I have omitted his last name.) His story began in July, a few weeks after Bremer’s privatization announcement. The company’s manager, on his way to work, was shot to death. Press reports speculated that the manager was murdered because he was in favor of privatizing the plant, but Mahmud was convinced that he was killed because he opposed the plan. “He would never have sold the factories like the Americans want. That’s why they killed him.”

The dead man was replaced by a new manager, Mudhfar Ja’far. Shortly after taking over, Ja’far called a meeting with ministry officials to discuss selling off the soap factory, which would involve laying off two thirds of its employees. Guarding that meeting were several security officers from the plant. They listened closely to Ja’far’s plans and promptly reported the alarming news to their coworkers. “We were shocked,” Mahmud recalled. “If the private sector buys our company, the first thing they would do is reduce the staff to make more money. And we will be forced into a very hard destiny, because the factory is our only way of living.”

Frightened by this prospect, a group of seventeen workers, including Mahmud, marched into Ja’far’s office to confront him on what they had heard. “Unfortunately, he wasn’t there, only the assistant manager, the one you met,” Mahmud told me. A fight broke out: one worker struck the assistant manager, and a bodyguard fired three shots at the workers. The crowd then attacked the bodyguard, took his gun, and, Mahmud said, “stabbed him with a knife in the back three times. He spent a month in the hospital.” In January there was even more violence. On their way to work, Ja’far, the manager, and his son were shot and badly injured. Mahmud told me he had no idea who was behind the attack, but I was starting to understand why factory managers in Iraq try to keep a low profile.

At the end of our meeting, I asked Mahmud what would happen if the plant was sold despite the workers’ objections. “There are two choices,” he said, looking me in the eye and smiling kindly. “Either we will set the factory on fire and let the flames devour it to the ground, or we will blow ourselves up inside of it. But it will not be privatized.”

If there ever was a moment when Iraqis were too disoriented to resist shock therapy, that moment has definitely passed. Labor relations, like everything else in Iraq, has become a blood sport. The violence on the streets howls at the gates of the factories, threatening to engulf them. Workers fear job loss as a death sentence, and managers, in turn, fear their workers, a fact that makes privatization distinctly more complicated than the neocons foresaw.[2]

* * *

As I left the meeting with Mahmud, I got word that there was a major demonstration outside the CPA headquarters. Supporters of the radical young cleric Moqtada al Sadr were protesting the closing of their newspaper, al Hawza, by military police. The CPA accused al Hawza of publishing “false articles” that could “pose the real threat of violence.” As an example, it cited an article that claimed Bremer “is pursuing a policy of starving the Iraqi people to make them preoccupied with procuring their daily bread so they do not have the chance to demand their political and individual freedoms.” To me it sounded less like hate literature than a concise summary of Milton Friedman’s recipe for shock therapy.

A few days before the newspaper was shut down, I had gone to Kufa during Friday prayers to listen to al Sadr at his mosque. He had launched into a tirade against Bremer’s newly signed interim constitution, calling it “an unjust, terrorist document.” The message of the sermon was clear: Grand Ayatollah Ali al Sistani may have backed down on the constitution, but al Sadr and his supporters were still determined to fight it—and if they succeeded they would sabotage the neocons’ careful plan to saddle Iraq’s next government with their “wish list” of laws. With the closing of the newspaper, Bremer was giving al Sadr his response: he wasn’t negotiating with this young upstart; he’d rather take him out with force.

When I arrived at the demonstration, the streets were filled with men dressed in black, the soon-to-be legendary Mahdi Army. It struck me that if Mahmud lost his security guard job at the soap factory, he could be one of them. That’s who al Sadr’s foot soldiers are: the young men who have been shut out of the neocons’ grand plans for Iraq, who see no possibilities for work, and whose neighborhoods have seen none of the promised reconstruction. Bremer has failed these young men, and everywhere that he has failed, Moqtada al Sadr has cannily set out to succeed. In Shia slums from Baghdad to Basra, a network of Sadr Centers coordinate a kind of shadow reconstruction. Funded through donations, the centers dispatch electricians to fix power and phone lines, organize local garbage collection, set up emergency generators, run blood drives, direct traffic where the streetlights don’t work. And yes, they organize militias too. Al Sadr took Bremer’s economic casualties, dressed them in black, and gave them rusty Kalashnikovs. His militiamen protected the mosques and the state factories when the occupation authorities did not, but in some areas they also went further, zealously enforcing Islamic law by torching liquor stores and terrorizing women without the veil. Indeed, the astronomical rise of the brand of religious fundamentalism that al Sadr represents is another kind of blowback from Bremer’s shock therapy: if the reconstruction had provided jobs, security, and services to Iraqis, al Sadr would have been deprived of both his mission and many of his newfound followers.

At the same time as al Sadr’s followers were shouting “Down with America” outside the Green Zone, something was happening in another part of the country that would change everything. Four American mercenary soldiers were killed in Fallujah, their charred and dismembered bodies hung like trophies over the Euphrates. The attacks would prove a devastating blow for the neocons, one from which they would never recover. With these images, investing in Iraq suddenly didn’t look anything like a capitalist dream; it looked like a macabre nightmare made real.

The day I left Baghdad was the worst yet. Fallujah was under siege and Brig. Gen. Kimmitt was threatening to “destroy the al-Mahdi Army.” By the end, roughly 2,000 Iraqis were killed in these twin campaigns. I was dropped off at a security checkpoint several miles from the airport, then loaded onto a bus jammed with contractors lugging hastily packed bags. Although no one was calling it one, this was an evacuation: over the next week 1,500 contractors left Iraq, and some governments began airlifting their citizens out of the country. On the bus no one spoke; we all just listened to the mortar fire, craning our necks to see the red glow. A guy carrying a KPMG briefcase decided to lighten things up. “So is there business class on this flight?” he asked the silent bus. From the back, somebody called out, “Not yet.”

Indeed, it may be quite a while before business class truly arrives in Iraq. When we landed in Amman, we learned that we had gotten out just in time. That morning three Japanese civilians were kidnapped and their captors were threatening to burn them alive. Two days later Nicholas Berg went missing and was not seen again until the snuff film surfaced of his beheading, an even more terrifying message for U.S. contractors than the charred bodies in Fallujah. These were the start of a wave of kidnappings and killings of foreigners, most of them businesspeople, from a rainbow of nations: South Korea, Italy, China, Nepal, Pakistan, the Philippines, Turkey. By the end of June more than ninety contractors were reported dead in Iraq. When seven Turkish contractors were kidnapped in June, their captors asked the “company to cancel all contracts and pull out employees from Iraq.” Many insurance companies stopped selling life insurance to contractors, and others began to charge premiums as high as $10,000 a week for a single Western executive—the same price some insurgents reportedly pay for a dead American.

For their part, the organizers of DBX, the historic Baghdad trade fair, decided to relocate to the lovely tourist city of Diyarbakir in Turkey, “just 250 km from the Iraqi border.” An Iraqi landscape, only without those frightening Iraqis. Three weeks later just fifteen people showed up for a Commerce Department conference in Lansing, Michigan, on investing in Iraq. Its host, Republican Congressman Mike Rogers, tried to reassure his skeptical audience by saying that Iraq is “like a rough neighborhood anywhere in America.” The foreign investors, the ones who were offered every imaginable free-market enticement, are clearly not convinced; there is still no sign of them. Keith Crane, a senior economist at the Rand Corporation who has worked for the CPA, put it bluntly: “I don’t believe the board of a multinational company could approve a major investment in this environment. If people are shooting at each other, it’s just difficult to do business.” Hamid Jassim Khamis, the manager of the largest soft-drink bottling plant in the region, told me he can’t find any investors, even though he landed the exclusive rights to produce Pepsi in central Iraq. “A lot of people have approached us to invest in the factory, but people are really hesitating now.” Khamis said he couldn’t blame them; in five months he has survived an attempted assassination, a carjacking, two bombs planted at the entrance of his factory, and the kidnapping of his son.

Despite having been granted the first license for a foreign bank to operate in Iraq in forty years, HSBC still hasn’t opened any branches, a decision that may mean losing the coveted license altogether. Procter & Gamble has put its joint venture on hold, and so has General Motors. The U.S. financial backers of the Starwood luxury hotel and multiplex have gotten cold feet, and Siemens AG has pulled most staff from Iraq. The bell hasn’t rung yet at the Baghdad Stock Exchange—in fact you can’t even use credit cards in Iraq’s cash-only economy. New Bridge Strategies, the company that had gushed back in October about how “a Wal-Mart could take over the country,” is sounding distinctly humbled. “McDonald’s is not opening anytime soon,” company partner Ed Rogers told the Washington Post. Neither is Wal-Mart. The Financial Times has declared Iraq “the most dangerous place in the world in which to do business.” It’s quite an accomplishment: in trying to design the best place in the world to do business, the neocons have managed to create the worst, the most eloquent indictment yet of the guiding logic behind deregulated free markets.

The violence has not just kept investors out; it also forced Bremer, before he left, to abandon many of his central economic policies. Privatization of the state companies is off the table; instead, several of the state companies have been offered up for lease, but only if the investor agrees not to lay off a single employee. Thousands of the state workers that Bremer fired have been rehired, and significant raises have been handed out in the public sector as a whole. Plans to do away with the food-ration program have also been scrapped—it just doesn’t seem like a good time to deny millions of Iraqis the only nutrition on which they can depend.

* * *

The final blow to the neocon dream came in the weeks before the handover. The White House and the CPA were rushing to get the U.N. Security Council to pass a resolution endorsing their handover plan. They had twisted arms to give the top job to former CIA agent Iyad Allawi, a move that will ensure that Iraq becomes, at the very least, the coaling station for U.S. troops that Jay Garner originally envisioned. But if major corporate investors were going to come to Iraq in the future, they would need a stronger guarantee that Bremer’s economic laws would stick. There was only one way of doing that: the Security Council resolution had to ratify the interim constitution, which locked in Bremer’s laws for the duration of the interim government. But al Sistani once again objected, this time unequivocally, saying that the constitution has been “rejected by the majority of the Iraqi people.” On June 8 the Security Council unanimously passed a resolution that endorsed the handover plan but made absolutely no reference to the constitution. In the face of this far-reaching defeat, George W. Bush celebrated the resolution as a historic victory, one that came just in time for an election trail photo op at the G-8 Summit in Georgia.

With Bremer’s laws in limbo, Iraqi ministers are already talking openly about breaking contracts signed by the CPA. Citigroup’s loan scheme has been rejected as a misuse of Iraq’s oil revenues. Iraq’s communication minister is threatening to renegotiate contracts with the three communications firms providing the country with its disastrously poor cell phone service. And the Lebanese and U.S. companies hired to run the state television network have been informed that they could lose their licenses because they are not Iraqi. “We will see if we can change the contract,” Hamid al-Kifaey, spokesperson for the Governing Council, said in May. “They have no idea about Iraq.” For most investors, this complete lack of legal certainty simply makes Iraq too great a risk.

But while the Iraqi resistance has managed to scare off the first wave of corporate raiders, there’s little doubt that they will return. Whatever form the next Iraqi government takes—nationalist, Islamist, or free market—it will inherit a shattered nation with a crushing $120 billion debt. Then, as in all poor countries around the world, men in dark blue suits from the IMF will appear at the door, bearing loans and promises of economic boom, provided that certain structural adjustments are made, which will, of course, be rather painful at first but well worth the sacrifice in the end. In fact, the process has already begun: the IMF is poised to approve loans worth $2.5? $4.25 billion, pending agreement on the conditions. After an endless succession of courageous last stands and far too many lost lives, Iraq will become a poor nation like any other, with politicians determined to introduce policies rejected by the vast majority of the population, and all the imperfect compromises that will entail. The free market will no doubt come to Iraq, but the neoconservative dream of transforming the country into a free-market utopia has already died, a casualty of a greater dream—a second term for George W. Bush.

The great historical irony of the catastrophe unfolding in Iraq is that the shock-therapy reforms that were supposed to create an economic boom that would rebuild the country have instead fueled a resistance that ultimately made reconstruction impossible. Bremer’s reforms unleashed forces that the neocons neither predicted nor could hope to control, from armed insurrections inside factories to tens of thousands of unemployed young men arming themselves. These forces have transformed Year Zero in Iraq into the mirror opposite of what the neocons envisioned: not a corporate utopia but a ghoulish dystopia, where going to a simple business meeting can get you lynched, burned alive, or beheaded. These dangers are so great that in Iraq global capitalism has retreated, at least for now. For the neocons, this must be a shocking development: their ideological belief in greed turns out to be stronger than greed itself.

Iraq was to the neocons what Afghanistan was to the Taliban: the one place on Earth where they could force everyone to live by the most literal, unyielding interpretation of their sacred texts. One would think that the bloody results of this experiment would inspire a crisis of faith: in the country where they had absolute free reign, where there was no local government to blame, where economic reforms were introduced at their most shocking and most perfect, they created, instead of a model free market, a failed state no right-thinking investor would touch. And yet the Green Zone neocons and their masters in Washington are no more likely to reexamine their core beliefs than the Taliban mullahs were inclined to search their souls when their Islamic state slid into a debauched Hades of opium and sex slavery. When facts threaten true believers, they simply close their eyes and pray harder.

Which is precisely what Thomas Foley has been doing. The former head of “private sector development” has left Iraq, a country he had described as “the mother of all turnarounds,” and has accepted another turnaround job, as co-chair of George Bush’s reelection committee in Connecticut. On April 30 in Washington he addressed a crowd of entrepreneurs about business prospects in Baghdad. It was a tough day to be giving an upbeat speech: that morning the first photographs had appeared out of Abu Ghraib, including one of a hooded prisoner with electrical wires attached to his hands. This was another kind of shock therapy, far more literal than the one Foley had helped to administer, but not entirely unconnected. “Whatever you’re seeing, it’s not as bad as it appears,” Foley told the crowd. “You just need to accept that on faith.”

About the Author
Naomi Klein is the author of No Logo and writer/producer of The Take, a new documentary on Argentina’s occupied factories.

1. Tofiq did say that several U.S. companies had expressed strong interest in buying the state-owned cement factories. This supports a widely held belief in Iraq that there is a deliberate strategy to neglect the state firms so that they can be sold more cheaply--a practice known as "starve then sell." [Back]

2. It is in Basra where the connections between economic reforms and the rise of the resistance was put in starkest terms. In December the union representing oil workers was negotiating with the Oil Ministry for a salary increase. Getting nowhere, the workers offered the ministry a simple choice: increase their paltry salaries or they would all join the armed resistance. They received a substantial raise. [Back]

This is Baghdad Year Zero, a feature by Naomi Klein, originally from September 2004, published Friday, September 24, 2004.