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[ This message has been sent to you via the CASI-analysis mailing list ] Dear List, Naomi Klein's article below should serve as a superb contribution to understanding the US oocupation's economic policy. This is entirely different from Klein's other good piece in the Guardian on 23 December, but repeats one central argument: the occupation's policies are neither ideologically inspired (as I myself have sometimes argued), nor originating from the realm of ideas at all. Another point especially worth noting in this article is Klein's suggestion that big time Iraqi crooks promoted by the occupation are small fry in comparison with the American corruption involved. Merry Christmas to all. Kamil This article can be found on the web at http://www.thenation.com/doc.mhtml?i=20040105&s=klein Risky Business by NAOMI KLEIN [from the January 5, 2004 issue] It's 8:40 am and the Sheraton Hotel ballroom thunders with the sound of plastic explosives pounding against metal. No, this is not the Sheraton in Baghdad, it's the one in Arlington, Virginia. And it's not a real terrorist attack, it's a hypothetical one. The screen at the front of the room is playing an advertisement for "bomb resistant waste receptacles": This trash can is so strong, we're told, it can contain a C4 blast. And its manufacturer is convinced that given half a chance, these babies would sell like hotcakes in Baghdad--at bus stations, Army barracks and, yes, upscale hotels. Available in Hunter Green, Fortuneberry Purple and Windswept Copper. This is ReBuilding Iraq 2, a gathering of 400 businesspeople itching to get a piece of the Iraqi reconstruction action. They are here to meet the people doling out the cash, in particular the $18.6 billion in contracts to be awarded in the next two months to companies from "coalition partner" countries. The people to meet are from the Coalition Provisional Authority (CPA), its new Program Management Office, the Army Corps of Engineers, the US Agency for International Development, Halliburton, Bechtel and members of Iraq's interim Governing Council. All these players are on the conference program, and delegates have been promised that they'll get a chance to corner them at regularly scheduled "networking breaks." By now there have been dozens of similar trade shows on the business opportunities created by Iraq's decimation, held in hotel ballrooms from London to Amman. By all accounts, the early conferences throbbed with the sort of cash-drunk euphoria not seen since the heady days before the dot-coms crashed. But it soon becomes apparent that something is not right at ReBuilding Iraq 2. Sure, the organizers do the requisite gushing about how "nonmilitary rebuilding costs could near $500 billion" and that this is "the largest government reconstruction effort since Americans helped to rebuild Germany and Japan after the Second World War." But for the undercaffeinated crowd staring uneasily at exploding garbage cans, the mood is less gold rush than grim determination. Giddy talk of "greenfield" market opportunities has been supplanted by sober discussion of sudden-death insurance; excitement about easy government money has given way to controversy about foreign firms being shut out of the bidding process; exuberance about CPA chief Paul Bremer's ultraliberal investment laws has been tempered by fears that those laws could be overturned by a directly elected Iraqi government. At ReBuilding Iraq 2, held on December 3-4, it seems finally to have dawned on the investment community that Iraq is not only an "exciting emerging market"; it's also a country on the verge of civil war. As Iraqis protest layoffs at state agencies and make increasingly vocal demands for general elections, it's becoming clear that the White House's prewar conviction that Iraqis would welcome the transformation of their country into a free-market dream state may have been just as off-target as its prediction that US soldiers would be greeted with flowers and candy. I mention to one delegate that fear seems to be dampening the capitalist spirit. "The best time to invest is when there is still blood on the ground," he assures me. "Will you be going to Iraq?" I ask. "Me? No, I couldn't do that to my family." He was still shaken, it seemed, by the afternoon's performance by ex-CIAer John MacGaffin, who had harangued the crowd like a Hollywood drill sergeant. "Soft targets are us!" he bellowed. "We are right in the bull's-eye.... You must put security at the center of your operation!" Lucky for us, MacGaffin's own company, AKE Group, offers complete counterterrorism solutions, from body armor to emergency evacuations. Youssef Sleiman, managing director of Iraq Initiatives for the Harris Corporation, has a similarly entrepreneurial angle on the violence. Yes, helicopters are falling, but "for every helicopter that falls there is going to be replenishment." I begin to notice that many of the delegates at ReBuilding Iraq 2 are sporting a similar look: Army-issue brush cuts paired with dark business suits. The guru of this gang is retired Maj. Gen. Robert Dees, freshly hired out of the military to head Microsoft's "defense strategies" division. Dees tells the crowd that rebuilding Iraq has special meaning for him because, well, he was one of the people who broke it. "My heart and soul is in this because I was one of the primary planners of the invasion," he says with pride. Microsoft is helping develop "e-government" in Iraq, which Dees admits is a little ahead of the curve, since there is no g-government in Iraq--not to mention functioning phones lines. No matter. Microsoft is determined to get in on the ground floor. In fact, the company is so tight with Iraq's Governing Council that one of its executives, Haythum Auda, served as the official translator for the council's Minister of Labor and Social Affairs, Sami Azara al-Ma'jun, during the conference. "There is no hatred against the coalition forces at all," al-Ma'jun says, via Auda. "The destructive forces are very minor and these will end shortly.... Feel confident in rebuilding Iraq!" The speakers on a panel about "Managing Risks" have a different message: Feel afraid about rebuilding Iraq, very afraid. Unlike previous presenters, their concern is not the obvious physical risks, but the potential economic ones. These are the insurance brokers, the grim reapers of Iraq's gold rush. It turns out that there is a rather significant hitch in Paul Bremer's bold plan to auction off Iraq while it is still under occupation: The insurance companies aren't going for it. Until recently, the question of who would insure multinationals in Iraq has not been pressing. The major reconstruction contractors like Bechtel are covered by USAID for "unusually hazardous risks" encountered in the field. And Halliburton's pipeline work is covered under a law passed by Bush on May 22 that indemnifies the entire oil industry from "any attachment, judgment, decree, lien, execution, garnishment, or other judicial process." But with bidding now starting on Iraq's state-owned firms, and foreign banks ready to open branches in Baghdad, the insurance issue is suddenly urgent. Many of the speakers admit that the economic risks of going into Iraq without coverage are huge: Privatized firms could be renationalized, foreign ownership rules could be reinstated and contracts signed with the CPA could be torn up. Normally, multinationals protect themselves against this sort of thing by purchasing "political risk" insurance. Before he got the top job in Iraq this was Bremer's business--selling political risk, expropriation and terrorism insurance at Marsh & McLennan Companies, the largest insurance brokerage firm in the world. Yet in Iraq, Bremer has overseen the creation of a business climate so volatile that private insurers--including his old colleagues at Marsh & McLennan--are simply unwilling to take the risk. Bremer's Iraq is, by all accounts, uninsurable. QUOT-The insurance industry has never been up against this kind of exposure before," R. Taylor Hoskins, vice president of Rutherford International insurance company, tells the delegates apologetically. Steven Sadler, managing director and chairman at Marsh Industry Practices, a division of Bremer's old firm, is even more downbeat. "Don't look to Iraq to find an insurance solution. Interest is very, very, very limited. There is very limited capacity and interest in the region." It's clear that Bremer knew Iraq wasn't ready to be insured: When he signed Order 39, opening up much of Iraq's economy to 100 percent foreign ownership, the insurance industry was specifically excluded. I ask Sadler, a Bremer clone with slicked-back hair and bright red tie, whether he thinks it's strange that a former Marsh & McLennan executive could have so overlooked the need for investors to have insurance before they enter a war zone. "Well," he says, "he's got a lot on his plate." Or maybe he just has better information. Just when the mood at ReBuilding Iraq 2 couldn't sink any lower, up to the podium strides Michael Lempres, vice president of insurance at the Overseas Private Investment Corporation (OPIC). With a cool confidence absent from the shellshocked proceedings so far, he announces that investors can relax: Uncle Sam will protect them. A US government agency, OPIC provides loans and insurance to US companies investing abroad. And while Lempres agrees with earlier speakers that the risks in Iraq are "extraordinary and unusual," he also says that "OPIC is different. We do not exist primarily to generate profit." Instead, OPIC exists to "support US foreign policy." And since turning Iraq into a free-trade zone is a top Bush policy goal, OPIC will be there to help out. Earlier that same day, President Bush signed legislation providing "the agency with enhancements to its political risk insurance program," according to an OPIC press release. Armed with this clear political mandate, Lempres announces that the agency is now "open for business" in Iraq, and is offering financing and insurance--including the riskiest insurance of all: political risk. "This is a priority for us," Lempres says. "We want to do everything we can to encourage US investment in Iraq." The news, as yet unreported, appears to take even the highest-level delegates by complete surprise. After his presentation, Lempres is approached by Julie Martin, a political risk specialist at Marsh & McLennan. "Is it true?" she demands. Lempres nods. "Our lawyers are ready." "I'm stunned," Martin says. "You're ready? No matter who the government is?" "We're ready," Lempres replies. "If there's an expro[priation] on January 3, we're ready.... I don't know what we're going to do if someone sinks a billion dollars into a pipeline and there's an expro." Lempres doesn't seem too concerned about these possible "expros," but it's a serious question. According to its official mandate, OPIC functions "on a self-sustaining basis at no net cost to taxpayers." But Lempres admits that the political risks in Iraq are "extraordinary." If a new Iraqi government expropriates and re-regulates across the board, OPIC could be forced to compensate dozens of US firms for billions of dollars in lost investments and revenues, possibly tens of billions. What happens then? At the Microsoft-sponsored cocktail reception in the Galaxy Ballroom that evening, Robert Dees urges us "to network on behalf of the people of Iraq." I follow orders and ask Lempres what happens if "the people of Iraq" decide to seize back their economy from the US firms he has so generously insured. Who bails out OPIC? "In theory," he says, "the US Treasury stands behind us." That means the US taxpayer. Yes, them again: The same people who have already paid Halliburton, Bechtel et al. to make a killing on Iraq's reconstruction would have to pay these companies again, this time in compensation for their losses. While the enormous profits being made in Iraq are strictly private, it turns out that the entire risk is being shouldered by the public. For the non-US firms in the room, OPIC's announcement is anything but reassuring: Since only US companies are eligible for its insurance, and the private insurers are sitting it out, how can they compete? The answer is that they likely cannot. Some countries may decide to match OPIC's Iraq program. But in the short term, not only has the US government barred companies from non-"coalition partners" from competing for contracts against US firms, it has made sure that the foreign firms that are allowed to compete will do so at a serious disadvantage. The reconstruction of Iraq has emerged as a vast protectionist racket, a neocon New Deal that transfers limitless public funds --in contracts, loans and insurance--to private firms, and even gets rid of the foreign competition to boot, under the guise of "national security." Ironically, these firms are being handed this corporate welfare so they can take full advantage of CPA-imposed laws that systematically strip Iraqi industry of all its protections, from import tariffs to limits on foreign ownership. Michael Fleisher, head of private-sector development for the CPA, recently explained to a group of Iraqi businesspeople why these protections had to be removed. "Protected businesses never, never become competitive," he said. Quick, somebody tell OPIC and Paul Wolfowitz. The issue of US double standards comes up again at the conference when a CPA representative takes the podium. A legal adviser to Bremer, Carole Basri has a simple message: Reconstruction is being sabotaged by Iraqi corruption. "My fear is that corruption will be the downfall," she says ominously, blaming the problem on "a thirty-five-year gap in knowledge" in Iraq that has made Iraqis "not aware of current accounting standards and ideas on anticorruption." Foreign investors, she said, must engage in "education--bring people up to world-class standards." It's hard to imagine what world-class standards she's referring to, or who, exactly, will be doing this educating. Halliburton, with its accounting scandals back home and its outrageous overbilling for gasoline in Iraq? The CPA, with its two officers under investigation for bribetaking, and nonexistent fiscal oversight? On the final day of ReBuilding Iraq 2, the cover headline in our complimentary copies of the Financial Times (a conference sponsor) is "Boeing linked to Perle investment fund." Perhaps Richard Perle--who supported Boeing's $18 billion refueling-tanker deal and extracted $20 million from Boeing for his investment fund--can teach Iraq's politicians to stop soliciting "commissions" in exchange for contracts. For the Iraqi expats in the audience Basri's is a tough lecture to sit through. "To be honest," says Ed Kubba, a consultant and board member of the American Iraqi Chamber of Commerce, "I don't know where the line is between business and corruption." He points to US companies subcontracting huge taxpayer-funded reconstruction jobs for a fraction of what they are getting paid, then pocketing the difference. "If you take $10 million from the US government and sub the job out to Iraqi businesses for a quarter-million, is that business, or is that corruption?" These were the sorts of uncomfortable questions faced by George Sigalos, director of government relations for Halliburton KBR. In the hierarchy of Iraqi reconstruction, Halliburton is king, and Sigalos sits onstage, heavy with jeweled ring and gold cufflinks, playing the part. But the serfs are getting restless, and the room quickly turns into a support group for jilted would-be subcontractors. "Mr. Sigalos, what are we going to have to do to get some sub-contracts?" "Mr. Sigalos, when are you going to hire some Iraqis in management and leadership?" "I have a question for Mr. Sigalos. I would like to ask what you would suggest when the Army says 'Go to Halliburton' and there's no response from Halliburton?" Sigalos patiently instructs them all to register their companies on Halliburton's website. When the questioners respond that they have already done so and still haven't heard back, Sigalos invites them to "approach me afterward." The scene afterward is part celebrity autograph session, part riot. Sigalos is swarmed by at least fifty men, who elbow each other out of the way to shower the Halliburton VP with CD-ROMs, business plans and résumés. When Sigalos spots a badge from Volvo, he looks relieved. "Volvo! I know Volvo. Send me something about what you can achieve in the region." But the small, no-name players who have paid their $985 entrance fees, here to hawk portable generators and electrical control paneling, are once again told to "register with our procurement office." There are fortunes being made in Iraq, but it seems they are out of reach to all but the chosen few. The next session is starting and Sigalos has to run. The serfs wander off through the displays of shatterproof glass and bomb-resistant trash cans, caressing Sigalos's red-and-white business card and looking worried. Dr Kamil Mahdi University of Exeter _______________________________________ Sent via the CASI-analysis mailing list To unsubscribe, visit http://lists.casi.org.uk/mailman/listinfo/casi-analysis All postings are archived on CASI's website at http://www.casi.org.uk