Corporate Research E-Letter EXTRA — April 3, 2003
http://www.corp-research.org/extra_040303.htm
Earlier this week, U.S. military officials came up with a solution to the chaos surrounding the distribution of water to civilians in the Iraqi port of Umm Qasr: They are providing water free to locals with tanker trucks, who are being allowed to sell the precious liquid for a « reasonable » fee. « This provides them with an incentive to hustle and to work, » an Army commander told a reporter for the New York Daily News.
This transfer of a public good to private hands may be an initial small step in what could be widespread privatization in Iraq after the war is over. A number of conservative think tank denizens and other analysts have been arguing for months that the post-Saddam Hussein economy should be restructured according to the principles of Milton Friedman.
Just last week, Robert McFarlane, National Security Adviser during the Reagan Administration, and Michael Bleyzer, chief executive of an equity fund management company, published an op-ed in the Wall Street Journal headlined « Taking Iraq Private. » The two men argued that « the U.S. and its allies would be well advised to put together a team of private sector business leaders as a 'steering committee' to supervise and monitor » economic restructuring.
An explicit call for privatization, rather than simply private investment, was issued last fall at a conference convened by the right-wing Heritage Foundation. In a paper http://www.heritage.org/Research/MiddleEast/bg1633.cfm presented at that conference (and revised last month), Ariel Cohen and Gerald O'Driscoll wrote: « To rehabilitate and modernize its economy, a post-Saddam government will need to move simultaneously on a number of economic policy fronts, utilizing the experience of privatization campaigns and structural reform in other countries. » The authors go on to assert what they call Lesson No. 1: « Privatization Works Everywhere. »
Back in September, the U.S. State Department's Washington File website gave a full account http://usinfo.state.gov/topical/pol/terror/02092811.htm of the discussion at the Heritage meeting, quoting Cohen as saying that at the top of his list of recommendations was « a modern legal environment that recognizes property rights, which are now non-existent in Iraq, and is conducive to privatization. »
As with other Iraq matters, the U.S. calls for privatization have been echoed in Britain. Last month, the free market-loving Adam Smith Institute issued a paper titled « Toward an Economic and Governance Agenda for a New Iraq http://www.adamsmith.org/policy/publications/pdf-files/ASI_Iraq.pdf . » One section of the document starts out with the declaration: « Privatisation is a sine qua non for successful reform in Iraq. » The authors go on to say, « In Iraq there is much to privatise, as a considerable portion of the economy is state-owned. » Among the sectors that should be up for grabs, they suggest, are mining, chemicals and construction.
Since the war began, the Bush Administration has avoided talking about the business boon being created in Iraq for U.S. and other foreign corporations. Yet it has taken steps such as awarding a contract to operate the port in Umm Qasr to a private company, Stevedoring Services of America. Another contract, for technical assistance to the reconstruction effort, has been given to the International Resources Group, which will share the work with U.K. subcontractor Crown Agents, which is itself the product of the privatization of a British development assistance agency.
The U.S. Agency for International Development, which is coordinating the reconstruction plans, gave about half a dozen large U.S.-based engineering companies an exclusive right to bid on the main contract for infrastructure work. According to various press reports, the leading contenders for that contract are Bechtel Corp. and Parsons Corp. The latter is said to have taken on Halliburton Co.'s Kellogg Brown & Root unit as a subcontractor after Halliburton was eliminated as a primary bidder, apparently because of controversy surrounding the company's ties to Vice President Cheney.
What's significant about Bechtel and Parsons is that both companies, in addition to their main construction units, have operations engaged in privatization activities in the United States and elsewhere. Bechtel is a leading player in water system privatization, ranking just behind the big three — Suez, Vivendi Universal and RWE/ Thames Water — in that controversial business. A subsidiary of Bechtel was forced to abandon its operations in Cochabamba, Bolivia, in the wake of a popular uprising over massive water rate hikes. Bechtel is now suing Bolivia for $25 million in compensation through a secret World Bank tribunal.
Parsons performs privatization feasibility studies and sometimes takes on the projects itself. The most notorious instance of the latter is the company's role in privatizing the auto inspection system in New Jersey. That project, worth more than $500 million, has been marked by charges of inefficiency and excessive costs. Parsons was the sole bidder on the contract, which was awarded in the late 1990s by the administration of Gov. Christie Whitman, who is now serving as head of the U.S. Environmental Protection Agency.
It's clear that there are a lot more business opportunities to be had in Iraq. The Bush Administration is reported to have convened around ten task forces to plan the transformation of everything from agriculture to banking. U.S. companies are expected to receive contracts to restructure and operate facilities such as airports, schools and hospitals.
The big prize, of course, is oil. There's no doubt that foreign companies will be called in to operate Iraq's petroleum system after the war; the question is whether they will remain in place indefinitely and perhaps even have an ownership interest. Some people seem to think that should be the case. In December, the authors of the Heritage Foundation report published an article http://www.nationalreview.com/cohen/cohen121102.asp in the online version of the arch-conservative National Review that was headlined PRIVATIZE IRAQI OIL. The Los Angeles Times reported in February that a State Department advisory panel of exiled Iraqi petroleum professionals recommended privatization of the country's oil resources, but only after U.S. military administration has been replaced by a new sovereign government.
The Bush Administration has tended to speak in platitudes about using oil revenues to benefit the Iraqi people, but it is significant that the person reported to have been chosen to oversee postwar oil production is a former chief executive officer of Shell Oil Company. Philip Carroll also worked as chief executive for Fluor Corp., one of the big engineering companies that had been invited to bid on the main reconstruction contract.
Carroll's potential conflicts of interest are not the biggest problem for the Bush Administration in its plans for postwar oil exploitation. The Washington Post is reporting today that United Nations and British officials are arguing that the U.S. would not have the legal authority to take over Iraq's oil operations, even on an interim basis, without a new Security Council mandate, given the fact that those operations have been under the supervision of the U.N.'s oil-for-food program.
In January, Platt's Oilgram News reported that a 1976 State Department Memorandum of Law, written after Israel had taken control of Sinai oil fields originally developed by Egypt, had concluded that international law did not support the right of an occupying power to grant an oil development concession. It would not be surprising to learn that the State Department is now seeking a new legal opinion.
To the victor go the spoils, it is said. In the case of this war, the spoils will be going to the victor's business allies as they bring a distinctly corporate form of liberation to the people of Iraq.
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