BAGHDAD YEAR ZERO: Pillaging Iraq in pursuit of a neocon utopia.
It’s not hard to see that
imagination plays an important role. People choose to live in fantasies
of all sorts. We might ask, what are the reasons for fantastical
choice, particularly when the fantasy structure is literalistic and
reductive - a primitive story, with one hero (and cohort) one villain
(and cohort), which allows for no gray, no uncertainty – a story that
is a substitute for thought. There’s certainly plenty of information
out available contradicting the story. Somehow all that information is
viewed as tainted. Ironically a closed mind is an imagining mind, in
this permutation of society.
The
waters of power and need are murky. Vietnam did seem, fundamentally, to
be an ideological war involving communist cold-war containment
(tinctured with fantasies of imperialistic necessity). This war is
different. Half the American populace seem convinced of its ideological
necessity - the other half does not. The variance in fantasy begs the
question, why was this war really fought? The best on-the-gound answer
I’ve found:
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. SUNBULA: 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 . . . At 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 Pint) 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
re-established. 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 by 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 this 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 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
decision, “no one believes in the public sector.” *
[* 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."]
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 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 reduced 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.*
[* 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.]
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 those 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 the; 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 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 re-election 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.”