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Home > Business > Columnists > Paranjoy Guha Thakurta

Reconstructing Iraq: Crony capitalism at its worst

April 29, 2003

What is as appalling as the brutal United States-led war on Iraq and the subsequent looting of priceless treasures that were once stored in Baghdad's museum is the blatant manner in which particular American corporations have bagged reconstruction contracts.

Virtually all the American companies that have already received -- or would be receiving -- contracts for the reconstruction of Iraq, happen to be firms that have bankrolled George W Bush's election campaign and have close links with the Republican Party.

Most of these companies are also closely associated with the United States Agency for International Development or USAID, the wing of the Department of State that is responsible for overseeing the handing out of Iraqi contracts.

While the most glaring example of a politically connected company that has been favoured is that of engineering giant Bechtel, there are many others in the fray.

An investigation by Neil Mackay of Scotland's Sunday Herald has disclosed the list of companies that are direct beneficiaries of the $80 billion package to finance the war in Iraq and its reconstruction approved recently by the US Senate.

The International Resources Group ("which made significant donations to the Republican Party") has won a $70 million contract for the humanitarian aid programme.

Four vice presidents of IRG have held senior positions with USAID and 48 technical staffers employed by the group have worked with USAID.

One of the first firms to receive a contract worth $4.8 million to manage the port of Umm Qasr was Stevedoring Services of America headed by John Hemingway who has made personal donations to the Republican Party.

Another company that has received a contract worth $600 million is Kellogg Brown & Root, a subsidiary of Halliburton -- the world's largest provider of equipment and services to oil extracting companies -- that used to be run by Dick Cheney before he became Vice President of the US.

Incidentally, Halliburton under Cheney had conducted sales worth over $23 million with Iraq in 1998 and 1999 through the company's European subsidiaries ostensibly "to avoid straining relations with Washington", according to report published by the Financial Times in November 2000.

Since 1999, Halliburton has donated $700,000 -- or 95 per cent of all political donations made by the company -- to the Republican Party.

Haliburton gave Cheney $34 million as a farewell gift when he left the company.

As recently as April 2, the Wall Street Journal reported that Cheney was receiving payments from Halliburton.

Besides Halliburton, other companies in the running for contracts when Mackay wrote his article included the Washington Group International Inc., the Louis Berger group and Fluor Corporation (that has ties to defence procurement and intelligence officials).

These three companies had donated $438,700, $26,300 and $275,000 respectively to the Republican Party's coffers.

The most glaring case of favouritism pertains to the Bechtel group of San Francisco that has been awarded contracts up to $650 million "in a competition limited to a handful of American companies (that) can only add to the impression that the United States seeks to profit from the war it waged," the New York Times has editorialised.

The reputed newspaper added that the award of the contract to Bechtel "under restricted bidding procedures sends a deplorable message to a sceptical world" and reinforced the viewpoint of the war's critics that the invasion on Iraq "for the control of oil and other venal motives, not for the benefit of the Iraqi people or to rid the world of a growing menace."

The NYT pointed out that the "reconstruction of Iraq needs to be an open, competitive, transparent process" and should not been seen "as a payoff to politically favoured businessmen."

Bechtel, which would be repairing Iraq's power plants, transmission lines, water supply and sewage systems, airports and a seaport, had handed over close to $770,000 to the Republican Party in the form of political donations between early-1999 and March 2003.

A report entitled 'Crude Vision: How Oil Interests Obscured US Government Focus on Chemicals Weapons Use by Saddam Hussein', published by the Institute of Policy Studies, has laid bare the intimate links between Bechtel officials and the US government's stance towards Iraq.

The report, based on declassified diplomatic cables and internal communications among Bechtel officials, traces intense efforts that were made by the Ronald Reagan administration in the mid-1980s to win Saddam Hussein's approval to allow Bechtel to build an oil pipeline through Iraq and Jordan.

The $2 billion pipeline was to run from the Euphrates oilfields in southern Iraq westward to Jordan and the Gulf of Aqaba.

A key player in that effort -- that turned out to be unsuccessful -- was none other than Donald Rumsfeld, US Defence Secretary who was then CEO of a giant pharmaceutical company, Searle.

One particularly revealing document of 1983, declassified in February this year by the US National Archives, pertains to a trip made by Rumsfeld to Iraq as part of a US government "peace mission" to meet Saddam Hussein and Tariq Aziz.

While Rumsfeld was meant to be discussing the Iran-Iraq war in Baghdad, it seems he also discussed the proposed pipeline to Aqaba to be built by Bechtel.

Interestingly, the US Secretary of State at that time was George Schultz who used to be president of Bechtel. Casper Weinberger, Defence Secretary in the Reagan administration too had worked with Bechtel.

In his memo to Schultz on his meeting with Saddam Hussein, Rumsfeld made no mention of the war with Iran or, for that matter, chemical weapons or weapons of mass destruction.

In an interview to Counterpunch, one of the three authors of the "Crude Vision" report, Jim Valette stated that it "was a real eye-opener to us to see how interwoven Bechtel's interests were with the Reagan administration."

He pointed out the reasons why the proposed pipeline did not eventually get built: "In the end, Saddam decided that Bechtel was trying to charge too much for the project and so he killed the project and instead went with a pipeline connecting into pipelines in Turkey and into Saudi Arabia, but avoiding the Straits of Hormuz."

According to Valette, "Bechtel in the 1980s was prime contractor on PC 1 and 2, two petrochemical plants constructed in Iraq which had dual-use capacity."

He added: "So, I guess the bottom line is that the Bush-Cheney-Rumsfeld squad is now holding Saddam accountable for chemical weapons of mass destruction -- the same weapons which these same officials ignored in pursuit of the Aqaba pipeline project."

"And now we are going to reward the pipeline promoter with massive contracts for reconstruction resulting from this policy," Valette said, remarking, "There is just such hypocrisy in all this."

This episode is reminiscent of another episode in another country that was invaded by the US.

The American oil giant Unocal had feted Taliban representatives in the hope of obtaining a lucrative contract to build an oil and gas pipeline through Afghanistan -- that is, before September 11, 2001, spoilt it all.

To what extent would post-war contracts in Iraq help the fortunes of US companies? The answer to this question is not clear.

Not everybody believes that war is linked to economic good times or that "capitalism needs wars, that without them, recession would always lurk on the horizon" -- to quote words written by Joseph Stiglitz, Nobel laureate in economics and former chief economist at the World Bank.

Describing this view as "nonsense", he wrote on January 22 that the "1990s boom showed that peace is economically far better than war."

Stiglitz, who was also former head of Bill Clinton's council of economic advisers, said that the 1991 Gulf war "contributed mightily to the onset of recession of 1991 (which was probably the key factor in denying the first President Bush re-election in 1992)."

He categorically wrote nearly two months before the war began on March 20 that "America would thus be poorer, both now and in the future…I want to debunk the idea that it is possible both to achieve the war's ends and benefit the economy."

Even if Stiglitz is correct and the US economy does not revive significantly in the coming months, one aspect of the war has become quite clear -- the way in which the contracts for reconstructing Iraq have been farmed out to particular companies makes the real motive for the war more apparent.

On November 15, Rumsfeld was asked whether oil was the real reason behind Bush's drive against Saddam Hussein.

He categorically said: "It has nothing to do with oil, literally nothing to do with oil."

Do you believe him? I certainly do not.

Paranjoy Guha Thakurta

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