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Bomb Before You Buy: The Economics of War
By Naomi Klein . Illustrations by J.B. Lowe

Naomi Klein gave the following speech at the second annual Conference of the Peace and Justice Studies Association held October 9-12, 2003, at Evergreen State College in Olympia, Washington. Working under the theme Fostering Alternatives to Violence, the conference brought together leading K-12 teachers, college professors, students, and grassroots activists from around the country to share experiences and develop innovative solutions to violence.

A couple of days after September 11, the National Post newspaper ran a story with the headline “Globalization is So Yesterday.” No one was interested in talking about the ravages of capitalism, we were told. The world was now focused on an entirely new set of issues: war, terror, and the clash of civilizations. Everything we thought we knew before September 11 no longer applied.

It was nonsense, of course. But it is true that many of us in the globalization movement were caught somewhat flatfooted by the military upsurge of these last two years. Yes, many of us instinctively made the transition from trade issues to anti-war activism, but we were not able, at first, to fully connect how warfare is used to enforce the very economic policies we had been fighting against.

The anti-war movement, for its part, faced a similar problem making these connections. The mainstream of the anti-war movement in North America focused almost exclusively on the visible atrocities of war: the violence, the human rights abuses, the broken international laws. When explaining why these wars were erupting, rarely did we surpass pat answers like, “It’s about the oil.” Some even argued that analyzing the economic model that sees war and occupation as market opportunities was “too divisive.” Activists were urged to stay on message, to focus on the effects of war, but not its underlying causes.

I believe that this failure to marry the economic analysis of the globalization movement with the moral outcry of anti-war activism ended up hurting both movements. By failing to see the lengths to which capital will go to crack open new markets, the globalization movement seemed soft and naive. So did the anti-war movement: attempting to stop a war without directly confronting the economic system behind it is like trying to stop a bomb after it has already been dropped. In this context, peace never had a chance.

Fortunately, these artificial divisions are beginning to break down. This is because, now that the war in Iraq is “over”, the economic project behind the attack has emerged, fully formed.

McGOVERNMENT
What is that economic program? It’s the familiar one we in the anti-corporate globalization movement have been fighting against, enforced by the North American Free Trade Agreement, the World Trade Organization, the International Monetary Fund, and the World Bank. It’s a model that is sometimes called “globalization” but which the Latin Americans call “neoliberalism” and the French call “Savage Capitalism.” For the purposes of this lecture, I am going to call it “McGovernment” because it is a kind of economic franchise, a globally enforced set of policies designed to make the world safe for multinational corporations.

McGovernment has three key components:
· MASS DOWNSIZING OF THE PUBLIC SECTOR. This makes sure that investors enjoy low taxes and low wages from a “flexible” workforce. It also starves the public sector, making it seem useless and inefficient and thus primed for...

· MASS PRIVATIZATIONS. Privatizations give multinationals infinite investment opportunities to buy up public services and natural resources.

· MASS DEREGULATION. This falls into two categories. The first form of deregulation is designed to eliminate the supports that protect local sinesses—such as subsidies and restrictions on foreign ownership, thus eliminating the local competition for multinationals. The second form of deregulation is designed to remove all restrictions on the mobility of foreign capital—such as rules that require companies to keep some of their profits in the country where they made them.

So there you have it, the universal recipe for McGovernment: downsize, privatize, and deregulate. The result of all this corporate lubrication can be seen around the world: the commodification of ever more parts of the public sphere, from schools and hospitals to seeds and water.

In rich countries like ours, these economic policies are introduced relatively gradually. In poor countries, they are introduced quickly, enforced by the International Monetary Fund in exchange for loans. When these policies were introduced in Argentina in the 1990s, the transformation of society was so rapid and so devastating that President Carlos Menem called the reforms “surgery without anesthetic.” In Chile, when the reforms were introduced under Pinochet, they were called “shock treatment.” In Russia, the IMF called it “shock therapy.”

Well, what is going on in Iraq right now makes those reforms look like spa treatments. Radical economic reforms that are usually spread out over decades are being rammed through in six months. Iraq’s shock therapy has been implemented through “shock and awe” military force.

Iraq, as we all know, is a rich country. It has an embarrassment of natural resources and public services that have yet to be privatized. This is true for much of the Arab world. Oil wealth has kept Arab countries relatively outside the world trade system. Even in US ally nations like Saudi Arabia and Kuwait, the oil companies, along with much else, are still owned by the government.

The growth represented by these untapped markets has become irresistibly tantalizing. Why? Because capitalism functions like a drug addict and its drug of choice is growth; without a fix, it dies. And fixes are hard to come by these days. It’s not only that the stock market hasn’t recovered since its pre-9/11 bust. It’s also that some of the market’s most reliable suppliers of the growth drug have, of late, been holding out.

STANDING UP TO THE US
From the US and European perspective, it used to be that if there was one thing you could count in matters of international trade, it was the desperation of the poor. No matter how bad the deal, it was always better than nothing. But all of a sudden, poor countries are banding together and busting up trade rounds, standing up to the International Monetary Fund, and even turning down foreign investment.

Across Latin America, privatizations are being stopped in their tracks; oil pipelines are being resisted by local populations from Nigeria to Colombia; gold and copper mines are being rejected because their ecological cost is greater than their economic benefits.

Center-left candidates have come to power in Brazil and Ecuador, promising to govern in the interest of the poor. In Argentina, popular protests pushed out the neo-liberal government of Fernando de La Rua. Meanwhile, Hugo Chavez has held on in Venezuela despite the most dogged attempts by the elites in that country, and in the US, to throw him out. And just last week, Bolivia: massive political protests forced president Gonzalo Sanchez de Lozada to resign. The uprising was sparked by an unpopular plan to sell the country’s natural gas to the US.

The Free Trade Area of the Americas is hugely unpopular across Latin America, and the World Trade Organization talks just collapsed in Cancun. Poor countries are saying: We have tried these policies, they made us poorer, hollowed out our collective wealth, we don’t want more of the same.

Free Trade Lite, which wrestles market access through backroom bullying in trade negotiations, isn’t working anymore. That’s why the market is getting desperate. That’s why the Bush crew has stopped asking and started grabbing—upgrading Free Trade Light to Free Trade Reloaded, which seizes new markets on the battlefields of war.

And that is precisely what the Iraq attack has been about. Bush has openly said that he wants a Free Trade Zone in the Middle East within a decade. It’s the next project after the creation of the Free Trade Area of the Americas, and it all starts with Iraq. Iraq is the foothold, the wedge into an entire region that represents a massive new market opportunity. Senator John McCain put it well: Iraq, he said, is “a huge pot of honey that’s attracting a lot of flies.”

The “honey” isn’t just the oil. It’s also the water, the phones, the roads, the schools, the media, the trains, the planes, the jails. And anything else that can be turned into a commodity and sold for profit. The flies are named Bechtel, Halliburton, MCI, Exxon Mobil, Wackenhut, TimeWarner, Wal-Mart, Boeing, NewsCorp, DynCorp, and on and on.

SALE OF THE CENTURY
But before I go any further, let’s get one thing absolutely clear: the United States government must compensate the Iraqi people so they can rebuild their country. The US owes Iraq huge war reparations; it is a moral duty and it must be met. The problem is that the vast majority of the money for Iraq isn’t going to the Iraqi people for reparations, to spend how they decide. It is being parceled out to US firms, selected by the Bush administration, for something called “reconstruction”.

When you hear the phrase “reconstruction” it sounds perfectly benign. What could be wrong with Americans going to Iraq to rebuild bombed out bridges and hospitals? It sounds like the Peace Corps. Only these companies aren’t going to Iraq just to rebuild it, they are going there to buy it. As we speak, the country is being transformed into a giant shopping mall for US (and a few British) multinationals.

It’s the sale of the century: “Bomb Before You Buy.”

Immediately after the war began, we started hearing about huge reconstruction contracts being handed out by USAID [US Agency for International Development]. They were handed out in secret, without open bidding, to a handful of US firms. And there was something new going on. Contracts to rebuild schools and hospitals that used to go to the UNICEF or the Red Cross (nonprofit humanitarian agencies) were going to private education and health care corporations, companies that push privatization in the US and Canada, and that see schools and hospitals as market opportunities.

And then there’s Bechtel. Bechtel has a contract now worth over $1 billion to oversee the rebuilding of roads, bridges, the electricity grid, and more. Many Iraqi entrepreneurs are angry that these jobs, which could help them get their economy running again, are going to Americans. The answer from Washington is: Iraqi reconstruction is our booty—we bombed it, we bought it.

Anger at Bechtel is also mounting in Iraq because they aren’t doing a very good job. According to a recent article in the Economist, in five months, Bechtel has managed to rebuild a one-mile road bypass. Of the 49 bridges damaged during the attack, work has only begun on three. Half of Baghdad’s phone lines are still out.

WAR AS INVESTMENT OPPORTUNITY
And of course we have to talk about Halliburton, where Vice President Dick Cheney used to work as CEO. Cheney still retains Halliburton stock options and has been paid more than $350,000 in deferred compensation since taking office. But he nevertheless accuses anyone who calls that a conflict of interest of taking “cheap shots.”

Allow me to be cheap. Halliburton has so far been paid $1.4 billion for its work in Iraq (its contracts can go as high as $7 billion). What is important to understand is how badly Halliburton needed this cash injection. Last year, the company looked as if it was about to go the way of Enron. It was mired in accounting scandals and lawsuits; indeed, Halliburton posted a $500 million loss last year. One of its subsidiaries, Kellogg Brown and Root, was on the verge of filing for bankruptcy. Now Halliburton’s share price is up 77 percent—not bad for a market slump—and it posted a $26 million profit last quarter.

The bottom line is that, as CEO, Dick Cheney got Halliburton into all kinds of trouble. But as vice president, he saved Halliburton’s butt—that’s no exaggeration.

So what is Halliburton doing for the money? It is playing two key roles, and both of them have to do with privatization. The first is protecting Iraq’s oil supply—putting out oil fires and repairing pipelines—so it can eventually be privatized. The second involves the rapid privatization of the US Army.

George W. Bush has decided that the Army’s “core competency” is combat and that everything outside that can be farmed out to temps. Halliburton has become the US military’s temp agency. Its temp-soldiers build the army bases, cook the food, clean the latrines, do the soldiers laundry, and cut their hair—all at cheaper salaries, of course, with the profits going back to Halliburton. One-third of the Iraqi mission is subcontracted to private companies.

So let’s recap. The US government, looking for new investment opportunities for its ailing firms, waged an unprovoked war with a partially privatized army, cleaning up afterward using many of the same for-profit companies. But here’s the kicker: When everything is cleaned up, America is going to sell Iraq off in pieces to these very same companies. I wish I could say that it was going to sell Iraq off to the highest bidder, but it’s actually selling the embattled country off to the highest Bush-Cheney campaign donor.

The reconstruction of Iraq has already begun to seamlessly segue into the privatization of Iraq.

The real goal is now clear. The US government aims not just to rebuild Iraq’s roads but turn them into privately owned and operated highways. It aims to not simply reconstruct the bombed-out water system but sell it to a company that will charge highly profitable rates for access. It aims to not just put out the oil fires and fix the oil pipelines but to sell them entirely.

Bush, Rumsfeld, and Paul Bremer now openly admit that they envision the “reconstruction” of Iraq as remaking it into a deregulated free-market economy. As Robert Fisk pointed out: Bremer’s choice of clothing says it all: a business suit with combat boots. In August, Bremer wrote a memo containing policy instructions to the Iraqi Council—a body he hand-picked—complaining that Iraq’s economy was too “protectionist” and dominated by “socialist economic dogma.” He stated that Iraq must “pry open” most of its “industries for foreign investment.” Sure enough, on September 19, 2003, 200 Iraqi state firms were put up for privatization. Reconstruction has turned into the auctioning off of an entire country—someone else’s country.

And, according to new laws introduced by Bremer, US firms can retain 100 percent ownership of banks, mines, and factories of all kinds. The only exception is oil, but this too will come. And who is going to buy all these Iraqi companies? The same US firms that took part in the reconstruction.

Let’s look at Bechtel again. On the global stage, Bechtel is one of the most aggressive proponents of the privatization agenda; one of its primary businesses is convincing foreign governments to sell off their water systems. Indeed, Bechtel was thrown out of Bolivia because, after it privatized the water in Chochabamba, prices escalated by 50 percent. Bechtel even deemed it illegal to collect rainwater (which it claimed was unfair competition). But in Iraq, Bechtel doesn’t have to convince foreign governments to sell them the water, because there is no foreign government, just the US government selling to US corporations in foreign countries.

It’s quite an amazing feat: they have actually managed to cut out the middleman.
What is going on in Iraq was never about reconstruction; it was always about privatization, disguised as reconstruction, mass robbery masquerading as reparations.

A new company has been launched by Bush’s former campaign manager, called New Bridge Strategies. It specializes in helping US companies to take advantage of Iraq’s “unprecedented opportunities.” One of the company’s partners described the opportunities this way: “Getting the rights to distribute Procter & Gamble products can be a gold mine. One well-stocked 7-Eleven could knock out 30 Iraqi stores; a Wal-Mart could take over the country.” There it is, the economic project behind this war: a massive new market, bombed into being.

But before Iraq can be turned into a free-market Mecca, a few more things have to happen. I talked earlier about McGovernment, but McGovernment isn’t just about privatization; it also has to be about downsizing and deregulation.

CREATING OPPORTUNITIES FOR PRIVATIZATION
Rest assured that Bremer is moving full steam ahead on both those fronts. Regarding downsizing, Bremer fired more than 400,000 Iraqis without pensions or re-employment programs in his first month in Iraq. He called these mass layoffs of state employees “de-Baathification”—the purging of Saddam Hussein’s party officials from government. Of course some of that was necessary, in order to clean out Saddam Hussein’s henchmen and propagandists. But Bremer’s layoffs went much further. Low-level civil servants with no ties to the party have been fired en masse. In the name of “de-Baathification” he launched a full-scale attack on the public sector. Why? For the same reason the public sector is attacked here at home: to create opportunities for privatization, to create a flexible workforce willing to work for less, and to lower the tax burden.

So with privatization and downsizing taken care of, what’s left to finish the McGovernment package is deregulation. Now, when Bremer and Bush talk of bringing “the free market to Iraq,” it sounds like Iraqi businesses are going to have all sorts of wonderful new opportunities. Yet we know that hasn’t been the case during reconstruction (now jokingly referred to in Iraq as “the full-Halliburton employment program”).

But there are other ways that Iraqi businesses are being pushed out. When Bremer arrived, Iraqi-owned companies were obviously in rough shape; they had been pummeled by almost 13 years of sanctions and two months of looting, not to mention two wars. So it would have made sense—if the US were serious about rebuilding Iraq’s economy—to concentrate on getting the electricity and phones operational, as well as the spare parts needed for Iraq’s damaged factories. But that’s not what Paul Bremer did. Instead, just 26 days after the war was declared over, with the lights and phones still off in Baghdad, Bremer flung open Iraq’s borders to foreign multinationals; overnight, the market was flooded with cheap TV, food, and clothes. What happened next was entirely predictable—hundreds of Iraqi companies were wiped out.

Once again, Iraq isn’t being rebuilt; it is being erased. First by war, then sanctions, then war again, then looting, and now by absurdly unfair foreign competition which never gave Iraq’s industry a chance to survive. Why? Well, the erasure of Iraqi firms is good news for foreign multinationals wanting a piece of Iraq’s action; it’s easier to get your Wal-Mart or 7-Eleven if the local competition has already been helpfully decimated.

Bremer has given these foreign investors other goodies too. On the same day that he put those 200 state companies up for sale, he also announced that foreign firms doing business in Iraq would get tax breaks—from 15 to 45 percent—even more generous than those Bush has been handing out at home. Plus, he also removed all restrictions on taking profits out of the country.

From a foreign investor’s perspective, Iraq is a dream come true. Everything that these companies lobby for at home but never receive in their entirety—because of this pesky thing called democracy—has been generously handed to them in Iraq. The country is a blank slate on which the most ideological Washington neoconservatives are designing their dream economy: fully privatized, downsized, deregulated, and open for business. Donald Rumsfeld said recently that, “Iraq will have some of the most enlightened and inviting tax and investment laws in the free world.”

But there’s just one catch, and it’s a big one: Iraq isn’t part of the free world, because it isn’t free.

In fact, it’s under occupation, which means that the decisions about Iraqi society’s core nature—how much foreign ownership of its economy will be allowed, whether it will have a public or private healthcare system, how it will make use of its oil revenues—are being made without the consent of its people. Why? Because once the Iraqis have their own government, they might decide that they don’t want to sell their country to Bechtel and Halliburton. But once the contracts are signed, it’s all over. If the Iraqi people, once they have democracy, decide they want to change course, it will mean breaking signed contracts, expropriating assets, changing the terms of agreements, and the US will not stand for that.

In the name of democracy, the Iraqi people are being robbed of the most basic democratic principle: the right of sovereign people to govern themselves and decide their collective destiny. Just as Iraq entered the so-called free market in the dark, they will now enter democracy handcuffed to key economic decisions already made for them. Then they will be told to hurry up and vote for their new leaders, just in time for Bush’s reelection campaign.

As we all know, it’s too late to stop the war. But if we act now, there is just enough time to deprive Iraq’s invaders of the myriad economic prizes that are the reason they went to war in the first place. And this is the task faced by both the globalization and the anti-war movements: to try to stop the economic looting of Iraq.

Naomi Klein is the author of No Logo: Taking Aim at the Brand Bullies and Fences and Windows: Dispatches from the Front Lines of the Globalization Debate. She writes an internationally syndicated column for the Nation and the Guardian.