Capitalism gone wild - Iraq
Tikkun, Jan-Feb, 2004 by Antonia Juhasz
"For many conservatives, Iraq is now the test case for whether the U.S. can engender American-style free-market capitalism within the Arab world."
--Neil King Jr., the Wall Street Journal, May 1, 2003.
The reconstruction of Iraq has begun. Not the reconstruction of vital public services, nor of public security, but rather the radical reconstruction of its entire economy. The quote above is an understatement. The United States has nothing like the unbridled capitalism that the Bush Administration is unleashing on Iraq. It might best be described as "capitalism gone wild"--no restrictions, no morals, and the myth of no consequences. But just like teenagers returning from spring break, when the reality of what the Bush Administration is doing is fully appreciated, it may be too late for the people of Iraq to recover.
Conditions in Iraq are desperate. On November 11, 2003, the international health charity, Medact, released a report finding that public services in Iraq are in a state of collapse. Dr. Sabya Farooq, author of the report, told the BBC: "It's mainly the ongoing violence and insecurity which, in addition to the breakdown of public health services, is posing the main risk to public health." In the past year, maternal mortality rates have increased, acute malnutrition has almost doubled, and water-borne diseases and vaccine-preventable diseases have increased. Reports also put unemployment in Iraq at anywhere from 50 percent to 70 percent.
The Bush Administration's response to this growing health and human services crisis is to rip open the Iraqi economy to foreign control. On September 19, 2003, L. Paul Bremer, Administrator of the Coalition Provisional Authority (CPA) in Iraq, signed four Orders which together provide for the full privatization of public enterprises, full ownership rights by foreign firms of Iraqi businesses, full repatriation of foreign profits, the Flat Tax (that darling of the conservative American Right), the opening of Iraq's banks to foreign control, national treatment for foreign companies (which means, for example, that Iraq cannot require that local firms able to do reconstruction work should be hired instead of foreign ones), and (with an earlier order) elimination of nearly all trade barriers. So far, Iraq's oil--at least its extraction and initial processing--is excluded.
Thus, the U.S. corporations that have received billions of tax-payer dollars for reconstruction in Iraq could own every business, do all the work, and send all of their money home. Nothing need be reinvested in Iraq nor specifically designed to aid the Iraqi economy. In addition, the Bremer Orders are illegal under international law. They directly violate the international convention governing the behavior of occupying forces and the Hague regulations of 1907 (the companion to the 1949 Geneva conventions, both ratified by the United States). Indeed, in a leaked memo written on March 26, the British attorney general, Lord Goldsmith, warned Tony Blair that "the imposition of major structural economic reforms [in Iraq] would not be authorized by international law."
Even the U.S. Army's own Law of Land Warfare states that "the occupant does not have the right of sale or unqualified use of [nommilitary] property." As explained by Naomi Klein, "this is pretty straightforward: bombing something does not give you the right to sell it. Yet that is precisely what the Bremer Orders do."
Precious few reporters--such as Naomi Klein and Neil King--have written about the Bremer Orders, and few Americans are aware of the extent to which the Bush Administration is re-making Iraq in its own image while virtually ignoring the pressing needs of the Iraqi people. Sadly, this is the outline of Bush's economic plan for the rest of the world. The Administration's pursuit of privatization of public services and unregulated foreign investment contributed significantly to the collapse of the World Trade Organization (WTO) talks in Cancun in September and the Free Trade Area of the Americas (FTAA) talks in Miami this November. But what the U.S. Trade Representative has failed to achieve through international negotiations, the U.S. Administrator of the Coalition Provisional Authority has succeeded in achieving through military invasion in Iraq.
The good news is that real alternatives exist and are immediately applicable. You will find these discussed at the end of this article.
Bremer Order #39: Foreign Investment
The order on foreign investment in Iraq includes five elements: (1) Privatization of state-owned enterprises; (2) 100 percent foreign ownership of businesses in all sectors except oil and mineral extraction, banks, and insurance companies (the latter two are addressed in a separate order); (3) "national treatment" of foreign firms; (4) unrestricted, tax-flee remittance of all funds associated with the investment, including, but not limited to, profits; and (5) forty-year ownership licenses which have the option of being renewed.
(1) PRIVATIZATION
The preamble to the Order makes clear its aim to move Iraq from "a centrally planned economy to a market economy." The first step is allowing foreign companies to purchase Iraq's state-owned entities--including public services. Thus, everything from water services, electric utilities, schools, hospitals, television and newspapers, to prisons could be privatized under the Order. It lists no requirements that, for example, these resources remain accessible to the general public after privatization is complete.
The water sector is already being "reconstructed" by the Bechtel Corporation of San Francisco, one of the top ten water privatization companies in the world. Bechtel's track record does not bode well for the Iraqi people--in fact, the citizens of Bolivia have written a letter to the people of Iraq warning them of what to expect from Bechtel. A subsidiary of Bechtel privatized the water systems of Cochabamba, Bolivia and immediately sent prices sky-rocketing. Families earning a minimum wage of $60 per month faced water bills of $20 per month. Rate increases of 100 percent were the most common, while increases of 300 percent were reported. The citizens rose in protest (at least one seventeen-year-old boy lost his life to Bolivian troops sent into the streets to defend Bechtel's right to privatize). Ultimately, the government relented and cancelled the contract. Bechtel has responded with a $25 million lawsuit against Bolivia for lost profits.
(2) 100 PERCENT FOREIGN OWNERSHIP
In addition to the pubic services listed above, Iraq's factories, farms, telecommunications, transportation systems, publishing, and other businesses could all be completely owned, run, and employed by non-Iraqis under Order 39. The Order states that Iraq cannot restrict access by foreign owners to any sector of the economy except resource extraction. MCI, formerly WorldCom, has already received approximately $20 million to build a wireless phone network in the Baghdad area. As WorldCom, the company was found guilty of cheating investors by overstating its cash flow by nearly $4 billion, and was temporarily banned from receiving federal contracts.
(3) NATIONAL TREATMENT
Order #39 states that "A foreign investor shall be entitled to make foreign investments in Iraq on terms no less favorable than those applicable to an Iraqi investor." This means that the government of Iraq cannot favor local investors, businesses, companies, or providers over foreign ones. Thus, for example, Iraq cannot require that U.S. companies with billion dollar reconstruction contracts hire local contractors. Nor that qualified Iraqi companies receive contracts over foreign-owned companies. This is a particularly troublesome provision given reports of bloated U.S. corporate budgets. For example, Time magazine recently reported that an American firm was awarded a $15 million contract to build a cement factory in Iraq (using U.S. tax-payer dollars). When the firm was prevented from doing the work, an Iraqi businessman (using Saddam's confiscated funds) spent just $80,000 to build the same factory.