Global Policy Forum

By Ed Vulliamy and Faisal Islam

Bechtel, the US construction giant, now leads the rebuilding of Iraq's infrastructure with the chutzpah of a twenty-first century East India Company. Yet other invasions are planned for Iraq over the coming months - in the shape of oil concessions, health privatisation plans and even mobile phone licences.

Despite the worsening security situation, the White House and Pentagon are marshalling these corporate battalions into Iraq - insurance companies, construction firms, commercial health managers and behemoth banks - in the name of free enterprise. The project: to privatise Iraq, a country where 30 per cent of the workforce is employed by the state, and the population is used to food rations and cheap petrol.

Paul Bremer, the US civilian administrator in Iraq, spent most of his time last week at the World Economic Forum in Amman, Jordan, talking economics. Bremer is a veteran of Reagan-era diplomacy. Critics wonder if he plans to bring Reaganomics to the Middle East.

Amnesty International has warned that the 'occupying powers must make an explicit commitment to involving Iraqis in decision-making related to reconstruction. Iraqis themselves, ideally through representative institutions, ought to make decisions on rebuilding, on foreign investment, and on the selling of state assets'.

The 'invasion' is an ideological as well as commercial enterprise. George Bush has said that he envisions a 'US-Middle East free-trade area' within 10 years, 'replacing corruption and self dealing with free markets'. Most of the US companies contracted or bidding to open up those free markets happen to enjoy direct or indirect connections to members of the Bush administration. The US has, meanwhile, drafted sweeping plans to establish a free-market economy in Iraq, including privatisation of state-owned industries and the formation of a stock market.

In a leader article in the Wall Street Journal last month Defence Secretary Donald Rumsfeld pledged the US's determination to pursue policies that 'favour market systems' and 'encourage moves to privatise state-owned enterprises'. British officials are a little more circumspect, suggesting Iraqis must decide for themselves.

The American government's development agency, USAID, has said it will spend $1.7 billion (£1bn) on reconstruction in Iraq. But the battered nation's damaged infrastructure will need, according to US Treasury estimates, somewhere between $25-$60bn. Some independent analysts have said that an investment of $200bn would be needed to convert the former state infrastucture, now largely dilapidated or destroyed, into a market economy. Washington is abuzz with corporate lobbyists and trade lawyers, business consortia and US-approved Iraqi exiles, preparing for the next phase: the all-private corporate scramble for Iraq beyond even the Pentagon's system of contract favouritism.

The US Treasury joined a group of companies at a forum on May Day which was organised by the Centre for Strategic and International Studies in Washington. John Taylor, Under Secretary for International Affairs, assured his audience there that it was 'very important to get a good system of rule [of] law, and property rights, in a way very conducive to foreign investment'. One of the first targets, added Taylor, would be the oil-for-food programme.

Standing to the fore in the preparations of the economic ground are the neo-conservatives, who have been plan ning the invasion of Iraq for a decade. They are led by Richard Perle - who was chairman of the powerful Defence Policy Board until recently when he had to resign over a conflict of interest - and the former CIA chief James Woolsey.

'We have a responsibility, a stewardship,' Perle told a forum of the American Enterprise Institute, 'not to turn [Iraq] over to institutions incapable of seeing this through to a successful conclusion ... the last thing the Iraqis need is French statism or German labour practices.'

Woolsey told a conference organised by the consulting firm Booz Allen Hamilton: 'The United States is going to do this alone.' In his audience were executives from Halliburton (of which Vice President Dick Cheney was CEO until he took office in 2001), as well as from Kellogg Brown Root (the Haliburton subsidiary already handsomely contracted in Iraq), the construction giant Babcock International, and Goldman Sachs. The military contractor DynCorpa, also present, was already signed up for a $50m contract to organise law enforcement in Iraq.

Both Perle and Woolsey have a direct commercial interest in America's 'war on terrorism'. Woolsey is a principal of the Paladin Capital Group, which invests in companies specialising in anti-terrorist equipment. Perle has many ties to firms that consult on security issues. And, for all the shambles that is present-day Iraq, America's banks are aggressively pursuing what they see as a lucrative role in rebuilding Iraq's financial system.

All the big guns in finance - Citigroup, JP Morgan Chase, and the Bank of America Corporation - have been conferring with Treasury department officials over the past month. The head of the Office of the Coalition Provisional Authority, Paul Bremer, has sent out what USAID calls 'requests for proposals' to most large US banks on how to develop privatisation.

The rush for Iraqi contracts stands in sharp contrast to what happened in post-conflict Afghanistan. Eighteen months on, only one foreign bank, Standard Chartered, has opened up shop there.

The lubricant is 112 billion barrels of crude oil that Iraq is known to possess in its reserves, providing the certainty of hard currency repayment that the Afghan economy, with its dependence on the opium poppy, could never match.

Unsurprising, then, that influential Washington voices are pushing for more certainty on the proceeds of oil sales. The US government Export-Import Bank is pushing for a sale of Iraq's oil production to fund the infrastructure payments. It is backed by the Coalition for Employment Through Trade, a group that lobbies on behalf of Halliburton, Bechtel and ChevronTexaco, among other large corporates. This securitisation of oil sales would help bridge the funding gap and weaken the reliance of the US and UK on other funding sources. It is being considered by the Pentagon and State Department.

British officials point to the difficulty of Iraq taking on further debts when it already owes at least $60bn to other countries. The plan would also be deeply controversial, and likely to be seen as a sell-off of Iraq's oil over the next decade to fund the profits of a clutch of American corporations that have close links to the Pentagon.

Although its brief is a military one, the Pentagon - which at present governs Iraq and anyway plays an ever-more prevalent role in US foreign and economic policy - has recruited its own team of special advisers to brief on the speedy privatisation of Iraq's nationalised industries.

Leading the team advising the US military is Martin Hoffman, a former army secretary and general counsel to the Pentagon, who is best known to Americans as Rumsfeld's former college friend. Hoffman had urged the Defence Secretary to recruit former executives of the disgraced Enron corporation to act as consultants to the armed services. Hoffman is also now chairman of the board of Miretek Systems, a firm that does contract work for the Pentagon.

Backing him is the Ukrainian-American Michael Bleyzer, himself a former Enron executive, who wrote an industrial manifesto in the Wall Street Journal entitled Taking Iraq Private. What the pair are in essence trying to do is prise the management of Iraq's privatisation away from USAID and directly into the private sector.

They have powerful allies. In April, former House speaker and a close friend of Rumsfeld, Newt Gingrich, attacked USAID's efforts in Afghanistan as 'an absolute failure of American entrepreneurial efforts'. Bleyzer said recently: 'What I'd like to see over the next 10 years is totally rebuilding Iraq, and that means a market economy.'

Iraq, he added, 'would have a much better business environment if BP or Exxon-Mobil or Shell could invest'. He said: 'We want to set up a business environment where global companies like Coca Cola and McDonald's could come in and create a diversified economy not dependent on oil.'

He has a point about diversification. Black gold has been a curse rather than a blessing for those countries that sit on reserves. The presence of oil has invited relentless colonial interference, funded dictatorships, and often promoted religious obscurantism.

In economic terms, oil economy status plays havoc with currencies and budgets. Reliance on crude can also stifle the incentive to create other sorts of businesses, according to a recent World Bank study of the Middle East and North Africa region.

The existing US plans for Iraq's economic diversification appear to owe more to corporate contractors than to the interests of the country's people. Kellogg Brown Root was awarded control of Iraq's oil fields ahead of the war under a no-bid contract. After the war, the Pentagon itself awarded the giant MCI a $45m deal to build a mobile telecoms system - despite the involvement of MCI, as WorldCom, in the biggest corporate fraud in business history.

Russia discovered in the 1990s that an enterprise economy cannot just be created out of thin air. Free market 'shock therapy' there led to mass unemployment, industrial collapse and an oligarchy that pillaged its natural resources. Before free markets and privatisations emerge, an economy requires the setting up of strong judicial institutions. Even the East India Company was aware of that.

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