TheQfactor
Saturday, September 25
 
Baghdad Year Zero
Naomi Klein, Harper's Magazine, September 2004




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...

No, the crane was hoisting a giant billboard to the top of a three-story building. SUNBULAH: 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.

* * *

... ... 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 Point) 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. ... ...

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. ... ...


Bremer had found his 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. ... ...

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. ...

... 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. ... ...

... 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 in a Baghdad industrial zone 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 ... ...

... 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.

... 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: ... ...

... “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.[2]

* * *

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, ... ...

... 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 these 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. ... ...

... 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 them; 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.

... 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.” ... ...

... 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 shattered nation with 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 ... ...



... 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. ... ... 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 reelection 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.”

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