Global Policy Forum

By Antonia Juhasz *

The Iraq Study Group Report offers a few important recommendations that will help address problems with the U.S. reconstruction debacle in Iraq. However, the Report thoroughly misses the mark on identifying the sources of failure—U.S. corporations and the Bush administration, and therefore the best way to solve the situation, which is to end the U.S. corporate invasion of Iraq.

The Report correctly notes that basic services in Iraq are still provided below or just hovering around prewar levels and that in Baghdad and other particularly war-ravaged areas, the situation is far worse. The Report also correctly cites the Bush administration's decision—executed by L. Paul Bremer, head of the former Coalition Provisional Authority in Iraq—to fire 120,000 of Iraq's highest-ranking government bureaucrats from every ministry as one obvious reason for this failure.

However, the Report attributes the bulk of the blame to Iraqi government corruption and sectarian bias in the distribution of services and a failed Iraqi judiciary. While each of these critiques may be accurate, they are beyond the purview of the United States to correct. Well within our purview, however, are the past and future actions of our corporations and our government.

After firing Iraq's senior bureaucrats, Bremer's next law in Iraq allowed for, among other things, the privatization of Iraq's state-owned enterprises—excluding oil—and for American companies to receive preferential treatment over Iraqis in the awarding of reconstruction contracts. These laws were part of a series of economic policies implemented by Bremer, virtually all of which remain in place today, to "transition [Iraq] from a … centrally planned economy to a market economy" virtually overnight and by U.S. fiat. The laws reduced taxes on all corporations by 25 percent, opened every sector of the Iraqi economy (except oil) to private foreign investment, allowed foreign firms to own 100 percent of Iraqi businesses (as opposed to partnering with Iraqi firms), and to send their profits home without having to invest a cent in the struggling Iraqi economy. Thus, Iraqi laws governing banking, foreign investment, patents, copyrights, business ownership, taxes, the media, and trade were all changed according to U.S. goals, with little participation from the Iraqi people.

What followed was a U.S. corporate invasion of Iraq.

While some 150 U.S. companies received contracts for work in Iraq following the invasion, the big reconstruction winners (after Halliburton) were: Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, Louisiana ($3 billion); Bechtel Corporation of San Francisco, Calif. ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion).

These seven companies are responsible for virtually all reconstruction in Iraq, including water, electricity, bridges, roads, hospitals and sewers. One reason for their failure was that companies, such as Bechtel, came to Iraq with the hopes of ultimately winning contracts to privatize the services they were hired to rebuild. Because many U.S. contracts guaranteed that all of the companies' costs would be covered, plus a set rate of profit—known as "cost-plus contracts"—they took their time, built expensive new facilities that showcased their skills and would serve their own needs were they to run the systems one day.

The American companies were hired instead of Iraqi companies that had successfully rebuilt Iraq after the previous U.S. invasion. And, because the Americans did not have to hire Iraqis, many imported foreign workers instead. The Iraqis were of course well aware that American firms had received billions of dollars for reconstruction, that Iraqi companies and workers had been rejected and that the country was still without basic services. The result was increasing hostility, acts of sabotage targeted directly at foreign contractors and their work and a rising insurgency.

In the end, Iraq has not emerged as the wealthy free-market haven these companies and others waiting on the horizon had hoped for, at least not yet (the economic policies put in place by the Bush administration remain and the work is ongoing to turn Iraq into a corporate-friendly Middle East Mecca). Therefore, several U.S. companies are preparing to follow Bechtel's lead by packing up, heading home, and taking their billions of dollars with them, while leaving their work in Iraq undone.

The Iraq Study Group Report does offer a glimmer of recognition of the root of the current problem. The report explains:

... substantial reconstruction funds have also been provided to contractors, and the Special Inspector General for Iraq Reconstruction (SIGIR) has documented numerous instances of waste and abuse. They have not all been put right. Contracting has gradually improved, as more oversight has been exercised and fewer cost-plus contracts have been granted; in addition, the use of Iraqi contractors has enabled the employment of more Iraqis in reconstruction projects.

Certain recommendations should follow from these observations, but the Iraq Study Group overlooked them. Therefore, I offer my own:

Juhasz Recommendation 1: The Bush administration must turn all of its reconstruction funds over to Iraqi companies and Iraqi workers. SIGIR finds that when Iraqi companies receive contracts—rather than subcontracts from U.S. companies—their work is faster, less expensive and less prone to insurgent attack. There are literally hundreds of both private and public Iraqi companies—and millions of Iraqi workers—ready, able, and willing to do this work. All they need is money and opportunity.

But U.S. corporations must not be allowed to "cut and run."

Juhasz Recommendation 2: Every U.S. corporation with reconstruction contracts in Iraq must be individually audited and each project investigated by a significantly larger and better-funded SIGIR. All misspent funds must be returned and made available to Iraqis for reconstruction.

At least three of the Iraq Study Group's recommendations will improve the reconstruction process and should be followed. These are:

ISG Recommendation 64: U.S. economic assistance should be increased to a level of $5 billion per year rather than being permitted to decline.

I agree that Iraq needs more money for reconstruction. However, the money should clearly be directed to Iraqi companies and Iraqi workers.

ISG Recommendation 67: The President should create a Senior Advisor for Economic Reconstruction in Iraq.

I agree this is critical, but instead I would choose Rep. Henry Waxman, the new Chairman of the House Government Reform Committee, to designate and oversee this new position. As the Report appropriately identifies, there is not a single office nor individual in the U.S. government with ultimate responsibility for the $34 billion in reconstruction money appropriated for Iraq. This lack of oversight facilitates the lack of accountability and corruption.

ISG Recommendation 69 is a no-brainer: The authority of the Special Inspector General for Iraq Reconstruction should be renewed for the duration of assistance programs in Iraq.

Ultimately, the Bush administration must abandon its plan to remake Iraq into an economic wonderland for U.S. corporations, whether they are oil companies, water privatizers or Wal-Mart. Iraq must belong to the Iraqis to remake as they themselves see fit.

About the Author: Antonia Juhasz is a visiting scholar at the Institute for Policy Studies and author of The Bush Agenda: Invading the World, One Economy at a Time (Regan, HarperCollins Publishers, 2006). She lives in San Francisco.