Article about What IS REALLY GOING ON IN IRAQ by Naomi Klein in

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Tue, 26 Oct 2004 04:34:28 -0000

Subject:Article about What IS REALLY GOING ON IN IRAQ by Naomi Klein

in Harpers Magazine

 

 

Story by Naomi Klein that appeared in Harpers Magazine. Please

read it...it's a real eye opener!

 

 

Article about What IS REALLY GOING ON IN IRAQ by Naomi Klein in

Harpers Magazine

 

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 I had heard so much about. But as I got closer I

noticed that the crane was not actually rebuilding anything—not one

of the bombed-out government buildings that still lay in rubble all

over the city, nor one of the many power lines that remained in

twisted heaps even as the heat of summer was starting to bear down.

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.

 

* * *

 

Torturers believe that when electrical shocks are applied to various

parts of the body simultaneously subjects are rendered so confused

about where the pain is coming from that they become incapable of

resistance. A declassified CIA " Counterintelligence Interrogation "

manual from 1963 describes how a trauma inflicted on prisoners opens

up " an interval—which may be extremely brief—of suspended animation,

a kind of psychological shock or paralysis. . . . [A]t this moment

the source is far more open to suggestion, far likelier to comply. "

A similar theory applies to economic shock therapy, or " shock

treatment, " the ugly term used to describe the rapid implementation

of free-market reforms imposed on Chile in the wake of General

Augusto Pinochet's coup. 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. Joseph Stiglitz, Nobel

laureate and former chief economist at the World Bank, describes

Bremer's reforms as " an even more radical form of shock therapy than

pursued in the former Soviet world. "

 

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.

 

But Bremer's economic engineering had only just begun. In September,

to entice foreign investors to come to Iraq, he enacted a radical

set of laws unprecedented in their generosity to multinational

corporations.

There was Order 37, which lowered Iraq's corporate tax rate from

roughly 40 percent to a flat 15 percent. There was Order 39, which

allowed foreign companies to own 100 percent of Iraqi assets outside

of the natural-resource sector. Even better, investors could take

100 percent of the profits they made in Iraq out of the country;

they would not be required to reinvest and they would not be taxed.

Under Order 39, they could sign leases and contracts that would last

for forty years. Order 40 welcomed foreign banks to Iraq under the

same favorable terms. All that remained of Saddam Hussein's economic

policies was a law restricting trade unions and collective

bargaining.

 

If these policies sound familiar, it's because they are the same

ones multinationals around the world lobby for from national

governments and in international trade agreements. But while these

reforms are only ever enacted in part, or in fits and starts, Bremer

delivered them all, all at once. Overnight, Iraq went from being the

most isolated country in the world to being, on paper, its widest-

open market.

 

* * *

 

At first, the shock-therapy theory seemed to hold: Iraqis, reeling

from violence both military and economic, were far too busy staying

alive to mount a political response to Bremer's campaign. Worrying

about the privatization of the sewage system was an unimaginable

luxury with half the population lacking access to clean drinking

water; the debate over the flat tax would have to wait until the

lights were back on. Even in the international press, Bremer's new

laws, though radical, were easily upstaged by more dramatic news of

political chaos and rising crime.

 

Some people were paying attention, of course. That autumn was awash

in " rebuilding Iraq " trade shows, in Washington, London, Madrid, and

Amman. The Economist described Iraq under Bremer as " a capitalist

dream, " and a flurry of new consulting firms were launched promising

to help companies get access to the Iraqi market, their boards of

directors stacked with well-connected Republicans. The most

prominent was New Bridge Strategies, started by Joe Allbaugh, former

Bush-Cheney campaign manager.

" Getting the rights to distribute Procter & Gamble products can be a

gold mine, " one of the company's partners enthused. " One well-

stocked 7-Eleven could knock out thirty Iraqi stores; a Wal-Mart

could take over the country. "

 

Soon there were rumors that a McDonald's would be opening up in

downtown Baghdad, funding was almost in place for a Starwood luxury

hotel, and General Motors was planning to build an auto plant. On

the financial side, HSBC would have branches all over the country,

Citigroup was preparing to offer substantial loans guaranteed

against future sales of Iraqi oil, and the bell was going to ring on

a New York-style stock exchange in Baghdad any day.

 

In only a few months, the postwar plan to turn Iraq into a

laboratory for the neocons had been realized. Leo Strauss may have

provided the intellectual framework for invading Iraq preemptively,

but it was that other University of Chicago professor, Milton

Friedman, author of the anti-government manifesto Capitalism and

Freedom, who supplied the manual for what to do once the country was

safely in America's hands. This represented an enormous victory for

the most ideological wing of the Bush Administration. But it was

also something more: the culmination of two interlinked power

struggles, one among Iraqi exiles advising the White House on its

postwar strategy, the other within the White House itself.

 

* * *

 

As the British historian Dilip Hiro has shown, in Secrets and Lies:

Operation `Iraqi Freedom' and After, the Iraqi exiles pushing for

the invasion were divided, broadly, into two camps. On one side

were " the pragmatists, " who favored getting rid of Saddam and his

immediate entourage, securing access to oil, and slowly introducing

free-market reforms. Many of these exiles were part of the State

Department's Future of Iraq Project, which generated a thirteen-

volume report on how to restore basic services and transition to

democracy after the war. On the other side was the " Year Zero " camp,

those who believed that Iraq was so contaminated that it needed to

be rubbed out and remade from scratch. The prime advocate of the

pragmatic approach was Iyad Allawi, a former high-level Baathist who

fell out with Saddam and started working for the CIA. The prime

advocate of the Year Zero approach was Ahmad Chalabi, whose hatred

of the Iraqi state for expropriating his family's assets during the

1958 revolution ran so deep he longed to see the entire country

burned to the ground—everything, that is, but the Oil Ministry,

which would be the nucleus of the new Iraq, the cluster of cells

from which an entire nation would grow. He called this process " de-

Baathification. "

 

A parallel battle between pragmatists and true believers was being

waged within the Bush Administration. The pragmatists were men like

Secretary of State Colin Powell and General Jay Garner, the first

U.S. envoy to postwar Iraq. General Garner's plan was

straightforward enough: fix the infrastructure, hold quick and dirty

elections, leave the shock therapy to the International Monetary

Fund, and concentrate on securing U.S. military bases on the model

of the Philippines. " I think we should look right now at Iraq as our

coaling station in the Middle East, " he told the BBC. He also

paraphrased T. E. Lawrence, saying, " It's better for them to do it

imperfectly than for us to do it for them perfectly. " On the other

side was the usual cast of neoconservatives: Vice President Dick

Cheney, Secretary of Defense Donald Rumsfeld (who lauded

Bremer's " sweeping reforms " as " some of the most enlightened and

inviting tax and investment laws in the free world " ), Deputy

Secretary of Defense Paul

Wolfowitz, and, perhaps most centrally, Undersecretary of Defense

Douglas Feith. Whereas the State Department had its Future of Iraq

report, the neocons had USAID's contract with Bearing Point to

remake Iraq's economy: in 108 pages, " privatization " was mentioned

no fewer than fifty-one times. To the true believers in the White

House, General Garner's plans for postwar Iraq seemed hopelessly

unambitious. Why settle for a mere coaling station when you can have

a model free market? Why settle for the Philippines when you can

have a beacon unto the world?

 

The Iraqi Year Zeroists made natural allies for the White House

neoconservatives: Chalabi's seething hatred of the Baathist state

fit nicely with the neocons' hatred of the state in general, and the

two agendas effortlessly merged. Together, they came to imagine the

invasion of Iraq as a kind of Rapture: where the rest of the world

saw death, they saw birth—a country redeemed through violence,

cleansed by fire. Iraq wasn't being destroyed by cruise missiles,

cluster bombs, chaos, and looting; it was being born again. April 9,

2003, the day Baghdad fell, was Day One of Year Zero.

 

While the war was being waged, it still wasn't clear whether the

pragmatists or the Year Zeroists would be handed control over

occupied Iraq. But the speed with which the nation was conquered

dramatically increased the neocons' political capital, since they

had been predicting a " cakewalk " all along. Eight days after George

Bush landed on that aircraft carrier under a banner that said

MISSION ACCOMPLISHED, the President publicly signed on to the

neocons' vision for Iraq to become a model corporate state that

would open up the entire region. On May 9, Bush proposed

the " establishment of a U.S.-Middle East free trade area within a

decade " ; three days later, Bush sent Paul Bremer to Baghdad to

replace Jay Garner, who had been on the job for only three weeks.

The message was unequivocal: the pragmatists had lost; Iraq would

belong to the believers.

 

A Reagan-era diplomat turned entrepreneur, Bremer had recently

proven his ability to transform rubble into gold by waiting exactly

one month after the September 11 attacks to launch Crisis Consulting

Practice, a security company selling " terrorism risk insurance " to

multinationals. Bremer had two lieutenants on the economic front:

Thomas Foley and Michael Fleischer, the heads of " private sector

development " for the Coalition Provisional Authority (CPA). Foley is

a Greenwich, Connecticut, multimillionaire, a longtime friend of the

Bush family and a Bush-Cheney campaign " pioneer " who has described

Iraq as a modern California " gold rush. " Fleischer, a venture

capitalist, is the brother of former White House spokesman Ari

Fleischer. Neither man had any high-level diplomatic experience and

both use the term corporate " turnaround " specialist to describe what

they do. According to Foley, this uniquely qualified them to manage

Iraq's economy because it was " the mother of all turnarounds. "

 

Many of the other CPA postings were equally ideological. The Green

Zone, the city within a city that houses the occupation headquarters

in Saddam's former palace, was filled with Young Republicans

straight out of the Heritage Foundation, all of them given

responsibility they could never have dreamed of receiving at home.

Jay Hallen, a twenty-four-year-old who had applied for a job at the

White House, was put in charge of launching Baghdad's new stock

exchange. Scott Erwin, a twenty-one-year-old former intern to Dick

Cheney, reported in an email home that " I am assisting Iraqis in the

management of finances and budgeting for the domestic security

forces. " The college senior's favorite job before this one? " My time

as an ice-cream truck driver. " In those early days, the Green Zone

felt a bit like the Peace Corps, for people who think the Peace

Corps is a communist plot. It was a chance to sleep on cots, wear

army boots, and cry " incoming " —all while being guarded around the

clock by real soldiers.

 

The teams of KPMG accountants, investment bankers, think-tank

lifers, and Young Republicans that populate the Green Zone have much

in common with the IMF missions that rearrange the economies of

developing countries from the presidential suites of Sheraton hotels

the world over. Except for one rather significant difference: in

Iraq they were not negotiating with the government to accept

their " structural adjustments " in exchange for a loan; they were the

government.

 

Some small steps were taken, however, to bring Iraq's U.S.-appointed

politicians inside. Yegor Gaidar, the mastermind of Russia's mid-

nineties privatization auction that gave away the country's assets

to the reigning oligarchs, was invited to share his wisdom at a

conference in Baghdad. Marek Belka, who as finance minister oversaw

the same process in Poland, was brought in as well. The Iraqis who

proved most gifted at mouthing the neocon lines were selected to act

as what USAID calls local " policy champions " —men like Ahmad al

Mukhtar, who told me of his countrymen, " They are lazy. The Iraqis

by nature, they are very dependent. . . . They will have to depend

on themselves, it is the only way to survive in the world today. "

Although he has no economics background and his last job was reading

the English-language news on television, al Mukhtar was appointed

director of foreign relations in the Ministry of Trade and is

leading the charge for Iraq to join the World Trade Organization.

 

* * *

 

I had been following the economic front of the war for almost a year

before I decided to go to Iraq. I attended the " Rebuilding Iraq "

trade shows, studied Bremer's tax and investment laws, met with

contractors at their home offices in the United States, interviewed

the government officials in Washington who are making the policies.

But as I prepared to travel to Iraq in March to see this experiment

in free-market utopianism up close, it was becoming increasingly

clear that all was not going according to plan. Bremer had been

working on the theory that if you build a corporate utopia the

corporations will come—but where were they?

American multinationals were happy to accept U.S. taxpayer dollars

to reconstruct the phone or electricity systems, but they weren't

sinking their own money into Iraq. There was, as yet, no McDonald's

or Wal-Mart in Baghdad, and even the sales of state factories,

announced so confidently nine months earlier, had not materialized.

 

Some of the holdup had to do with the physical risks of doing

business in Iraq. But there were other more significant risks as

well. When Paul Bremer shredded Iraq's Baathist constitution and

replaced it with what The Economist greeted approvingly as " the wish

list of foreign investors, " there was one small detail he failed to

mention: It was all completely illegal. The CPA derived its legal

authority from United Nations Security Council Resolution 1483,

passed in May 2003, which recognized the United States and Britain

as Iraq's legitimate occupiers. It was this resolution that

empowered Bremer to unilaterally make laws in Iraq. But the

resolution also stated that the U.S. and Britain must " comply fully

with their obligations under international law including in

particular the Geneva Conventions of 1949 and the Hague Regulations

of 1907. " Both conventions were born as an attempt to curtail the

unfortunate historical tendency among occupying powers to rewrite

the rules so that they can economically strip the nations they

control. With this in mind, the conventions stipulate that an

occupier must abide by a country's existing laws unless " absolutely

prevented " from doing so. They also state that an occupier does not

own the " public buildings, real estate, forests and agricultural

assets " of the country it is occupying but is rather

their " administrator " and custodian, keeping them secure until

sovereignty is reestablished. This was the true threat to the Year

Zero plan: since America didn't own Iraq's assets, it could not

legally sell them, which meant that after the occupation ended, an

Iraqi government could come to power and decide that it wanted to

keep the state companies in public hands, or, as is the norm in the

Gulf region, to bar foreign firms from owning 100 percent of

national assets. If that happened, investments made under Bremer's

rules could be expropriated, leaving firms with no recourse because

their investments had violated international law from the outset.

 

By November, trade lawyers started to advise their corporate clients

not to go into Iraq just yet, that it would be better to wait until

after the transition. Insurance companies were so spooked that not a

single one of the big firms would insure investors for " political

risk, " that high-stakes area of insurance law that protects

companies against foreign governments turning nationalist or

socialist and expropriating their investments.

 

Even the U.S.-appointed Iraqi politicians, up to now so obedient,

were getting nervous about their own political futures if they went

along with the privatization plans. Communications Minister Haider

al-Abadi told me about his first meeting with Bremer. " I

said, `Look, we don't have the mandate to sell any of this.

Privatization is a big thing. We have to wait until there is an

Iraqi government.' " Minister of Industry Mohamad Tofiq was even more

direct: " I am not going to do something that is not legal, so that's

it. "

 

Both al-Abadi and Tofiq told me about a meeting—never reported in

the press—that took place in late October 2003. At that gathering

the twenty-five members of Iraq's Governing Council as well as the

twenty-five interim ministers decided unanimously that they would

not participate in the privatization of Iraq's state-owned companies

or of its publicly owned infrastructure.

 

But Bremer didn't give up. International law prohibits occupiers

from selling state assets themselves, but it doesn't say anything

about the puppet governments they appoint. Originally, Bremer had

pledged to hand over power to a directly elected Iraqi government,

but in early November he went to Washington for a private meeting

with President Bush and came back with a Plan B. On June 30 the

occupation would officially end—but not really. It would be replaced

by an appointed government, chosen by Washington. This government

would not be bound by the international laws preventing occupiers

from selling off state assets, but it would be bound by an " interim

constitution, " a document that would protect Bremer's investment and

privatization laws.

 

The plan was risky. Bremer's June 30 deadline was awfully close, and

it was chosen for a less than ideal reason: so that President Bush

could trumpet the end of Iraq's occupation on the campaign trail. If

everything went according to plan, Bremer would succeed in forcing

a " sovereign " Iraqi government to carry out his illegal reforms. But

if something went wrong, he would have to go ahead with the June 30

handover anyway because by then Karl Rove, and not Dick Cheney or

Donald Rumsfeld, would be calling the shots. And if it came down to

a choice between ideology in Iraq and the electability of George W.

Bush, everyone knew which would win.

 

* * *

 

At first, Plan B seemed to be right on track. Bremer persuaded the

Iraqi Governing Council to agree to everything: the new timetable,

the interim government, and the interim constitution. He even

managed to slip into the constitution a completely overlooked

clause, Article 26. It stated that for the duration of the interim

government, " The laws, regulations, orders and directives issued by

the Coalition Provisional Authority . . . shall remain in force " and

could only be changed after general elections are held.

 

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.

 

But Bremer had a formidable opponent: Grand Ayatollah Ali al

Sistani, the most senior Shia cleric in Iraq. al Sistani tried to

block Bremer's plan at every turn, calling for immediate direct

elections and for the constitution to be written after those

elections, not before. Both demands, if met, would have closed

Bremer's privatization window. Then, on March 2, with the Shia

members of the Governing Council refusing to sign the interim

constitution, five bombs exploded in front of mosques in Karbala and

Baghdad, killing close to 200 worshipers. General John Abizaid, the

top U.S. commander in Iraq, warned that the country was on the verge

of civil war. Frightened by this prospect, al Sistani backed down

and the Shia politicians signed the interim constitution. It was a

familiar story: the shock of a violent attack paved the way for more

shock therapy.

 

When I arrived in Iraq a week later, the economic project seemed to

be back on track. All that remained for Bremer was to get his

interim constitution ratified by a Security Council resolution, then

the nervous lawyers and insurance brokers could relax and the sell-

off of Iraq could finally begin. The CPA, meanwhile, had launched a

major new P.R. offensive designed to reassure investors that Iraq

was still a safe and exciting place to do business. 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. During his first four months on the job, 109 U.S.

soldiers were killed and 570 were wounded. In 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.

 

These developments present a challenge to the basic logic of shock

therapy: the neocons were convinced that if they brought in their

reforms quickly and ruthlessly, Iraqis would be too stunned to

resist. But the shock appears to have had the opposite effect;

rather than the predicted paralysis, it jolted many Iraqis into

action, much of it extreme. Haider al-Abadi, Iraq's minister of

communication, puts it this way: " We know that there are terrorists

in the country, but previously they were not successful, they were

isolated. Now because the whole country is unhappy, and a lot of

people don't have jobs . . . these terrorists are finding listening

ears. "

 

Bremer was now at odds not only with the Iraqis who opposed his

plans but with U.S military commanders charged with putting down the

insurgency his policies were feeding. Heretical questions began to

be raised: instead of laying people off, what if the CPA actually

created jobs for Iraqis? And instead of rushing to sell off Iraq's

200 state-owned firms, how about putting them back to work?

 

* * *

 

From the start, the neocons running Iraq had shown nothing but

disdain for Iraq's state-owned companies. In keeping with their Year

Zero-apocalyptic glee, when looters descended on the factories

during the war, U.S. forces did nothing. Sabah Asaad, managing

director of a refrigerator factory outside Baghdad, told me that

while the looting was going on, he went to a nearby U.S. Army base

and begged for help. " I asked one of the officers to send two

soldiers and a vehicle to help me kick out the looters. I was

crying. The officer said, `Sorry, we can't do anything, we need an

order from President Bush.' " Back in Washington, Donald Rumsfeld

shrugged. " Free people are free to make mistakes and commit crimes

and do bad things. "

 

To see the remains of Asaad's football-field-size warehouse is to

understand why Frank Gehry had an artistic crisis after September 11

and was briefly unable to design structures resembling the rubble of

modern buildings. Asaad's looted and burned factory looks remarkably

like a heavy-metal version of Gehry's Guggenheim in Bilbao, Spain,

with waves of steel, buckled by fire, lying in terrifyingly

beautiful golden heaps. Yet all was not lost. " The looters were good-

hearted, " one of Asaad's painters told me, explaining that they left

the tools and machines behind, " so we could work again. " Because the

machines are still there, many factory managers in Iraq say that it

would take little for them to return to full production. They need

emergency generators to cope with daily blackouts, and they need

capital for parts and raw materials. If that happened, it would have

tremendous implications for Iraq's stalled reconstruction, because

it would mean that many of the key materials needed to rebuild—

cement and steel, bricks and furniture—could be produced inside the

country.

 

But it hasn't happened. Immediately after the nominal end of the

war, Congress appropriated $2.5 billion for the reconstruction of

Iraq, followed by an additional $18.4 billion in October. Yet as of

July 2004, Iraq's state-owned factories had been pointedly excluded

from the reconstruction contracts. Instead, the billions have all

gone to Western companies, with most of the materials for the

reconstruction imported at great expense from abroad.

 

With unemployment as high as 67 percent, the imported products and

foreign workers flooding across the borders have become a source of

tremendous resentment in Iraq and yet another open tap fueling the

insurgency. And Iraqis don't have to look far for reminders of this

injustice; it's on display in the most ubiquitous symbol of the

occupation: the blast wall. The ten-foot-high slabs of reinforced

concrete are everywhere in Iraq, separating the protected—the people

in upscale hotels, luxury homes, military bases, and, of course, the

Green Zone—from the unprotected and exposed. If that wasn't injury

enough, all the blast walls are imported, from Kurdistan, Turkey, or

even farther afield, this despite the fact that Iraq was once a

major manufacturer of cement, and could easily be again. There are

seventeen state-owned cement factories across the country, but most

are idle or working at only half capacity. According to the Ministry

of Industry, not one of these factories has received a single

contract to help with the reconstruction, even though they could

produce the walls and meet other needs for cement at a greatly

reduced cost. The CPA pays up to $1,000 per imported blast wall;

local manufacturers say they could make them for $100. Minister

Tofiq says there is a simple reason why the Americans refuse to help

get Iraq's cement factories running again: among those making the

decisions, " no one believes in the public sector. " [1]

 

This kind of ideological blindness has turned Iraq's occupiers into

prisoners of their own policies, hiding behind walls that, by their

very existence, fuel the rage at the U.S. presence, thereby feeding

the need for more walls. In Baghdad the concrete barriers have been

given a popular nickname: Bremer Walls.

 

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 and calendars boasting of " modern

instruments " and " the latest and most up to date developments in the

field of industry. " But when I approached the soap factory, I

discovered a group of workers sleeping outside a darkened building.

Our guide rushed ahead, shouting something to a woman in a white lab

coat, and suddenly the factory scrambled into activity: lights

switched on, motors revved up, and workers—still blinking off sleep—

began filling two-liter plastic bottles with pale blue Zahi brand

dishwashing liquid.

 

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.

 

In one dark corner of the plant, we came across an old man hunched

over a sack filled with white plastic caps. With a thin metal blade

lodged in a wedge of wax, he carefully whittled down the edges of

each cap, leaving a pile of shavings at his feet. " We don't have the

spare part for the proper mold, so we have to cut them by hand, " his

supervisor explained apologetically. " We haven't received any parts

from Germany since the sanctions began. " I noticed that even on the

assembly lines that were nominally working there was almost no

mechanization: bottles were held under spouts by hand because

conveyor belts don't convey, lids once snapped on by machines were

being hammered in place with wooden mallets.

Even the water for the factory was drawn from an outdoor well,

hoisted by hand, and carried inside.

 

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: I had spent half

a week setting it up, submitting written questions for approval,

getting a signed letter of permission from the minister of industry,

being questioned and searched several times. But when I finally

began the interview, the assistant manager refused to tell me his

name or let me record the conversation. " Any manager mentioned in

the press is attacked afterwards, " he said. And when I asked whether

the company was being sold, he gave this oblique response: " If the

decision was up to the workers, they are against privatization; but

if it's up to the high-ranking officials and government, then

privatization is an order and orders must be followed. "

 

I left the plant feeling that I knew less than when I'd arrived. But

on the way out of the gates, a young security guard handed my

translator a note. He wanted us to meet him after work at a nearby

restaurant, " to find out what is really going on with

privatization. " His name was Mahmud, and he was a twenty-five-year-

old with a neat beard and big black eyes. (For his safety, I have

omitted his last name.) His story began in July, a few weeks after

Bremer's privatization announcement. The company's manager, on his

way to work, was shot to death. Press reports speculated that the

manager was murdered because he was in favor of privatizing the

plant, but Mahmud was convinced that he was killed because he

opposed the plan. " He would never have sold the factories like the

Americans want. That's why they killed him. "

 

The dead man was replaced by a new manager, Mudhfar Ja'far. Shortly

after taking over, Ja'far called a meeting with ministry officials

to discuss selling off the soap factory, which would involve laying

off two thirds of its employees. Guarding that meeting were several

security officers from the plant. They listened closely to Ja'far's

plans and promptly reported the alarming news to their

coworkers. " We were shocked, " Mahmud recalled. " If the private

sector buys our company, the first thing they would do is reduce the

staff to make more money. And we will be forced into a very hard

destiny, because the factory is our only way of living. "

 

Frightened by this prospect, a group of seventeen workers, including

Mahmud, marched into Ja'far's office to confront him on what they

had heard. " 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, but in some areas they also went further,

zealously enforcing Islamic law by torching liquor stores and

terrorizing women without the veil.

Indeed, the astronomical rise of the brand of religious

fundamentalism that al Sadr represents is another kind of blowback

from Bremer's shock therapy: if the reconstruction had provided

jobs, security, and services to Iraqis, al Sadr would have been

deprived of both his mission and many of his newfound followers.

 

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. When seven Turkish contractors were kidnapped in June,

their captors asked the " company to cancel all contracts and pull

out employees from Iraq. " Many insurance companies stopped selling

life insurance to contractors, and others began to charge premiums

as high as $10,000 a week for a single Western executive—the same

price some insurgents reportedly pay for a dead American.

 

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.

 

Despite having been granted the first license for a foreign bank to

operate in Iraq in forty years, HSBC still hasn't opened any

branches, a decision that may mean losing the coveted license

altogether. Procter & Gamble has put its joint venture on hold, and

so has General Motors. The U.S. financial backers of the Starwood

luxury hotel and multiplex have gotten cold feet, and Siemens AG has

pulled most staff from Iraq. The bell hasn't rung yet at the Baghdad

Stock Exchange—in fact you can't even use credit cards in Iraq's

cash-only economy. New Bridge Strategies, the company that had

gushed back in October about how " a Wal-Mart could take over the

country, " is sounding distinctly humbled. " McDonald's is not opening

anytime soon, " company partner Ed Rogers told the Washington Post.

Neither is Wal-Mart. The Financial Times has declared Iraq " the most

dangerous place in the world in which to do business. " It's quite an

accomplishment: in trying to design the best place in the world to

do business, the neocons have managed to create the worst, the most

eloquent indictment yet of the guiding logic behind deregulated free

markets.

 

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. " On June 8 the Security

Council unanimously passed a resolution that endorsed the handover

plan but made absolutely no reference to the constitution. In the

face of this far-reaching defeat, George W. Bush celebrated the

resolution as a historic victory, one that came just in time for an

election trail photo op at the G-8 Summit in Georgia.

 

With Bremer's laws in limbo, Iraqi ministers are already talking

openly about breaking contracts signed by the CPA. Citigroup's loan

scheme has been rejected as a misuse of Iraq's oil revenues. Iraq's

communication minister is threatening to renegotiate contracts with

the three communications firms providing the country with its

disastrously poor cell phone service. And the Lebanese and U.S.

companies hired to run the state television network have been

informed that they could lose their licenses because they are not

Iraqi. " We will see if we can change the contract, " Hamid al-Kifaey,

spokesperson for the Governing Council, said in May. " They have no

idea about Iraq. " For most investors, this complete lack of legal

certainty simply makes Iraq too great a risk.

 

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. After an endless succession of courageous last stands

and far too many lost lives, Iraq will become a poor nation like any

other, with politicians determined to introduce policies rejected by

the vast majority of the population, and all the imperfect

compromises that will entail. The free market will no doubt come to

Iraq, but the neoconservative dream of transforming the country into

a free-market utopia has already died, a casualty of a greater dream—

a second term for George W. Bush.

 

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. Bremer's

reforms unleashed forces that the neocons neither predicted nor

could hope to control, from armed insurrections inside factories to

tens of thousands of unemployed young men arming themselves. 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. "

 

About the Author

 

Naomi Klein is the author of No Logo and writer/producer of The

Take, a new documentary on Argentina's occupied factories.

 

Notes

 

1. Tofiq did say that several U.S. companies had expressed strong

interest in buying the state-owned cement factories. This supports a

widely held belief in Iraq that there is a deliberate strategy to

neglect the state firms so that they can be sold more cheaply--a

practice known as " starve then sell. " [back]

 

2. It is in Basra where the connections between economic reforms and

the rise of the resistance was put in starkest terms. In December

the union representing oil workers was negotiating with the Oil

Ministry for a salary increase. Getting nowhere, the workers offered

the ministry a simple choice: increase their paltry salaries or they

would all join the armed resistance. They received a substantial

raise. [back]