Major Problems Found In Iraqi Rebuilding Effort

The International Herald Tribune reports:
In a troubling sign for the American-financed rebuilding program in Iraq, inspectors for a federal oversight agency have found that in a sampling of eight projects that the United States declared successes, seven were no longer operating as designed because of plumbing and electrical failures, lack of proper maintenance, apparent looting and expensive equipment that lay idle.

U.S. officials have previously admitted, sometimes under pressure from federal inspectors, that some reconstruction projects have been abandoned, delayed or poorly constructed. But this is the first time that inspectors have found that projects officially declared successes - in some cases, as little as six months before the latest inspections - were no longer working properly.
The inspections ranged geographically from northern to southern Iraq and covered projects as varied as a maternity hospital, barracks for an Iraqi special forces unit and a power station for Baghdad International Airport.

At the airport, crucially important for the functioning of the country, inspectors found that while $11.8 million had been spent on new electrical generators, about three-quarters of the generators were no longer functioning.

At the maternity hospital, a rehabilitation project in the northern city of Erbil, an expensive incinerator for medical waste was padlocked - Iraqis at the hospital could not find the key when inspectors asked to see the equipment - and, partly as a result, medical waste including syringes, used bandages and empty drug vials were clogging the sewage system and probably contaminating the water system.

The newly built water purification system was not functioning, either.

Officials at the oversight agency, the Office of the Special Inspector General for Iraq Reconstruction, said that they had made an effort to sample different regions and various types of projects, but that they were constrained from taking a true random sample in part because many projects were in areas too unsafe to visit.

So, they said, the initial set of eight projects - which cost a total of about $150 million - cannot be seen as a true statistical measure of the thousands of projects in the roughly $30 billion American rebuilding program.

But the officials said the initial findings raised serious new concerns about the effort.

The reconstruction effort was originally designed as nearly equal to the military push to stabilize Iraq, allow the government to function and business to flourish and promote good will toward the United States.

"These first inspections indicate that the concerns that we and others have had about the Iraqis sustaining our investments in these projects are valid," Stuart Bowen Jr., who leads the office of the special inspector general, said in an interview last week.

The conclusions will be summarized in the latest quarterly report by Bowen's office on Monday. Individual reports on each of the projects were made public Thursday and Friday.

Bowen said that because he suspected that completed projects were not being maintained, he had ordered his inspectors to undertake a wider program of returning to examine projects that had been completed for at least six months, a phase known as sustainment.

Exactly who is to blame for the poor record on sustainment for the first sample of eight projects was not laid out in the report, but the American reconstruction program has been repeatedly criticized for not including in its rebuilding budget enough of the costs for spare parts, training, stronger construction and other elements that would enable projects to continue to function once they have been built.

The Iraqis themselves appear to share responsibility for the latest problems, which cropped up after the United States turned the projects over to the Iraqi government. Still, the new findings show that the enormous American investment in the reconstruction program is at risk, Bowen said. Curiously, most of the problems seemed unrelated to sabotage stemming from Iraq's parlous security situation, but instead were the product of poor initial construction, petty looting, a lack of any maintenance and simple neglect.

A case in point was the $5.2 million project undertaken by the U.S. Army Corps of Engineers to build the special forces barracks in Baghdad. The project was completed in September 2005, but by the time inspectors visited last month, there were numerous problems caused by faulty plumbing throughout the buildings, and four large electrical generators, each costing $50,000, were no longer operating.

The problems with the generators were seemingly minor: missing batteries, a failure to maintain adequate oil levels in the engines, fuel lines that had been pilfered or broken. That kind of neglect is typical of rebuilding programs in developing countries whose citizens are not closely involved in planning efforts, said Rick Barton, co-director of the post-conflict reconstruction project at the Center for Strategic and International Studies, a research organization in Washington.

"What ultimately makes any project sustainable is local ownership from the beginning in designing the project, establishing the priorities," Barton said. "If you don't have those elements, it's an extension of colonialism, and generally it's resented."

Bush Clears the Way for Corporate Domination

Antonia Juhasz, author of 'The Bush Agenda,' explains what Bush really means when he says he wants to spread freedom around the world.

Joshua Holland at Alternet interviews Antonia Juhasz:

When George W. Bush says that he wants to spread freedom to every corner of the earth, he means it.

But of course the president that turned Soviet-era gulags into secret CIA prisons in order to do God-knows-what to God-knows-whom isn't talking about individual freedom. He means corporate freedom -- freedom for the great multinationals to extract everything they can from the world's resources and labor without the hindrance of public interest laws, environmental regulations or worker protections.

Bush's vision of a free world actually looks just like the corporate globalization agenda pushed by a succession of American presidents in institutions like the World Trade Organization.

But this administration yearns for freedom too much to leave it up to trade negotiators. Unlike his predecessors, Bush isn't content to use carrots and sticks and a liberal dose of arm twisting to advance that agenda. His administration has made the neoliberal policies euphemistically referred to as "free-trade" a centerpiece of its national security policy.

Bush is willing to use the awesome force of the United States military to guarantee the freedom of the world's largest multinationals.

In her new book, The Bush Agenda, Antonia Juhasz peels the veils away from Bush's agenda -- imperialism, militarism and corporate globalization -- and exposes who drives it: a group of hawkish ideologues with an unprecedented relationship to major defense and energy companies.

Juhasz shows that the invasion of Iraq -- an invasion that was as much economic as military -- was the centerpiece of a larger project: the creation a New American Century in which the end-goal of American foreign policy is to enrich the corporate elites, and dissent at home will not be tolerated. Juhasz is a wonk -- she got her start as a staffer for Rep. John Conyers -- but the book is as readable as it is deeply researched.

I caught up with Juhasz last week at Washington's Union Station, just blocks away from the White House, to chat about The Bush Agenda.

Joshua Holland: [19th century Prussian military philosopher Carl von] Clausewitz said that war is an extension of politics by other means. You suggest that for the Bush administration, war is an extension of corporate globalization by other means. Run down your basic premise.

Antonia Juhasz: The Bush administration has implemented a particularly radical model of corporate globalization by which it has teamed overt military might -- full-scale invasion -- with the advancement of its corporate globalization agenda. And this model is particularly imperial -- that's one of the things that makes it different from, for example, the Reagan or Bush Sr. regimes. As opposed to simply replacing the head of a regime that is no longer serving the interests of the administration, the Bush team has gone further -- using a military invasion to fundamentally transform a country's political and economic structure.

It is also using an occupation to maintain that altered structure, which is the definition of imperialism in my mind: spreading the empire by changing the very laws of foreign nations to service the empire's needs. And, as Bush is repeatedly saying, "Iraq is only the beginning." I detail the rest of the empire's pursuits across the Middle East in the chapter on the U.S.-Middle East Free Trade Area.

The fundamental purpose of the book was to determine how this model came to be, where its advocates hope it will go and who its advocates are so that we can better dismantle it.

JH: But Bush isn't the first to use a full-scale invasion -- unilaterally -- in furtherance of those goals. I think of Reagan's invasion of Grenada to knock off Maurice Bishop, a moderate socialist.

AJ: There was no occupation, and it wasn't done the same way that the Bush administration -- using its own tools, its own people, its own policies -- to explicitly restructure the entire functioning of the country's economy to serve its own ends. Reagan wanted a different leader, a leader that would meet his needs and that was enough. Bush has locked in an entirely new economic and political structure. I'm certainly not justifying the invasion of Grenada, but for me that was quantitatively different.

JH: What is Pax Americana -- the "American Peace" -- and what is it about the original Roman version, Pax Romana, that makes it a poor model to emulate?

AJ: I talk about Pax Americana because that's what members of the administration talk about -- Cheney, Rumsfeld, Wolfowitz, Libby, Khalilzad, Perle, Zoellick, Bolton. … In fact, there are 16 members of the Bush administration that were also participants in the Project for the New American Century, which was very clear that the U.S. not only has a Pax Americana but should seek to maintain it.

This is problematic because it seeks to achieve the Roman model, with an all-powerful emperor who ran his kingdom on 50 percent slave labor, who eliminated all guarantees of civil liberties and eliminated all civic participation, but maintained the fallacy of public institutions and participatory government to keep the elites at bay -- to make elites feel like they had the presence and prestige of serving in government.

So there were senators and there were "representatives of the people," but of course the emperor appointed those he wanted to sit in the senate, and he chose those who would serve his interests. And then he appointed regional overlords to oversee the rest of the empire. In addition, the idea that Rome generated peace -- that it really was in fact a Pax Romana that guaranteed peace for the rest of the world -- is false. To create the empire, there was an enormous amount of war and bloodshed, and also to maintain the empire there was continued fighting as nations and peoples were forced to acquiesce.

However, there was a period of about 200 years where there was relatively less struggle within Rome over who would rule. But one key reason Rome was able to maintain that internal peace was all the money that the empire poured into public services -- building aqueducts, providing services, supporting intellectual thought and -- as I say in the book -- creating the Western Canon.

The Bush administration has chosen all the worst elements of the Roman Empire: the lack of civil liberties and the movement towards a nonrepresentative government run by a dictator. Even the most conservative Republican columnist will admit that Bush has consolidated more and more power in the executive branch than any president in modern history. And he's increased the proportion of people in the United States in the lower income sphere, people who have to work day in and day out in order to meet basic needs like health care, and who often aren't able to meet those needs. I argue that that is a modern form of slavery.

And while the administration is explicitly imperial -- it is trying to annex other nations through its military and its economic policy -- its not putting any of that attention to public education, public resources and public services. So we are getting the worst of the worst. And just as it was a myth that the Pax Romana created world peace, the Pax Americana clearly generates more global insecurity. Acts of deadly terror have increased every year of the Bush administration; they increased more than three-fold between 2003 and 2004.

JH: So he's not just the worst president ever, he's also the worst …

AJ: … Yes, he's also the worst emperor ever.

JH: You're blunt about calling Iraq an economic invasion. Most analyses are geopolitical, but you put it together with the long-standing wish list of the corporate globalists. Can you tell me about Bremer's100 rules and what Bearing Point is?

AJ: If you look at the corporations that have profited most from the invasion -- Bechtel, Halliburton, Lockheed Martin and Chevron -- these are all corporations that have decades of operations and activities trying to increase their economic engagement in Iraq -- lobbying the U.S. government to increase their access to Iraq. And they've done so successfully -- first with Saddam Hussein and later with the coalition authorities and now with the new government of Iraq. They have participated with or guided -- you can choose the word you want -- the Bush administration in its invasion. Through their executives, they played key roles in advocating for war. George Shultz is the perfect example and one I focus on in the book.

I emphasize that it's an absolute fallacy that there was no post-war plan. The plan was written two months before the invasion of Iraq by a company, Bearing Point Inc., which is based in Virginia -- it was KPMG Consulting until it changed its name in the wake of the Arthur Anderson-Enron corruption scandals. The company is not well-known. It works behind the scenes for every branch of government, and it provides all kinds of consulting services.

Bearing point received a $250 million contract from USAID to write a remodeled structure for the Iraqi economy. It was to transition Iraq from a state-controlled economy to a market economy, but I argue that the new model was more a state-controlled economy that is controlled on behalf of multinational corporations, and heavily regulated in fact on behalf of multinational corporations. It just no longer serves the public interest.

Bearing point's plan was implemented to a T by L. Paul Bremer, the administrator of Iraq's coalition government. The U.N.'s special envoy to Iraq, Lakhdar Brahimi, called him the "Dictator of Iraq," and he was. He ruled Iraq for 14 months, and he implemented Bearing Point's plan; he rewrote Iraq's entire economic and political structure by implementing his 100 orders. The orders had the force of law, and any Iraqi laws that contradicted the orders were overridden.

The 100 orders put into place a standard set of corporate globalization policies. Instead of having to wait for Iraq to become a member of the World Trade Organization, for example, or to fulfill requirements of the International Monetary Fund or World Bank, or worrying about whether the policies they most wanted would be accepted, the administration was able to simply invade, occupy and impose those provisions itself. And many of those provisions have been long opposed at institutions like the WTO -- for example the investments provisions -- but they were implemented overnight in Iraq with a stroke of the pen by Paul Bremer.

Probably the most important order in terms of what happened with the occupation was the very first order. Bremer fired 120,000 key bureaucrats in every government ministry in Iraq. That meant that ministries that had been functioning very well for decades lost their bureaucracies almost overnight. The excuse that was given was that they were Ba'ath Party members, but nobody could hold those positions unless they belonged to the Ba'ath Party, so it wasn't an indication that they were a party to Saddam Hussein's crimes. They were fired because they could have stood in the way of the economic transformation.

Then there was the firing of the entire Iraqi military, and I think that problem is well-known. Less well-known is how that played out in relation to the rest of the orders. Order number 39 was the foreign investment order. There were several provisions which I detail in the book, but the most important may be national treatment, which meant that Iraqis could not preference Iraqi companies and Iraqi workers in the reconstruction.

So 150 United States corporations have received $50 billion for work in Iraq, $33 billion of which was exclusively for standard reconstruction -- building bridges, repairing electricity and repairing water. But originally the plan was to use the soldiers -- the Iraqi military -- for the reconstruction. Instead of taking a half a million men and canceling their salaries and sending them home with guns, they were going to go to work and get money, and provide for their families and be part of the reconstruction.

Even worse is that those American companies failed. Miserably. And it's not just because of the insurgency -- the insurgency didn't begin immediately. They failed because they went in to maximize their profit, to build the most expensive state-of-the-art systems they could and to get their feet firmly in Iraq so they would be able to profit long term. But what Iraq needed was just to get the systems up and running. It was summer in the desert.

JH: How long did it take for Iraq to get those systems up after the first invasion?

AJ: Three months. The Iraqi workers and companies rebuilt their systems in three months.

JH: OK, so Bremer imposed these rules under the Coalition Provisional Authority. Explain how rules set up by a provisional government ended up codified in Iraq's new constitution?

AJ: Bremer appointed an interim government for Iraq when the occupation formally ended. The interim government, together with Bremer, threw out the existing Iraqi Constitution. And I think at the time there was this idea that it was a nation being molded out of the dirt -- that it didn't have a government, didn't have a structure -- and here was the United States helping them form a constitutional convention. But they had a government, they had a constitution -- they've had a constitution since 1922. We didn't have to create a constitutional government for them.

The first constitution that was written had all of Bremer's orders, and it could only be changed by a very complicated process -- it essentially locked the orders in. Then the new constitution for Iraq was supposed to be "of the people." It was drafted by the interim government and put to a popular vote. But it was crafted so that it locked into place the occupation, the economic transformation, the constitutionality of the new oil law -- which the United States had drafted -- and all of the Bremer orders.

The only public discussion of the constitution was the few things people were gleaning from the press and what their religious leaders -- who were themselves gleaning it from the press -- told them. Five days before the constitution was to be voted on, the paper copies were released. They made 5 million copies for 15 million voters. And on that same day, the U.S. ambassador to Iraq, Zalmay Khalilzad, was meeting with influential Iraqi leaders to rewrite fundamental aspects of that very constitution. There was absolutely no way that the vast majority of the Iraqi people had any idea what was in the constitution. They were voting for hope, and they risked their lives to do so. But there's no way they knew that they were voting to maintain the Bremer orders.

JH: What's the Hague Convention of 1907?

AJ: Under international law an occupying government has one set of responsibilities, and they're very clear. An occupying government must provide security and basic services. An occupying government explicitly cannot fundamentally rewrite the laws of the country they're occupying. The United States did exactly the opposite; we rewrote the laws, and we didn't provide basic services or security for the people.

JH: Did we ratify the Hague Conventions?

AJ: We certainly did.

JH: You focus on four firms that pushed the policy and have profited handsomely from the invasion: Bechtel, Chevron, Lockheed Martin and Halliburton. But there are many other multinational corporations that have both made a killing in Iraq and have close ties to both the administration and to the conservative movement more generally. Why those four and, playing devil's advocate, is there a danger focusing on a small number of firms when the issues are militarism and corporate globalization more broadly?

AJ: These four companies have the longest relationship to Iraq. Through their executives, they lobbied on behalf of an invasion of Iraq, and they have profited more than almost all other companies from that invasion. And they have intimate interlocking relationships with this administration. They demonstrate very clearly how, in the Bush administration, there essentially is no distinction between corporate characters and government characters. They also are companies that because of their corporate behavior around the world have preexisting and longstanding movements -- social movements -- that are organized against their harmful actions, which readers of the book support and become a part of.

JH: That's a great segue. In your final chapter, you discuss ways that people can oppose the Bush agenda, and you suggest that another agenda is possible. I think that's very important because so many books bash Bush and then leave readers feeling dispirited. Name just one thing that needs to be done to reverse this agenda?

AJ: There are so many alternatives, and I give concrete examples of solutions -- for how to end the economic invasion of Iraq. What I hoped to do in the last chapter was to present the movements and many of the ideas generating fundamental change already. I wanted to empower people -- to show that the information in the book can be used as a tool for these movements and a tool for change.

So I give examples of not only different policies, but I also give examples of organizations and communities that have been successfully mobilizing against the full Bush agenda -- that means corporate globalization, war and imperialism. To me that's more important than any one of the alternatives that I present. The whole point of the chapter is that there are, thankfully, millions of alternatives to choose from. And we're already seeing successful transformation -- there are real movements that we can join and in which we can have an impact.

"Baghdad Year Zero"

Naomi Klein reports in Harper's:

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.”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."

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.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.

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.”

"Shameless in Iraq"

Naomi Klein reports in The Nation:
Good news out of Baghdad: the Program Management Office, which oversees the $18.4 billion in US reconstruction funds, has finally set a goal it can meet. Sure, electricity is below prewar levels, streets are rivers of sewage and more Iraqis have been fired than hired. But now the PMO has contracted with British mercenary firm Aegis to protect its employees from "assassination, kidnapping, injury and"--get this--"embarrassment." I don't know if Aegis will succeed in protecting PMO employees from violent attack, but embarrassment? I'd say mission already accomplished. The people in charge of rebuilding Iraq can't be embarrassed, because clearly they have no shame.

In the run-up to the June 30 underhand (sorry, I can't bring myself to call it a "handover"), US occupation powers have been unabashed in their efforts to steal money that is supposed to aid a war-ravaged people. The State Department has taken $184 million earmarked for drinking water projects and moved it to the budget for the lavish new US Embassy in Saddam's former palace. Short $1 billion for the embassy, Deputy Secretary of State Richard Armitage said he might have to "rob from Peter in my fiefdom to pay Paul." In fact, he is robbing Iraq's people, who, according to a recent study by Public Citizen, are facing "massive outbreaks of cholera, diarrhea, nausea and kidney stones" from drinking contaminated water.

If occupation chief Paul Bremer and his staff were capable of embarrassment, they might be a little sheepish about having spent only $3.2 billion of the $18.4 billion Congress allotted--the reason the reconstruction is so disastrously behind schedule. At first, Bremer said the money would be spent by the time Iraq was sovereign, but apparently someone had a better idea: Parcel it out over five years so Ambassador John Negroponte can use it as leverage. With $15 billion outstanding, how likely will Iraq's politicians be to refuse US demands for military bases and economic "reforms"?

Unwilling to let go of their own money, the shameless ones have had no qualms about dipping into funds belonging to Iraqis. After losing the fight to keep control of Iraq's oil money after the underhand, occupation authorities grabbed $2.5 billion of those revenues and are now spending the money on projects that are supposedly already covered by US tax dollars.

But then, if financial scandals made you blush, the entire reconstruction of Iraq would be pretty mortifying. From the start, its architects rejected the idea that it should be a New Deal-style public works project for Iraqis to reclaim their country. Instead, it was treated as an ideological experiment in privatization. The dream was for multinational firms, mostly from the United States, to swoop in and dazzle the Iraqis with their speed and efficiency.

Iraqis saw something else: desperately needed jobs going to Americans, Europeans and South Asians; roads crowded with trucks shipping in supplies produced in foreign plants, while Iraqi factories were not even supplied with emergency generators. As a result, the reconstruction was seen not as a recovery from war but as an extension of the occupation, a foreign invasion of a different sort. And so, as the resistance grew, the reconstruction itself became a prime target.

The contractors have responded by behaving even more like an invading army, building elaborate fortresses in the Green Zone and surrounding themselves with mercenaries. And being hated is expensive. According to the latest estimates, security costs are eating up 25 percent of reconstruction contracts--money not being spent on hospitals, water-treatment plants or telephone exchanges.

Meanwhile, insurance brokers selling sudden-death policies to contractors in Iraq have doubled their premiums, with insurance costs reaching 30 percent of payroll. That means many companies are spending half their budgets arming and insuring themselves against the people they are supposedly in Iraq to help. And according to an estimate by Charles Adwan of Transparency International, quoted on NPR's Marketplace, "At least 20 percent of US spending in Iraq is lost to corruption." How much is actually left over for reconstruction? Don't do the math.

Rather than models of speed and efficiency, the contractors look more like overbilling, underperforming, lumbering beasts, barely able to move for fear of the hatred they have helped generate. The problem goes well beyond the latest reports of Halliburton drivers abandoning $85,000 trucks on the road because they don't carry spare tires. Private contractors are also accused of playing leadership roles in the torture of prisoners at Abu Ghraib. A landmark class-action lawsuit filed by the Center for Constitutional Rights alleges that the Titan Corporation and CACI International conspired with US officials to "humiliate, torture and abuse persons" to increase demand for their "interrogation services."

And then there's Aegis, the company being paid $293 million to save the PMO from embarrassment. It turns out that Aegis's CEO, Tim Spicer, has a bit of an embarrassing past himself. In the 1990s, he was secretly employed by the government of Papua New Guinea to put down rebels and hatched a plan to break an arms embargo in Sierra Leone.

If Iraq's occupiers were capable of feeling shame, they might have responded by imposing tough new regulations. Instead, Senate Republicans just defeated an attempt to bar private contractors from interrogating prisoners and also voted down a proposal to impose stiffer penalties on contractors who overbill. Meanwhile, the White House is also trying to get immunity from prosecution for US contractors in Iraq and has requested the exemption from the new Prime Minister, Iyad Allawi.

It seems likely that Allawi will agree, since he is, after all, a kind of US contractor himself: A former CIA spy, he is already threatening to declare martial law, while his Defense Minister says of resistance fighters, "We will cut off their hands, and we will behead them." In a final feat of outsourcing, Iraqi governance has been subcontracted to even more brutal surrogates. Is this embarrassing, after an invasion to overthrow a dictatorship? Not at all--this is what the occupiers call "sovereignty." The Aegis guys can relax: Embarrassment is not going to be an issue.

EMENDATION: Naomi Klein reported in her July 12 "Lookout" column that Aegis CEO Tim Spicer helped put down rebels and stage a military coup in Papua New Guinea. Actually, although his secret employment by the PNG government to put down rebels became a divisive issue within the PNG military and led to a military coup, Spicer played no role in staging the coup. (7/14/04)

"Why The Privatization of Iraq is Illegal"

Aaron Mate on "What the US-UK's responsibilities are as occupier of Iraq":

On May 22 2003, the United Nations Security Council passed Resolution 1483, abolishing sanctions against Iraq and recognising the United States and United Kingdom as the country's occupying powers. The resolution called upon the US-UK authority to "comply fully with their obligations under international law, including in particular the Geneva Conventions of 1949 and the Hague Regulations of 1907." [1]

How has the CPA changed Iraq's economy and laws?
Among many changes, the US-UK Coalition Provisional Authority (CPA), has laid off hundreds of thousands of Iraqi workers, virtually eliminated trade tariffs and enacted laws that radically alter Iraq's economy. Order 39, decreed by CPA head Paul Bremer on September 20 2003, abolished Iraq's ban on foreign investment, allowing foreigners to own up to 100% of all sectors except natural resources. Over 200 state-owned enterprises, including electricity, telecommunications and pharmaceuticals have been privatised. Iraq's highest tax rate has been lowered from 45% to a flat rate of 15%. Although foreign ownership of land remains illegal, companies or individuals will be allowed to lease properties for up to 40 years. [2]

Are these changes legal?

These laws stand in clear violation of Iraq's constitution, as is openly admitted. The US department of commerce notes that "the Iraqi constitution prohibits foreign ownership of immovable (real) property," and "prohibits investment in, and establishment of, companies in Iraq by foreigners who are not resident citizens of Arab countries." [3]

Consider how the CPA's new laws and massive layoffs conform to its obligations under international law [4]:

· Hague Regulations

Art 43: The authority of the legitimate power having in fact passed into the hands of the occupant, the latter shall take all the measures in his power to restore, and ensure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country.

Art 46: Family honour and rights, the lives of persons, and private property, as well as religious convictions and practice, must be respected. Private property cannot be confiscated.

Art 47: Pillage is formally forbidden.

Art 53: An army of occupation can only take possession of cash, funds, and realisable securities which are strictly the property of the state, depots of arms, means of transport, stores and supplies, and, generally, all movable property belonging to the state which may be used for military operations. All appliances, whether on land, at sea, or in the air, adapted for the transmission of news, or for the transport of persons or things, exclusive of cases governed by naval law, depots of arms, and, generally, all kinds of munitions of war, may be seized, even if they belong to private individuals, but must be restored and compensation fixed when peace is made.

Art 55: The occupying State shall be regarded only as administrator and usufructuary of public buildings, real estate, forests, and agricultural estates belonging to the hostile State, and situated in the occupied country. It must safeguard the capital of these properties, and administer them in accordance with the rules of usufruct.

· Geneva Conventions:

Article 53: Any destruction by the occupying power of real or personal property belonging individually or collectively to private persons, or to the state, or to other public authorities, or to social or cooperative organisations, is prohibited, except where such destruction is rendered absolutely necessary by military operations.

Article 54: The occupying power may not alter the status of public officials or judges in the occupied territories, or in any way apply sanctions to or take any measures of coercion or discrimination against them, should they abstain from fulfilling their functions for reasons of conscience.

What is usufruct?

In accordance with Article 55 of the Hague Regulations, the US-UK are "regarded only as administrator and usufructuary" of Iraq's resources and immovable property, which it must administer "in accordance with the rules of usufruct." Bouvier's Law dictionary defines usufruct as: "The right of enjoying a thing, the property of which is vested in another, and to draw from the same all the profit, utility and advantage which it may produce, provided it be without altering the substance of the thing." [5]

As usufructary, the US-UK coalition would have the right to use Iraq's resources without altering or destroying the character of the resource itself. It is widely-recognised that agriculture, wherein crops can grow again and no serious effect is made on the soil or the land, is an appropriate usage of the right of usufruct. But oil is far different: the extraction of oil is the process of extracting the original resource itself, as the fossil fuels are not renewable and the character of the land from which it comes is severely altered, if not depleted. In addition, the responsibilities of usufruct can also apply to structural changes to a public resource or service. As Naomi Klein points out, "what could more substantially alter 'the substance' of a public asset than to turn it into a private one?"

Does the CPA know this already?

In a leaked March 26 memo that caused a stir in the UK, attorney general Lord Peter Goldsmith advised prime minister Blair that the invasion and subsequent occupation of Iraq was illegal. "My view is that a further security council resolution is needed to authorise imposing reform and restructuring of Iraq and its government," Lord Goldsmith wrote. He added that in his view "the imposition of major structural economic reforms would not be authorised by international law," and that "the longer the occupation of Iraq continues, and the more the tasks undertaken by an interim administration depart from the main objective [of disarming Saddam], the more difficult it will be to justify the lawfulness of the occupation." [6]

Notes

1. UN Security Council Resolution 1483, adopted May 22 2003.

2. Coalition Provisional Authority Order 39, enacted September 19 2003.

3. US Department of Commerce, "Overview of Commercial Law in Iraq".

4. Convention (IV) respecting the Laws and Customs of War on Land and its annex: Regulations concerning the Laws and Customs of War on Land (Hague Regulations). The Hague, 18 October 1907.

Convention (IV) relative to the Protection of Civilian Persons in Time of War (Geneva Conventions). Geneva, 12 August 1949.

5. Bouvier's Law Dictionary, cited in University of Tulsa Law Professor R. Dobie Langenkamp, What Happens to the Oil: International Law and the Occupation of Iraq", January 2003,

6. John Innes, "US and UK Action in post-war Iraq May be Illegal," The Scotsman, May 22, 2003.