[Reader-list] naomi klein on iraq - year zero

[Vivek Narayanan]

Dear all,

For those who haven't read this yet-- the article below is long but really worth 
the read: an excellent fusion of economic and social analysis, a different way of
looking at the Iraq mess, a terrible parable of what happens when the free market 
dream were to be enacted in its purest form.  Some of the story you'll be familiar 
with but not all of it.

V.

http://harpers.org/BaghdadYearZero.html
Posted on Friday, September 24, 2004

             Harper's Magazine, September 2004

             Baghdad Year Zero
             Pillaging Iraq in pursuit of a neocon utopia

             By Naomi Klein.

It was only after I had been in Baghdad for a month that I found what I
was looking for. I had traveled to Iraq a year after the war began, at
the height of what should have been a construction boom, but after
weeks of searching I had not seen a single piece of heavy machinery
apart from tanks and humvees. Then I saw it: a construction crane. It
was big and yellow and impressive, and when I caught a glimpse of it
around a corner in a busy shopping district I thought that I was finally
about to witness some of the reconstruction I had heard so much
about. But as I got closer I noticed that the crane was not actually
rebuilding anything—not one of the bombed-out government buildings
that still lay in rubble all over the city, nor one of the many power lines
that remained in twisted heaps even as the heat of summer was
starting to bear down. No, the crane was hoisting a giant billboard to
the top of a three-story building. SUNBULAH: HONEY 100%
NATURAL, made in Saudi Arabia.

Seeing the sign, I couldn’t help but think about something Senator
John McCain had said back in October. Iraq, he said, is “a huge pot of
honey that’s attracting a lot of flies.” The flies McCain was referring to
were the Halliburtons and Bechtels, as well as the venture capitalists
who flocked to Iraq in the path cleared by Bradley Fighting Vehicles
and laser-guided bombs. The honey that drew them was not just no-
bid contracts and Iraq’s famed oil wealth but the myriad investment
opportunities offered by a country that had just been cracked wide
open after decades of being sealed off, first by the nationalist
economic policies of Saddam Hussein, then by asphyxiating United
Nations sanctions.

Looking at the honey billboard, I was also reminded of the most
common explanation for what has gone wrong in Iraq, a complaint
echoed by everyone from John Kerry to Pat Buchanan: Iraq is mired
in blood and deprivation because George W. Bush didn’t have “a
postwar plan.” The only problem with this theory is that it isn’t true.
The Bush Administration did have a plan for what it would do after the
war; put simply, it was to lay out as much honey as possible, then sit
back and wait for the flies.

* * *

The honey theory of Iraqi reconstruction stems from the most
cherished belief of the war’s ideological architects: that greed is good.
Not good just for them and their friends but good for humanity, and
certainly good for Iraqis. Greed creates profit, which creates growth,
which creates jobs and products and services and everything else
anyone could possibly need or want. The role of good government,
then, is to create the optimal conditions for corporations to pursue
their bottomless greed, so that they in turn can meet the needs of the
society. The problem is that governments, even neoconservative
governments, rarely get the chance to prove their sacred theory right:
despite their enormous ideological advances, even George Bush’s
Republicans are, in their own minds, perennially sabotaged by
meddling Democrats, intractable unions, and alarmist
environmentalists.

Iraq was going to change all that. In one place on Earth, the theory
would finally be put into practice in its most perfect and
uncompromised form. A country of 25 million would not be rebuilt as it
was before the war; it would be erased, disappeared. In its place
would spring forth a gleaming showroom for laissez-faire economics,
a utopia such as the world had never seen. Every policy that liberates
multinational corporations to pursue their quest for profit would be put
into place: a shrunken state, a flexible workforce, open borders,
minimal taxes, no tariffs, no ownership restrictions. The people of Iraq
would, of course, have to endure some short-term pain: assets,
previously owned by the state, would have to be given up to create
new opportunities for growth and investment. Jobs would have to be
lost and, as foreign products flooded across the border, local
businesses and family farms would, unfortunately, be unable to
compete. But to the authors of this plan, these would be small prices
to pay for the economic boom that would surely explode once the
proper conditions were in place, a boom so powerful the country
would practically rebuild itself.

The fact that the boom never came and Iraq continues to tremble
under explosions of a very different sort should never be blamed on
the absence of a plan. Rather, the blame rests with the plan itself, and
the extraordinarily violent ideology upon which it is based.

* * *

Torturers believe that when electrical shocks are applied to various
parts of the body simultaneously subjects are rendered so confused
about where the pain is coming from that they become incapable of
resistance. A declassified CIA “Counterintelligence Interrogation”
manual from 1963 describes how a trauma inflicted on prisoners
opens up “an interval—which may be extremely brief—of suspended
animation, a kind of psychological shock or paralysis. . . . [A]t this
moment the source is far more open to suggestion, far likelier to
comply.” A similar theory applies to economic shock therapy, or
“shock treatment,” the ugly term used to describe the rapid
implementation of free-market reforms imposed on Chile in the wake
of General Augusto Pinochet’s coup. The theory is that if painful
economic “adjustments” are brought in rapidly and in the aftermath of
a seismic social disruption like a war, a coup, or a government
collapse, the population will be so stunned, and so preoccupied with
the daily pressures of survival, that it too will go into suspended
animation, unable to resist. As Pinochet’s finance minister, Admiral
Lorenzo Gotuzzo, declared, “The dog’s tail must be cut off in one
chop.”

That, in essence, was the working thesis in Iraq, and in keeping with
the belief that private companies are more suited than governments
for virtually every task, the White House decided to privatize the task
of privatizing Iraq’s state-dominated economy. Two months before the
war began, USAID began drafting a work order, to be handed out to a
private company, to oversee Iraq’s “transition to a sustainable market-
driven economic system.” The document states that the winning
company (which turned out to be the KPMG offshoot Bearing Point)
will take “appropriate advantage of the unique opportunity for rapid
progress in this area presented by the current configuration of political
circumstances.” Which is precisely what happened.

L. Paul Bremer, who led the U.S. occupation of Iraq from May 2,
2003, until he caught an early flight out of Baghdad on June 28,
admits that when he arrived, “Baghdad was on fire, literally, as I drove
in from the airport.” But before the fires from the “shock and awe”
military onslaught were even extinguished, Bremer unleashed his
shock therapy, pushing through more wrenching changes in one
sweltering summer than the International Monetary Fund has
managed to enact over three decades in Latin America. Joseph
Stiglitz, Nobel laureate and former chief economist at the World Bank,
describes Bremer’s reforms as “an even more radical form of shock
therapy than pursued in the former Soviet world.”

The tone of Bremer’s tenure was set with his first major act on the job:
he fired 500,000 state workers, most of them soldiers, but also
doctors, nurses, teachers, publishers, and printers. Next, he flung
open the country’s borders to absolutely unrestricted imports: no
tariffs, no duties, no inspections, no taxes. Iraq, Bremer declared two
weeks after he arrived, was “open for business.”

One month later, Bremer unveiled the centerpiece of his reforms.
Before the invasion, Iraq’s non-oil-related economy had been
dominated by 200 state-owned companies, which produced
everything from cement to paper to washing machines. In June,
Bremer flew to an economic summit in Jordan and announced that
these firms would be privatized immediately. “Getting inefficient state
enterprises into private hands,” he said, “is essential for Iraq’s
economic recovery.” It would be the largest state liquidation sale since
the collapse of the Soviet Union.

But Bremer’s economic engineering had only just begun. In
September, to entice foreign investors to come to Iraq, he enacted a
radical set of laws unprecedented in their generosity to multinational
corporations. There was Order 37, which lowered Iraq’s corporate tax
rate from roughly 40 percent to a flat 15 percent. There was Order 39,
which allowed foreign companies to own 100 percent of Iraqi assets
outside of the natural-resource sector. Even better, investors could
take 100 percent of the profits they made in Iraq out of the country;
they would not be required to reinvest and they would not be taxed.
Under Order 39, they could sign leases and contracts that would last
for forty years. Order 40 welcomed foreign banks to Iraq under the
same favorable terms. All that remained of Saddam Hussein’s
economic policies was a law restricting trade unions and collective
bargaining.

If these policies sound familiar, it’s because they are the same ones
multinationals around the world lobby for from national governments
and in international trade agreements. But while these reforms are
only ever enacted in part, or in fits and starts, Bremer delivered them
all, all at once. Overnight, Iraq went from being the most isolated
country in the world to being, on paper, its widest-open market.

* * *

At first, the shock-therapy theory seemed to hold: Iraqis, reeling from
violence both military and economic, were far too busy staying alive to
mount a political response to Bremer’s campaign. Worrying about the
privatization of the sewage system was an unimaginable luxury with
half the population lacking access to clean drinking water; the debate
over the flat tax would have to wait until the lights were back on. Even
in the international press, Bremer’s new laws, though radical, were
easily upstaged by more dramatic news of political chaos and rising
crime.

Some people were paying attention, of course. That autumn was
awash in “rebuilding Iraq” trade shows, in Washington, London,
Madrid, and Amman. The Economist described Iraq under Bremer as
“a capitalist dream,” and a flurry of new consulting firms were
launched promising to help companies get access to the Iraqi market,
their boards of directors stacked with well-connected Republicans.
The most prominent was New Bridge Strategies, started by Joe
Allbaugh, former Bush-Cheney campaign manager. “Getting the rights
to distribute Procter & Gamble products can be a gold mine,” one of
the company’s partners enthused. “One well-stocked 7-Eleven could
knock out thirty Iraqi stores; a Wal-Mart could take over the country.”

Soon there were rumors that a McDonald’s would be opening up in
downtown Baghdad, funding was almost in place for a Starwood
luxury hotel, and General Motors was planning to build an auto plant.
On the financial side, HSBC would have branches all over the country,
Citigroup was preparing to offer substantial loans guaranteed against
future sales of Iraqi oil, and the bell was going to ring on a New York-
style stock exchange in Baghdad any day.

In only a few months, the postwar plan to turn Iraq into a laboratory for
the neocons had been realized. Leo Strauss may have provided the
intellectual framework for invading Iraq preemptively, but it was that
other University of Chicago professor, Milton Friedman, author of the
anti-government manifesto Capitalism and Freedom, who supplied
the manual for what to do once the country was safely in America’s
hands. This represented an enormous victory for the most ideological
wing of the Bush Administration. But it was also something more: the
culmination of two interlinked power struggles, one among Iraqi exiles
advising the White House on its postwar strategy, the other within the
White House itself.

* * *

As the British historian Dilip Hiro has shown, in Secrets and Lies:
Operation ‘Iraqi Freedom’ and After, the Iraqi exiles pushing for the
invasion were divided, broadly, into two camps. On one side were “the
pragmatists,” who favored getting rid of Saddam and his immediate
entourage, securing access to oil, and slowly introducing free-market
reforms. Many of these exiles were part of the State Department’s
Future of Iraq Project, which generated a thirteen-volume report on
how to restore basic services and transition to democracy after the
war. On the other side was the “Year Zero” camp, those who believed
that Iraq was so contaminated that it needed to be rubbed out and
remade from scratch. The prime advocate of the pragmatic approach
was Iyad Allawi, a former high-level Baathist who fell out with Saddam
and started working for the CIA. The prime advocate of the Year Zero
approach was Ahmad Chalabi, whose hatred of the Iraqi state for
expropriating his family’s assets during the 1958 revolution ran so
deep he longed to see the entire country burned to the
ground—everything, that is, but the Oil Ministry, which would be the
nucleus of the new Iraq, the cluster of cells from which an entire
nation would grow. He called this process “de-Baathification.”

A parallel battle between pragmatists and true believers was being
waged within the Bush Administration. The pragmatists were men like
Secretary of State Colin Powell and General Jay Garner, the first U.S.
envoy to postwar Iraq. General Garner’s plan was straightforward
enough: fix the infrastructure, hold quick and dirty elections, leave the
shock therapy to the International Monetary Fund, and concentrate on
securing U.S. military bases on the model of the Philippines. “I think
we should look right now at Iraq as our coaling station in the Middle
East,” he told the BBC. He also paraphrased T. E. Lawrence, saying,
“It’s better for them to do it imperfectly than for us to do it for them
perfectly.” On the other side was the usual cast of neoconservatives:
Vice President Dick Cheney, Secretary of Defense Donald Rumsfeld
(who lauded Bremer’s “sweeping reforms” as “some of the most
enlightened and inviting tax and investment laws in the free world”),
Deputy Secretary of Defense Paul Wolfowitz, and, perhaps most
centrally, Undersecretary of Defense Douglas Feith. Whereas the
State Department had its Future of Iraq report, the neocons had
USAID’s contract with Bearing Point to remake Iraq’s economy: in 108
pages, “privatization” was mentioned no fewer than fifty-one times. To
the true believers in the White House, General Garner’s plans for
postwar Iraq seemed hopelessly unambitious. Why settle for a mere
coaling station when you can have a model free market? Why settle
for the Philippines when you can have a beacon unto the world?

The Iraqi Year Zeroists made natural allies for the White House
neoconservatives: Chalabi’s seething hatred of the Baathist state fit
nicely with the neocons’ hatred of the state in general, and the two
agendas effortlessly merged. Together, they came to imagine the
invasion of Iraq as a kind of Rapture: where the rest of the world saw
death, they saw birth—a country redeemed through violence,
cleansed by fire. Iraq wasn’t being destroyed by cruise missiles,
cluster bombs, chaos, and looting; it was being born again. April 9,
2003, the day Baghdad fell, was Day One of Year Zero.

While the war was being waged, it still wasn’t clear whether the
pragmatists or the Year Zeroists would be handed control over
occupied Iraq. But the speed with which the nation was conquered
dramatically increased the neocons’ political capital, since they had
been predicting a “cakewalk” all along. Eight days after George Bush
landed on that aircraft carrier under a banner that said MISSION
ACCOMPLISHED, the President publicly signed on to the neocons’
vision for Iraq to become a model corporate state that would open up
the entire region. On May 9, Bush proposed the “establishment of a
U.S.-Middle East free trade area within a decade”; three days later,
Bush sent Paul Bremer to Baghdad to replace Jay Garner, who had
been on the job for only three weeks. The message was unequivocal:
the pragmatists had lost; Iraq would belong to the believers.

A Reagan-era diplomat turned entrepreneur, Bremer had recently
proven his ability to transform rubble into gold by waiting exactly one
month after the September 11 attacks to launch Crisis Consulting
Practice, a security company selling “terrorism risk insurance” to
multinationals. Bremer had two lieutenants on the economic front:
Thomas Foley and Michael Fleischer, the heads of “private sector
development” for the Coalition Provisional Authority (CPA). Foley is a
Greenwich, Connecticut, multimillionaire, a longtime friend of the
Bush family and a Bush-Cheney campaign “pioneer” who has
described Iraq as a modern California “gold rush.” Fleischer, a
venture capitalist, is the brother of former White House spokesman
Ari Fleischer. Neither man had any high-level diplomatic experience
and both use the term corporate “turnaround” specialist to describe
what they do. According to Foley, this uniquely qualified them to
manage Iraq’s economy because it was “the mother of all
turnarounds.”

Many of the other CPA postings were equally ideological. The Green
Zone, the city within a city that houses the occupation headquarters in
Saddam’s former palace, was filled with Young Republicans straight
out of the Heritage Foundation, all of them given responsibility they
could never have dreamed of receiving at home. Jay Hallen, a twenty-
four-year-old who had applied for a job at the White House, was put in
charge of launching Baghdad’s new stock exchange. Scott Erwin, a
twenty-one-year-old former intern to Dick Cheney, reported in an
email home that “I am assisting Iraqis in the management of finances
and budgeting for the domestic security forces.” The college senior’s
favorite job before this one? “My time as an ice-cream truck driver.” In
those early days, the Green Zone felt a bit like the Peace Corps, for
people who think the Peace Corps is a communist plot. It was a
chance to sleep on cots, wear army boots, and cry “incoming”—all
while being guarded around the clock by real soldiers.

The teams of KPMG accountants, investment bankers, think-tank
lifers, and Young Republicans that populate the Green Zone have
much in common with the IMF missions that rearrange the economies
of developing countries from the presidential suites of Sheraton hotels
the world over. Except for one rather significant difference: in Iraq they
were not negotiating with the government to accept their “structural
adjustments” in exchange for a loan; they were the government.

Some small steps were taken, however, to bring Iraq’s U.S.-appointed
politicians inside. Yegor Gaidar, the mastermind of Russia’s mid-
nineties privatization auction that gave away the country’s assets to
the reigning oligarchs, was invited to share his wisdom at a
conference in Baghdad. Marek Belka, who as finance minister
oversaw the same process in Poland, was brought in as well. The
Iraqis who proved most gifted at mouthing the neocon lines were
selected to act as what USAID calls local “policy champions”—men
like Ahmad al Mukhtar, who told me of his countrymen, “They are
lazy. The Iraqis by nature, they are very dependent. . . . They will have
to depend on themselves, it is the only way to survive in the world
today.” Although he has no economics background and his last job
was reading the English-language news on television, al Mukhtar was
appointed director of foreign relations in the Ministry of Trade and is
leading the charge for Iraq to join the World Trade Organization.

* * *

I had been following the economic front of the war for almost a year
before I decided to go to Iraq. I attended the “Rebuilding Iraq” trade
shows, studied Bremer’s tax and investment laws, met with
contractors at their home offices in the United States, interviewed the
government officials in Washington who are making the policies. But
as I prepared to travel to Iraq in March to see this experiment in free-
market utopianism up close, it was becoming increasingly clear that
all was not going according to plan. Bremer had been working on the
theory that if you build a corporate utopia the corporations will
come—but where were they? American multinationals were happy to
accept U.S. taxpayer dollars to reconstruct the phone or electricity
systems, but they weren’t sinking their own money into Iraq. There
was, as yet, no McDonald’s or Wal-Mart in Baghdad, and even the
sales of state factories, announced so confidently nine months earlier,
had not materialized.

Some of the holdup had to do with the physical risks of doing
business in Iraq. But there were other more significant risks as well.
When Paul Bremer shredded Iraq’s Baathist constitution and replaced
it with what The Economist greeted approvingly as “the wish list of
foreign investors,” there was one small detail he failed to mention: It
was all completely illegal. The CPA derived its legal authority from
United Nations Security Council Resolution 1483, passed in May
2003, which recognized the United States and Britain as Iraq’s
legitimate occupiers. It was this resolution that empowered Bremer to
unilaterally make laws in Iraq. But the resolution also stated that the
U.S. and Britain must “comply fully with their obligations under
international law including in particular the Geneva Conventions of
1949 and the Hague Regulations of 1907.” Both conventions were
born as an attempt to curtail the unfortunate historical tendency
among occupying powers to rewrite the rules so that they can
economically strip the nations they control. With this in mind, the
conventions stipulate that an occupier must abide by a country’s
existing laws unless “absolutely prevented” from doing so. They also
state that an occupier does not own the “public buildings, real estate,
forests and agricultural assets” of the country it is occupying but is
rather their “administrator” and custodian, keeping them secure until
sovereignty is reestablished. This was the true threat to the Year Zero
plan: since America didn’t own Iraq’s assets, it could not legally sell
them, which meant that after the occupation ended, an Iraqi
government could come to power and decide that it wanted to keep
the state companies in public hands, or, as is the norm in the Gulf
region, to bar foreign firms from owning 100 percent of national
assets. If that happened, investments made under Bremer’s rules
could be expropriated, leaving firms with no recourse because their
investments had violated international law from the outset.

By November, trade lawyers started to advise their corporate clients
not to go into Iraq just yet, that it would be better to wait until after the
transition. Insurance companies were so spooked that not a single
one of the big firms would insure investors for “political risk,” that high-
stakes area of insurance law that protects companies against foreign
governments turning nationalist or socialist and expropriating their
investments.

Even the U.S.-appointed Iraqi politicians, up to now so obedient, were
getting nervous about their own political futures if they went along with
the privatization plans. Communications Minister Haider al-Abadi told
me about his first meeting with Bremer. “I said, ‘Look, we don’t have
the mandate to sell any of this. Privatization is a big thing. We have to
wait until there is an Iraqi government.’” Minister of Industry Mohamad
Tofiq was even more direct: “I am not going to do something that is
not legal, so that’s it.”

Both al-Abadi and Tofiq told me about a meeting—never reported in
the press—that took place in late October 2003. At that gathering the
twenty-five members of Iraq’s Governing Council as well as the
twenty-five interim ministers decided unanimously that they would not
participate in the privatization of Iraq’s state-owned companies or of
its publicly owned infrastructure.

But Bremer didn’t give up. International law prohibits occupiers from
selling state assets themselves, but it doesn’t say anything about the
puppet governments they appoint. Originally, Bremer had pledged to
hand over power to a directly elected Iraqi government, but in early
November he went to Washington for a private meeting with President
Bush and came back with a Plan B. On June 30 the occupation would
officially end—but not really. It would be replaced by an appointed
government, chosen by Washington. This government would not be
bound by the international laws preventing occupiers from selling off
state assets, but it would be bound by an “interim constitution,” a
document that would protect Bremer’s investment and privatization
laws.

The plan was risky. Bremer’s June 30 deadline was awfully close, and
it was chosen for a less than ideal reason: so that President Bush
could trumpet the end of Iraq’s occupation on the campaign trail. If
everything went according to plan, Bremer would succeed in forcing a
“sovereign” Iraqi government to carry out his illegal reforms. But if
something went wrong, he would have to go ahead with the June 30
handover anyway because by then Karl Rove, and not Dick Cheney or
Donald Rumsfeld, would be calling the shots. And if it came down to a
choice between ideology in Iraq and the electability of George W.
Bush, everyone knew which would win.

* * *

At first, Plan B seemed to be right on track. Bremer persuaded the
Iraqi Governing Council to agree to everything: the new timetable, the
interim government, and the interim constitution. He even managed to
slip into the constitution a completely overlooked clause, Article 26. It
stated that for the duration of the interim government, “The laws,
regulations, orders and directives issued by the Coalition Provisional
Authority . . . shall remain in force” and could only be changed after
general elections are held.

Bremer had found his legal loophole: There would be a
window—seven months—when the occupation was officially over but
before general elections were scheduled to take place. Within this
window, the Hague and Geneva Conventions’ bans on privatization
would no longer apply, but Bremer’s own laws, thanks to Article 26,
would stand. During these seven months, foreign investors could
come to Iraq and sign forty-year contracts to buy up Iraqi assets. If a
future elected Iraqi government decided to change the rules, investors
could sue for compensation.

But Bremer had a formidable opponent: Grand Ayatollah Ali al Sistani,
the most senior Shia cleric in Iraq. al Sistani tried to block Bremer’s
plan at every turn, calling for immediate direct elections and for the
constitution to be written after those elections, not before. Both
demands, if met, would have closed Bremer’s privatization window.
Then, on March 2, with the Shia members of the Governing Council
refusing to sign the interim constitution, five bombs exploded in front
of mosques in Karbala and Baghdad, killing close to 200 worshipers.
General John Abizaid, the top U.S. commander in Iraq, warned that
the country was on the verge of civil war. Frightened by this prospect,
al Sistani backed down and the Shia politicians signed the interim
constitution. It was a familiar story: the shock of a violent attack paved
the way for more shock therapy.

When I arrived in Iraq a week later, the economic project seemed to
be back on track. All that remained for Bremer was to get his interim
constitution ratified by a Security Council resolution, then the nervous
lawyers and insurance brokers could relax and the sell-off of Iraq
could finally begin. The CPA, meanwhile, had launched a major new
P.R. offensive designed to reassure investors that Iraq was still a safe
and exciting place to do business. The centerpiece of the campaign
was Destination Baghdad Exposition, a massive trade show for
potential investors to be held in early April at the Baghdad
International Fairgrounds. It was the first such event inside Iraq, and
the organizers had branded the trade fair “DBX,” as if it were some
sort of Mountain Dew-sponsored dirt-bike race. In keeping with the
extreme-sports theme, Thomas Foley traveled to Washington to tell a
gathering of executives that the risks in Iraq are akin “to skydiving or
riding a motorcycle, which are, to many, very acceptable risks.”

But three hours after my arrival in Baghdad, I was finding these
reassurances extremely hard to believe. I had not yet unpacked when
my hotel room was filled with debris and the windows in the lobby
were shattered. Down the street, the Mount Lebanon Hotel had just
been bombed, at that point the largest attack of its kind since the
official end of the war. The next day, another hotel was bombed in
Basra, then two Finnish businessmen were murdered on their way to
a meeting in Baghdad. Brigadier General Mark Kimmitt finally
admitted that there was a pattern at work: “the extremists have started
shifting away from the hard targets . . . [and] are now going out of their
way to specifically target softer targets.” The next day, the State
Department updated its travel advisory: U.S. citizens were “strongly
warned against travel to Iraq.”

The physical risks of doing business in Iraq seemed to be spiraling
out of control. This, once again, was not part of the original plan.
When Bremer first arrived in Baghdad, the armed resistance was so
low that he was able to walk the streets with a minimal security
entourage. During his first four months on the job, 109 U.S. soldiers
were killed and 570 were wounded. In the following four months, when
Bremer’s shock therapy had taken effect, the number of U.S.
casualties almost doubled, with 195 soldiers killed and 1,633
wounded. There are many in Iraq who argue that these events are
connected—that Bremer’s reforms were the single largest factor
leading to the rise of armed resistance.

Take, for instance, Bremer’s first casualties. The soldiers and workers
he laid off without pensions or severance pay didn’t all disappear
quietly. Many of them went straight into the mujahedeen, forming the
backbone of the armed resistance. “Half a million people are now
worse off, and there you have the water tap that keeps the insurgency
going. It’s alternative employment,” says Hussain Kubba, head of the
prominent Iraqi business group Kubba Consulting. Some of Bremer’s
other economic casualties also have failed to go quietly. It turns out
that many of the businessmen whose companies are threatened by
Bremer’s investment laws have decided to make investments of their
own—in the resistance. It is partly their money that keeps fighters in
Kalashnikovs and RPGs.

These developments present a challenge to the basic logic of shock
therapy: the neocons were convinced that if they brought in their
reforms quickly and ruthlessly, Iraqis would be too stunned to resist.
But the shock appears to have had the opposite effect; rather than the
predicted paralysis, it jolted many Iraqis into action, much of it
extreme. Haider al-Abadi, Iraq’s minister of communication, puts it
this way: “We know that there are terrorists in the country, but
previously they were not successful, they were isolated. Now because
the whole country is unhappy, and a lot of people don’t have jobs . . .
these terrorists are finding listening ears.”

Bremer was now at odds not only with the Iraqis who opposed his
plans but with U.S military commanders charged with putting down
the insurgency his policies were feeding. Heretical questions began to
be raised: instead of laying people off, what if the CPA actually
created jobs for Iraqis? And instead of rushing to sell off Iraq’s 200
state-owned firms, how about putting them back to work?

* * *

>From the start, the neocons running Iraq had shown nothing but
disdain for Iraq’s state-owned companies. In keeping with their Year
Zero-apocalyptic glee, when looters descended on the factories
during the war, U.S. forces did nothing. Sabah Asaad, managing
director of a refrigerator factory outside Baghdad, told me that while
the looting was going on, he went to a nearby U.S. Army base and
begged for help. “I asked one of the officers to send two soldiers and
a vehicle to help me kick out the looters. I was crying. The officer said,
‘Sorry, we can’t do anything, we need an order from President Bush.’”
Back in Washington, Donald Rumsfeld shrugged. “Free people are
free to make mistakes and commit crimes and do bad things.”

To see the remains of Asaad’s football-field-size warehouse is to
understand why Frank Gehry had an artistic crisis after September 11
and was briefly unable to design structures resembling the rubble of
modern buildings. Asaad’s looted and burned factory looks
remarkably like a heavy-metal version of Gehry’s Guggenheim in
Bilbao, Spain, with waves of steel, buckled by fire, lying in terrifyingly
beautiful golden heaps. Yet all was not lost. “The looters were good-
hearted,” one of Asaad’s painters told me, explaining that they left the
tools and machines behind, “so we could work again.” Because the
machines are still there, many factory managers in Iraq say that it
would take little for them to return to full production. They need
emergency generators to cope with daily blackouts, and they need
capital for parts and raw materials. If that happened, it would have
tremendous implications for Iraq’s stalled reconstruction, because it
would mean that many of the key materials needed to
rebuild—cement and steel, bricks and furniture—could be produced
inside the country.

But it hasn’t happened. Immediately after the nominal end of the war,
Congress appropriated $2.5 billion for the reconstruction of Iraq,
followed by an additional $18.4 billion in October. Yet as of July 2004,
Iraq’s state-owned factories had been pointedly excluded from the
reconstruction contracts. Instead, the billions have all gone to
Western companies, with most of the materials for the reconstruction
imported at great expense from abroad.

With unemployment as high as 67 percent, the imported products and
foreign workers flooding across the borders have become a source of
tremendous resentment in Iraq and yet another open tap fueling the
insurgency. And Iraqis don’t have to look far for reminders of this
injustice; it’s on display in the most ubiquitous symbol of the
occupation: the blast wall. The ten-foot-high slabs of reinforced
concrete are everywhere in Iraq, separating the protected—the people
in upscale hotels, luxury homes, military bases, and, of course, the
Green Zone—from the unprotected and exposed. If that wasn’t injury
enough, all the blast walls are imported, from Kurdistan, Turkey, or
even farther afield, this despite the fact that Iraq was once a major
manufacturer of cement, and could easily be again. There are
seventeen state-owned cement factories across the country, but most
are idle or working at only half capacity. According to the Ministry of
Industry, not one of these factories has received a single contract to
help with the reconstruction, even though they could produce the walls
and meet other needs for cement at a greatly reduced cost. The CPA
pays up to $1,000 per imported blast wall; local manufacturers say
they could make them for $100. Minister Tofiq says there is a simple
reason why the Americans refuse to help get Iraq’s cement factories
running again: among those making the decisions, “no one believes in
the public sector.”[1]

This kind of ideological blindness has turned Iraq’s occupiers into
prisoners of their own policies, hiding behind walls that, by their very
existence, fuel the rage at the U.S. presence, thereby feeding the
need for more walls. In Baghdad the concrete barriers have been
given a popular nickname: Bremer Walls.

As the insurgency grew, it soon became clear that if Bremer went
ahead with his plans to sell off the state companies, it could worsen
the violence. There was no question that privatization would require
layoffs: the Ministry of Industry estimates that roughly 145,000
workers would have to be fired to make the firms desirable to
investors, with each of those workers supporting, on average, five
family members. For Iraq’s besieged occupiers the question was:
Would these shock-therapy casualties accept their fate or would they
rebel?

* * *

The answer arrived, in rather dramatic fashion, at one of the largest
state-owned companies, the General Company for Vegetable Oils.
The complex of six factories in a Baghdad industrial zone produces
cooking oil, hand soap, laundry detergent, shaving cream, and
shampoo. At least that is what I was told by a receptionist who gave
me glossy brochures and calendars boasting of “modern instruments”
and “the latest and most up to date developments in the field of
industry.” But when I approached the soap factory, I discovered a
group of workers sleeping outside a darkened building. Our guide
rushed ahead, shouting something to a woman in a white lab coat,
and suddenly the factory scrambled into activity: lights switched on,
motors revved up, and workers—still blinking off sleep—began filling
two-liter plastic bottles with pale blue Zahi brand dishwashing liquid.

I asked Nada Ahmed, the woman in the white coat, why the factory
wasn’t working a few minutes before. She explained that they have
only enough electricity and materials to run the machines for a couple
of hours a day, but when guests arrive—would-be investors, ministry
officials, journalists—they get them going. “For show,” she explained.
Behind us, a dozen bulky machines sat idle, covered in sheets of
dusty plastic and secured with duct tape.

In one dark corner of the plant, we came across an old man hunched
over a sack filled with white plastic caps. With a thin metal blade
lodged in a wedge of wax, he carefully whittled down the edges of
each cap, leaving a pile of shavings at his feet. “We don’t have the
spare part for the proper mold, so we have to cut them by hand,” his
supervisor explained apologetically. “We haven’t received any parts
from Germany since the sanctions began.” I noticed that even on the
assembly lines that were nominally working there was almost no
mechanization: bottles were held under spouts by hand because
conveyor belts don’t convey, lids once snapped on by machines were
being hammered in place with wooden mallets. Even the water for the
factory was drawn from an outdoor well, hoisted by hand, and carried
inside.

The solution proposed by the U.S. occupiers was not to fix the plant
but to sell it, and so when Bremer announced the privatization auction
back in June 2003 this was among the first companies mentioned. Yet
when I visited the factory in March, nobody wanted to talk about the
privatization plan; the mere mention of the word inside the plant
inspired awkward silences and meaningful glances. This seemed an
unnatural amount of subtext for a soap factory, and I tried to get to the
bottom of it when I interviewed the assistant manager. But the
interview itself was equally odd: I had spent half a week setting it up,
submitting written questions for approval, getting a signed letter of
permission from the minister of industry, being questioned and
searched several times. But when I finally began the interview, the
assistant manager refused to tell me his name or let me record the
conversation. “Any manager mentioned in the press is attacked
afterwards,” he said. And when I asked whether the company was
being sold, he gave this oblique response: “If the decision was up to
the workers, they are against privatization; but if it’s up to the high-
ranking officials and government, then privatization is an order and
orders must be followed.”

I left the plant feeling that I knew less than when I’d arrived. But on the
way out of the gates, a young security guard handed my translator a
note. He wanted us to meet him after work at a nearby restaurant, “to
find out what is really going on with privatization.” His name was
Mahmud, and he was a twenty-five-year-old with a neat beard and big
black eyes. (For his safety, I have omitted his last name.) His story
began in July, a few weeks after Bremer’s privatization
announcement. The company’s manager, on his way to work, was
shot to death. Press reports speculated that the manager was
murdered because he was in favor of privatizing the plant, but
Mahmud was convinced that he was killed because he opposed the
plan. “He would never have sold the factories like the Americans
want. That’s why they killed him.”

The dead man was replaced by a new manager, Mudhfar Ja’far.
Shortly after taking over, Ja’far called a meeting with ministry officials
to discuss selling off the soap factory, which would involve laying off
two thirds of its employees. Guarding that meeting were several
security officers from the plant. They listened closely to Ja’far’s plans
and promptly reported the alarming news to their coworkers. “We
were shocked,” Mahmud recalled. “If the private sector buys our
company, the first thing they would do is reduce the staff to make
more money. And we will be forced into a very hard destiny, because
the factory is our only way of living.”

Frightened by this prospect, a group of seventeen workers, including
Mahmud, marched into Ja’far’s office to confront him on what they
had heard. “Unfortunately, he wasn’t there, only the assistant
manager, the one you met,” Mahmud told me. A fight broke out: one
worker struck the assistant manager, and a bodyguard fired three
shots at the workers. The crowd then attacked the bodyguard, took
his gun, and, Mahmud said, “stabbed him with a knife in the back
three times. He spent a month in the hospital.” In January there was
even more violence. On their way to work, Ja’far, the manager, and
his son were shot and badly injured. Mahmud told me he had no idea
who was behind the attack, but I was starting to understand why
factory managers in Iraq try to keep a low profile.

At the end of our meeting, I asked Mahmud what would happen if the
plant was sold despite the workers’ objections. “There are two
choices,” he said, looking me in the eye and smiling kindly. “Either we
will set the factory on fire and let the flames devour it to the ground, or
we will blow ourselves up inside of it. But it will not be privatized.”

If there ever was a moment when Iraqis were too disoriented to resist
shock therapy, that moment has definitely passed. Labor relations,
like everything else in Iraq, has become a blood sport. The violence
on the streets howls at the gates of the factories, threatening to engulf
them. Workers fear job loss as a death sentence, and managers, in
turn, fear their workers, a fact that makes privatization distinctly more
complicated than the neocons foresaw.[2]

* * *

As I left the meeting with Mahmud, I got word that there was a major
demonstration outside the CPA headquarters. Supporters of the
radical young cleric Moqtada al Sadr were protesting the closing of
their newspaper, al Hawza, by military police. The CPA accused al
Hawza of publishing “false articles” that could “pose the real threat of
violence.” As an example, it cited an article that claimed Bremer “is
pursuing a policy of starving the Iraqi people to make them
preoccupied with procuring their daily bread so they do not have the
chance to demand their political and individual freedoms.” To me it
sounded less like hate literature than a concise summary of Milton
Friedman’s recipe for shock therapy.

A few days before the newspaper was shut down, I had gone to Kufa
during Friday prayers to listen to al Sadr at his mosque. He had
launched into a tirade against Bremer’s newly signed interim
constitution, calling it “an unjust, terrorist document.” The message of
the sermon was clear: Grand Ayatollah Ali al Sistani may have backed
down on the constitution, but al Sadr and his supporters were still
determined to fight it—and if they succeeded they would sabotage the
neocons’ careful plan to saddle Iraq’s next government with their
“wish list” of laws. With the closing of the newspaper, Bremer was
giving al Sadr his response: he wasn’t negotiating with this young
upstart; he’d rather take him out with force.

When I arrived at the demonstration, the streets were filled with men
dressed in black, the soon-to-be legendary Mahdi Army. It struck me
that if Mahmud lost his security guard job at the soap factory, he could
be one of them. That’s who al Sadr’s foot soldiers are: the young men
who have been shut out of the neocons’ grand plans for Iraq, who see
no possibilities for work, and whose neighborhoods have seen none
of the promised reconstruction. Bremer has failed these young men,
and everywhere that he has failed, Moqtada al Sadr has cannily set
out to succeed. In Shia slums from Baghdad to Basra, a network of
Sadr Centers coordinate a kind of shadow reconstruction. Funded
through donations, the centers dispatch electricians to fix power and
phone lines, organize local garbage collection, set up emergency
generators, run blood drives, direct traffic where the streetlights don’t
work. And yes, they organize militias too. Al Sadr took Bremer’s
economic casualties, dressed them in black, and gave them rusty
Kalashnikovs. His militiamen protected the mosques and the state
factories when the occupation authorities did not, but in some areas
they also went further, zealously enforcing Islamic law by torching
liquor stores and terrorizing women without the veil. Indeed, the
astronomical rise of the brand of religious fundamentalism that al Sadr
represents is another kind of blowback from Bremer’s shock therapy:
if the reconstruction had provided jobs, security, and services to
Iraqis, al Sadr would have been deprived of both his mission and
many of his newfound followers.

At the same time as al Sadr’s followers were shouting “Down with
America” outside the Green Zone, something was happening in
another part of the country that would change everything. Four
American mercenary soldiers were killed in Fallujah, their charred and
dismembered bodies hung like trophies over the Euphrates. The
attacks would prove a devastating blow for the neocons, one from
which they would never recover. With these images, investing in Iraq
suddenly didn’t look anything like a capitalist dream; it looked like a
macabre nightmare made real.

The day I left Baghdad was the worst yet. Fallujah was under siege
and Brig. Gen. Kimmitt was threatening to “destroy the al-Mahdi
Army.” By the end, roughly 2,000 Iraqis were killed in these twin
campaigns. I was dropped off at a security checkpoint several miles
from the airport, then loaded onto a bus jammed with contractors
lugging hastily packed bags. Although no one was calling it one, this
was an evacuation: over the next week 1,500 contractors left Iraq, and
some governments began airlifting their citizens out of the country. On
the bus no one spoke; we all just listened to the mortar fire, craning
our necks to see the red glow. A guy carrying a KPMG briefcase
decided to lighten things up. “So is there business class on this
flight?” he asked the silent bus. From the back, somebody called out,
“Not yet.”

Indeed, it may be quite a while before business class truly arrives in
Iraq. When we landed in Amman, we learned that we had gotten out
just in time. That morning three Japanese civilians were kidnapped
and their captors were threatening to burn them alive. Two days later
Nicholas Berg went missing and was not seen again until the snuff
film surfaced of his beheading, an even more terrifying message for
U.S. contractors than the charred bodies in Fallujah. These were the
start of a wave of kidnappings and killings of foreigners, most of them
businesspeople, from a rainbow of nations: South Korea, Italy, China,
Nepal, Pakistan, the Philippines, Turkey. By the end of June more
than ninety contractors were reported dead in Iraq. When seven
Turkish contractors were kidnapped in June, their captors asked the
“company to cancel all contracts and pull out employees from Iraq.”
Many insurance companies stopped selling life insurance to
contractors, and others began to charge premiums as high as
$10,000 a week for a single Western executive—the same price
some insurgents reportedly pay for a dead American.

For their part, the organizers of DBX, the historic Baghdad trade fair,
decided to relocate to the lovely tourist city of Diyarbakir in Turkey,
“just 250 km from the Iraqi border.” An Iraqi landscape, only without
those frightening Iraqis. Three weeks later just fifteen people showed
up for a Commerce Department conference in Lansing, Michigan, on
investing in Iraq. Its host, Republican Congressman Mike Rogers,
tried to reassure his skeptical audience by saying that Iraq is “like a
rough neighborhood anywhere in America.” The foreign investors, the
ones who were offered every imaginable free-market enticement, are
clearly not convinced; there is still no sign of them. Keith Crane, a
senior economist at the Rand Corporation who has worked for the
CPA, put it bluntly: “I don’t believe the board of a multinational
company could approve a major investment in this environment. If
people are shooting at each other, it’s just difficult to do business.”
Hamid Jassim Khamis, the manager of the largest soft-drink bottling
plant in the region, told me he can’t find any investors, even though he
landed the exclusive rights to produce Pepsi in central Iraq. “A lot of
people have approached us to invest in the factory, but people are
really hesitating now.” Khamis said he couldn’t blame them; in five
months he has survived an attempted assassination, a carjacking, two
bombs planted at the entrance of his factory, and the kidnapping of
his son.

Despite having been granted the first license for a foreign bank to
operate in Iraq in forty years, HSBC still hasn’t opened any branches,
a decision that may mean losing the coveted license altogether.
Procter & Gamble has put its joint venture on hold, and so has
General Motors. The U.S. financial backers of the Starwood luxury
hotel and multiplex have gotten cold feet, and Siemens AG has pulled
most staff from Iraq. The bell hasn’t rung yet at the Baghdad Stock
Exchange—in fact you can’t even use credit cards in Iraq’s cash-only
economy. New Bridge Strategies, the company that had gushed back
in October about how “a Wal-Mart could take over the country,” is
sounding distinctly humbled. “McDonald’s is not opening anytime
soon,” company partner Ed Rogers told the Washington Post. Neither
is Wal-Mart. The Financial Times has declared Iraq “the most
dangerous place in the world in which to do business.” It’s quite an
accomplishment: in trying to design the best place in the world to do
business, the neocons have managed to create the worst, the most
eloquent indictment yet of the guiding logic behind deregulated free
markets.

The violence has not just kept investors out; it also forced Bremer,
before he left, to abandon many of his central economic policies.
Privatization of the state companies is off the table; instead, several of
the state companies have been offered up for lease, but only if the
investor agrees not to lay off a single employee. Thousands of the
state workers that Bremer fired have been rehired, and significant
raises have been handed out in the public sector as a whole. Plans to
do away with the food-ration program have also been scrapped—it
just doesn’t seem like a good time to deny millions of Iraqis the only
nutrition on which they can depend.

* * *

The final blow to the neocon dream came in the weeks before the
handover. The White House and the CPA were rushing to get the
U.N. Security Council to pass a resolution endorsing their handover
plan. They had twisted arms to give the top job to former CIA agent
Iyad Allawi, a move that will ensure that Iraq becomes, at the very
least, the coaling station for U.S. troops that Jay Garner originally
envisioned. But if major corporate investors were going to come to
Iraq in the future, they would need a stronger guarantee that Bremer’s
economic laws would stick. There was only one way of doing that: the
Security Council resolution had to ratify the interim constitution, which
locked in Bremer’s laws for the duration of the interim government.
But al Sistani once again objected, this time unequivocally, saying that
the constitution has been “rejected by the majority of the Iraqi people.”
On June 8 the Security Council unanimously passed a resolution that
endorsed the handover plan but made absolutely no reference to the
constitution. In the face of this far-reaching defeat, George W. Bush
celebrated the resolution as a historic victory, one that came just in
time for an election trail photo op at the G-8 Summit in Georgia.

With Bremer’s laws in limbo, Iraqi ministers are already talking openly
about breaking contracts signed by the CPA. Citigroup’s loan scheme
has been rejected as a misuse of Iraq’s oil revenues. Iraq’s
communication minister is threatening to renegotiate contracts with
the three communications firms providing the country with its
disastrously poor cell phone service. And the Lebanese and U.S.
companies hired to run the state television network have been
informed that they could lose their licenses because they are not Iraqi.
“We will see if we can change the contract,” Hamid al-Kifaey,
spokesperson for the Governing Council, said in May. “They have no
idea about Iraq.” For most investors, this complete lack of legal
certainty simply makes Iraq too great a risk.

But while the Iraqi resistance has managed to scare off the first wave
of corporate raiders, there’s little doubt that they will return. Whatever
form the next Iraqi government takes—nationalist, Islamist, or free
market—it will inherit a shattered nation with a crushing $120 billion
debt. Then, as in all poor countries around the world, men in dark blue
suits from the IMF will appear at the door, bearing loans and promises
of economic boom, provided that certain structural adjustments are
made, which will, of course, be rather painful at first but well worth the
sacrifice in the end. In fact, the process has already begun: the IMF is
poised to approve loans worth $2.5- $4.25 billion, pending agreement
on the conditions. After an endless succession of courageous last
stands and far too many lost lives, Iraq will become a poor nation like
any other, with politicians determined to introduce policies rejected by
the vast majority of the population, and all the imperfect compromises
that will entail. The free market will no doubt come to Iraq, but the
neoconservative dream of transforming the country into a free-market
utopia has already died, a casualty of a greater dream—a second
term for George W. Bush.

The great historical irony of the catastrophe unfolding in Iraq is that
the shock-therapy reforms that were supposed to create an economic
boom that would rebuild the country have instead fueled a resistance
that ultimately made reconstruction impossible. Bremer’s reforms
unleashed forces that the neocons neither predicted nor could hope to
control, from armed insurrections inside factories to tens of thousands
of unemployed young men arming themselves. These forces have
transformed Year Zero in Iraq into the mirror opposite of what the
neocons envisioned: not a corporate utopia but a ghoulish dystopia,
where going to a simple business meeting can get you lynched,
burned alive, or beheaded. These dangers are so great that in Iraq
global capitalism has retreated, at least for now. For the neocons, this
must be a shocking development: their ideological belief in greed
turns out to be stronger than greed itself.

Iraq was to the neocons what Afghanistan was to the Taliban: the one
place on Earth where they could force everyone to live by the most
literal, unyielding interpretation of their sacred texts. One would think
that the bloody results of this experiment would inspire a crisis of faith:
in the country where they had absolute free reign, where there was no
local government to blame, where economic reforms were introduced
at their most shocking and most perfect, they created, instead of a
model free market, a failed state no right-thinking investor would
touch. And yet the Green Zone neocons and their masters in
Washington are no more likely to reexamine their core beliefs than the
Taliban mullahs were inclined to search their souls when their Islamic
state slid into a debauched Hades of opium and sex slavery. When
facts threaten true believers, they simply close their eyes and pray
harder.

Which is precisely what Thomas Foley has been doing. The former
head of “private sector development” has left Iraq, a country he had
described as “the mother of all turnarounds,” and has accepted
another turnaround job, as co-chair of George Bush’s reelection
committee in Connecticut. On April 30 in Washington he addressed a
crowd of entrepreneurs about business prospects in Baghdad. It was
a tough day to be giving an upbeat speech: that morning the first
photographs had appeared out of Abu Ghraib, including one of a
hooded prisoner with electrical wires attached to his hands. This was
another kind of shock therapy, far more literal than the one Foley had
helped to administer, but not entirely unconnected. “Whatever you’re
seeing, it’s not as bad as it appears,” Foley told the crowd. “You just
need to accept that on faith.”

-----------------

About the Author

Naomi Klein is the author of No Logo and writer/producer of The
Take, a new documentary on Argentina’s occupied factories.
http://www.nfb.ca/thetake/

--------------------

Notes

1. Tofiq did say that several U.S. companies had expressed strong
interest in buying the state-owned cement factories. This supports a
widely held belief in Iraq that there is a deliberate strategy to neglect
the state firms so that they can be sold more cheaply--a practice
known as "starve then sell." [Back]

2. It is in Basra where the connections between economic reforms
and the rise of the resistance was put in starkest terms. In December
the union representing oil workers was negotiating with the Oil
Ministry for a salary increase. Getting nowhere, the workers offered
the ministry a simple choice: increase their paltry salaries or they
would all join the armed resistance. They received a substantial raise.