Naomi Klein: “Pillaging Iraq in pursuit of a neocon utopia”


Richard Moore

From: Chris Thorman
Subject: Naomi Klein article on Iraq


Baghdad Year Zero

"Pillaging Iraq in pursuit of a neocon utopia" 

By Naomi Klein

Harper's Magazine, September 2004 -- It was only after I had
been in Baghdad for a month that I found what I was looking
for. I had traveled to Iraq a year after the war began, at the
height of what should have been a construction boom, but after
weeks of searching I had not seen a single piece of heavy
machinery apart from tanks and humvees. Then I saw it: a
construction crane. It was big and yellow and impressive, and
when I caught a glimpse of it around a corner in a busy
shopping district I thought that I was finally about to
witness some of the reconstruction 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. SUNBULA: 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 ... At 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

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 Pint) 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

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 re-established. 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 by 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 this 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

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 Š these terrorists are finding listening

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 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
decision, "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

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

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 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 reduced 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 those 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 the; 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 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 re-election 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." 

[Naomi Klein is the author of No Logo and writer/producer of
The Take, a new documentary on Argentina's occupied factories]

Copyright: Harper's Magazine


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