Wednesday, September 29, 2004

Baghdad Year Zero (part 2)

This is a long article and I'm posting it in two parts, but I think it is very important.

Baghdad Year Zero
Pillaging Iraq in pursuit of a neocon utopia.
Harper's Magazine
September, 2004
By Naomi Klein

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.”

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.”



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