Fire Sale Earth
by Greg Guma
Toward Freedom magazine, August 2000
At first glance, arguments for privatization of public enterprises
and services look reasonable enough. Since they have to compete,
private companies supposedly deliver better and cheaper results.
In many countries, government is too large and inefficient anyway,
cheerleaders for globalized free enterprise endlessly charge.
States are involved in industries and services that they have
neither the time nor the resources to manage well. To make matters
worse, government-run projects too often breed corruption and
squander public funds.
In contrast, argues editor Wade Hudson in Privatization 2000,
the 14th annual report from the Reason Public Policy Institute,
privatization "offers not only the traditional cost savings,
but also access to skilled workers and the ability to keep pace
with 'Internet Times'." Fueled by this logic, the crusade
to privatize everything from welfare, education, and water to
jails and military operations has expanded dramatically over the
past 20 years in the US and worldwide. It has been the main instrument
for "transforming" the former communist countries, along
with the notion that there's no longer any alternative to market
solutions. From the early 1980s onward, privatization has been
part of almost every structural adjustment program (SAP) forced
on developing countries by the World Bank and International Monetary
But the results haven't matched the promises. In Mexico, one
of the earliest countries to follow the World Bank's instructions,
large-scale privatization simply changed public monopolies into
private ones. Services deteriorated and prices skyrocketed. In
Hungary, one of several Eastern European countries desperately
in need of investment after the collapse of the USSR, much of
the economy went from state control to foreign multinationals
like Electrolux, Unilever, and General Electric. Meanwhile, the
new Hungarian owners and managers were often the same nomenklatura
members who ran state-owned enterprises.
With the end of the Cold War, private military companies (PMCs)
have also proliferated, aided by US downsizing and "outsourcing"
of defense activities. Operating worldwide, often with US State
Department approval and licenses, PMCs prop up shaky regimes,
and implement both official and covert foreign policy. In Colombia,
for example, they're queued up to provide logistical support and
training for police and counterinsurgency forces defending Occidental
Petroleum (OXY) from indigenous resistance to its oil drilling
plans. One company helped develop the plan that Congress reviewed
before approving $1.3 billion in new military aid.
Despite destructive results and growing discontent that has
recently produced protests and strikes against privatization from
Honduras and Paraguay to Russia and South Africa, the drumbeat
continues. According to Privatization 2000, it's been a banner
year, with over $140 billion in asset sales worldwide since the
start of 1999.
In the US, the Department of Defense has led the way with
outsourcing and outright selloffs. The Defense Logistics Agency
is privatizing most of its $1.6 billion network of warehouses
and distribution facilities, forcing about 6,600 people to compete
for what's left of the work in the private sector, and Computer
Sciences Corp. will manage the Army's Logistics Modernization
Program. Required by the new Federal Activities Inventory Reform
law to assess functions that are "commercial in nature,"
the government has announced that 900,000 federal employees are
doing work that could be performed by private firms.
The trend toward privatization of US prisons offers a revealing
example. In the last 10 years, the number of prisoners in private
hands has grown from 15,000 to 145,000. Most of the new facilities
are in a few Southern and Rocky Mountain states, and the next
wave is expected in poor rural counties, many with aging or overcrowded
jails. What privatization promises, says Richard Culp, a criminal
justice professor who reviewed 13 examples, isn't only modernization
and cost savings, but also less prison reform litigation. The
implication is that prisoners will have less excuse to complain.
Corrections corporations like Wackenhut claim to provide better
and safer conditions for the confined. In fact, Privatization
2000 is so impressed with Culp's research that it highlights the
results. Private facilities perform better in 23 of 30 areas,
particularly overcrowding and inmate injuries, Culp's study concludes.
But it also reveals that private prisons are less clean, have
worse food sanitation, and don't employ as many women and minorities.
Further, although there are fewer serious violent incidents, residents-especially
juveniles-feel less safe. In short, private jails have more room,
tighter security, and a better smell. But the professional facade
doesn't completely conceal the hidden costs.
COST EFFECTIVE CONFLICT
Few privatization trends raise more political and ethical
questions-and reveal more about the real agenda-than the extraordinary
growth of private military companies. In the last decade, PMCs
have trained militaries, and provided "advice" in at
least 42 countries. Often, the services are financed through US
foreign aid appropriations, and directed toward "unstable
regimes" like Nigeria and Colombia. According to private
industry projections, the global security market should be worth
$200 billion within 10 years.
In a Christian Science Monitor report, arms control analyst
David Isenberg remarks that PMCs are often used in situations
where going through "official channels" would be cumbersome
or politically difficult. "The administration likes it because
it avoids the prospect of creating a furor if something goes wrong,"
Although major threats have diminished and the US military
has been somewhat downsized, ethnic conflicts and "humanitarian"
emergencies have boosted US military operations. "In scrambling
to meet more requirements with fewer personnel and a more competitive
labor market, policy makers have turned to private contractors,"
notes Deborah Avant, a George Washington University expert writing
a book on the subject. "The current generalized push toward
the privatization and outsourcing of government functions only
abets this trend."
Between 1987 and 1994, military personnel worldwide declined
from 28 to 23 million. The most resourceful of these soldiers
and experts formed private training and security forces to hire
out their services. About 90 firms have operated in Africa, many
hired by Angolan oil and mining companies. In the mid-90s, South
Africa-based Executive Outcomes (EO), one of the most successful
private military firms, trained Angolan troops and helped fight
the UNITA forces of Jonas Savimbi. It was also hired by Sierra
Leone to combat a rebellion, and was paid a reported $60 million,
with the promise of future revenues from diamond mining. In both
places, EO tipped the balance of power toward the government.
Rather than being a "force for peace," critics suggest
the company was really after Africa's diamonds.
Strategically located in Alexandria, Virginia, Military Professional
Resources, Inc., (MPRI) is the largest US firm. According to its
website, it currently has 20 contracts worth $90 million, including
three overseas. Privately considered the "brains" behind
some successful US military operations, it has worked in Bosnia
and trained the Croatian army. Most of its personnel come from
the US diplomatic corps and the military, and it claims to operate
only with US State Department approval and export licenses.
Already working with Colombia's government, MPRI's next job
will be protecting oil interests in Equatorial Guinea, an island
nation off the West African coast. Although the State Department
held up its contract for two years, MPRI lobbied heavily, complaining
that some other firm would get the job. The regime, a rampant
violator of human rights that rigs elections and murders opponents,
wants to develop a coast guard to protect the resources being
tapped by Mobil Oil.
But providing direct assistance poses a political dilemma
for the State Department, since the regime's closest allies are
North Korea and Cuba. According to Henry Sanchez, who has examined
why governments hire private military firms, this supports the
contention that the US uses MPRI and other firms to indirectly
implement its national interests abroad. "This may be a method
of offering military influence cheaply and without sending in
US troops," he writes. "This can also be seen as a way
of getting around congressional approval. Others have suggested
that this amounts to the 'privatization of US foreign policy and
national security policy'."
SMALL WARS, NEW MARKETS
After the US pressured Angola to drop its contract with EO,
the work went to Sandline International, a relatively new company
incorporated in the Bahamas but operating out of London and Washington,
DC. Its stated purpose is to "offer governments and other
legitimate organizations specialist military expertise at a time
when western national desire to provide active support to friendly
governments, and to support them in conflict resolution, has materially
Unwilling to quietly accept criticism, Sandline has waged
an aggressive campaign to improve the image of PMCs, even suggesting
that they be regulated internationally by the UN or NGOs. Like
other supporters of privatization, Sandline argues that such companies
do more "good than harm" by restoring law and order,
and serving as "peacekeepers" when western states are
indecisive or reluctant to act.
However, when a regime hires such a security group, the opposition
often enlists mercenaries to counteract those being assisted by
PMCs. As a result, private military firms can end up contributing
to arms proliferation, subverting democratic movements, and further
destabilizing the situation.
Once Sandline's contract ran out in Sierra Leone, for example,
the rebels re-consolidated after their losses. In May, the Revolutionary
United Front (RUF) kidnapped hundreds of UN peacekeepers, effectively
ending this exercise in cut-rate intervention. Although rebel
leader Foday Sankoh was captured, the RUF still controls most
of the country's diamond supply, which it barters for arms from
neighboring Liberia. Now that Nigerian troops have gone home,
the British are re-colonizing. The head of the police force and
other top bureaucrats are from the UK, and the commander of the
British UN peacekeeping contingent essentially calls the shots.
In Angola, the civil war restarted shortly after EO left.
UNITA rebels recruited independent mercenaries from South Africa
and the Ukraine, using the lessons learned by government troops
that were guided by private contractors. And in Papua New Guinea,
when citizens learned that their government had signed a $27 million
contract with Sandline to help fight a secessionist rebel uprising,
the results included rioting, protests, and the administration's
eventual resignation. The, new government refused to honor the
$36 million owed to Sandline, but an international tribunal ordered
an $18 million payment The ruling weakened the military and deepened
the nation's political crisis.
Although Sandline claims to adhere to high standards and act
"in accord with the policies of key western governments,"
its range of services suggests that almost any type of operation
is possible under the right circumstances. In addition to providing
advice and training, it advertises the ability to provide "special
forces units" to deal with "terrorist organizations,"
drug cartels, and organized crime. Like a seasoned competitor
in the art of war fighting, Sandline promises customer service
in the form of "very rapid deployment" and "a cost-effective
solution for our clients."
Not to be left behind, other PMCs are attempting to open new
markets by expanding the definition of war itself. According to
7 Pillars Partners, "As societies grow, evolve, and interact,
violence is increasingly a method of human action and reaction."
Specifically, the new threat is "infrastructural warfare,"
or IWAR. This involves attacks on critical infrastructures, including
guerrilla warfare, terrorism, information warfare, and "more
subtle forms of subversion" like propaganda and disinformation.
In response, 7 Pillars offers help with intelligence, defense
strategies, technology, and the waging of IWARs.
Such developments have long-term implications. For the US,
privatized military operations provide more flexibility and expand
the capacity to respond beyond what is publicly known or popular,
thus avoiding debate over small-scale interventions. But they
also cut the public out of any discussion, and support the shift
in US military focus from training and direct, open assistance
to "outsourcing" small wars while preparing for high-tech
Not that advanced technology is exempt from the overall trend
in military thinking According to the US Space Command, the only
military organization with forces in space, the goal of its efforts
is "dominating the space dimension of military operations
to protect US interests and investments." Concepts such as
integrating the "civil and commercial sectors" indicate
that privatization of space is on the priority list. As the Space
Command's Vision for 2020 PR brochure notes, "The globalization
of the world economy will also continue, with a widening between
'haves' and have-nots'." Thus, the US needs to dominate "future
battlefields" on behalf of investors.
CONFRONTING THE MYTHS
Ask a peasant in Paraguay what privatization means to her,
and the answer comes easily. It's a government giveaway of the
state-run telephone company, drinking water agency, and railroads.
Once that's accomplished, the electric utility, state oil company,
and mail service are next. As in so many countries, privatization
is part of an economic "adjustment" package designed
to reduce a deficit-in this case, $200 million annually. The IMF
and World Bank promise a $400 million credit in exchange for compliance.
Unlike most US citizens, most Paraguayans understand that
privatization won't necessarily bring increased efficiency and
lower costs. In fact, they know for certain that some people will
lose their jobs, and that prices are likely to increase. As the
UN's Human Development Report warned in 1993, "Selling assets
to meet current liabilities is mortgaging the options for future
In response, state workers and campesinos in Paraguay declared
a general strike in late June to protest the plan. Argentina was
also shut down by strikes in June, the reaction to a government
decree deregulating the health insurance industry, another IMF
loan condition. Halfway around the world, Russian workers are
resisting efforts to privatize factories, sparking a resurgence
of union activism.
In Honduras, 4000 people marched in early July to protest
the proposed sell off of the national electric company, Social
Security Institute, and Aqueduct and Sewer Service. This followed
the seizure of highways and bridges during a June strike by the
Honduran Workers Confederation. Bowing to IMF pressure, the government
is also considering privatization of its Telecommunications Enterprise,
national ports, and airports.
When IMF chief Horst Koehler visited South Africa in early
July to meet with government, businesses and labor, the Johannesburg
Anti-privatization Forum loudly protested. Koehler said that the
fund just wants to help, but insisted that privatization is the
only way to build the economy and create jobs. For the IMF, it's
a non-negotiable demand. The protesters called the IMF prescription
"murderous" and urged him to go home.
In the US, on the other hand, questioning the trend toward
privatized services defies the "Washington Consensus,"
and is, therefore, usually beyond the boundary of acceptable debate.
The question is rarely whether, but only how much and how soon.
Presidential candidate George W. Bush wants a Sunset Review
Board to decide, every 10 years, whether federal agencies should
be reauthorized, privatized, or just abolished. He'd start with
the 900,000 federal positions already identified as commercially
replaceable, opening them up for private bidding. His Democratic
opponent Al Gore argues for more cautious privatization in areas
such as school vouchers and social security. Yet, he took the
lead in privatizing Elk Hill, a huge California oil field that
has been a strategic reserve for the Navy for more than 70 years.
In 1998, OXY bought 78 percent of Elk Hill for $3.65 billion,
making it the largest privatization in US history. Gore has over
$500,000 in OXY stock.
In Colombia, Occidental wants to drill for oil in the traditional
territory of the U'Wa people, who have pledged to resist and even
commit suicide before accepting the project. Meanwhile, the US
is sending $1.3 billion in new military aid, including over $300
million for United Technology's Sikorsky Black Hawk helicopters,
plus plenty for "outsourced" private training and advice
on the ground. OXY testified on the aid package, saying it was
needed to protect oil operations from "guerrilla assault."
According to the Dallas Morning News, at least six US military-specialty
companies are operating in the region, in anticipation of future
Colombia-related contracts. Officials from two firms, MPRI and
another Virginia-based company, DynCorp, Inc., confirm they're
completing contracts to provide logistical support and training
for Colombian police and counterinsurgency forces. MPRI has the
edge, since it helped the Colombian government devise the official,
three-phase "action plan" presented to the US Congress.
In short, under cover of fighting the war on drugs, US-backed
private military forces are helping to wage "low-intensity"
war against a peaceful indigenous community on behalf of oil interests,
the same company that bought Elk Hill. The great circle of privatization
Despite clear evidence that privatization often amounts to
a "garage sale" that benefits multinational interests
at the expense of workers, consumers, and the environment, too
many US citizens continue to accept the argument that government
is inherently inefficient and corrupt, while private enterprise
provides superior and more cost-effective services. These persistent
myths, perpetuated by many politicians, most corporate media,
and the private interests hoping to profit from selloffs, make
informed discussion difficult and rare.
The emergence of a large private military sector represents
the inevitable outcome What were once called "secret armies,"
mercenary groups conducting foreign policy and wars at the behest
of corporate interests and corrupt governments, have become legitimate
businesses. They're the rapid deployment forces of globalization,
unaccountable except to their employers and investors, and available
for a price to enforce the rules of the "free market"
Greg Guma is the editor of Toward Freedom.
New Global Economy