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 Fund (IMF).

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.


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," he explains.

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'."


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 decreased."

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 combat.

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.


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 generations."

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 is complete.

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" game.


Greg Guma is the editor of Toward Freedom.

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