"For many conservatives, Iraq is now the test case for whether the
U.S. can engender American-style free-market capitalism within the Arab
— Neil King Jr., the Wall Street Journal, May 1, 2003.
The reconstruction of Iraq has begun. Not the reconstruction of vital
public services, nor of public security, but rather the radical
reconstruction of its entire economy. The quote above is an
understatement. The United States has nothing like the unbridled
capitalism that the Bush Administration is unleashing on Iraq. It might
best be described as "capitalism gone wild"—no restrictions, no morals,
and the myth of no consequences. But just like teenagers returning from
spring break, when the reality of what the Bush Administration is doing
is fully appreciated, it may be too late for the people of Iraq to
Conditions in Iraq are desperate. On November 11, 2003, the
international health charity, Medact, released a report finding that
public services in Iraq are in a state of collapse. Dr. Sabya Farooq,
author of the report, told the BBC: "It's mainly the ongoing violence
and insecurity which, in addition to the breakdown of public health
services, is posing the main risk to public health." In the past year,
maternal mortality rates have increased, acute malnutrition has almost
doubled, and water-borne diseases and vaccine-preventable diseases have
increased. Reports also put unemployment in Iraq at anywhere from 50
percent to 70 percent.
The Bush Administration's response to this growing health and human
services crisis is to rip open the Iraqi economy to foreign control. On
September 19, 2003, L. Paul Bremer, Administrator of the Coalition
Provisional Authority (CPA) in Iraq, signed four Orders which together
provide for the full privatization of public enterprises, full
ownership rights by foreign firms of Iraqi businesses, full
repatriation of foreign profits, the Flat Tax (that darling of the
conservative American Right), the opening of Iraq's banks to foreign
control, national treatment for foreign companies (which means, for
example, that Iraq cannot require that local firms able to do
reconstruction work should be hired instead of foreign ones), and (with
an earlier order) elimination of nearly all trade barriers. So far,
Iraq's oil—at least its extraction and initial processing—is excluded.
Thus, the U.S. corporations that have received billions of tax-payer
dollars for reconstruction in Iraq could own every business, do all the
work, and send all of their money home. Nothing need be reinvested in
Iraq nor specifically designed to aid the Iraqi economy. In addition,
the Bremer Orders are illegal under international law. They directly
violate the international convention governing the behavior of
occupying forces and the Hague regulations of 1907 (the companion to
the 1949 Geneva conventions, both ratified by the United States).
Indeed, in a leaked memo written on March 26, the British attorney
general, Lord Goldsmith, warned Tony Blair that "the imposition of
major structural economic reforms [in Iraq] would not be authorized by
Even the U.S. Army's own Law of Land Warfare states that "the occupant
does not have the right of sale or unqualified use of [non-military]
property." As explained by Naomi Klein, "this is pretty
straightforward: bombing something does not give you the right to sell
it. Yet that is precisely what the Bremer Orders do."
Precious few reporters—such as Naomi Klein and Neil King—have written
about the Bremer Orders, and few Americans are aware of the extent to
which the Bush Administration is re-making Iraq in its own image while
virtually ignoring the pressing needs of the Iraqi people. Sadly, this
is the outline of Bush's economic plan for the rest of the world. The
Administration's pursuit of privatization of public services and
unregulated foreign investment contributed significantly to the
collapse of the World Trade Organization (WTO) talks in Cancun in
September and the Free Trade Area of the Americas (FTAA) talks in Miami
this November. But what the U.S. Trade Representative has failed to
achieve through international negotiations, the U.S. Administrator of
the Coalition Provisional Authority has succeeded in achieving through
military invasion in Iraq.
The good news is that real alternatives exist and are immediately
applicable. You will find these discussed at the end of this article.
Bremer Order #39: Foreign Investment
The order on foreign investment in Iraq includes five elements: (1)
Privatization of state-owned enterprises; (2) 100 percent foreign
ownership of businesses in all sectors except oil and mineral
extraction, banks, and insurance companies (the latter two are
addressed in a separate order); (3) "national treatment" of foreign
firms; (4) unrestricted, tax-free remittance of all funds associated
with the investment, including, but not limited to, profits; and (5)
forty-year ownership licenses which have the option of being renewed.
The preamble to the Order makes clear its aim to move Iraq from "a
centrally planned economy to a market economy." The first step is
allowing foreign companies to purchase Iraq's state-owned
entities—including public services. Thus, everything from water
services, electric utilities, schools, hospitals, television and
newspapers, to prisons could be privatized under the Order. It lists no
requirements that, for example, these resources remain accessible to
the general public after privatization is complete.
The water sector is already being "reconstructed" by the Bechtel
Corporation of San Francisco, one of the top ten water privatization
companies in the world. Bechtel's track record does not bode well for
the Iraqi people—in fact, the citizens of Bolivia have written a letter
to the people of Iraq warning them of what to expect from Bechtel. A
subsidiary of Bechtel privatized the water systems of Cochabamba,
Bolivia and immediately sent prices sky-rocketing. Families earning a
minimum wage of $60 per month faced water bills of $20 per month. Rate
increases of 100 percent were the most common, while increases of 300
percent were reported. The citizens rose in protest (at least one
seventeen-year-old boy lost his life to Bolivian troops sent into the
streets to defend Bechtel's right to privatize). Ultimately, the
government relented and cancelled the contract. Bechtel has responded
with a $25 million lawsuit against Bolivia for lost profits.
(2) 100 percent foreign ownership
In addition to the public services listed above, Iraq's factories,
farms, telecommunications, transportation systems, publishing, and
other businesses could all be completely owned, run, and employed by
non-Iraqis under Order 39. The Order states that Iraq cannot restrict
access by foreign owners to any sector of the economy except resource
extraction. MCI, formerly WorldCom, has already received approximately
$20 million to build a wireless phone network in the Baghdad area. As
WorldCom, the company was found guilty of cheating investors by
overstating its cash flow by nearly $4 billion, and was temporarily
banned from receiving federal contracts.
(3) National Treatment
Order #39 states that "A foreign investor shall be entitled to make
foreign investments in Iraq on terms no less favorable than those
applicable to an Iraqi investor." This means that the government of
Iraq cannot favor local investors, businesses, companies, or providers
over foreign ones. Thus, for example, Iraq cannot require that U.S.
companies with billion dollar reconstruction contracts hire local
contractors. Nor that qualified Iraqi companies receive contracts over
foreign-owned companies. This is a particularly troublesome provision
given reports of bloated U.S. corporate budgets. For example, Time
magazine recently reported that an American firm was awarded a $15
million contract to build a cement factory in Iraq (using U.S. taxpayer
dollars). When the firm was prevented from doing the work, an Iraqi
businessman (using Saddam's confiscated funds) spent just $80,000 to
build the same factory.
Another example involves one of the first U.S. contracts awarded in
Iraq. Stevedoring Services of America (SSA) received a $4.8 million
contract to manage the Umm Qasr seaport. However, press reports
revealed that the British had identified Iraqis who could perform the
same duties. Britain's chief military officer in the Gulf told The
Guardian of London that the port should be run by Iraqis as a model for
the future reconstruction of the country. The U.S. disagreed, and
instead hired SSA, a company that has been called the "most anti-union
maritime operation on the West Coast" by union leaders.
National treatment is also a powerful tool used by companies to
circumvent domestic regulations on the environment, public health, and
worker and consumer safety. Virtually every challenge brought to such
laws under the investment chapter of the North American Free Trade
Agreement (NAFTA) include claims that the government violated national
treatment. For example, national treatment was one of the tools used
successfully by the Virginia-based Ethyl Corporation to force the
government of Canada to reverse its ban on the gasoline additive MMT, a
ground water pollutant also believed to be a human carcinogen. Ethyl
sued and Canada settled: reversing its ban, paying Ethyl $13 million in
compensation for its "trouble," and writing a letter of apology.
Similarly, the Canadian Corporation Methanex included a national
treatment complaint in its suit against the United States after
California mandated the removal of MTBE from gasoline sold in the state
because it also pollutes ground water and is believed to be a human
carcinogen. The case is pending. If the United States loses, we will
either have to eliminate the ban or pay Methanex nearly $1 billion for
the right to regulate its chemical.
Given corporate success in challenging such laws in Canada, the United
States, and Mexico, it is likely that Iraq's environmental, health, and
public interest laws—or those that any new government may wish to
enact—will be at risk.
(4) Unrestricted Repatriation of Profits
Order #39 authorizes foreign investors to "transfer abroad without
delay all funds associated with [their] investment, including: I)
shares or profits and dividends" (this list goes on). Foreign investors
can put their money wherever they like and take it out whenever they
want to, "without delay." No money needs to be reinvested locally to
service the floundering Iraqi economy. No investment needs to be
targeted to help specifically damaged regions, communities, or
services. All the profits can go home with the foreign owners and they
can take out their investments at any time.
The potential costs of this provision on the Iraqi economy are
monumental, as evidenced by the impact of the same rules on other
economies around the world. Joseph Stiglitz, the former Vice President
of the World Bank, among others, has blamed similar rules imposed by
the International Monetary Fund as a primary cause of the East Asian
financial crisis of 1997–1988 and the financial collapse of Argentina
in 2000. The rules eliminate all government regulation on how much
foreign investment can enter an economy, where it can be invested, how
long or how much money must stay in the economy. Such rules are
critical to ensure that foreign investment in Iraq benefits the Iraqi
economy, not just the foreign investors.
(5) Forty year leases
Order #39 specifies that Iraq will be locked into its contracts under
these rules for forty years, with an option of unlimited renewal. If
the contracts are broken, the Order gives the companies the legal
authority to enact any international trade agreement of which both
countries are party.
Bremer Order #40: Banking
Order #40 turns the banking sector from a state-run to a market-driven
system overnight by allowing foreign banks to enter the Iraqi market
and to purchase up to 50 percent of an Iraqi bank. A similar provision
included in NAFTA paved the way for Citigroup to purchase Mexico's
largest commercial bank, Banamex. In Aotearoa/New Zealand, similar
provisions left every one of the nation's banks, including the Bank of
New Zealand, under foreign control. Affordable financial services and
low-cost loans quickly dried up—so much so that the government proposed
setting up a new bank, the People's Bank, to be owned and operated by
the government itself in order to redress the inequities of the
JPMorgan, the second-largest bank in the United States, which was
implicated in the Enron scandal, has been awarded a contract to run a
consortium of thirteen banks from thirteen countries that will
constitute the Trade Bank of Iraq.
Bremer Order #37: Taxes
Order #37 implements a flat tax in Iraq by providing for a marginal
income tax rate of 15 percent for both corporations and individuals.
While the order is vague, and leaves open the possibility that Iraqis
could face different levels of taxation, Grover Norquist, head of
Americans for Tax Reform and a Bush administration ally has said, "They
told me it's a flat rate and it appears as though it's a flat rate."
A flat rate means that there is just one rate of taxation for
everyone—in this case, 15 percent, regardless of how much you earn or
how you earn it. Thus, an Iraqi earning 50 cents per hour will pay the
same tax rate as another earning $1 billion an hour. Usually, a flat
rate will reduce the tax burden on the poorest in the economy, increase
the burden on the middle class tremendously, and drastically reduce the
taxes paid by the wealthiest in society.
Maybe most disturbing is that the Administration is using Russia as a
model for Iraq's tax reforms. In 2001, Russia set a 13 percent flat tax
on individual income. While such a shift may have been positive for the
wealthiest crime families in Russia, poverty rates soared from only 2
percent of the population living in poverty at the end of the Soviet
period, to almost 50 percent, with more than half of Russia's children
living below the poverty line after the full market "reforms"—including
the new tax code—were put into place.
Bremer Order #12: Trade Liberalization
On June 12, Bremer signed the "Trade Liberalization Policy," suspending
until December 31, 2003 "all tariffs, customs duties, import taxes,
licensing fees and similar surcharges for goods entering or leaving
Iraq, and all other trade restrictions that may apply to such goods."
Thus, the United States can import and export all the goods it needs
into and out of Iraq without paying any duties. There are many
exceptions, however, to these rules. This Order is just the beginning.
The long-term plan has the United States bringing Iraq's laws into full
compliance with WTO obligations and then joining the WTO. The Bush
Administration's plans then extend to the entire region. On May 9,
President Bush himself announced plans for a U.S.-Middle East Free
Trade Area (MEFTA) by 2013. The Middle East, insulated by oil revenue,
has not had much need for free trade agreements in the past. But, with
the invasion and occupation of Iraq, the Bush Administration
demonstrated that it will defy global public opinion and the United
Nations to use military force when it deems necessary. Thus, it can now
return to the more traditional model of advancing corporate
globalization, the free trade agreement.
The Bremer Orders are not merely temporary fixes for a country under
occupation: they are designed to permanently revolutionize the Iraqi
economy, yanking a state-run system into a model for global corporate
capitalism by U.S. fiat. Experience with these same policies—and the
corporations being used to implement them—demonstrate that the losers
will be the people of Iraq (and potentially the rest of the region and
What Should Be Done Instead
The Bremer Orders are illegal and immoral. They must be repealed. Even
more, however, will need to be done to restore the Iraqi economy. The
following alternatives are drawn from more detailed analysis provided
by International Occupation Watch Center in Baghdad, the Institute for
Policy Studies in Washington, D.C., and the International Forum on
First, the military occupation of Iraq must end, and with its end a
UN-commanded multilateral peacekeeping force should return to Iraq.
Their mandate should be for a very short and defined period, with the
goal of assisting Iraq in reconstruction and overseeing the election of
a governing authority.
As belligerent powers who initiated the war, the United States and the
UK are obligated to provide for the humanitarian needs of the Iraqi
people and to pay the continuing costs of Iraq's reconstruction,
including the bulk of the cost of UN humanitarian and peacekeeping
deployments. Washington should reverse the spending priorities of its
$87 billion request from Congress, and turn over to full UN authority
(on behalf of the Iraqi people as a whole, not simply given to the
U.S.-appointed Council) a starting grant of at least $75 billion (the
initial amount Washington spent on waging the war) for reconstruction
The $15 billion (out of the $87 billion) requested by the Bush
administration for Iraqi reconstruction is insufficient to meet
Washington's obligations under international law. The $65 billion
scheduled for the Pentagon to continue the occupation of Iraq should be
challenged. The additional reconstruction funds should not come from
ordinary taxpayers. They should be raised from (a) an excess profits
tax on corporations benefiting from the war and post-war privatization
in Iraq; (b) the Pentagon budget lines currently directed at continuing
war in Iraq; and (c) a restored tax on the wealthiest 1 percent of
Reconstruction of Iraq should be based on rebuilding the economy to
maximize fulfilling the needs of the Iraqi people. All contract
processes should be completely transparent and accessible to Iraqis.
Contracts should privilege local companies, towards the goal of
strengthening and diversifying local production. Labor laws should
ensure protection for local workers. Iraqi debts accrued by Saddam
Hussein should be forgiven.
Iraq should be encouraged to join the worldwide movement for local
sustainability by: moving away from export oriented economies that make
trade and multinational corporations the basis of economic development.
Government spending, taxes, subsidies, tariff structures, etc. should
be reoriented to support local environmentally sustainable production
that meets local needs. The limited global trade that does take place
should occur in a fair trade system supported by a "decorporatized"
United Nations Center for Trade in Development with operations that are
transparent and democratic, and where trade is viewed as just one among
many tools used to help achieve poverty alleviation, economic equality,
environmental sustainability, and social justice.
Finally, against the Bremer Orders we must put forward a vision of
To get more information, see IFG's new book, Alternatives to Economic
Globalization at www.ifg.org or the Tikkun Community's Core Vision; for
information on how to participate in anti-occupation and
anti-globalization organizing, go to www.actagainstwar.org.
Antonia Juhasz is a project director at the International Forum on
Globalization (IFG). Her writings on globalization have appeared in The
Cambridge University Review of International Relations Journal,
Multinational Monitor and LeftTurn.