The Enron Pentagon

Peter W. Singer
Peter W. Singer Former Brookings Expert, Strategist and Senior Fellow - New America

October 19, 2003

The Iraq war has been a stunning revelation of trends that could shape the next decades of global politics and conflict—from the revolution in military technologies to the challenges presented by stability operations. However, one under explored current is the extent to which warfare itself is being privatized.

Breaking out of the “guns for hire” mold of traditional mercenaries, corporations now sell the sort of services that soldiers used to provide. These worldwide businesses range from small firms that supply teams of commandos for hire to large corporations that run military supply chains. This huge, new “privatized military industry” has operated in more than 50 countries, from Albania to Zambia. But its largest client is the US taxpayer: Over the last decade our government has signed more than 3,000 contracts with private military firms.

Iraq is not just the biggest US military commitment in generations, it is also the biggest market for private military services—ever. Before the war, private firms helped with the invasion’s training and planning. During the war, private military employees handled everything from feeding and housing US troops to maintaining our most sophisticated weapons systems, like the B-2 stealth bomber or the Global Hawk UAV.

Private firms now play an even more stunning variety of roles in the Iraq occupation. One example is the controversial Dyncorp firm, a Virginia-based company whose employees were implicated in sex crimes in the Balkans; they are now training the post-Saddam police force. Other firms are training the new Iraqi army and paramilitary forces and guarding critical facilities.

Indeed, the ratio of private contractors to US military personnel in the Gulf is roughly 1 to 10. Overall, the private military industry is actually our largest ally in the “coalition of the willing” (or perhaps we should rename it the “coalition of billing”). For example, Global Risk Managment of the United Kingdom has 1,100 personnel in Iraq, including 500 Nepalese Gurkha troops and 500 Fijian soldiers, ranking it sixth among troop donors.

The expansion of this private military industry has its positive aspects, such as specialization or the promise of cost savings through competition. More important, it has arisen in a time when there is a gap between the supply and demand for professional forces. In lieu of calling up more reserves, private assistance has helped our nation meet unprecedented new global commitments.

But privatization also comes with risks. In particular are poor accounting and accountability, a now common thread in the conduct of both business and our government. The absence of oversight may make Iraq the “Big Dig” of the private military industry—a profit bonanza for the firms, but a loss on the public policy ledger.

A myriad of questions surround our dealings with the industry. For example, the Pentagon does not even know how many private military employees, or foreign subcontractors, it has working for it. Likewise, there is no requirement to reveal the number of private military casualties (at least five killed in Iraq by unofficial media accounts) or, in turn, the number of Iraqis killed by their employees.

This lack of accounting also means that we don’t know the number of contractors who have either declined to deploy or left Iraq because of their security concerns.

This last problem raises an important concern. Contractors who did not deliver—because of issues ranging from staffing difficulties to higher than expected insurance premiums—left American troops with less support than they enjoyed in past wars. When our soldiers were still eating field rations and lacked running water, months after the president’s infamous aircraft carrier landing, the blame fell on an overreliance on contractors. Contractors are not within the chain of command and thus cannot be ordered into combat zones.

The same problems cross over into the Enron-like attitude toward financial costs. While one of the rationales for outsourcing military functions is cost savings, the evidence is either absent or limited. Even as we set greater goals for future outsourcing, we do not know if we are actually saving money.

However, we do know that contracts have often been awarded with limited or no free-market competition, and frequently to politically connected firms. For example, the US Army logistics contract was expanded to employ Halliburton to run the oil services part of Iraqi reconstruction—without competitive bid. So far, more than $1 billion in added revenue has gone to Vice President Cheney’s old firm, in which he has continuing financial interests.

Better standards and accounting must be used in our military outsourcing decisions. Two core questions must always be asked: First, is it in our best national security and public interest to privatize? Second, how can we ensure that privatization will save money? Unfortunately, our CEO-filled defense leadership has forgotten Economics 101. It has outsourced first and not even bothered to ask questions later.

In sum, we have a distortion of the free market that would shock Adam Smith, an interface between business and government that would awe the Founding Fathers, and a shift in the military-industrial complex that must have President Eisenhower rolling in his grave. Without change, this is a recipe for bad policy, and bad business.