September 28, 2004

• long, but worth it . . .

  September 24, 2004 Harper's Magazine

  PILLAGING IRAQ IN PURSUIT OF A NEOCON UTOPIA by Naomi Klein

  It was only after I had been in Baghdad for a month that I found what I
  was looking for. I had traveled to Iraq a year after the war began, at
  the height of what should have been a construction boom, but after
  weeks of searching I had not seen a single piece of heavy machinery
  apart from tanks and humvees. Then I saw it: a construction crane. It
  was big and yellow and impressive, and when I caught a glimpse of it
  around a corner in a busy shopping district I thought that I was
  finally about to witness some of the reconstruction I had heard so much
  about. But as I got closer I noticed that the crane was not actually
  rebuilding anything-not one of the bombed-out government buildings that
  still lay in rubble all over the city, nor one of the many power lines
  that remained in twisted heaps even as the heat of summer was starting
  to bear down. No, the crane was hoisting a giant billboard to the top
  of a three-story building. SUNBULAH: HONEY
  100% NATURAL, made in Saudi Arabia.

  Seeing the sign, I couldn't help but think about something Senator John
  McCain had said back in October. Iraq, he said, is "a huge pot of honey
  that's attracting a lot of flies." The flies McCain was referring to
  were the Halliburtons and Bechtels, as well as the venture capitalists
  who flocked to Iraq in the path cleared by Bradley Fighting Vehicles
  and laser-guided bombs. The honey that drew them was not just no-bid
  contracts and Iraq's famed oil wealth but the myriad investment
  opportunities offered by a country that had just been cracked wide open
  after decades of being sealed off, first by the nationalist economic
  policies of Saddam Hussein, then by asphyxiating United Nations
  sanctions.

  Looking at the honey billboard, I was also reminded of the most common
  explanation for what has gone wrong in Iraq, a complaint echoed by
  everyone from John Kerry to Pat Buchanan: Iraq is mired in blood and
  deprivation because George W. Bush didn't have "a postwar plan." The
  only problem with this theory is that it isn't true. The Bush
  Administration did have a plan for what it would do after the war; put
  simply, it was to lay out as much honey as possible, then sit back and
  wait for the flies.

  * * *

  The honey theory of Iraqi reconstruction stems from the most cherished
  belief of the war's ideological architects: that greed is good. Not
  good just for them and their friends but good for humanity, and
  certainly good for Iraqis. Greed creates profit, which creates growth,
  which creates jobs and products and services and everything else anyone
  could possibly need or want. The role of good government, then, is to
  create the optimal conditions for corporations to pursue their
  bottomless greed, so that they in turn can meet the needs of the
  society. The problem is that governments, even neoconservative
  governments, rarely get the chance to prove their sacred theory right:
  despite their enormous ideological advances, even George Bush's
  Republicans are, in their own minds, perennially sabotaged by meddling
  Democrats, intractable unions, and alarmist environmentalists.

  Iraq was going to change all that. In one place on Earth, the theory
  would finally be put into practice in its most perfect and
  uncompromised form. A country of 25 million would not be rebuilt as it
  was before the war; it would be erased, disappeared. In its place would
  spring forth a gleaming showroom for laissez-faire economics, a utopia
  such as the world had never seen. Every policy that liberates
  multinational corporations to pursue their quest for profit would be
  put into place: a shrunken state, a flexible workforce, open borders,
  minimal taxes, no tariffs, no ownership restrictions. The people of
  Iraq would, of course, have to endure some short-term pain: assets,
  previously owned by the state, would have to be given up to create new
  opportunities for growth and investment. Jobs would have to be lost
  and, as foreign products flooded across the border, local businesses
  and family farms would, unfortunately, be unable to compete. But to the
  authors of this plan, these would be small prices to pay for the
  economic boom that would surely explode once the proper conditions were
  in place, a boom so powerful the country would practically rebuild
  itself.

  The fact that the boom never came and Iraq continues to tremble under
  explosions of a very different sort should never be blamed on the
  absence of a plan. Rather, the blame rests with the plan itself, and
  the extraordinarily violent ideology upon which it is based.

  * * *

  Torturers believe that when electrical shocks are applied to various
  parts of the body simultaneously subjects are rendered so confused
  about where the pain is coming from that they become incapable of
  resistance. A declassified CIA "Counterintelligence Interrogation"
  manual from 1963 describes how a trauma inflicted on prisoners opens up
  "an interval-which may be extremely brief-of suspended animation, a
  kind of psychological shock or paralysis. . . . [A]t this moment the
  source is far more open to suggestion, far likelier to comply." A
  similar theory applies to economic shock therapy, or "shock treatment,"
  the ugly term used to describe the rapid implementation of free-market
  reforms imposed on Chile in the wake of General Augusto Pinochet's
  coup. The theory is that if painful economic "adjustments" are brought
  in rapidly and in the aftermath of a seismic social disruption like a
  war, a coup, or a government collapse, the population will be so
  stunned, and so preoccupied with the daily pressures of survival, that
  it too will go into suspended animation, unable to resist. As
  Pinochet's finance minister, Admiral Lorenzo Gotuzzo, declared, "The
  dog's tail must be cut off in one chop."

  That, in essence, was the working thesis in Iraq, and in keeping with
  the belief that private companies are more suited than governments for
  virtually every task, the White House decided to privatize the task of
  privatizing Iraq's state-dominated economy. Two months before the war
  began, USAID began drafting a work order, to be handed out to a private
  company, to oversee Iraq's "transition to a sustainable market-driven
  economic system." The document states that the winning company (which
  turned out to be the KPMG offshoot Bearing Point) will take
  "appropriate advantage of the unique opportunity for rapid progress in
  this area presented by the current configuration of political
  circumstances." Which is precisely what happened.

  L. Paul Bremer, who led the U.S. occupation of Iraq from May 2, 2003,
  until he caught an early flight out of Baghdad on June 28, admits that
  when he arrived, "Baghdad was on fire, literally, as I drove in from
  the airport." But before the fires from the "shock and awe" military
  onslaught were even extinguished, Bremer unleashed his shock therapy,
  pushing through more wrenching changes in one sweltering summer than
  the International Monetary Fund has managed to enact over three decades
  in Latin America. Joseph Stiglitz, Nobel laureate and former chief
  economist at the World Bank, describes Bremer's reforms as "an even
  more radical form of shock therapy than pursued in the former Soviet
  world."

  The tone of Bremer's tenure was set with his first major act on the
  job: he fired 500,000 state workers, most of them soldiers, but also
  doctors, nurses, teachers, publishers, and printers. Next, he flung
  open the country's borders to absolutely unrestricted imports: no
  tariffs, no duties, no inspections, no taxes. Iraq, Bremer declared two
  weeks after he arrived, was "open for business."

  One month later, Bremer unveiled the centerpiece of his reforms. Before
  the invasion, Iraq's non-oil-related economy had been dominated by 200
  state-owned companies, which produced everything from cement to paper
  to washing machines. In June, Bremer flew to an economic summit in
  Jordan and announced that these firms would be privatized immediately.
  "Getting inefficient state enterprises into private hands," he said,
  "is essential for Iraq's economic recovery." It would be the largest
  state liquidation sale since the collapse of the Soviet Union.

  But Bremer's economic engineering had only just begun. In September, to
  entice foreign investors to come to Iraq, he enacted a radical set of
  laws unprecedented in their generosity to multinational corporations.
  There was Order 37, which lowered Iraq's corporate tax rate from
  roughly 40 percent to a flat 15 percent. There was Order 39, which
  allowed foreign companies to own 100 percent of Iraqi assets outside of
  the natural-resource sector. Even better, investors could take 100
  percent of the profits they made in Iraq out of the country; they would
  not be required to reinvest and they would not be taxed. Under Order
  39, they could sign leases and contracts that would last for forty
  years. Order 40 welcomed foreign banks to Iraq under the same favorable
  terms. All that remained of Saddam Hussein's economic policies was a
  law restricting trade unions and collective bargaining.

  If these policies sound familiar, it's because they are the same ones
  multinationals around the world lobby for from national governments and
  in international trade agreements. But while these reforms are only
  ever enacted in part, or in fits and starts, Bremer delivered them all,
  all at once. Overnight, Iraq went from being the most isolated country
  in the world to being, on paper, its widest-open market.

  * * *

  At first, the shock-therapy theory seemed to hold: Iraqis, reeling from
  violence both military and economic, were far too busy staying alive to
  mount a political response to Bremer's campaign. Worrying about the
  privatization of the sewage system was an unimaginable luxury with half
  the population lacking access to clean drinking water; the debate over
  the flat tax would have to wait until the lights were back on. Even in
  the international press, Bremer's new laws, though radical, were easily
  upstaged by more dramatic news of political chaos and rising crime.

  Some people were paying attention, of course. That autumn was awash in
  "rebuilding Iraq" trade shows, in Washington, London, Madrid, and
  Amman. The Economist described Iraq under Bremer as "a capitalist
  dream," and a flurry of new consulting firms were launched promising to
  help companies get access to the Iraqi market, their boards of
  directors stacked with well-connected Republicans. The most prominent
  was New Bridge Strategies, started by Joe Allbaugh, former Bush-Cheney
  campaign manager. "Getting the rights to distribute Procter &
  Gamble products can be a gold mine," one of the company's partners
  enthused. "One well-stocked 7-Eleven could knock out thirty Iraqi
  stores; a Wal-Mart could take over the country."

  Soon there were rumors that a McDonald's would be opening up in
  downtown Baghdad, funding was almost in place for a Starwood luxury
  hotel, and General Motors was planning to build an auto plant. On the
  financial side, HSBC would have branches all over the country,
  Citigroup was preparing to offer substantial loans guaranteed against
  future sales of Iraqi oil, and the bell was going to ring on a New
  York-style stock exchange in Baghdad any day.

  In only a few months, the postwar plan to turn Iraq into a laboratory
  for the neocons had been realized. Leo Strauss may have provided the
  intellectual framework for invading Iraq preemptively, but it was that
  other University of Chicago professor, Milton Friedman, author of the
  anti-government manifesto Capitalism and Freedom, who supplied the
  manual for what to do once the country was safely in America's hands.
  This represented an enormous victory for the most ideological wing of
  the Bush Administration. But it was also something more: the
  culmination of two interlinked power struggles, one among Iraqi exiles
  advising the White House on its postwar strategy, the other within the
  White House itself.

  * * *

  As the British historian Dilip Hiro has shown, in Secrets and Lies:
  Operation 'Iraqi Freedom' and After, the Iraqi exiles pushing for the
  invasion were divided, broadly, into two camps. On one side were "the
  pragmatists," who favored getting rid of Saddam and his immediate
  entourage, securing access to oil, and slowly introducing free-market
  reforms. Many of these exiles were part of the State Department's
  Future of Iraq Project, which generated a thirteen-volume report on how
  to restore basic services and transition to democracy after the war. On
  the other side was the "Year Zero" camp, those who believed that Iraq
  was so contaminated that it needed to be rubbed out and remade from
  scratch. The prime advocate of the pragmatic approach was Iyad Allawi,
  a former high-level Baathist who fell out with Saddam and started
  working for the CIA. The prime advocate of the Year Zero approach was
  Ahmad Chalabi, whose hatred of the Iraqi state for expropriating his
  family's assets during the 1958 revolution ran so deep he longed to see
  the entire country burned to the ground-everything, that is, but the
  Oil Ministry, which would be the nucleus of the new Iraq, the cluster
  of cells from which an entire nation would grow. He called this process
  "de-Baathification."

  A parallel battle between pragmatists and true believers was being
  waged within the Bush Administration. The pragmatists were men like
  Secretary of State Colin Powell and General Jay Garner, the first U.S.
  envoy to postwar Iraq. General Garner's plan was straightforward
  enough: fix the infrastructure, hold quick and dirty elections, leave
  the shock therapy to the International Monetary Fund, and concentrate
  on securing U.S. military bases on the model of the Philippines. "I
  think we should look right now at Iraq as our coaling station in the
  Middle East," he told the BBC. He also paraphrased T. E. Lawrence,
  saying, "It's better for them to do it imperfectly than for us to do it
  for them perfectly." On the other side was the usual cast of
  neoconservatives: Vice President Dick Cheney, Secretary of Defense
  Donald Rumsfeld (who lauded Bremer's "sweeping reforms" as "some of the
  most enlightened and inviting tax and investment laws in the free
  world"), Deputy Secretary of Defense Paul Wolfowitz, and, perhaps most
  centrally, Undersecretary of Defense Douglas Feith. Whereas the State
  Department had its Future of Iraq report, the neocons had USAID's
  contract with Bearing Point to remake Iraq's economy: in 108 pages,
  "privatization" was mentioned no fewer than fifty-one times. To the
  true believers in the White House, General Garner's plans for postwar
  Iraq seemed hopelessly unambitious. Why settle for a mere coaling
  station when you can have a model free market? Why settle for the
  Philippines when you can have a beacon unto the world?

  The Iraqi Year Zeroists made natural allies for the White House
  neoconservatives: Chalabi's seething hatred of the Baathist state fit
  nicely with the neocons' hatred of the state in general, and the two
  agendas effortlessly merged. Together, they came to imagine the
  invasion of Iraq as a kind of Rapture: where the rest of the world saw
  death, they saw birth-a country redeemed through violence, cleansed by
  fire. Iraq wasn't being destroyed by cruise missiles, cluster bombs,
  chaos, and looting; it was being born again. April 9, 2003, the day
  Baghdad fell, was Day One of Year Zero.

  While the war was being waged, it still wasn't clear whether the
  pragmatists or the Year Zeroists would be handed control over occupied
  Iraq. But the speed with which the nation was conquered dramatically
  increased the neocons' political capital, since they had been
  predicting a "cakewalk" all along. Eight days after George Bush landed
  on that aircraft carrier under a banner that said MISSION ACCOMPLISHED,
  the President publicly signed on to the neocons' vision for Iraq to
  become a model corporate state that would open up the entire region. On
  May 9, Bush proposed the "establishment of a U.S.-Middle East free
  trade area within a decade"; three days later, Bush sent Paul Bremer to
  Baghdad to replace Jay Garner, who had been on the job for only three
  weeks. The message was unequivocal: the pragmatists had lost; Iraq
  would belong to the believers.

  A Reagan-era diplomat turned entrepreneur, Bremer had recently proven
  his ability to transform rubble into gold by waiting exactly one month
  after the September 11 attacks to launch Crisis Consulting Practice, a
  security company selling "terrorism risk insurance" to multinationals.
  Bremer had two lieutenants on the economic front: Thomas Foley and
  Michael Fleischer, the heads of "private sector development" for the
  Coalition Provisional Authority (CPA). Foley is a Greenwich,
  Connecticut, multimillionaire, a longtime friend of the Bush family and
  a Bush-Cheney campaign "pioneer" who has described Iraq as a modern
  California "gold rush." Fleischer, a venture capitalist, is the brother
  of former White House spokesman Ari Fleischer. Neither man had any
  high-level diplomatic experience and both use the term corporate
  "turnaround" specialist to describe what they do. According to Foley,
  this uniquely qualified them to manage Iraq's economy because it was
  "the mother of all turnarounds."

  Many of the other CPA postings were equally ideological. The Green
  Zone, the city within a city that houses the occupation headquarters in
  Saddam's former palace, was filled with Young Republicans straight out
  of the Heritage Foundation, all of them given responsibility they could
  never have dreamed of receiving at home. Jay Hallen, a
  twenty-four-year-old who had applied for a job at the White House, was
  put in charge of launching Baghdad's new stock exchange. Scott Erwin, a
  twenty-one-year-old former intern to Dick Cheney, reported in an email
  home that "I am assisting Iraqis in the management of finances and
  budgeting for the domestic security forces." The college senior's
  favorite job before this one? "My time as an ice-cream truck driver."
  In those early days, the Green Zone felt a bit like the Peace Corps,
  for people who think the Peace Corps is a communist plot. It was a
  chance to sleep on cots, wear army boots, and cry "incoming"-all while
  being guarded around the clock by real soldiers.

  The teams of KPMG accountants, investment bankers, think-tank lifers,
  and Young Republicans that populate the Green Zone have much in common
  with the IMF missions that rearrange the economies of developing
  countries from the presidential suites of Sheraton hotels the world
  over. Except for one rather significant difference: in Iraq they were
  not negotiating with the government to accept their "structural
  adjustments" in exchange for a loan; they were the government.

  Some small steps were taken, however, to bring Iraq's U.S.-appointed
  politicians inside. Yegor Gaidar, the mastermind of Russia's
  mid-nineties privatization auction that gave away the country's assets
  to the reigning oligarchs, was invited to share his wisdom at a
  conference in Baghdad. Marek Belka, who as finance minister oversaw the
  same process in Poland, was brought in as well. The Iraqis who proved
  most gifted at mouthing the neocon lines were selected to act as what
  USAID calls local "policy champions"-men like Ahmad al Mukhtar, who
  told me of his countrymen, "They are lazy. The Iraqis by nature, they
  are very dependent. . . . They will have to depend on themselves, it is
  the only way to survive in the world today." Although he has no
  economics background and his last job was reading the English-language
  news on television, al Mukhtar was appointed director of foreign
  relations in the Ministry of Trade and is leading the charge for Iraq
  to join the World Trade Organization.

  * * *

  I had been following the economic front of the war for almost a year
  before I decided to go to Iraq. I attended the "Rebuilding Iraq" trade
  shows, studied Bremer's tax and investment laws, met with contractors
  at their home offices in the United States, interviewed the government
  officials in Washington who are making the policies. But as I prepared
  to travel to Iraq in March to see this experiment in free-market
  utopianism up close, it was becoming increasingly clear that all was
  not going according to plan. Bremer had been working on the theory that
  if you build a corporate utopia the corporations will come-but where
  were they? American multinationals were happy to accept U.S. taxpayer
  dollars to reconstruct the phone or electricity systems, but they
  weren't sinking their own money into Iraq. There was, as yet, no
  McDonald's or Wal-Mart in Baghdad, and even the sales of state
  factories, announced so confidently nine months earlier, had not
  materialized.

  Some of the holdup had to do with the physical risks of doing business
  in Iraq. But there were other more significant risks as well. When Paul
  Bremer shredded Iraq's Baathist constitution and replaced it with what
  The Economist greeted approvingly as "the wish list of foreign
  investors," there was one small detail he failed to mention: It was all
  completely illegal. The CPA derived its legal authority from United
  Nations Security Council Resolution 1483, passed in May 2003, which
  recognized the United States and Britain as Iraq's legitimate
  occupiers. It was this resolution that empowered Bremer to unilaterally
  make laws in Iraq. But the resolution also stated that the U.S. and
  Britain must "comply fully with their obligations under international
  law including in particular the Geneva Conventions of 1949 and the
  Hague Regulations of 1907." Both conventions were born as an attempt to
  curtail the unfortunate historical tendency among occupying powers to
  rewrite the rules so that they can economically strip the nations they
  control. With this in mind, the conventions stipulate that an occupier
  must abide by a country's existing laws unless "absolutely prevented"
  from doing so. They also state that an occupier does not own the
  "public buildings, real estate, forests and agricultural assets" of the
  country it is occupying but is rather their "administrator" and
  custodian, keeping them secure until sovereignty is reestablished. This
  was the true threat to the Year Zero plan: since America didn't own
  Iraq's assets, it could not legally sell them, which meant that after
  the occupation ended, an Iraqi government could come to power and
  decide that it wanted to keep the state companies in public hands, or,
  as is the norm in the Gulf region, to bar foreign firms from owning 100
  percent of national assets. If that happened, investments made under
  Bremer's rules could be expropriated, leaving firms with no recourse
  because their investments had violated international law from the
  outset.

  By November, trade lawyers started to advise their corporate clients
  not to go into Iraq just yet, that it would be better to wait until
  after the transition. Insurance companies were so spooked that not a
  single one of the big firms would insure investors for "political
  risk," that high-stakes area of insurance law that protects companies
  against foreign governments turning nationalist or socialist and
  expropriating their investments.

  Even the U.S.-appointed Iraqi politicians, up to now so obedient, were
  getting nervous about their own political futures if they went along
  with the privatization plans. Communications Minister Haider al-Abadi
  told me about his first meeting with Bremer. "I said, 'Look, we don't
  have the mandate to sell any of this. Privatization is a big thing. We
  have to wait until there is an Iraqi government.'" Minister of Industry
  Mohamad Tofiq was even more direct: "I am not going to do something
  that is not legal, so that's it."

  Both al-Abadi and Tofiq told me about a meeting-never reported in the
  press-that took place in late October 2003. At that gathering the
  twenty-five members of Iraq's Governing Council as well as the
  twenty-five interim ministers decided unanimously that they would not
  participate in the privatization of Iraq's state-owned companies or of
  its publicly owned infrastructure.

  But Bremer didn't give up. International law prohibits occupiers from
  selling state assets themselves, but it doesn't say anything about the
  puppet governments they appoint. Originally, Bremer had pledged to hand
  over power to a directly elected Iraqi government, but in early
  November he went to Washington for a private meeting with President
  Bush and came back with a Plan B. On June 30 the occupation would
  officially end-but not really. It would be replaced by an appointed
  government, chosen by Washington. This government would not be bound by
  the international laws preventing occupiers from selling off state
  assets, but it would be bound by an "interim constitution," a document
  that would protect Bremer's investment and privatization laws.

  The plan was risky. Bremer's June 30 deadline was awfully close, and it
  was chosen for a less than ideal reason: so that President Bush could
  trumpet the end of Iraq's occupation on the campaign trail. If
  everything went according to plan, Bremer would succeed in forcing a
  "sovereign" Iraqi government to carry out his illegal reforms. But if
  something went wrong, he would have to go ahead with the June 30
  handover anyway because by then Karl Rove, and not Dick Cheney or
  Donald Rumsfeld, would be calling the shots. And if it came down to a
  choice between ideology in Iraq and the electability of George W. Bush,
  everyone knew which would win.

  * * *

  At first, Plan B seemed to be right on track. Bremer persuaded the
  Iraqi Governing Council to agree to everything: the new timetable, the
  interim government, and the interim constitution. He even managed to
  slip into the constitution a completely overlooked clause, Article 26.
  It stated that for the duration of the interim government, "The laws,
  regulations, orders and directives issued by the Coalition Provisional
  Authority . . . shall remain in force" and could only be changed after
  general elections are held.

  Bremer had found his legal loophole: There would be a window-seven
  months-when the occupation was officially over but before general
  elections were scheduled to take place. Within this window, the Hague
  and Geneva Conventions' bans on privatization would no longer apply,
  but Bremer's own laws, thanks to Article 26, would stand. During these
  seven months, foreign investors could come to Iraq and sign forty-year
  contracts to buy up Iraqi assets. If a future elected Iraqi government
  decided to change the rules, investors could sue for compensation.

  But Bremer had a formidable opponent: Grand Ayatollah Ali al Sistani,
  the most senior Shia cleric in Iraq. al Sistani tried to block Bremer's
  plan at every turn, calling for immediate direct elections and for the
  constitution to be written after those elections, not before. Both
  demands, if met, would have closed Bremer's privatization window. Then,
  on March 2, with the Shia members of the Governing Council refusing to
  sign the interim constitution, five bombs exploded in front of mosques
  in Karbala and Baghdad, killing close to 200 worshipers. General John
  Abizaid, the top U.S. commander in Iraq, warned that the country was on
  the verge of civil war. Frightened by this prospect, al Sistani backed
  down and the Shia politicians signed the interim constitution. It was a
  familiar story: the shock of a violent attack paved the way for more
  shock therapy.

  When I arrived in Iraq a week later, the economic project seemed to be
  back on track. All that remained for Bremer was to get his interim
  constitution ratified by a Security Council resolution, then the
  nervous lawyers and insurance brokers could relax and the sell-off of
  Iraq could finally begin. The CPA, meanwhile, had launched a major new
  P.R. offensive designed to reassure investors that Iraq was still a
  safe and exciting place to do business. The centerpiece of the campaign
  was Destination Baghdad Exposition, a massive trade show for potential
  investors to be held in early April at the Baghdad International
  Fairgrounds. It was the first such event inside Iraq, and the
  organizers had branded the trade fair "DBX," as if it were some sort of
  Mountain Dew-sponsored dirt-bike race. In keeping with the
  extreme-sports theme, Thomas Foley traveled to Washington to tell a
  gathering of executives that the risks in Iraq are akin "to skydiving
  or riding a motorcycle, which are, to many, very acceptable risks."

  But three hours after my arrival in Baghdad, I was finding these
  reassurances extremely hard to believe. I had not yet unpacked when my
  hotel room was filled with debris and the windows in the lobby were
  shattered. Down the street, the Mount Lebanon Hotel had just been
  bombed, at that point the largest attack of its kind since the official
  end of the war. The next day, another hotel was bombed in Basra, then
  two Finnish businessmen were murdered on their way to a meeting in
  Baghdad. Brigadier General Mark Kimmitt finally admitted that there was
  a pattern at work: "the extremists have started shifting away from the
  hard targets . .
  .
  [and] are now going out of their way to specifically target softer
  targets." The next day, the State Department updated its travel
  advisory: U.S. citizens were "strongly warned against travel to Iraq."

  The physical risks of doing business in Iraq seemed to be spiraling out
  of control. This, once again, was not part of the original plan. When
  Bremer first arrived in Baghdad, the armed resistance was so low that
  he was able to walk the streets with a minimal security entourage.
  During his first four months on the job, 109 U.S. soldiers were killed
  and 570 were wounded. In the following four months, when Bremer's shock
  therapy had taken effect, the number of U.S. casualties almost doubled,
  with 195 soldiers killed and
  1,633 wounded. There are many in Iraq who argue that these events are
  connected-that Bremer's reforms were the single largest factor leading
  to the rise of armed resistance.

  Take, for instance, Bremer's first casualties. The soldiers and workers
  he laid off without pensions or severance pay didn't all disappear
  quietly. Many of them went straight into the mujahedeen, forming the
  backbone of the armed resistance. "Half a million people are now worse
  off, and there you have the water tap that keeps the insurgency going.
  It's alternative employment," says Hussain Kubba, head of the prominent
  Iraqi business group Kubba Consulting. Some of Bremer's other economic
  casualties also have failed to go quietly. It turns out that many of
  the businessmen whose companies are threatened by Bremer's investment
  laws have decided to make investments of their own-in the resistance.
  It is partly their money that keeps fighters in Kalashnikovs and RPGs.

  These developments present a challenge to the basic logic of shock
  therapy: the neocons were convinced that if they brought in their
  reforms quickly and ruthlessly, Iraqis would be too stunned to resist.
  But the shock appears to have had the opposite effect; rather than the
  predicted paralysis, it jolted many Iraqis into action, much of it
  extreme. Haider al-Abadi, Iraq's minister of communication, puts it
  this way: "We know that there are terrorists in the country, but
  previously they were not successful, they were isolated. Now because
  the whole country is unhappy, and a lot of people don't have jobs . . .
  these terrorists are finding listening ears."

  Bremer was now at odds not only with the Iraqis who opposed his plans
  but with U.S military commanders charged with putting down the
  insurgency his policies were feeding. Heretical questions began to be
  raised: instead of laying people off, what if the CPA actually created
  jobs for Iraqis? And instead of rushing to sell off Iraq's 200
  state-owned firms, how about putting them back to work?

  * * *

  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."[1]

  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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