Profit From War: An Essential Partnership

Source: Exec Digital Canada

Date :6/16/2008 2:02:18 AM

It’s a controversial business but armed hostilities - or warfare, if you prefer – is heavily reliant on private industry. Exec finds out more

Written by Ruari McCallion

The people and organisations who made the most money from the Klondike Gold Rush of the late 19th and early 20th Centuries weren’t the 50,000-plus prospectors (including Wyatt Earp, interestingly), nor the first to find the gold, nor the hardest-working miners or the most ruthless robbers. It was those who supplied the real essentials – food retailers, pickaxe and shovel sellers and companies like Levi Strauss & Co, who sold tents and hardwearing clothing, including the jeans that have carried the Levi’s name into the 21st Century.

When the ‘coalition of the willing’, led by the USA, invaded Iraq and Afghanistan, it was conducting something the then Secretary for Defense, Donald Rumsfeld, described as ‘war-lite’. That meant the armed forces were to operate using lean methodology developed in private sector manufacturing. Today’s corporations outsource a lot of their supplies and activities and we are now seeing the same thing: war-lite is ‘war-privatised’. Although the headline activities are undertaken by official military, private contractors provide essential services without which the engagements would be impossible. It even provides conflict support, in a way that keeps the true cost of the fighting out of the headlines.

Governments (i.e., taxpayers) pay for wars; they don’t make money from them. At the head of the list of companies that do are the armaments and combat systems suppliers, including BAE Systems and Thales. Cobham Communications, part of Cobham plc, supplies a lot of in-theatre communications equipment, and the list goes on.

Air forces and armies operate from bases that tend to become more permanent in appearance and nature: you can’t spend five years operating out of tents and landing on freshly-brushed desert airstrips. Halliburton (Kellogg, Brown & Root) has been tasked with rebuilding Iraq’s infrastructure, the oilfields in particular, with a contract worth billions of dollars. In the US sectors of Iraq and Afghanistan, one of the main contractors for support facilities is TolTest Construction. In 1992 it was 100 percent involved in commercial operations; today, over 80 percent of its contracts are with the federal government, primarily the military.

Turnover has ballooned from $45.3 million in 2003, the year of the Iraq invasion, to a projected $200 million-plus in 2008. Among its major projects are the project management of construction in Iraq, Afghanistan, Guam, Guantanamo Bay, Qatar and Kuwait. It builds accommodation facilities, airports, and manages bulk fuel (the infrastructure to refuel aircraft as well as the supply). It uses local contractors wherever possible, which helps community relations, but security is its own contractual concern.

And security is where one uncovers the big growth sector. In conflict areas, security takes on a whole new meaning. These people provide real guards, armed with real weapons, to customers as diverse as the construction contractors to TV news crews who go to report what’s going on. It has become very big business indeed and has brought names like Aegis, Blackwater and others out of the background and into the light – a situation they’re not entirely happy with, although the money’s good. In 2003, the total revenues of British security firms was around $640 million; the following year, that had risen nearly six-fold, to around $3.6 billion.

By 2006, the number of security operatives (‘professionals’ was the term quoted to me but I hesitate to rely on its implied meaning) working in Iraq on Government contracts alone exceeded 120,000. In 2007, more than 180,000 private-sector contractors were operating in Iraq for over 600 companies, providing a range of services from chauffeurs and catering to protection of senior military officers, ironically. The majority are local people, employed in low-priority activities like guarding museums and operating laundry services. They outnumbered the official US military presence in that country by around 20,000.

Jeremy Scahill of UK daily The Guardian reported in 2007 that there were 48,000 security contractors in Iraq, working for private sector companies. Among those to gain unwelcome attention was Blackwater, whose operatives controversially got themselves involved in firefights. Its contract in Iraq was suspended, making a dent in its estimated $750 million revenues from the State Department since 2004. But it remains active in Afghanistan and in other areas of the Middle East, including the Caspian Sea area just to the north of the Iran border.

The amounts spent on the private contractors are staggering and the British private security industry has been keen to ensure it retains its share. ArmorGroup, Aegis, Control Risks, Erinys and Olive Group are all active British companies. The proportion to which they have benefited from the £200 million the Foreign Office spends on security personnel is unclear, although Aegis’ $300 million co-ordination and management contract ruffled a few competitor feathers, on both sides of the Atlantic. The US has spent over $6 billion on private contractors in Iraq alone.

Former special services people employed by security companies have seen pay as high as much as $1,000 a day, well above the rate for serving soldiers. But there are signs that the bubble is, if not bursting, then at least deflating. The gold-rush environment attracted a lot of quantity at the expense of quality and the reputation of the sector suffered as a result. But pay rates a few months ago were still reported to be over US$600 a day; a recent recruit reported that he would be paid around US$60,000 for six months.

There’s still money to be made, in a number of areas, but how long that will persist remains to be seen. Congress isn’t happy about more than half of the in-theatre personnel being private contractors, apparently subject to neither local nor military law. It and the House of Commons are concerned about the lack of accountability caused by the privatisation of war. But there will always be conflict and there will always be opportunities for resourceful private contractors to supply their increasingly essential services.

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