Home > World Events > The inevitability of corruption (repost, crossposted at CT)

The inevitability of corruption (repost, crossposted at CT)

November 18th, 2004

Scandals surrounding the Oil-for-Food program and postwar reconstruction in supply contracts, particularly with respect to Halliburton just keep on going. So I thought I’d repost this piece from six months ago, pointing out that it’s silly to try and score political points out of either of these.

Over the course of the Iraq war, a lot of opponents of the war have made a big noise about corruption among US contractors, the most common target being Halliburton. More recently, the pro-war blogosphere has been in an uproar over the ‘discovery’ that Saddam bribed a range of officials, including some in the UN, so that he could get kickbacks from the sale of oil, which was supposed to be used solely for the purchase of food and other essential imports. There has been a sense of baffled rage that no-one is much interested in pursuing these ‘discoveries’.

The scare quotes around ‘discovery’ reflect the fact that everyone who was paying any attention knew about this all along, and, indeed could deduce it from first principles. For example, in a piece on financing the reconstruction of Iraq written in May 2003, I observed

A return to normal output would yield gross income of around $US 20 billion per year at current prices, but most of this money was already being spent under the Food-for-oil program and most of it be needed for the same purpose in future. About 25 per cent of the money was taken to pay interest on debts associated with reparations for the 1991 War. If these were forgiven, some additional money would become available. In addition, it appears that Saddam managed to cream off $1 billion to $2 billion per year. If this were returned to the Iraqi people in general, it would make a small but positive contribution.

I didn’t bother to point it out, but it was obvious that Saddam could only get his cut by bribing those on the other side of the deal, that is, employees of the UN, the oil companies and the governments involved.

In the same piece, I made the point that the US contractors doing the work in Iraq were bound to charge a lot and deliver little, so that the cost of reconstruction would be far beyond the minuscule amounts that had then been budgeted. The appropriate response was not to complain about corruption but to accept reality and the need to spend a lot more money.

Iin both cases, it was, or ought to have been, obvious that the policy in question would produce corruption. That was why the US and UK initially tried to keep sanctions much tighter, with the result that thousands of Iraqi children died of starvation or inadequate medical treatment. Those who supported the Oil-for-Food program, knew, or ought to have known, that Saddam would take a large cut, and supported it anyway. Those who supported large-scale expenditure on reconstruction after the war knew, or ought to have known, that unscrupulous contractors would make a fortune, and supported it anywar. I’m happy to admit to supporting both policies, and to accepting corruption as one of the inevitable costs.

Having said all that, corruption is a crime and those guilty of it should be punished. But, unless you favor starving Iraqi children or doing nothing about reconstruction, trying to use either Halliburton or ‘UNSCAM’ to score points regarding the desirability or otherwise of the war is just silly.

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  1. Dan Hardie
    November 19th, 2004 at 00:42 | #1

    Is it okay to cross-post a comment which has appeared on the comments thread for the same post on CT? If not, delete it. It’s just there’s a different crowd of commenters here from most CT threads, and some of them always say stimulating things (hi, Fyodor):

    Given the number of qualified professionals Iraq possesses, I for one am at a loss to find any good reason why more of the reconstruction of Iraq should not have been taken away from US contractors and given to local people, selected and budgeted by either Coalition military officers and or civil servants on temporary duty in Iraq. I don’t think ‘institutional corruption’ or the sinister influence of Cheney were the prime causes- I suspect rather that this was an addiction to established procedures and, in particular, to audit trails. Halliburton or Bechtel may charge more to get a power station up and running than a military officer giving a bunch of dollar bills to the local Iraqi engineers and technicians, but at least Halliburton and Bechtel can process the paper that the Pentagon or Whitehall accountants will demand. The obvious comeback to this is that there would certainly have been corruption among the Iraqi subcontractors- yes, but unless they all had access to Swiss bank accounts, which one takes leave to doubt, most or all of the money siphoned off would have stayed in the Iraqi economy and gone some way to creating the demand necessary to reduce the current unemployment levels. Whatever process was chosen to rebuild Iraq, there were going to be an awful lot of imperfections: this was a war-damaged country that had been run by a totalitarian murderer. But I don’t accept that because all options were bad, the Halliburton/Bechtel option was actually the least bad.

    A sidelight on this: Riverbend, early in her blogging career, said that a US contractor had won the contract to rebuild a bridge on the basis of an eight figure price (I think $17 million). A team of local Iraqis had been confident they could do it for a few hundred thousand dollars. The American contractors have been relying on American skilled professionals plus manual workers largely drawn from India, the Phillippines or the Gulf States (press reports here very numerous- I will search them out if anyone is silly enough to argue the point); the Iraqis would have used Iraqi labour, which would have had economic and political advantages too obvious to need pointing out.

    Another sidelight, on the more general point of First World contractors quoting for jobs in the underdeveloped world: one of the most interesting parts of the Suskind book on Paul O’Neill follows O’Neill’s trip to Africa. He becomes increasingly horrified by the lack of clean water, and asks Ugandan President Yoweri Museveni why clean water hasn’t been provided. Oh, says Museveni, we commissioned a study, and unfortunately it would have cost several billion dollars to provide all Ugandans with clean drinking water. Can I have a look at this study? asks O’Neill. It is brought to him, and it’s the work of a US engineering consultancy, who have estimated that using US engineers, and providing a US standard water and sanitation infrastructure will indeed cost several billion dollars. Says O’Neill: but all you need is a simple system which provides one reliable well near each village – it wouldn’t cost Uganda anything like a billion dollars- especially if you used local engineers. I think the rough figure O’Neill worked out was in the tens of millions of dollars- not an unfeasible amount if you remember what was spent on the Polio immunization campaigns.

    Sorry, John, but unless I’m missing something I think your reasoning here is complacent and lazy.

  2. November 19th, 2004 at 06:30 | #2

    A few random comments: The situation in Iraq is complicated by the ongoing unrest, the need for security and the threat of sabotage, however I would like to see more publicity given to the difference in cost estimates between local and foreign contractors.

    That applies in other countries like the Uganan example. It is crazy to think that Third World problems need First World solutions in the first instance.

    It has long been known that Government to Government aid to the Third World is almost completely wasted.

    Big Government is a part of the problem, with a large part of the budget being devoted to corporate welfare. Roll on the minimum state!

  3. November 19th, 2004 at 06:59 | #3

    Perhaps some small level of corruption is to expected, but if that’s the case then it can be accounted for and minimised, by putting some measurements in place, and increasing scrutiny in a very formal and public way. An expected problem is still a problem! And is still illegal!

    The economic benefit can be increased and realised through disintermediation and more concrete measurable benefits of any investments. This is a common problem with foreign-aid and NGOs, the solutions are not unique either. Technology and skill transfers are crucial in this period.

    Ultimately, a simpler more direct and local approach to development/reconstruction will not only increase the active participation and empowerment on people directly affected. It also helps generate support for reconstruction, and the local involvement becomes a significant barrier to the resistance forces.

  4. John Quiggin
    November 19th, 2004 at 07:03 | #4

    Dan, no problem about dual postings. I agree with what you say about the excessive reliance on foreigners, which has been a disastrous aspect of the occupation. In fact, I posted on this point over a year ago.

    And I don’t see how the point you’re making differs from what I’ve said. I’d endorse more use of Iraqi contractors, and accept more corruption and less accountability as part of the price.

  5. November 19th, 2004 at 09:13 | #5

    I agree that the corruption in the Oil-for-Food program was forseeable. The real implication of this story is how it relates to the justification for BushWarII. The argument went something like, “Why would Saddam refuse to allow U.N. inspectors if he WASN’T hiding WMDs?” The simple, obvious answer is “because he was stealing billions of dollars from the U.N. in the oil-for-food program.” The real point of this story is that it shows it NEVER made sense to view Saddam’s refusal to allow inspectors as evidence that he had WMDs. This story is actually more ammunition for the anti-war crowd.

  6. Katz
    November 19th, 2004 at 10:38 | #6

    JQ makes a telling point about the impolicy and perhaps immorality of allowing the proven cases of corruption to divert well-intentioned people from supporting reconstruction efforts in Iraq.

    And I believe there is a good case for arguing that the US legal system is more likely to punish American and other malefactors and to deter would-be malefactors who defraud the US Government than any tribunal that might sit in judgment over those who defraud the UN programs.

    On the other hand, the will of the Bush clique to punish cronies seems very weak or non-existent.

    An opportunity exists for the construction of a coalition of anti-Bush forces (conservative and liberal) in the US Congress to monitor, to warn, and to threaten punishment of Bush’s fraudsters.

    In the meantime, however, I believe that it can be argued that the quality of life of Iraqis is less dependent on the effectiveness of reconstruction programs than on the establishment of political stability.

    To put it bluntly, what’s the point of rebuilding even a cheap bridge if it is destined to be blown up again in the forthcoming civil war?

  7. vernaculo
    November 19th, 2004 at 13:31 | #7

    As long as you start somewhere in the middle of the chain of circumstance, it’s relatively simple to make the case that reconstruction depends on political stability, because it does.
    The assumption being that instability proceeds from something other than the American presence, and once the resistance is subdued or removed entirely Iraq can commence its rebuilding, with American assistance playing the part of benevolent guide and patron.
    Which is true as far as it goes.
    Just as it would be true that I could assist in the rebuilding of your home, and the equitable reassigning of your possessions, possibly even the care of your children, once my invasion and occupation of your home was complete. Depending on how vehemently you resisted that invasion and occupation, of course.
    We would have to wait until you stopped fighting back, in other words, before we began to improve conditions, once I entered the premises.
    And let’s not talk about what business I had invading your home to begin with – it’s much too complex an issue and it’s now fait accompli anyway.
    As far as ‘silliness’ pertaining to accusations of immorality about the invasion and occupation, or to accusations of Halliburton’s obscene and corrupt profits as condemnatory of the entire operation, it’s only distance, moral and emotional, from the carnage that makes that word possible.
    Halliburton’s corruption, Saddam’s iniquity, even Bush’s deceit and incompetence are all side issues. Iraq is being metabolized.
    Working out the details of reconstruction, even as an academic exercise in that light would be silly in the extreme if it weren’t happening as a result of something so appalling.
    The presence of the American military in Iraq is an ongoing criminal act under international law, and even if it weren’t statutory it would be, and is, immoral by any accurate definition, and repugnant.

  8. kyan gadac
    November 20th, 2004 at 12:49 | #8

    Of course the other obvious implication of the presence of corruption in Iraq, is that it implies that corruption is at the heart of U.S/U.K government policies, given that they’re the driving force in the quoted examples.

    I suppose we shouldn’t be outraged by this either, gee, think of all those starving kiddies we’re saving, lie back and think of England!

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