14. Taking the Mickey, the Toilet Seat and the Hammer … in a Galaxy Far, Far Away
The attitude to the FCPA reflected the Reagan administration’s general support for business and the defence sector in particular. By the end of Jimmy Carter’s administration, military spending was at its lowest level since 1951, consistent with US security needs. The US was not involved in any major conflict and détente with the Soviet Union had resulted in rough nuclear parity. However, to conservative hawks, including California’s Governor Reagan, the Soviet Union was a military colossus in whose shadow the puny US was cowering.
George H. W. Bush, then Director of the CIA, constituted a panel, called Team B, to revise the official intelligence assessments of Soviet military strength. It included the hardline hawk Paul Wolfowitz. Armed with this information Reagan savaged the Carter administration throughout the presidential campaign of 1980 on its wimpishness in the arms race. Reagan, of course, had spent much of the 1950s giving anti-communist speeches as a representative of the General Electric Company.1
On assuming office, Reagan delivered on his rhetoric. With his hard-line Defense Secretary, Caspar Weinberger, he pushed through $75bn in additional military spending in 1981 and 1982 alone, hitting a top line of $185bn in the fiscal year 1982 – a 39 per cent increase over 1980 levels. By the end of Reagan’s second term military spending doubled, marking the largest peacetime military build-up in US history. This was a massive windfall for the MICC, with, for instance, Lockheed’s Pentagon contracts doubling to $4bn a year from 1980 to 1983.2
Resistance to this massive build-up was slow in coming, partly because of its popularity among ordinary Americans. But towards the end of Reagan’s first term, criticism was voiced of both the excessive size of the build-up at a time of growing deficits and social needs, and fear that the massive increase in nuclear weapons could exacerbate the risk of a superpower nuclear confrontation. The latter led to the nuclear freeze campaign, one of the most inspiring citizens’ movements of the twentieth century, while the former forced at least a slow-down in the military build-up.
Among the most effective tools of Reagan’s critics were two vastly overpriced items: a $600 toilet seat and a $7,662 coffeemaker. At a time when Caspar Weinberger was telling Congress that there wasn’t ‘an ounce of waste’ in the largest peacetime military budget in the nation’s history, the spare parts scandal opened the door to a more objective – and damning – assessment of what the tens of billions in new spending was actually paying for. It also opened up Weinberger to ridicule, symbolized most enduringly in a series of cartoons by the Washington Post cartoonist Herblock in which the Defense Secretary was routinely shown with a toilet seat around his neck. Appropriately enough, the coffeemaker was procured for Lockheed’s C-5A transport plane, the poster child for cost overruns and abject performance.3
A young journalist, who had been mentored by the Pentagon whistle-blower Ernie Fitzgerald, was central to exposing the scandals. Dina Rasor fingered the aircraft engine makers Pratt & Whitney for thirty-four engine parts that had all increased in price by more than 300 per cent in a year. A procurement official noted in the memo which revealed the scam that ‘Pratt & Whitney has never had to control prices and it will be difficult for them to learn.’4 The Air Force responded that the increases were justified, confirming Fitzgerald’s view that ‘Generally the public relations people [in the Air Force] lie instinctively, even when the truth would serve them better.’5 This profiteering at the taxpayer’s expense was surpassed by the Gould Corporation, which provided the Navy with a simple claw hammer, sold in a hardware store for $7, at a price of $435. The Navy suggested the charges – $37 for engineering support, $93 for manufacturing support and a $56 fee that was clear profit – were acceptable.6
Further revelations included Lockheed charging the Pentagon $591 for a clock for the C-5A and $166,000 for a cowling door to cover the engines. The exorbitant coffeemakers were exposed as poorly made and needing frequent repairs. Lockheed was also billing the taxpayer over $670 for an armrest pad that the Air Force could make itself for between $5 and $25. Finally, it was discovered that a $181 flashlight was built with twenty-year-old technology and a better one could be bought off the shelf for a fraction of the cost.7
Lockheed defended itself by pointing out that spare parts were only 1.6 per cent of the defence budget, suggesting that those uncovering the fraud, waste and abuse were the enemies of peace and freedom and should remain silent in the interests of national unity in the face of global adversaries. Ernie Fitzgerald again brought sanity to bear, by suggesting that an overcharge was an overcharge, and that the same procurement practices used with toilet covers and coffeemakers when applied to whole aircraft like the C-5A made the planes ‘a flying collection of spare parts’.8
Rasor also revealed that the Air Force planned to pay Lockheed $1.5bn to fix severe problems with the wings on the C-5A that the company itself had created. The wing fix was little more than a multibillion-dollar bailout for Lockheed.9
Despite this litany of disasters, the Air Force engaged in illegal lobbying to help Lockheed win the contract to build the next-generation transport plane. In August 1981, a McDonnell Douglas plane was selected for the project, with the Air Force concerned about Lockheed’s proposed C-5B. Two weeks later the Air Force reversed its decision. Rasor could not believe that the Air Force ‘would want to have an updated version of one of its most embarrassing procurements’.10 She and Ernie Fitzgerald concluded that this had to be yet another bailout of the company.
When Boeing then put forward an impressive and much cheaper alternative and Henry Jackson, known as ‘the Senator from Boeing’, persuaded his Senate colleagues to support it, the Pentagon, Air Force and Lockheed leaped into action. A ninety-six-page lobbying plan detailed the use of generals, the Senate majority leader Howard Baker, the Secretary of the Air Force, the Deputy Secretary of Defense and President Reagan himself to secure the votes of lawmakers. The civil rights leader and Atlanta mayor, Andrew Young, was drafted in to lobby members of the Congressional Black Caucus.11
The Pentagon and Lockheed coordinated assignments with the manufacturer calling the shots, to the extent of drafting the Defense Secretary’s position paper on the C-5B,* while the Air Force provided customized pictures for use in a full-page ad in the Washington Post. But the heart of the lobbying effort was pure pork barrel politics. The House Speaker ‘Tip’ O’Neil, Representative Glenn Anderson and Senator Carl Levin of Michigan were brought onside by subcontractors with the prospect of jobs in their areas.12
Once the lobbying scheme was exposed, the Air Force and Lockheed were unapologetic, with Lieutenant General Kelly Burke, who oversaw the C-5 programme, claiming: ‘You’re just wrong if you think this is a highly unusual happening … all you’re seeing is democracy in action. This is how the system is supposed to work.’13
Not everyone agreed. A General Accounting Office report called for investigations of possible criminal violations of the law restricting lobbying activities by executive branch officials and whether the coordination with contractors also violated the law. On the second point, the report noted: ‘Since the Air Force is prohibited from directly mounting a grassroots lobbying campaign … it follows that it may not engage in a network of defense contractors to do the same thing.’14 The GAO felt strongly that salaries paid to Air Force and Defense Department officials during the joint lobbying campaign with Lockheed were an improper use of public funds. Ernie Fitzgerald was highly sceptical whether the referral of these matters to the Justice Department would go anywhere, suggesting it was like ‘asking the King’s lawyers to prosecute the King’s men for doing the King’s business’.15 Calls for a special prosecutor to investigate the case were ignored. Fitzgerald was proved right.
This incident captured the structural malaise that continues to affect the procurement process. As Bill Hartung points out:
All the same elements are present when weapon systems are up for debate: Industry and Pentagon lobbyists swarm Capitol Hill; pressure is ratcheted up on members of the Armed Services and Defense Appropriations Committee in the House and Senate, many of whom have had key production facilities placed in their states or districts; key members receive generous political contributions from the producer of the system and its subcontractors; and official reports and testimony are created that make a one-sided case for the weapons system in question, often with the aid of the contractors.16
This is the iron triangle in action, leading to gargantuan defence budgets and questionable weapons purchases.17 Even liberal lawmakers who often denounce waste and abuse in the military budget are transformed into military budget boosters when the possibility of weapons being built in their areas arise. For instance, an attempt to kill the F-18 project due to extreme cost overruns and performance problems was strongly countered by the prominent liberals Ted Kennedy and Alan Cranston, just as Cranston had supported the Lockheed bailout a decade earlier.
Reagan’s pet project, however, was the missile defence programme. In March 1983, in response to dire approval ratings and with 57 per cent of the country worried that he might involve the US in a nuclear war, Reagan pledged to find technologies that would render nuclear weapons ‘impotent and obsolete’ in what became known as his ‘Star Wars’ speech.18 The Secretary of State, George Shultz, regarded the notion, which had been championed by the conservative ‘Prince of Darkness’ Richard Perle, as ludicrous. Lockheed was responsible for, and benefited financially from, one of the myriad technologies that comprised the Strategic Defense Initiative (SDI). Its Homing Overlay Experiment – interceptor warheads that would unfurl umbrella-like spokes – was tested successfully in June 1984, after three failed tests had threatened the future of the initiative. To this day the company brags about the test which, it turns out, was rigged. A decade later the GAO reported that the mock warhead used in the test had been ‘enhanced’ to make it easier to hit. By that time $35bn had been spent on Star Wars. So, displaying its customary lack of ethics, the company cooperated with the Army to once again dupe the American taxpayer out of billions of dollars.
The Reagan administration that was so desperate to reward defence contractors, and particularly Lockheed, was equally determined to remove as many regulatory restraints on the private sector as possible. And this included weakening the provisions of the FCPA. In 1988, in response to business lobbying, amendments were made to the Act that weakened its effectiveness. The ‘grease payment’ exception was widened from the original definition including just officials ‘whose duties are essentially ministerial or clerical’ to all officials where the purpose was for a ‘routine governmental action’. According to Senator Heinz, one of the principal sponsors of the amendments, the changes embodied an effort to eliminate some exportation obstacles facing US firms in the era of a burdensome trade deficit.19
And a clause prohibiting any payment to a third party ‘while knowing or having reason to know that all or a portion’ of the payment would be used to bribe foreign officials was amended to exclude the ‘reason to know’ phrase, so that liability only applied where the payment was made with ‘knowledge’ that it would be used for bribery. This is a much harder test to prove. Also added were two defences, to wit: if payment was lawful under the laws and regulations of the foreign country, and if the payment was reasonable expenditure on behalf of a foreign official for promotion of a transaction or contract with a foreign government or agency.20 This is of course highly relevant when dealing with pervasively corrupt countries such as Saudi Arabia.
There is also a national security exception to the FCPA which the CIA added as it was adopted. This exemption means that any company taking part in what the CIA has designated a national security operation does not have to inform the SEC of foreign payments. A memorandum from a meeting between the CIA general counsel and a Congressional investigator, Peter Stockton, in 1998 showed that there were a ‘whole series’ of US companies exempted from notifying the SEC, as they were CIA fronts. Stockton wrote: ‘How does the SEC assume that there are no abuses by companies with these exemptions … is it a license to bribe?’21 This was a massive boon for the arms trade, both the formal companies and the many dealers contracting business in or with the US. For instance, the massive payment of bribes to facilitate the Iran–Contra fiasco was exempt from the jurisdiction of the FCPA.22
Iran–Contra, which in the words of the independent counsel in the investigation, was ‘a conspiracy that drew in the chief actors of the [Reagan] administration’,23 violated the Arms Export Control Act and contravened at least one other Act of Congress. The scandal and its cover-up, which also involved the Saudis and Israelis, eventually led to the conviction of eleven members of President Reagan’s administration, including the Defense Secretary, Caspar Weinberger. George H. W. Bush, Vice President at the time, pardoned all eleven when he became President. Iran–Contra remains one of the most egregious examples of the illegal use of the arms trade in pursuit of political objectives, and profit. It also reiterates the extent to which arms-trading activities, in pursuit of covert goals, are above the law, including the FCPA.
* * *
For the Pentagon insider Chuck Spinney, the Reagan years marked the apex of military madness. Informed by his involvement in the small group around John Boyd, in 1980 Spinney produced a document entitled Defense Facts of Life which sharply criticized defence budgeting. It explained how the pursuit of complex technology produced expensive, scarce and inefficient weapons. Like an addict destroying his life, the Air Force had spent so much on its addiction to expensive and technologically overcomplicated systems that it couldn’t maintain those systems. The technology tail was wagging the dog. He believed that a propensity towards expensive high-tech product development and acquisition was weakening America’s defences from within. The folly of this approach was displayed in the Iran hostage crisis, in which the mission to free the hostages held by Iranian revolutionaries in April 1980 failed miserably due to a series of technical equipment failures, including a crash involving two of the US helicopters.24
Senator Sam Nunn became interested in the work of the Military Reform Movement and asked to see Spinney. The Pentagon said no. Nunn threatened to use a subpoena before it relented. The Senator requested an unclassified report on the material. Spinney spent that Christmas writing it up.
The new year heralded the arrival of the Reagan administration and the new Defense Secretary, Casper Weinberger. Spinney describes Weinberger’s Senate confirmation as ‘a big love-in because all these guys in the Armed Services Committee want to do is throw money at the Pentagon’. And Sam Nunn was thought of as one of them by Spinney. As he tells it:
Nunn is considered to be a wholly-owned subsidiary of the Pentagon. No one is expecting anything from him. But he said: ‘I have this report in my hands, the more money you spend the worse things are going to get and this report is being squelched in the Pentagon.’ The press went berserk, demanding the report. It caused a run on the Pentagon, they printed over 2,000 copies. So all of a sudden I am persona non grata big time and I get the order ‘you are not working on this any more.’ So I said ‘OK.’ I had already figured out that going specifically into the procurement programme was the next step, so I just started working on that.25
Spinney commenced work on what he called The Plans/Reality Mismatch,26 which revealed the disparity between what the defence sector had promised at the time it sought Congressional appropriations for certain programmes and what was ultimately delivered. It showed that when quantities went down, costs went up. Explosively, Spinney exposed the vast gulf between the amount requested for the defence budget and the actual amount spent: Reagan’s real defence spending was at least $500bn more than the five-year total he had projected in his request for the 1984 budget. ‘But, of course, no one wanted to see that type of thing.’ To thwart Spinney his bosses commissioned an evaluation of his work. Because they refused to release his findings, Spinney started to give briefings on his work to the press in motel rooms in the evenings.
Out of the blue I get a call from an acquaintance in the office of the Defense Secretary. ‘I have got something I want to show you.’ He shows me an Air Force study and while I am reading this thing he says: ‘You know this study is saying the same thing you are saying, saying it differently, but it is basically in agreement.’ And I am saying, ‘yeah, yeah, I would sure like to get my hands on this.’ And he says, ‘well it’s yours.’ So here we have this unclassified document put together by a bunch of retired 3 and 4 star generals and it basically says they are in a melt-down.
The Pentagon is starting to go bonkers because all the reporters want my report, which most of them have seen now. We unleashed the Air Force report, and then the Heritage report came out [saying something similar].
Senator Grassley, who was a freshman Senator from Iowa, very conservative, heard about this and was really interested. Bear in mind this is at the height of Reagan’s popularity and Grassley decides he is going to take Reagan on. Which was gutsy. He decides he wants to have a meeting with me, but they are telling me that I can’t have a meeting with him. But John [Boyd] tells me: ‘OK, Chuck, I am not going to tell you anything but you just be in your office for the next couple of hours.’ What I did not know was that Grassley got into his car and drove over to the Pentagon, walked up to the Secretary of Defense’s office, barged in and says ‘I want to meet Chuck Spinney.’ So they say to Grassley that I am not available. Grassley knows, of course, that I am available, so he is pissed and thinks: ‘I am a senator and he can’t do that to me.’ So he goes back and uses the stonewalling to build-up momentum for a hearing. By March [1983] he had built support for the hearing and they were going to subpoena me. Weinberger said: ‘just let him go over, they’ll forget about it in a couple of weeks.’
Now Time decide they want to do a story on it. They are trying to decide what to put on the cover. They were talking about Boyd, but he didn’t want to do it. John basically said to them: ‘Look, you’ve got to put Spinney on the cover and the reason is very simple. From your standpoint it’s David versus Goliath and he is going to need protection because when they have this hearing his ass is grass.’ They said ‘OK’ and he says ‘I will see if Spinney will go along.’ So the next day Boyd says to me, ‘Do you want to be on the cover of Time?’ And I said ‘fuck no!! Jesus Christ!!’ He says ‘listen, when we have this hearing you know what is going to happen, this is the best insurance you can possibly get. You think about it and let’s talk tomorrow.’ I thought about it and he was right, there was no choice, I had to do it.
Meanwhile the Pentagon convinced Senator John Tower, Chairman of the Senate Armed Services Committee and another of their wholly-owned subsidiaries, to hold the hearing on a Friday because everyone leaves town on a Thursday, and you get a little coverage in the weekend papers and it’s over. This is a standard tactic of the Pentagon’s. They were going to put it in a little tiny room. Grassley went berserk. He says ‘we are having a joint hearing.’ It’s the only time they have ever had a joint hearing of the Senate Budget and the Senate Armed Services committees. It ends up being in the Caucus room where they had their Oliver North and the McCarthy hearings. It’s a standing room only crowd. To give you an idea as to how stupid the Pentagon was, the Time guys that week are lathering up all the people in Congress, going around the hill saying: ‘listen we are putting Spinney on the cover, we are going to make a big deal about this hearing.’ So all the members want to show up at the hearing. The Pentagon did not have a clue. It’s just incredible.
Finally, I give the presentation for two hours in front of eight TV cameras.
Time came out on the following Monday. Before it had been delivered to the Pentagon there was a staff meeting in Weinberger’s office. I had a friend who was there and he told me that John Layman, Secretary of the Navy said, ‘Well that Spinney thing is taken care of. There was a couple of blurbs at the weekend but that’s the last we are going to hear of that’. Then the Time story was released and all hell broke loose. They had to take several truckloads of copies to the Pentagon. Walt Mossberg, the Wall Street Journal reporter, calls me up and he says ‘I was on the phone to the Assistant Secretary for Public Affairs and he is reading me the riot act about an article I wrote which didn’t have anything to do with you. They are just complaining about what I wrote and all of a sudden the Assistant Secretary goes, ‘Oh my god, oh my god.’ Mossberg goes ‘what’s the matter?’ ‘I just got hold of Time Magazine and Spinney is on the cover.’ And Mossberg says ‘ahh that’s just a joke, they are just jerking your chain.’ And he says ‘no, no it’s true, it’s true, I got to go.’
My buddy Ray Leopold came in with a whole stack of them and handed them out. He gave one to Boyd, who was sitting there with his feet up on the desk, leaning back and he looks at it and just threw it over in the corner and says, ‘well that’s done.’ By his action he was telling me in effect ‘look this is just business, don’t let it go to your head.’ But it caused a huge ruckus and really gave a big boost to the reform movement. Grassley has said in several speeches on the Senate floor that it was that hearing, and our work, that enabled him to put together the coalition that froze the Reagan budget in 1985. So it had a big impact.
After this momentous intervention, Spinney was left alone. He continued to work on inefficiencies within the defence system. But they were afraid to even look at it seriously. ‘The long and short of it,’ says Chuck, sitting in his Alexandria apartment, ‘from 1988/89 I was never given anything to do. Until I retired in 2003 I was not given one official task. But I was a busy guy. I produced more stuff than anybody in my organization.’
* * *
Reagan’s profligacy continued under George H.W. Bush, whose military spending breached $450bn in 1989.27 Hardly surprising given that both Bush’s grandfathers were present at the creation of the MICC and its intelligence-gathering adjunct, the American International Corporation.28 The Walker and Bush families have epitomized and risen alongside the emergence of the complex, the post-1945 national security state and what the dynasty’s chronicler, Kevin Phillips, describes as the twenty-first-century imperium.29
Crucial to the Bushes’ rise to fortune, if not fame, has been their business relationship with the Saudi royal family. Craig Unger, author of House of Bush, House of Saud, calculates that approximately $1.4bn was transferred between individuals and entities connected to the House of Saud and those connected to the Bushes. The House of Bush is defined here as George W. Bush, George H. W. Bush, James A. Baker III, Dick Cheney and the major institutions they are tied to, including the George H. W. Presidential Library, the Carlyle Group and Halliburton. The House of Saud includes members of the royal family, companies controlled by them and members of the merchant elite such as the bin Laden and bin Mahfouz families, whose fortunes are closely tied to the royal family.30
An Air Force mate of George W.’s, James Bath, acted as a gatekeeper to provide the Saudis with access to the Bushes. He was very close to the bin Laden business empire, especially Salem bin Laden and another Saudi businessman, Khalid bin Mahfouz, whom the CIA, probably erroneously, identified as a half-brother of Osama bin Laden. Bath was also connected with a number of those involved in the Iran–Contra scandal. He invested $50,000 in one of George W.’s early oil companies.31 When the company was bought by Harken Energy, with George W. becoming a Harken board member, a Saudi investor, Abdullah Taha Bakhsh, became the company’s third-largest investor.32
The controversial Carlyle Group is the other major string in the links between the Bush family and the House of Saud. The group was, at its inception in 1987, a new business model in private equity investing. It was effectively built from the ground up to specialize in taking advantage of the revolving door mechanics of governments.
The story of Carlyle exemplifies the MICC in one company, with the coming together of an expansive US military, big business and high-power politics. Carlyle has targeted companies to invest in, whose business is largely determined by the actions of government; whether through regulatory change, because the government provided the company’s contracts or as a consequence of Carlyle’s big political names opening doors around the world. By having special knowledge of the political future or being able to change the political present, Carlyle was ranked the largest private equity firm in the world, mastering the art of ‘access capitalism’. The firm’s Washington offices are at 1001 Pennsylvania Avenue, at the heart of US power. In 2010, the company had $90.5bn under management.33
The Carlyle political glitterati have included Bush senior, his Secretary of State, James Baker III, who was reported to have introduced Carlyle to members of the Saudi royal family,34 and George W., who in 1990 was appointed to the board of directors of one of Carlyle’s first acquisitions, an airline food business. Bush left the board in 1992 to run for Governor of Texas.35 After his election Governor Bush appointed the members of the board responsible for the Texas teachers’ pension funds, which a few years later chose to invest $100m in Carlyle.36 Frank C. Carlucci, the Carlyle chairman and chairman emeritus from 1989 to 2005, was a former Secretary of Defense,37 while Arthur Levitt, Chairman of the SEC under Bill Clinton, has been a Carlyle Senior Advisor from 2001.38 The former British Prime Minister, John Major, joined Carlyle as an adviser in 1998, and was chairman of Carlyle Europe from 2002 until 2005.39 Fidel V. Ramos, former President of the Philippines,40 and Thaksin Shinawatra, twice Prime Minister of Thailand and thereafter found guilty of corruption, in abstentia, were both members of Carlyle’s Asia Advisory Board.41 The company has also boasted a former White House Chief of Staff to Clinton,42 a former Under Secretary of the US Treasury under George W.,43 a retired four-star US General, who is also on the board of BAE Systems Inc. (BAE’s US subsidiary),44 and a two-term Chairman of the Joint Chiefs of Staff in the Clinton administration.45
The Carlyle Group has established a number of firsts in the US, including the first time a former President has toiled on behalf of a defence contractor and the first time a former President advised his son, while the latter was holding office, on foreign policy decisions that had a direct impact on the financial fortunes of them both.46
‘It’s not possible to get closer to the administration than Carlyle is,’ asserted Charles Lewis, Director of the Center for Public Integrity during the administration of George W. Bush. ‘George Bush senior earned money from private interests that worked for the government of which his son was President. You could even say that the president could one day profit financially, through his father’s investments, from the political decisions he himself took.’47
Carlyle has a prominent role in the arms business. At one time, Carlyle’s combined investments in the arms industry made it the US’s eleventh-largest defence contractor and a major arms exporter to Turkey and Saudi Arabia.48
In the UK it was involved in the highly controversial privatization of the arms research company QinetiQ, from which the group and a number of civil servants made enormous profits after acquiring a stake in the company before it was floated on the Stock Exchange. The top ten managers gained a return on investment of 19,900 per cent. Accusations were levelled that the initial stake sold by government was significantly undervalued.49
In October 1997, Carlyle acquired United Defense Industries.50 It went public on the New York Stock Exchange in December 2001 with Carlyle retaining a stock ownership position. United Defense primarily supplies the US military and is known for the Bradley Fighting Vehicle, and purchased the Bofors heavy-weapons division in 2000.51 Carlyle completed the sale of all of its United Defense stock and exited the company in April 2004.52 The next year BAE purchased United Defense.53 Carlyle sold another significant arms business, Vought, in March 2010 for $1.44bn.54 It makes components used in the F-22, the F-35, Black Hawk helicopters and the Global Hawk UAV.55
Through a 51 per cent joint venture with the Saudi government, Carlyle’s United Defense provided tactical training and maintenance for the thousands of Bradley Fighting Vehicles purchased by the Royal Saudi Land Forces after the Gulf War.56 Carlyle was also, for a time, the official offset adviser to Saudi Arabia,57 in charge of the programme in which US companies dealing with the Saudi military were supposed to invest 35 per cent of earnings from every sale into the kingdom.58 This programme was described as ‘a disaster’ by a Saudi official.59
The closest link between Carlyle and the Saudi military establishment occurred shortly after the appointment of Frank Carlucci to the company’s board. In 1990, he spearheaded the $130m acquisition of BDM Consulting. BDM was a specialist in the defence-contracting business and had a formidable network of contacts thanks to its CEO, Earle Williams, a close friend of Carlucci. At the time, defence contracts were being slashed as the Cold War ended and cheap buyout opportunities were everywhere. Carlyle identified a target, Vinnell, arguably the first modern mercenary corporation hired by the US government.
Vinnell started out building airstrips during the Vietnam War, but by the 1970s was training Saudi troops to protect oilfields. Traditionally, the US government provided military training to foreign governments directly. However, in 1975 Vinnell won a $77m contract to train the Saudi Arabian National Guard, the first time an American civilian company obtained an independent contract to provide a foreign government with military services. The contract has been renewed ever since for a total estimated value of almost $500m.60 Another five-year contract, awarded in 1998, has an estimated value of $831m and involves 280 US government personnel and 1,400 Vinnell staff at various locations in Saudi Arabia.61
Carlyle sold its interest in Vinnell in 1997.62 It is currently owned by Northrop Grumman and has raised eyebrows around its profligate political giving. Between 1990 and 2002, Vinnell gave $8,517,247 in US campaign contributions, a close second to General Electric’s $8,843,884.63
But the most profound connection between Carlyle and Saudi Arabia is in the direct investments placed by the royal family in the private equity house. When the group started working in Saudi Arabia in the early 1990s, it operated through Prince Alwaleed bin Talal bin Abdul Aziz Al-Saud,64 a nephew of King Fahd.65 Alwaleed bin Talal has become one of the biggest foreign investors in the United States with investments in Citicorp, Compaq, Disney and Kodak. A 2001 CNN report identified him as the sixth-wealthiest man in the world.66 The source of all of the Prince’s wealth is not known but he acted as a middleman linking foreign construction businesses and Saudi companies. In 1991, when Citicorp was close to collapse after the savings and loans crisis, the Prince invested $600m in the company in a deal facilitated by Carlyle, which handled the political and regulatory ramifications of a massive Saudi investment in a US bank.67 The funding was viewed by some as a quid pro quo for the US intervention against Iraq in the Gulf War.68 ‘The deal gave us an enormous profile in Saudi Arabia,’ says Stephen Norris, one of the founders of Carlyle.69 Thanks to that deal and the access provided by Prince Alwaleed bin Talal, Carlyle expanded its business in the kingdom exponentially. The following year Carlyle bought Vinnell.
Investors in Carlyle have included Princes Sultan and Bandar. In addition, they encouraged other wealthy Saudis to invest as a favour to George H. W. Bush.70 Carlyle claims that Saudi citizens have invested less than 1 per cent of the capital that it manages. However, a former Carlyle employee suggests that the firm doesn’t know the origin of some funds invested from offshore havens such as the Cayman Islands. The firm denied this.71 One of the most important Saudi investors in Carlyle was the bin Laden family, who invested at least $2m in 1995.72 A significant factor in the deal was the drawing power of James Baker, who ‘knew them very well’ and was the family’s ‘favourite politician’ according to Charles Schwartz, a Houston lawyer who represented bin Laden family interests in Texas.73 Shafiq bin Laden was the family’s representative at Carlyle conferences and at a group investors’ conference in Washington DC when the 9/11 attacks occurred.74
* * *
The end of the Cold War, a watershed for the defence industry, and the denouement of the Reagan era, heralded not only the indictment of Oliver North and his cronies – including arms agent Sam Cummings, who had links to the Merex network – but also ultimately saw the sobering corporate collapses of Enron, Worldcom and others. Defence spending started to reduce at the beginning of the nineties, as the US, in the words of the head of the Joint Chiefs of Staff, Colin Powell, ‘was running out of enemies’.75 The consequent defence cuts, which saw arms procurement and research fall to half the levels attained at the height of the Reagan military build-up, led to significant restructuring of the sector.
Lockheed used the opportunity of consolidation to transform itself into the world’s largest weapons manufacturer through a series of mergers and acquisitions. The most significant was with Martin Marietta in 1995, creating Lockheed Martin and installing Norm Augustine as the merged entity’s CEO. The following year, Augustine paid a massive $9.1bn for the defence electronics company Loral Corporation. The behemoth, which topped the list of Pentagon-financed companies year after year, became the number one recipient of funds from NASA, number two on the Department of Energy’s list of nuclear weapons contractors and a major supplier of goods and services to the IRS and the US Postal Service. During the 1990s the company also diversified for a few years into the provision of social services.76
Under Augustine’s leadership Lockheed Martin intensified its lobbying efforts to unparalleled heights. As Hartung has noted, the CEO was not just wired into the Washington policymaking process, ‘for much of his career he had been one of a handful of people drawing up the blueprints for American defense policies and deciding where the wiring should be placed’.77 In addition to running the world’s largest defence contractor, Augustine served on the Defense Policy Advisory Committee on Trade (DPACT), part of the network of little-known organizations ‘that often outrank Congress in their influence over the size and shape of the [defence] budget’.78 DPACT provides confidential advice to the Secretary of Defense on arms export policies. Augustine also chaired the Defense Science Board – a Pentagon advisory panel with the power to approve or reject nascent weapons programmes – and was president of the Association of the US Army, made up of retired army personnel and major contractors.
He had turned down an offer from President George H. W. Bush to serve as his Defense Secretary but was a long-time business associate of William Perry and John Deutch, who went on to become Defense Secretary and CIA Director respectively in the Clinton administration. Augustine used his connections quite blatantly not only to influence all manner of public policy but also to help his company win new contracts and subsidies.
These personal links and the organizations in which Augustine played so prominent a role exemplify why the arms business in the US is a closed shop that cannot operate in the best interests of taxpayers but rather serves the contractors and the military hierarchy.
In the first three years of Clinton’s term Augustine vigorously promoted a series of major initiatives that yielded billions of dollars for the company. His boldest move was the creation of a government policy that subsidized the arms industry mergers of the time with taxpayer dollars, yielding billions of dollars for the merged Lockheed Martin. He was also pivotal in creating new subsidies for arms merchants and their preferred customers – a $15bn loan guarantee fund to finance US arms exports and a $200m-plus tax break for foreign arms purchasers. And he was key in persuading the Newt Gingrich-led, Republican-controlled Congress to add billions in funding to key Lockheed Martin projects, ranging from the F-22 combat aircraft to the ‘Star Wars’ missile defence programme. The F-22 was built in a factory adjacent to Gingrich’s Georgia district.
The intense lobbying of Augustine and his successors, and the welcoming attitude of lawmakers, made it virtually impossible to reduce the military budget to reasonable levels, even in times of reduced threat such as the immediate post-Cold War period.79
Augustine’s modus operandi was laid bare in Congressional scrutiny of Bill Clinton’s decision to implement the policy that yielded billions of dollars in Pentagon ‘restructuring costs’ to companies like Lockheed, Martin Marietta and Boeing. A one-page memo from John Deutch, then Under Secretary of Defense, authorized federal funding for closing plants, relocating equipment, severance payments, and ‘golden parachutes’ for board members and executives. The memo was approved by the Deputy Defense Secretary, Bill Perry. Because of their business links to Augustine, both Deutch and Perry had to receive special conflict of interest waivers to approve the policy change advocated by their associate.80
It was revealed that Perry’s firm, Technology Strategies Alliances (TSA), had a contract with Martin Marietta until just a few months before his appointment to the Clinton administration. Deutch pocketed $42,500 in 1992 as part of a nine-year consulting arrangement with Augustine’s firm. In his letter justifying lifting the conflict of interest ban on Perry and Deutch vis-à-vis Martin Marietta, the Defense Secretary at the time, Les Aspin, argued that ‘for both Perry and Deutch the interest of the government outweighed the concern that a reasonable person would question their impartiality’.81 As if to emphasize the questionable nature of the arrangement, it was rushed through without notifying Congress and without publishing it in the Federal Register, where many significant government decisions are recorded.
The idea of the complex subsidies was that the costs the government put into restructuring would be recouped later from contracts for weapons systems. In reality, as a Reagan Pentagon official, Lawrence Korb, has noted, there is no evidence that any weapon system got cheaper as a result of the merger subsidies. In fact, weapons costs increased in their wake. Lockheed Martin benefited by as much as $1.8bn from the policy, while Augustine himself was the biggest beneficiary of the ‘golden parachute’ payments, in spite of ending up as CEO of the merged entity. He netted $8.2m in bonuses for ‘leaving’ Martin Marietta, of which almost $3m was paid for with taxpayer dollars.82 The more than 19,000 workers who were laid off in the merger received little assistance. No officials were willing to testify against the subsidies because, as one of them put it, ‘Norm Augustine really wants this’ and no one wanted to cross him.83 The ‘payoffs for layoffs’ scandal illustrated that a company like Lockheed Martin has too many resources and too influential a network for the average elected official to contend with.
Under Augustine, Lockheed had set a goal of doubling its arms exports within five years. A real obstacle to achieving this was that few countries could afford the multibillion-dollar cost of the company’s sophisticated weaponry. As Chairman of the DPACT Augustine led the effort to create a new arms export subsidy; a $15bn fund that would provide low-rate US government-backed loans to potential arms-buying countries. With the arrival of Newt Gingrich’s conservative revolution in Congress the fund was approved and signed by President Clinton in December 1995.
Armed with this new ‘open chequebook for arms sales’, Augustine and Lockheed’s vice-president for International Operations, Bruce Jackson, determined that their best hope of new business lay in an extended NATO. New entrants to the military alliance would be required to replace their Soviet-era weapons with systems compatible with NATO’s dominant Western members. Augustine toured Eastern Europe. In Romania he pledged that if the country’s government bought a new radar system from Lockheed Martin, the company would use its considerable clout in Washington to promote Bucharest’s NATO candidacy. In other words, a major defence manufacturer made clear that it was willing to reshape American international security and foreign policy to secure an arms order.
After stepping down as CEO in 1998, but remaining as chairman for another six years, Augustine went on to serve as an adviser to the CIA in forming its own venture capital company, In-Q-Tel. He was also an influential member of a panel established by the Defense Secretary, William Cohen, to assess whether the Marines should proceed with the production of a troubled aircraft, the V-22, produced by Boeing. Despite two crashes during testing that resulted in the deaths of twenty-three marines, Augustine opined that ‘the V-22 will turn out to be a very fine flying machine’.84 In typical Washington style, no one raised any questions about the conflict of interest in Augustine’s role in bailing out the project, given that his company and Boeing had been partners on multibillion-dollar projects such as the F-22. Augustine was awarded an honorary doctorate from Princeton in 2007. No one mentioned the damage done to the American taxpayer by the ease with which Augustine could use his government access to earn billions for his company.
Company Vice President Bruce Jackson was no slouch either when it came to influencing government policy to favour Lockheed Martin. He served as a Director of the neocon Project for the New American Century (PNAC), which, during the Clinton years, called for a ‘Reaganite policy of military strength and moral clarity’, active intervention against recalcitrant regimes like Saddam’s Iraq, not to say massive defence budgets.85 Jackson’s similarly hawkish confrères at the PNAC included Paul Wolfowitz, Donald Rumsfeld, Dick Cheney, former Congressman Vin Weber, who became a Lockheed Martin lobbyist, and George W. Bush’s brother, Jeb. While Jackson influenced direction from outside government, a troop of Lockheed Martin executives accompanied Cheney and Rumsfeld into the Bush administration. Cheney’s wife, Lynne, served on Lockheed Martin’s board from 1994 to 2001, earning $120,000 a year, before stepping down shortly before her husband took office with his own inextricable ties to Halliburton.86
Bruce Jackson, however, was also a Republican Party activist of standing. Prior to the party’s 2000 convention that nominated George W. and for which Jackson drafted the foreign policy platform, he was allegedly overheard telling colleagues from other arms firms that they had ‘nothing to worry about. I’ll be drafting the platform.’87 During the 1990s, Jackson chaired the US Committee to Expand NATO … and defence contractors’ market opportunities. The company spent furiously to influence votes in favour of expansion in the Senate. In the 1995/96 election cycle alone, the company and its executives distributed $2.3m in political donations.88
This all paid off when in late 2003 Lockheed Martin sold F-16s worth $3.8bn to Poland. The sale was accompanied by a subsidized loan that covered 100 per cent of the cost at a below-market rate and with no payments required for the first eight years. The cost to the US went beyond the subsidized loan. It included about $3bn in offsets, including an agreement to produce the planes’ engines in Poland, among other things. The reality is that while the deal may have been good for Lockheed Martin, it was not for other US firms and workers.
Bidding for the Polish deal was marred by corruption from the outset. On 7 July 2001, the Deputy Defence Minister, Romuald Szeremietiew, was suspended. His assistant, Zbigniew Farmus, was arrested on 10 July trying to flee the country on a ferry to Sweden. Farmus was charged with illegal access to state and NATO secrets, which were sold to bidding competitors, and soliciting bribes in exchange for contracts. Szeremietiew, who was in charge of weapons procurement, was suspected of complicity in the bribe taking and the leaks.89
Thereafter, in a revised process, Lockheed Martin’s F-16, Dassault’s Mirage 2000 and BAE/Saab’s Gripen were considered. A Polish commentator claimed that ‘Lockheed Martin didn’t win the contract, the US government did, with pressure and support coming from the very highest levels. They created a program that, politically and economically, was very hard to say no to.’90
A source with links to Lockheed’s competitors claims that the US tactics in the deal were not all above board, and allegedly included electronic eavesdropping of the European consortia and access to confidential competitor information. Threats were also supposedly made to curtail future procurement opportunities and the maintenance and upgrade of existing US equipment previously donated to Poland if the deal was not awarded to the Americans. Blocking multilateral financial assistance as well as limiting Poland’s role in NATO and US military planning in Europe and the Baltics were also allegedly threatened. I have been unable to verify this account with other sources, but assume that there may be kernels of truth amid the competitor hyperbole.
As the Polish News Agency has reported, since the completion of the deal, the F-16s have been dogged by problems. On two occasions jets have been forced to make emergency landings due to avionics failures. And, according to Newsweek Polska, ‘since the Polish Air Force began operating the F-16s in December last year, dozens of faults and defects have been detected in the fighter planes’ equipment. All repair costs are borne by the Polish military, because the Polish government failed to include clauses on guaranteed repairs and services in the purchase agreement. As of today, the defense ministry has ordered spare parts for the F-16 jets for $123m that are to satisfy demands until 2010.’91
So while on the home front Lockheed Martin and the MICC were taking the mickey, abroad the same actors were acting tough to get their way. But the good times were only just beginning.
* * *
As George W. and his Cabinet took up their posts in January 2001 the need for new sources of growth for US corporations was urgent: the tech bubble had burst and the Dow tumbled 824 points in their first two and a half months in office. Bush’s solution was to reduce taxes and grant lucrative government contracts.
Military thinkers and actors dominated the new White House and the key departments of state, both military and civilian. Over thirty senior arms industry executives, consultants or advisers were placed in key positions in the military and across government.92 To some it seemed they were there to disburse contracts back to their companies. This practice reached its zenith when the former COO of Lockheed Martin, Peter Teets, became Under Secretary for the Air Force and Director of the National Reconnaissance Office, a former Enron executive became Secretary of the Army, a vice-president of General Dynamics Secretary of the Navy and a Northrop executive Secretary of the Air Force.93
More than half a dozen important policy positions in the Bush administration were occupied by Lockheed Martin executives, lobbyists or lawyers, reflecting the influence of defence contractors across the breadth of government. They included Michael Jackson, who occupied the number two slot at the Department of Transportation, before becoming Deputy Secretary of the Department of Homeland Security (DHS). Jackson’s industry-friendly tenure at DHS ‘set the tone for a laxity in terms of contract oversight’ according to the department’s former Inspector General, who criticized the ‘undue use of no-bid contracts, [and] contracts that fail to deliver what’s promised even though billions of dollars have been spent’.94 During Jackson’s time at DHS, which ended in 2007, Lockheed Martin received in excess of $650m in contracts.95
In October 2001, with this coterie of arms industry executives firmly in place, the Pentagon awarded Lockheed Martin what could amount to a $382bn contract96 – the largest in US history – to build a strike fighter jet, the F-35, that might have been useful during the Cold War but is largely irrelevant to the military needs of the twenty-first century.97
When the Bush administration left office a number of these appointees went straight back into the defence industry, including the head of procurement at the Pentagon who went onto the Lockheed Martin board the day he left government. Bill Hartung stopped keeping records of people who went into the industry from the Bush administration, because there were so many of them.98
George W. Bush named the deeply unpopular Donald Rumsfeld Secretary of Defense, while the most senior apostle of a new militarism was undoubtedly Vice President Dick Cheney, who had served as Bush senior’s Defense Secretary before becoming CEO of the notorious Halliburton. The two hawks and other influential players in the administration, such as Paul Wolfowitz and Richard Perle, the leading neoconservatives, had for years been arguing for an extension of the Truman Doctrine and the wholesale privatization of warfare. From the early 1990s they spoke of ‘a world dominated by one superpower’ and a strategy ‘to prevent the re-emergence of a new rival’.99 In the most radical expansion of the Truman Doctrine, Paul Wolfowitz recommended that America commit herself ‘to protect a new order … deterring potential competitors from even aspiring to a larger regional or global role. Such deterrence would include, when necessary, the use of pre-emptive force.’100 They advocated military intervention in Iraq ‘to assure access to vital raw materials, primarily Persian Gulf oil’.101
The conservative think-tank PNAC, in a report entitled Rebuilding America’s Defenses, called for a ‘Pax Americana’ and a revolution in military affairs, changing the military force of the US from one of cumbersome brutality to manoeuvrability, speed and flexibility, dominated by precision-guided munitions.102 Many signatories to this document found their way into the Bush administration, including seventeen out-and-out neocons who championed these views. Much of the report became administration policy between 2002 and 2006.103
The report was written by Thomas Donnelly, who went on to work as a vice-president at Lockheed Martin in 2002. It called for an increase in military spending, by $75bn to $100bn over five years. It strongly endorsed spending more on the over-priced, troubled F-22. The underlying ideology was that America, rather than enjoying a post-Cold War peace dividend, should capitalize on the weakness of its potential rivals to ‘run up the score’, as the Secretary of Defense, Robert Gates, put it later in the context of the F-22 debate.104
One of the most vociferous of the neocons, Robert Kagan, defended this aggressive foreign policy, arguing that America has from birth been a more aggressive, imperialist country than many believe, and it should simply continue to do what has made it a great nation. While it is true that in its history America has formally declared war only eleven times, it has deployed its military and used force on over 100 occasions. Though some contend that America has always been ambivalent about its militarism, the Bush Doctrine would liberate the US to start wars with far less evidence of danger and with little scrutiny of the potential consequences.105
The PNAC report suggested that the process of transforming the military would ‘be a long one without some catastrophic and catalysing event – like a new Pearl Harbor’.106 9/11, the ultimate blowback, was that event. The tragedy was, at one level, a godsend for the fledgling administration, allowing the nation to be placed on a perpetual war footing. While the nascent new militarism had already seen a significant increase in defence spending by the time 9/11 occurred, the neocons actively seized on the tragedy to realize their goals, believing that the promotion of American hegemony could now be pursued by any means necessary.
As Jarecki suggests: ‘a nation forged in a war of revolution against an empire has over time come to repeat the very errors from which it sought to learn – the runaway expansionism combined with weakening commitment to founding principles, the growing military that spirals on itself, thrusting the nation into conflicts of ever-increasing scope and depth’.107 The most obvious example of this was the willingness to exploit the sentiment evoked by 9/11 to distort the threat posed by Saddam in order to gain the nation’s support for war. This was achieved with rhetoric eerily reminiscent of the fear-mongering propagated during debate about the bomber and missile gaps decades earlier, and strongly supported by the defence industry.
The security failures that led to 9/11 further convinced the Bush administration that only private firms had the intelligence and innovation to meet the new security challenge. Bush’s New Military Deal transferred hundreds of billions of public dollars a year into private hands, mostly awarded with a lack of competition – so-called no-bid contracts. As Andrew Bacevich has noted, the White House first used 9/11 to massively increase the security powers of the executive in what he has called ‘a rolling coup’ and then outsourced these functions.108
The 9/11 moment supposedly altered everything, neatly disguising that the only thing that changed for free market fundamentalists and corporations was the ease with which they could pursue their agenda. Rather than enduring fractious debate in Congress, the Bush White House could use the patriotic alignment behind the President to further militarize the society into a utopia for weapons manufacturers. As the New York Times observed, ‘without a public debate or a formal policy decision, contractors have become a virtual fourth branch of government’.109 The Bush team devised a new role for government, one in which the job of the state was not to provide security but to purchase it at market prices.
The newly created Department of Homeland Security (DHS) was the clearest expression of this outsourced form of government. As Jane Alexander, Deputy Director of DHS, said: ‘If it doesn’t come from industry, we are not going to be able to get it.’110
This new militarism was encapsulated in the declaration of the permanent, all-encompassing ‘War on Terror’. Every aspect of the way in which the War on Terror was defined has served to maximize its profitability and sustainability as a market. The document that launched DHS declares: ‘Today’s terrorists can strike at any place, at any time and with virtually any weapon’ – which means that the security services must protect against every conceivable risk in every conceivable place at every possible time. This is epitomized by Dick Cheney’s 1 per cent doctrine, which holds that if there is a 1 per cent chance that something is a threat, it requires that the US respond as if the threat is a 100 per cent certainty. So while the War on Terror was unwinnable, from an economic perspective it was an unbeatable proposition.111
It ensured that after 9/11 the defence-related revenue stream became a bottomless supply of tax dollars funnelled from the Pentagon. This included $270bn a year to private contractors, an increase of $137bn over the year before Bush took office. US Intelligence paid $42bn a year for outsourced intelligence, double the 1995 level; and the DHS spent $130bn on private contractors. In 2003 alone, the Bush administration spent $327bn on contracts to private companies – forty cents of every discretionary dollar.112
As a consequence US military spending now exceeds that of all other defence budgets on earth combined. The national defence outlay for 2008 reached $709bn, the highest spending on defence at any time since the Second World War.113 Altogether, different security-related agency budgets and the proliferation of national security installations around the world raise this expenditure to almost a trillion dollars.114 Nick Turse illustrates, alarmingly, how the military metaphysic is abroad, infiltrating all aspects of everyday life. He reveals that Starbucks is now a major contractor to the US Defense Department and documents the work that the super-cool Apple Corporation has done for the US military.115
The privatization of many of the activities previously performed by the armed services included not just supplying the military with its gear but also serving as manager for its operations and even participants in warfare. This significantly expanded opportunities for their allies in the sector, such as Bruce Jackson, with arms companies seeing their profits rise significantly. In total, business to the Pentagon’s top ten contractors jumped from $46bn in 2001 to $80bn in 2003, an increase of nearly 75 per cent. Northrop Grumman’s contracts doubled, from $5.2bn to $11.1bn, and Lockheed Martin saw a 50 per cent increase, from $14.7bn to $21.9bn.116
According to a 2006 study, since the War on Terror began the CEOs of the top thirty-four defence contractors have enjoyed average pay levels that are double the amounts they received in the four years leading up to 9/11. Average CEO pay went up 106 per cent, while in other large US companies this averaged 6 per cent over the period 2001 to 2005.117
And for this money executives such as Augustine and Jackson influenced many levels of public policy through their institutional involvements in think-tanks, NGOs and government agencies and boards, as well as the lobbying and campaign contributions of their company, which then reaped the financial benefit. However, the impact of the policy interventions had ramifications for the US far beyond just Lockheed Martin.
* * *
Halliburton and its former subsidiary Kellogg Brown & Root (KBR) are possibly the worst exemplars of the symbiotic relationship between business and politics.118 Lyndon Johnson was known as ‘the Senator from Brown & Root’, as it then was, because of its political contributions to him. Once he became President, the company was awarded lucrative contracts to build military bases in Vietnam.119
In 1992, a $9m contract was awarded by the Pentagon to study the efficacy of using the private sector more aggressively. The Secretary of Defense at the time was Dick Cheney. He awarded the contract to KBR. Its report suggested aggressive privatization, identifying all sorts of tasks that the private sector should undertake, leading directly to a new Pentagon contract known as the Logistics Civil Augmentation Programme (LOGCAP). It involved not just supplying the military with its equipment and matériel, but also serving as manager for its operations.
A select group of companies was invited to bid for vaguely defined unlimited logistical support for the US military. No dollar value was attached to the contract: the winning company was simply assured that whatever it did for the military, its costs would be covered plus a guaranteed profit. At the end of Bush senior’s term of office the contract was awarded … to Halliburton, the parent of the company that drew up the plans. And over the next ten years it received 700–800 government contracts.120
When Dick Cheney left office in 1993 he became CEO of Halliburton, until elected Vice President in 2000. During this period the company doubled the number of federal contracts it received, while its federal loans and loan guarantees increased fifteen-fold. The company also doubled its lobbying spend and campaign contributions. It donated considerable sums to right-wing think-tanks that gave a veneer of academic respectability to the no-bid contracts with the Pentagon, the vast expenditure on missile defence, and the crucial work on Rebuilding America’s Defenses. Cheney was involved in all of these initiatives, seeing his personal wealth rise from about a million dollars to $60m or $70m.121
Over the seven years that Cheney served as Vice President, Halliburton was awarded more than $20bn in contracts.122 Many of these were on the no-bid basis. During this time the company was fined for overcharging government and for using misleading accounting practices, which as we’ve seen in the case of BAE is a hold-all for a variety of transgressions.123
While in office Cheney regularly praised Halliburton, giving the company free publicity and endorsement. As Vice President he held 1.2 million Halliburton stock options from which he collected millions every year in dividends and was paid an annual deferred income from the company of $211,000. Halliburton’s stock price rose from $10 before the war in Iraq to $41, a 300 per cent jump mainly due to soaring energy prices and Iraq contracts, both of which were down to Cheney’s steering the country to war in Iraq. The war has been the single most profitable event in Halliburton’s history. So who was Cheney representing? The government or his former employer in which he still held financial interests?124 The retired US Air Force Colonel Sam Gardiner suggested of Cheney that ‘He doesn’t see the difference between public and private interests.’125
His political colleague and ideological soul-mate, Donald Rumsfeld, was no different. When Rumsfeld accepted George W. Bush’s nomination as Defense Secretary he was so weighed down with holdings in defence-related companies that he tied government lawyers and their ethics rules in knots trying to hang on to everything he could. He sat on the board of the aircraft manufacturer Gulfstream and was paid $190,000 a year as a board member of ABB, the Swiss engineering giant that was revealed to have sold nuclear technology to North Korea. He sold off directly owned stock in Lockheed Martin, Boeing and other defence companies and put up to $50m of stocks in a blind trust. But he was still part or complete owner of private investment firms that were devoted to defence and biotech stocks. He continued to hold these interests six months into the job. The frequency with which he had to excuse himself from meetings for this reason in his first year in office was described as embarrassing.126
Both men could easily have divested themselves of their holdings but then they would have missed the boom years they created. What would they have made of FDR’s injunction against war profiteers: ‘I don’t want to see a single war millionaire created in the US as a result of this disaster [the Second World War].’ In the Bush administration the war profiteers weren’t just clamouring to get access to government, they were the government.
Rumsfeld – of whom Nixon famously said: ‘He’s a ruthless little bastard, you can be sure of that’127 – joined the Cabinet in 2001 with a personal mission to reinvent warfare for the new century. His controversial transformation project was a catch-all for a wide array of technological advances that comprised a twenty-first-century vision of how the US would wage war. In spite of asking for increases in defence budgets every year, he wanted less spent on staff and far more public money transferred directly into the coffers of private companies. He, Cheney and Bush believed that the job of government is not to govern but to subcontract the task to the more efficient and generally superior private sector. Rumsfeld saw this as a world-changing crusade on a par with defeating communism.128
In 1998, he had chaired the Rumsfeld Commission, which, contrary to official intelligence sources, published an alarmist assessment of the North Korean missile threat that was used to push a pro ‘Star Wars’ amendment through Congress, despite continuing disagreement about whether a missile defence system is either workable or affordable. The whole ‘Star Wars’ notion is a kind of military opportunism at the heart of government, with military men paying court to the pet schemes of inexperienced politicians in preparation for lucrative post-retirement positions in the arms industry or military think-tanks. Scientists who saw the system for the deluded, money-grabbing enterprise that it was were quickly marginalized.129
The findings of the commission, that a nation with ‘Scud-based’ technology, such as Iraq and North Korea, could achieve the first flight of a long-range ballistic missile within five years, were based on the testimony of Lockheed Martin engineers. So the opinions of employees of a company that stood to benefit from the perception of a greater missile threat were allowed to overrule the consensus of the US intelligence community. The Rumsfeld Commission was used to give credibility to the madness. Where Bush senior had spent over $2bn per annum on ‘Star Wars’, the Rumsfeld report resulted in the Clinton administration stepping up missile defence funding from $3bn to $5bn a year by the end of his second term, leading to well over $1bn in missile defence contracts for Lockheed Martin alone. Reverting to the Reaganite model, George W. doubled spending on missile defence to $10bn.130*
Rumsfeld, who had been the youngest Secretary of Defense in history during the presidency of Gerald Ford, became the oldest person ever to serve in the role under George W. ‘He was a walking MIC with a mission to transform the Department of Defense’, according to the defence expert Josef Cirincione, who suggested that Rumsfeld’s plan was a case study in ‘how the military industrial forces not only prove disfiguring to the nation’s balance of power and its spending priorities but also distort US strategy in the field. They fuel a self-perpetuating cycle of overzealous militarism and gross miscalculation. The ambitious notion of a push-button war launched from high altitudes is a direct extension of the rise of the MIC and its influence on the very concept of American war.’131 This led to the failure in Iraq, where Rumsfeld’s transformational vision actually produced a clumsy, unwinnable battle of old ideas delivered with the hollow sound and fury of high-tech weaponry.
As the war was failing the opportunities for profits were plentiful. While Rumsfeld believed that 9/11 had provided impetus for transformation, Chuck Spinney reckons that ‘transformation was just a buzzword put together by a bunch of people in the Pentagon who are trying to protect the status quo’.132 Cirincione agrees:
After September 11, every single weapons programme that should have been cancelled (as it was now obsolete) was just relabelled. Instead of trimming or reorganizing the military we just threw money at it. Everything was funded. Even though we’re talking about fighting a war against terrorists in caves, we’re buying weapons designed to pulverize an advanced industrial nation. So suddenly, things like the B-2 bomber – a bomber that costs $2 billion a copy and was designed to penetrate Soviet radar – was being justified as an anti terror weapon. You re-label an F-22 fighter aircraft from something that would kill Soviet aircraft to something that will kill terrorists. You just repackage it as the ‘new military thinking’ weapon. Wrap the flag around it. Keep the program going.133
So transformation, far from being a revolution in military affairs, became an excuse for more of the same, repackaged to seem appropriate to the new War on Terror, while maximizing the profits of the manufacturers. The figures are mind-boggling: in 2003, the US government handed out about 3,500 contracts to companies to perform security functions; in a twenty-two-month period to the end of 2006 DHS issued 115,000 such contracts. The global homeland security industry is now a $200bn sector. In 2006, US government spending on homeland security averaged over $550 per household.134
Chuck Spinney suggests that this has been allowed to happen because the US’s Christmas Tree politics has resulted in a Congress of Special Pleaders characterized by constant horse trading, currying favour with the executive for future needs or trading between Congressional members. ‘The intersection of economic and political interests gives licence to the militarist tendencies of the executive in what should be called the corporate-congressional-military-executive complex.’135
This accumulation of executive power ultimately culminated under George W. Bush in what Colonel Lawrence Wilkerson, Chief of Staff to Colin Powell, described as a self-acknowledged cabal led by Dick Cheney and Donald Rumsfeld, whose insular and secret workings resembled the decision-making process associated more with a dictatorship than with a democracy.136 ‘It has come to a point where the MIC is so influential on the fateful decisions a President makes that it’s dangerous for the republic.’137
This occurs in a number of ways. Decisions made by defence contractors with their patrons in the Pentagon, as Spinney describes, are effectively pushing attitudes to defence, security and war in particular directions. Think of the impact of the development of the atom bomb or more recently drones and remote weapons on the ways in which wars are fought. These weapons give an omnipotence to the Commander-in-Chief that makes it almost inevitable that he will continue to pursue an ever-expanding American empire predicated on force which requires ever larger military budgets.138
The same MICC provides the means and the motivation for a continuous state of war. The Second World War was a discrete event, whereas the Cold War and the War on Terror have ensured growing security measures, increased government secrecy and surveillance, and the continual increase of executive power.139 The MICC, and particularly defence contractors, through their role in the media, public pronouncements and massive support for bellicose think-tanks, creates a continuous drumbeat of fear and insecurity, which allows and maintains the national security state, permeating every aspect of life.
The revolving door brings militarism to the government from the defence industry, both into the White House and into government departments. Alexander Haig, Colin Powell, and Cheney and Rumsfeld are only the most obvious emblems of the military metaphysic influencing the Oval Office. It is not coincidental that the two generals led the State Department, thus militarizing the corridors of diplomacy. For arms sales abroad are not just an instrument of foreign policy in the hands of the executive, but crucially result in a situation where captains of the defence industry are pushing, with a great deal of money, certain foreign policy approaches that favour their needs, be it the expansion of NATO, specific approaches to the Middle East and certainly the nature of relations with Saudi Arabia. Often these dovetail with the views of the executive, but not always, as seen in President Obama’s initial attitude to Israel.
The infusion of military-minded people into government departments affects the mind-set with which projects are managed, the types of contracts that (under-)regulate them and the way in which they are assessed. This applies not only to defence-related arenas, but even the postal service, the IRS and the census.
This military metaphysic was having its most profound impact at a time when economic ideas were changing. Historically, economic wisdom held that sustainable growth requires stability and peace. The War on Terror turned that assumption on its head. The world was becoming less peaceful while accumulating more profit, at least until the credit crunch. Today global instability benefits not just shady arms dealers but the whole of what Naomi Klein has called ‘the disaster capitalism industry’ (i.e. those companies that benefit from natural and man-made disasters, especially war) and of course the defence contractors. Since 9/11 it appears that terrorist attacks are perceived by markets as good for business. While the Dow plummeted 685 points in the wake of 9/11, after the 7/7 attacks on London less than four years later, the US markets were up that day thanks to soaring homeland security stocks and the London Stock Exchange picked up again the next day.140
The post-9/11 outsourcing of military functions, especially homeland security, also gave birth to an army of new lobbyists, increasing the number of homeland security lobby firms from two in 2001 to 543 by mid-2006.141 These firms, together with their clients in the weapons-making and military service provider businesses, ensure that the world is ceaselessly portrayed as a dark and menacing place, its troubles responsive only to force. Not only do they fund think-tanks which extol this view but they are also becoming entwined with media corporations. For example, GE owns NBC and now a company specializing in bomb detection devices.142 It is disconcerting to the nature of American democracy that those who benefit most from war are becoming more and more influential in creating the atmosphere in which politicians feel honour-bound to take the country to war. At the Paris Air Show in 2009, it was noticeable that every defence company invariably started each presentation with a slide depicting just how dangerous a place the world is, and will continue to be, before presenting their weapons systems that will keep us all safe.
Naomi Klein concludes that the architects of the War on Terror are corporate politicians, notorious for conflating corporate interests with the national interest, and are themselves incapable of drawing the distinction. A startling example is a long-time neocon and Rumsfeld confidant, Richard Perle, whom Rumsfeld appointed to chair the influential Defense Policy Board (DPB). Taking a leaf out of his mentor’s book, Perle used his position to persuade the arms dealer Adnan Khashoggi to arrange a meeting with Saudi industrialists, from whom he solicited $100m for his recently established security-oriented investment firm, Trireme. He also attempted to use his position to persuade the government to approve the sale of a division of the corrupt, bankrupt telecommunications firm Global Crossing to a Chinese buyer for a fee of almost a million dollars; and was retained by a company that had been charged with the transfer of secret satellite information to China to plead their case with the US government.143
He was eventually forced to resign as Chairman of the DPB after being charged with abusing his position as an adviser to Rumsfeld for personal gain. He, however, continued as an ordinary member of the board. When he stepped down from the chairmanship, Rumsfeld described Perle as a man of ‘deep integrity and honour’.144 The Center for Public Integrity found that nine of the board’s thirty members had relationships with weapons contractors that together had received over $76bn in contracts from the Pentagon in the most recent financial year.145
The DPB, like a number of defence-related public bodies, blurs the distinction between the public and the private, resulting in the situation where activities undertaken with public money display minimal transparency and accountability. This is consistent with American capitalism, in which the activities of a corporation are seen as the province of that corporation, and neither the public nor Congress has a fundamental right to access information about them. Most notably, the US Freedom of Information Act doesn’t apply to private companies, leading a Democratic representative from Illinois to suggest that ‘it’s almost as if these private military contractors are involved in a secret war’.146
By allocating so much public sector work to private companies, the Bush administration created a condition in which the nature and practice of government activities could be hidden under the cloak of corporate privacy. This severely limits both financial and political accountability. The financial activities of these companies are scrutinized primarily by its shareholders if it is a public company and occasionally by government auditors on a contract-by-contract basis. And of course, at a political level, it is not just feasible but common for the government to claim that a contractor had promised to do one thing but then did another, thus absolving government of responsibility.
This opaque operating environment, in addition to the secrecy afforded by national security, makes it extremely difficult to critically analyse and hold to account the massive military-industrial complex that drives the country’s predisposition to warfare and the increasing militarization of American society. What analysis there is tends to focus on the few corruption scandals that see the light of day.
And the Bush Jr years yielded a plethora of shameful ones.