Wednesday, October 31, 2007

Military contracting.

George Mason [read: laissez-faire] economist Tyler Cowen wrote in the New York Times that -

Private contractors [such as Blackwater] may not respect virtue for its own sake, but like most businesses, they will respect the wishes of their most powerful customers, in this case governments. What is wrong with Blackwater may, most of all, mirror what is wrong with Uncle Sam.

This article is a useful read and makes some important points (while tending to oppose Bush's Splendid Little War). But as usual with free-market types, Cowen leaves important stuff out.

His basic point makes sense: in the end, Blackwater's sins fall on our government's head, and thus on the voters' heads. (Also, it makes sense in our current capitalist system that at least some government functions will be privatized and that we have to balance benefits and costs of privatization.) But there are two points in addition:

1) No contract is perfect. Given the incomplete information about what the contractor must do and uncertainty about the future, it is (almost?) inevitable that there will be loopholes. Further, profit-seeking companies will look at contracts to find absolutely all loop-holes. Companies such as Blackwater will then exploit all the profit-enhancing ones. This "loop-hole" mining is familiar to students of banking, where financiers are always looking for ways around regulations, even those which ultimately are to their benefit.

This tells us that in addition to contracts with privateers, there must be vigorous direct supervision of them. (This, of course, must be part of the original contract, agreed to by the privateer.) Contrary to the laissez-faire crowd, we cannot rely on the "magic of the market" (to use Ronald Reagan's phrase) to supervise the privateers.

2) The government does not just respond to the interests of the voters. In a capitalist system such as ours, it responds to the concentrated power of money. And it did so before the poorly-conceived campaign finance reforms that now prevail.

In fact, unless people are pissed and actively organized in their anger against the government enough to push against the normal mode of government operation, Big Money trumps voters every time. This was true even under FDR, despite recent efforts to paint the New Deal as some sort of Golden Age. Back then, however, a big fraction of the plutocrats was scared of the popular discontent. So they did the Right Thing (or rather, part of it) for awhile.

Anyway, the power of money means that companies such as Blackwater can arrange for weak oversight of their contracts. They can almost guarantee that there will be loopholes and that enforcement will be feeble and chummy.

Of course, Blackwater was a very small company just a few years ago, so something had to happen first for it to have so much influence. What happened was part of the general neoliberal movement of the last 30 years or so, i.e., the Cheney/Rumsfeld effort to privatize as many military functions as possible. (My dad was in the Navy Supply Corps, feeding sailors during World War II. If he were alive today, he'd be doing his job for some private company.)

This privatization movement -- which involves much more than merely hiring mercenaries -- has created (1) a bunch of companies made rich by government contracts with (2) a vested interest in lobbying the government for more privatization (more business opportunities for them) and (3) providing more campaign contributions for those pushing privatization (not just Cheney & Rumsfeld, but also W. J. Clinton). There's a vicious circle of crony capitalism going on.

The Big Money voters are the ones who are ultimately responsible for the poor contracts and poor contract enforcement that Blackwater et al. have profited from (until they were caught). It's only when the actual voters -- real, live, people -- decide to throw out Big Money that we are responsible (in practice) for what our government does. Until then, the sins fall on the heads of the real rulers of the United States government.

This second point should be obvious to the George Mason folks. Their "public choice" school of economics tells us that we cannot simply take government policies for granted or as representing the "true" interest of the people. What they miss is the power of the capitalist class and the influence of important sections of that class (such as military privateers).

Jim Devine


Econoclast said...

oops! sorry about the poor formatting!

Peter Dorman said...

Correct me if I'm wrong, but weren't the mercenaries of old (early modern Europe) feared by peasants for their wanton ruthlessness? Weren't the conscripts of Napoleon seen as a relatively more benign force? I realize that citizen armies descended into barbarism in the twentieth century, but isn't Tyler Cowan overlooking, or just not cognizant of, the dismal history of mercenary armies? said...

This may be awfully simple-minded, but did not the US Marines always protect US diplomats in the past? Why do we need much more expensive (compare their pay scales) private mercenaries who operate beyond the law to do this?

Diane Warth said...

Are their pay scales comparatively more expensive if one factors in education grants, long-term medical benefits, and other financial incentives?

Perhaps, too, if the resistance is finally pacified and/or mostly incarcerated, then low-paid jailers can replace the soldiers of fortune, who can then be hired to free yet another country from its valuable assets.

Kevin Carson said...

The model of "privatization" commonly recommended by the Adam Smith Institute, Heritage and Cato can more accurately be called "fascist economics." The so-called "privatized" functions of the economy are conducted with state funds and in a statist framework of special protections, immunities, and subsidies. It's hard to imagine the basic mission of Blackwater even existing outside the context of an aggressive national security state.