The paradox of Halliburton By Christopher Caldwell Financial Times July 2 2004
Halliburton is a company in a funny situation. The largest US private contractor in Iraq, it has few competitors - but all sorts of enemies.
Osama bin Laden anathematised Halliburton on an audiotape released in April. The following month a local al-Qaeda leader claimed attacks on western sites in Saudi Arabia were aimed at "Halliburton and her sisters". The Democratic party's national committee organised a week of media attacks on the company in June and John Kerry, its presidential candidate, has accused Halliburton of "shameful war profiteering".
Muslim radicals see Halliburton as a representative American institution, while Democrats see it as an aberration introduced by an irresponsible administration. But both cast Dick Cheney as the malign symbol of the company. Mr Cheney, who earned $44m as chief executive of Halliburton in the five years before he became vice-president, holds millions in Halliburton stock options.
Whether Halliburton is an example of corporate profiteering or of harnessing the private sector to make the west safer for less money depends on how you look at things.
The company certainly has an unusual way of earning money hand over fist. A contract for putting out oil-well fires, negotiated secretly on the eve of the Iraq invasion, won it $3bn in receipts for other duties when few fires materialised. Halliburton's Kellogg, Brown & Root division handles food, laundry and mail for the US military in the Iraqi theatre, and built the Guantánamo prison complex in Cuba. It maintains Britain's Trident submarines and has a 30-year contract to upgrade UK military facilities. In 2003, the revenues of KBR rose by more than one-third, to $9bn.
The administration has been criticised for using no-bid contracts and for hiring Halliburton on a "cost-plus" basis, which guarantees profits and can encourage expense-padding. Halliburton has been accused of overcharging the Pentagon for petrol, meals and soft drinks. French courts are investigating a subsidiary as part of a bribery case involving contracts for Nigerian liquefied natural gas. Halliburton has many offshore subsidiaries, and paid only $15m in federal income taxes in 2002.
But the case that Halliburton's favoured position arises from Mr Cheney's influence is weak. Few companies have experience in controlling oil-well fires, and Halliburton had won praise for its quick and cost-efficient dousing of the conflagrations set by Saddam Hussein's forces in Kuwait in 1991. In months it has raised Iraq's oil-export capacity from nothing to more than 2m barrels a day.
Cost-plus contracts are the norm with many defence contractors - and, in wartime, open bids risk exposing military plans. David Lesar, the company's chief executive, insists the US army okayed the high petrol charges, which did not go into Halliburton's pocket.
Like these arrangements or not, Halliburton had similar ones under the Clinton administration. In 1992, the company won an open bid to perform unspecified services under the army's logistics civil augmentation programme (Logcap), and earned billions in Somalia, Haiti and the Balkans. Even when Halliburton lost Logcap in 1997, its record for cost-containment led the Clinton administration to continue its Balkan contract. In 1996, the Reinventing Government report co-ordinated by Al Gore, then vice-president, singled out Halliburton as a model for improving government services while cutting costs.
It was probably a business mistake for Halliburton to embroil itself in partisan politics by hiring Mr Cheney, but the company's failings are not partisan ones. It faces scandal because the public is trying to bring accountability to the new and unstudied - but entrenched - system of western governance that Halliburton represents.
It is easy to see how it got entrenched so quickly.Halliburton's market efficiencies provide what defence analysts call a better "tooth-to-tail ratio". That is, militaries can focus on training soldiers, since Halliburton frees them from having to keep a reserve army of cooks and laundrymen and latrine-builders. If Mr Cheney's critics do not like the Halliburton system, they must explain where they plan to raise the money for a vastly more expensive traditional force.
Unfortunately, Halliburton is as efficient as Republicans say precisely because it is as unaccountable as Democrats say. It is not subject to the same regulations, accounting rules and laws regarding political lobbying that it would face if it were a government agency.
Yet it is, de facto, a government agency. The state has a standing need for Halliburton's services. It cannot allow Halliburton to fail. Since there are only a handful of other large-scale private military companies, cancelling contracts is an empty threat: that would only strengthen the hand of the remaining oligopolists.In such a system there is no avoiding what the French call pantouflage - elites shuttling back and forth between the public sector and the private.
If government draws the best from the private sector, government will be filled with interested parties. Mr Cheney is not the first to face this conflict. In 1995, Robert Rubin, then Treasury secretary, was criticised for designing a bail-out plan for Mexico after the collapse of the peso because he had recently served as a director of Goldman Sachs, then the largest underwriter of Mexican financial issues. Mr Rubin's plan was a success.But so was the military part of Mr Cheney's war.
In neither case were critics appeased. Such arrangements - even when they work - threaten familiar ideas of democratic accountability. When business successes become a credential for being granted the power to make government policy, "citizen legislators" are not to be preferred. If government experience is an asset that can later be sold in the marketplace, it is deceitful to call it "public service".
The Halliburton controversy reminds us that, even in an age of public service outsourcing, effectiveness and legitimacy are not the same thing. A government that achieves the former has no guarantee of being accorded the latter.
(The writer is a senior editor at The Weekly Standard)
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