Disaster Capitalism: American nation building in Iraq and Afghanistan, could have worked except for the corruption. What caused the corruption? Read on:

Tomgram: Dilip Hiro, How the Pentagon Corrupted Afghanistan

Posted by Dilip Hiro at 8:14AM, April 02, 2013.

Follow TomDispatch on Twitter @TomDispatch.

America’s post-9/11 conflicts have been wars of corruption, a point surprisingly seldom made in the mainstream media. Keep in mind that George W. Bush’s administration was a monster of privatization. It had its own set of crony corporations, including Halliburton, KBR, Bechtel, and various oil companies, as well as a set of mercenary rent-a-gun outfits like Blackwater, DynCorp, and Triple Canopy that came into their own in this period.  It took the plunge into Iraq in March 2003, sweeping those corporations and an increasingly privatized military in with it.  In the process, Iraq would become an example not of the free market system, but of a particularly venal form of crony capitalism (or, as Naomi Klein has labeled it, “disaster capitalism”).

Add in another factor: in the wake of the 9/11 attacks, the Bush administration began pouring money into the Pentagon, into, that is, an organization whose budget has never been able to pass an audit.  There was so staggeringly much money to throw around then -- and hubris to spare as well.  Among the first acts of L. Paul Bremer III, the new American proconsul in Baghdad, was the disbanding of Saddam Hussein’s army (creating an unemployed potential insurgent class) and the closing down of a whole range of state enterprises along with the privatization of the economy (creating their unemployed foot soldiers).  All of this, in turn, paved the way for a bonanza of “reconstruction” contracts granted, of course, to the administration’s favorite corporations to rebuild the country.  There were slush funds aplenty; money went missing without anyone blinking; and American occupation officials reportedly “systematically looted” Iraqi funds.

In April 2003, when American troops entered Baghdad, it was already aflame and being looted by its own citizens.  As it turned out, the petty looters soon enough went home -- and then the real looting of the country began.  The occupiers, thanks to the U.N., fully controlled Iraq’s finances and no one at the U.N. or elsewhere had the slightest ability to exercise any real supervision over what the occupation regime did or how it spent Iraq’s money.  Via a document labeled “Order 17,” Bremer granted every foreigner connected to the occupation enterprise the full freedom of the land, not to be interfered with in any way by Iraqis or any Iraqi political or legal institution.  He gave them all, that is, an official get-out-of-jail-free card.

Who could be surprised, then, that the massive corporate attempt to rebuild Iraq would result in a plague of overbilling, remarkable amounts of shoddy or useless work, and a blown $60 billion “reconstruction” effort that would leave the country with massive unemployment and without reliable electricity, water, or sewage systems?  Could there be a sadder story of how war making and corruption were being wedded on a gigantic scale in an already fading new century?  As it turned out, the answer to that question was: yes.

Iraqi corruption was no anomaly of war, as TomDispatch regular Dilip Hiro makes clear today.  Just consider the way Washington turned the “liberation” of Afghanistan into another field day for corruption. Tom

The Great Afghan Corruption Scam 
How Operation Enduring Freedom Mutated into Operation Enduring Corruption
By Dilip Hiro

Washington has vociferously denounced Afghan corruption as a major obstacle to the U.S. mission in Afghanistan. This has been widely reported. Only one crucial element is missing from this routine censure: a credible explanation of why American nation-building failed there. No wonder. To do so, the U.S. would have to denounce itself.

Corruption in Afghanistan today is acute and permeates all sectors of society. In recent years, anecdotal evidence on the subject has been superseded by the studies of researchers, surveys by NGOs, and periodic reports by the United Nations Office on Drugs and Crime (UNODC). There is also the Corruption Perceptions Index of the Berlin-based Transparency International (TI). Last year, it bracketed Afghanistan with two other countries as the most corrupt on Earth.

None of these documents, however, refers to the single most important fact when it comes to corruption: that it’s Washington-based.  It is, in fact, rooted in the massive build-up of U.S. forces there from 2005 onward, the accompanying expansion of American forward operating bases, camps, and combat outposts from 29 in 2005 to nearly 400 five years later, and above all, the tsunami of cash that went with all of this.

Last month, when an Afghan court sentenced Sher Khan Farnood and Khalil Ullah Ferozi, the chairman and chief executive of the Kabul Bank, for looting its deposits in a gigantic Ponzi scheme, the event received some media attention. Typically, however, the critical role of the Americans in the bank’s murky past was missing in action.

Founded as a private company in 2004, the Kabul Bank was promptly hailed by American officials in Afghanistan as a linchpin in the country’s emerging free market economic order. In 2005, action followed words. The Pentagon, paymaster for the Afghan National Security Forces (ANSF), signed a contract with the bank to disperse the salaries of ANSF soldiers and policemen.

With that, the fledgling financial institution acquired an impressive cash flow. Moreover, such blatant American support generated confidence among better-off Afghans. Soon enough, they were lining up to deposit their money. Starting in 2006, the surging inflow of cash encouraged Farnood and Ferozi to begin skimming off depositors’ funds as unsecured loans to themselves through fake front companies. Thus was born the world’s largest banking scam (when calculated as a percentage of the country’s gross domestic product) with the U.S. Embassy in Kabul acting as its midwife.

How It All Happened

There exists a statistical connection between the sums expended by Washington in Afghanistan and worsening corruption in that hapless nation. It is to be found in the TI’s Corruption Index. In 2005, Afghanistan ranked 117th among the 158 countries surveyed. By 2007, as American greenbacks poured into the country, only two of 179 nations surpassed it in corruption. Since 2011, it has remained at the very bottom of that index.

What changed between 2005 and 2007? By the spring of 2006, the Taliban insurgency had already gained control of 20 districts in the southern part of the country and was challenging U.S. and NATO forces in the strategic Kandahar area. With a sectarian war by then raging in U.S.-occupied Iraq, Secretary of Defense Donald Rumsfeld felt that he could increase the American military presence in Afghanistan only marginally.

This started to change when Robert Gates took over at the Pentagon in December 2006. He began bolstering U.S. combat units there. As a result, forward operating bases multiplied, as did combat outposts and military camps. Building new sites or upgrading old ones on the double meant that the Pentagon started awarding contracts to local Afghan construction companies unaccustomed to handling such tasks quickly. They, in turn, subcontracted tasks out to those who greased their palms. With the infusion of ever more piles of Pentagon dollars, corruption only spread.

Later, each of these bases and outposts had to be supplied with food, water, fuel, and other necessities as well as war materials. In addition, the Pentagon accelerated its program of bolstering the nascent Afghan security forces by covering the full cost of training, equipping, and paying its personnel, as well as building bases and outposts for them. As a consequence, contracts to Afghan transport companies ballooned, as would contracts to Afghan private security outfits to protect the trucks hauling provisions and materials in that increasingly war-torn country.

So, of course, did the opportunities for graft.

Between 2005 and 2007, when American combat forces in Afghanistan doubled, the Pentagon’s budget for the Afghan War leaped from $17.2 billion to $34.9 billion annually. ANSF personnel also doubled, from 66,000 to 125,000 troops and policemen, though at a relatively marginal cost to the Pentagon. At $16,000 a year, the burden of maintaining an Afghan soldier was a paltry 2% of the $800,000 it cost to maintain his American counterpart.

In this period, opportunities for corruption rose exponentially. Why? In part, because the Pentagon was unable to protect the supply convoys of its Afghan contractors, something that would have required tens of thousands more U.S. troops. The distance between the main supply center at Bagram Air Base near the capital Kabul and the city of Kandahar in the Taliban-infested south was 300 miles; and the Taliban heartland in Helmand Province lay another 100 miles from Kandahar. Since Afghanistan lacks railroads, the only way to transport goods and people was to use the roads.

The Bagram-Kandahar highway was peppered with roadblocks, each manned by the armed fighters of the dominant warlord, who collected an arbitrary “transit tax.” The only way the transport companies could perform their job was by buying safe passage from the rulers of the highway and so parting with bribes of approximately $1,500 per truck between Bagram and Kandahar, and another $1,500 between Kandahar and Helmand.  All of this came from the cash the Pentagon was so profligately doling out.

The warlords and private security contractors, in turn, gave bribes to the Taliban for the safe passage of these convoys. In essence, therefore, the Pentagon was helping finance its enemy in order to distribute necessary supplies to its bases.  In addition, on “safe” roads, checkpoints were often manned by Afghan policemen, who extorted bribes by threatening to pass advance information about a convoy on to the Taliban.