Monday, December 14, 2009

The Cost of Privatizing Warfare

Does privatizing warfare save money? In comparing the cost of public and private security forces it is evident that privatizing warfare saves the taxpayer money in the short-term, but puts America’s national security on a perilous course. However, before engaging in a cost comparison between public and private national security forces, we must place this discussion within the context of the policy changes which have occurred in America’s national security system during the past 30 years. On November 8, 2006, when Donald Rumsfeld resigned as Secretary of Defense, he declared that America’s War on Terror was greatly misunderstood. Rumsfeld’s assessment was accurate and prescient; the War on Terror is undoubtedly misunderstood. In his declaration Rumsfeld was referring to an ideological shift in military policy, which flourished in the 1980’s, and which he believed the general public failed to comprehend. The new military policy called for two objectives; the first, lowering the cost of maintaing the armed forces and the second, making the American armed forces into the swiftest and most effective military in the world. The outcome of this policy shift was 1985’s Logistics Civil Augmentation Program (LOGCAP), whose main objective is to “preplan for the use of civilian contractors to perform selected services in wartime to augment Army forces.” (source United States Army).

LOGCAP came into fruition by the start of the 2001 War on Terror. 2001 marked the turning point where United States began to significantly rely less on the public national security establishment and more on private industry to wage war; Halliburton, Kellog Brown and Root (KBR), Blackwater as well as other firms, both domestic and foreign, have provided soldiers and logistical services to the U.S. military over the last several years. However, is there evidence that the U.S. government maximizes public money by employing the private sector? And overall, is the growing reliance on the private sector wise for the security of the United States?

Let us begin with the most basic element of America’s national security establishment, the soldier. According to Doug Brooks, President of the International Peace Operations Association, an association of private security contractors, the corporal soldier of the U.S. Army is paid an average salary of $18,000 per year and costs the taxpayer $25,000 per month to maintain in a war theater such as Iraq. In addition Brooks notes the public soldier is furnished with social programs, such as the G.I. Bill and services provided by the Veteran Affairs department, which add to the expense of employing a public soldier. In contrast, Brooks cites that the private soldier on average costs $750 per day, but once the contract expires there are no additional costs to the taxpayer; no pensions, no health services costs, no educational costs et cetera. In essence, by these calculations the private soldier lowers the cost of war to the American taxpayer.

However, there is another way by which the cost comparison of a private and public soldier must be calculated. We must consider the role of the soldier to the nation. If the vital forces of the nation are nationalism and long term economic strength, then by this measure hiring the public soldier has paid huge dividends to the American nation. Not only has the G.I. Bill adequately rewarded those Americans who risk their lives on the battlefield, but it has also provided a large portion of the American population with the tools to develop skills to adapt to America’s constantly changing job market. Furthermore, a highly trained and highly skilled labor force has been a boon for American companies. In essence, Doug Brooks is right, the cost of hiring a private soldier ends at the expiration of the contract. By contrast, the contract between the public soldier and America is perpetual. Since 1944 the taxpayer funded G.I. Bill has helped millions of Americans become productive self-sufficient citizens by giving them access to a college education, vocational schools and low interest loans to purchase homes. Thus, in the long run the public soldier, unlike the private soldier, is an investment in national security and social capital.

In addition to hiring private soldiers, the U.S. government has also used the private sector for the maintenance of military bases and for the delivery of arms and food to war zones. Firms such as KBR have been hired to operate bases which have thousands of soldiers and service personnel; by U.S. standards, many of these bases are like towns. Thus, firms like KBR have provided essential municipal services, such as sanitation and electricity, which have allowed these vast facilities to properly function. More importantly, as designed by LOGCAP, the use of private contractors has allowed for the U.S. military to use soldiers for the war effort rather than divert their labor for routine maintenance tasks. According to Doug Brooks, KBR was awarded a $14 billion contract in 2003 to provide such logistical services; and overall, according to the Congressional Budget Office (CBO), between 2003-2007 the U.S. government awarded $85 billion in contracts to private contractors, the majority of which was spent in Iraq.

Nevertheless, this billion dollar cost of private contractors is not necessarily saving money. A recent study done by the Rand Corporation, a non profit think tank, revealed that in the long run military contractors “might cost a great deal more than a comparable military capability.” Furthermore, allegations that military contractors have defrauded the U.S. government are many. Such was the case when U.S. Representative Henry Waxman found that KBR inflated the prices on its Iraq contract. Also, in 2008 the New York Times reported that KBR was guilty of installing faulty electrical wiring in army bases which since 2004 has killed many American soldiers. The lesson here is that, in an effort to be profitable and manage money efficiently, corporations sometimes cut corners or dishonestly breach contracts. However, corporations are not necessarily the problem, the bigger problem is the U.S government and the LOGCAP security model. According to George Washington University professor Steven Schooner, an expert in military contracting, the U.S. government is not properly staffed to monitor and audit private contractors. He said:

It's been an unmitigated disaster to the extent that the United States military and the government generally has refused to invest in the required amount of contract management resources needed to get the job done. To say that another way, there are not enough trained professionals in the government to manage the contractors that the government needs every day.

The procurement officer staff shortages were due to the policies which fiscal conservatives promoted and instilled in the 1980’s as a response to the high government deficits created in the 1960’s and 1970’s. During the 1980’s many government administration offices were eliminated. Correspondingly, the staff shortages have undermined the ability of the U.S. government to weed out military contractors that are inefficient and deliver poor products and services. As a result of the lack of a robust auditing apparatus, the U.S. government is simply dependent on private military contractors to be forthright business partners. The implications of this is worrisome. Unlike the private soldier vs. public soldier cost analysis, it is not as clear if the United States saves more money by outsourcing logistical services. What is clear is that the current national security model is flawed and is not sustainable.

The billion dollar private contractor price-tag also reveals that the over-reliance on the private sector is compromising national security. According to the CBO, in 2008 the Iraq war theater featured a 1 to 1 ratio of U.S. military personnel to private contractors; that is 200,000 U.S. soldiers to 190,000 contractors. The first Gulf War had a 1 to 55 ratio, the Vietnam War had a 1 to 7 ratio and America’s grandest war, WWII had a 1 to 7 ratio. Is it far fetched to surmise that the 1 to 1 Iraq war ratio poses a risk to America’s national security? Hardly, the risk is serious and Professor Schooner explains why. He cites that some private military contractors are not as highly profitable as one may think. He noted:

The fact that a contractor can be reimbursed for allowable costs doesn't mean that it recovers all the money that it spends. Now, part of this is just the nuance of the way government contracts operate. But it is perfectly feasible, and it happens all the time, for contractors to lose money on cost-reimbursement contracts. Let's also not lose sight of the fact that KBR's employees have not only been injured but have been killed in large numbers in Iraq, and it's very difficult to put a price tag on that type of activity or that type of loss.

In 2004 Newsweek magazine reported that KBR made a meager 1.4% profit on a $1.7 billion dollar job in Iraq. Therefore, if America is clearly relying too heavily on private contractors, but on the other hand these contractors aren’t finding lucrative business opportunities, then this scenario poses a real national security problem. We must not forget that a for-profit organization will act accordingly; if business risks become too costly and the profit margins diminish, a military contractor will either raise prices or spin off into a new business venture and leave a security void which the American military must hurriedly fill. Thus, in placing a large portion of the military infrastructure in the hands of military contractors, America is undermining its own security and defense capabilities.

In sum, the downsized public defense establishment and its growing reliance on the private sector has placed American national security on an uncharted potentially perilous course. Hiring private contractors has saved money in the short-term. However, this policy is shortsighted, as it fails to account for the many benefits a public soldier gives a nation. Furthermore, the defense policies born in the 1980’s were the outcome of a generation of government officials who declared that government was the underlying problem to America’s fiscal troubles. It turns out this generation of fiscal conservatives was right. Ironically, the government this generation molded became the problem; for it created a defense procurement system which is flawed and it downsized the U.S. military to a point where it has no other option but to rely on private security contractors. In essence, it is clear that America’s national security system lacks the adequate resources to efficiently and wisely provide for the common defense.

1 comment:

  1. Interesting essay - thanks for the quotes! A couple of points.

    While it is true the very high end contractors (diplomatic bodyguards) make $750/day (well, less now due to competition) you are only talking about the highest fraction of 1% of contractors.

    Most contractors (including security contractors) are local nationals earning market wages - usually somewhere around $500 per month and thus infinitely cheaper than using soldiers (or in Iraq, Third Country Nationals earning about the same). Using local nationals creates capacity, bolsters the economy in post conflict environments and puts the unemployed to work. All important for a stability operation – such as Iraq or Afghanistan – to ultimately succeed.

    Very glad you include Steve Schooner in your analysis. One of his points is that the U.S. government couldn’t do what the private sector is doing at any price. In fact, although you don’t footnote your essay, Prof. Schooner had the following exchange with PBS Frontline during an interview:

    PBS: . . . you give KBR pretty good marks under the circumstances?

    Schooner: Under the circumstances, I give KBR unbelievable marks

    Frontline chose to leave that quote out of their story which was largely a hatchet job on KBR . . .

    Indeed, I like to make the claim that Iraq and Afghanistan are the best supported and supplied military operations in history. Far from perfect as you note, but a lot closer to the ideal than ever in the past. We tend to idealize our military logistics in the past – and they can do amazing things in really dangerous environments. But about any old military guy who has ate at a contractor run cafeteria or lived on a contractor supported base can itemize the advantages to the soldiers compared to the past.

    Anyway, glad you are paying attention to the issue and actually thinking about the long term role of contractors. Too many commentators have a knee-jerk reaction on the issue.

    Best regards,

    Doug Brooks - IPOA