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Meet the New Boss

17 March 2005

To protect the innocent—though there are not many who merit that description—I have changed the names of people and entities for this story. 

This week I learned from reliable sources of a sad situation over at the Iraqi Ministry of Space Tourism.  (There is, of course, no Iraqi Ministry of Space Tourism, but I do not want to give any hint as to the real identity of the government body at the heart of this matter.)  It seems that the IMST, now under complete control of Iraqi civil servants, recently issued a tender for 1,000 space shuttles.  The space shuttles are produced locally (by hand) in Baghdad by little old space shuttle craftsmen.  These men are good at making space shuttles, but bad at doing businesses.  They don’t understand contract law or how to properly prepare a bid on a big project.  For its part, the IMST would rather deal with one middleman, rather than a thousand individual producers of space shuttles.  So the IMST contracted out to a company called the Iraq Shuttle Company Repair & Engineering Works (ISCREW) to handle the procurement of space shuttles.  These Western-educated, finely-dressed Iraqi entrepreneurs are polished enough to know how to win a lucrative government contract, yet rough enough to know how to stick it to the little guy.

It costs the little old Iraqi men in their tiny, one-room workshops in the space shuttle souk in the Mansoor section of Baghdad about $1,000,000 to build a space shuttle.  (Merchants of like products cluster together in common markets or souks.  There is a gold souk, a vegetable souk, a spice souk, an IED souk, and several others.  Iraqi space shuttle builders get their working capital from money made collecting recyclable shell casings and through remittances from relatives in Detroit.)  When the people from ISCREW visit the near-sighted, arthritic men in the space shuttle souk—space shuttle building is an old, dying art--they come to do business.  These fat cats play hard ball and squeeze every piaster they can out of the manufacturers.  In most cases, they pay merely $100 over cost.  Considering the fact that rent and the price of basic necessities have skyrocketed in Iraq due to post-war inflation, $100 doesn’t go that far.  It’ll barely pay for a month’s supply of tea and mortar rounds.

ISCREW turns around and sells these space shuttles for $100,000,000 apiece to the IMST.  They get their price, because unlike the hapless manufacturers, these guys are shrewd businessmen.  They know how to grease the skids with an Iraqi government contracting officer.  A few New Iraqi Dinar pressed into the right palms make everything proceed nice and smoothly.  The contracting officer doesn’t question his decision.  Times are tough.  Everyone is doing it.  Baby needs a new pair of sandals and the wife has been wearing the same worn out hijab for two years now.  Besides, the money for the contract comes from the sale of oil in the ground.  And Iraq has plenty of oil.  If they need more money, they can just pump out a few extra barrels.  So where’s the harm?  (The harm, of course, is that the money saved on paying a fair price for space shuttles could be used to fix the electricity grid or provide meals to the large number of hungry poor.  And while Iraq does have plenty of oil, saboteurs have made getting it to the market difficult.)

So what do the people from ISCREW do with their enormous profits?  They don’t invest the money back in Iraq, that’s for sure.  No trickle down economics here.  Economists say that Iraq has a “low absorptive capacity” for investment, meaning there aren’t very many places to safely put one’s money.  With the security situation as it is and with the commercial code in a state of transition, the smart money goes elsewhere.  Elsewhere is often Jordan, a country that owes much of its explosive growth over the past decade to the flight of cash from Iraq.  Iraqi investors also plant their money in foreign bank accounts, where it does no one any good, save for the private bankers who earn their commissions. 

And the beat goes on.  Much has been written about the big American companies making a killing in Iraq.  But they aren’t the only ones with their snouts buried in the money trough.  Put another way, not all of the pigs are wearing blue jeans; many are wearing dishdashas.  The Iraqi folks who own ISCREW and the other large family-run firms that are winning Iraqi Ministry and U.S. Government contracts are the same guys who won the big contracts under Saddam.  In that regard, not much has changed.  For the Iraqi little guy elbowed out from much of this economic activity, the view from the back looks about the same as it did before.