The Rise of Disaster Capitalism

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"Post-conflict" countries now receive 20-25 percent of the World Bank's total lending, up from 16 percent in 1998--itself an 800 percent increase since 1980, according to a Congressional Research Service study. Rapid response to wars and natural disasters has traditionally been the domain of United Nations agencies, which worked with NGOs to provide emergency aid, build temporary housing and the like. But now reconstruction work has been revealed as a tremendously lucrative industry, too important to be left to the do-gooders at the UN. So today it is the World Bank, already devoted to the principle of poverty-alleviation through profit-making, that leads the charge.

And there is no doubt that there are profits to be made in the reconstruction business. There are massive engineering and supplies contracts ($10 billion to Halliburton in Iraq and Afghanistan alone); "democracy building" has exploded into a $2 billion industry; and times have never been better for public-sector consultants--the private firms that advise governments on selling off their assets, often running government services themselves as subcontractors. (Bearing Point, the favored of these firms in the United States, reported that the revenues for its "public services" division "had quadrupled in just five years," and the profits are huge: $342 million in 2002--a profit margin of 35 percent.)

But shattered countries are attractive to the World Bank for another reason: They take orders well. After a cataclysmic event, governments will usually do whatever it takes to get aid dollars--even if it means racking up huge debts and agreeing to sweeping policy reforms. And with the local population struggling to find shelter and food, political organizing against privatization can seem like an unimaginable luxury.

Even better from the bank's perspective, many war-ravaged countries are in states of "limited sovereignty": They are considered too unstable and unskilled to manage the aid money pouring in, so it is often put in a trust fund managed by the World Bank. This is the case in East Timor, where the bank doles out money to the government as long as it shows it is spending responsibly. Apparently, this means slashing public-sector jobs (Timor's government is half the size it was under Indonesian occupation) but lavishing aid money on foreign consultants the bank insists the government hire (researcher Ben Moxham writes, "In one government department, a single international consultant earns in one month the same as his twenty Timorese colleagues earn together in an entire year").

In Afghanistan, where the World Bank also administers the country's aid through a trust fund, it has already managed to privatize healthcare by refusing to give funds to the Ministry of Health to build hospitals. Instead it funnels money directly to NGOs, which are running their own private health clinics on three-year contracts. It has also mandated "an increased role for the private sector" in the water system, telecommunications, oil, gas and mining and directed the government to "withdraw" from the electricity sector and leave it to "foreign private investors." These profound transformations of Afghan society were never debated or reported on, because few outside the bank know they took place: The changes were buried deep in a "technical annex" attached to a grant providing "emergency" aid to Afghanistan's war-torn infrastructure--two years before the country had an elected government.

It has been much the same story in Haiti, following the ouster of President Jean-Bertrand Aristide. In exchange for a $61 million loan, the bank is requiring "public-private partnership and governance in the education and health sectors," according to bank documents--i.e., private companies running schools and hospitals. Roger Noriega, US Assistant Secretary of State for Western Hemisphere Affairs, has made it clear that the Bush Administration shares these goals. "We will also encourage the government of Haiti to move forward, at the appropriate time, with restructuring and privatization of some public sector enterprises," he told the American Enterprise Institute on April 14, 2004.

These are extraordinarily controversial plans in a country with a powerful socialist base, and the bank admits that this is precisely why it is pushing them now, with Haiti under what approaches military rule. "The Transitional Government provide[s] a window of opportunity for implementing economic governance reforms...that may be hard for a future government to undo," the bank notes in its Economic Governance Reform Operation Project agreement. For Haitians, this is a particularly bitter irony: Many blame multilateral institutions, including the World Bank, for deepening the political crisis that led to Aristide's ouster by withholding hundreds of millions in promised loans. At the time, the Inter-American Development Bank, under pressure from the State Department, claimed Haiti was insufficiently democratic to receive the money, pointing to minor irregularities in a legislative election. But now that Aristide is out, the World Bank is openly celebrating the perks of operating in a democracy-free zone.

The World Bank and the International Monetary Fund have been imposing shock therapy on countries in various states of shock for at least three decades, most notably after Latin America's military coups and the collapse of the Soviet Union. Yet many observers say that today's disaster capitalism really hit its stride with Hurricane Mitch. For a week in October 1998, Mitch parked itself over Central America, swallowing villages whole and killing more than 9,000. Already impoverished countries were desperate for reconstruction aid--and it came, but with strings attached. In the two months after Mitch struck, with the country still knee-deep in rubble, corpses and mud, the Honduran congress initiated what the Financial Times called "speed sell-offs after the storm." It passed laws allowing the privatization of airports, seaports and highways and fast-tracked plans to privatize the state telephone company, the national electric company and parts of the water sector. It overturned land-reform laws and made it easier for foreigners to buy and sell property. It was much the same in neighboring countries: In the same two months, Guatemala announced plans to sell off its phone system, and Nicaragua did likewise, along with its electric company and its petroleum sector.

All of the privatization plans were pushed aggressively by the usual suspects. According to the Wall Street Journal, "the World Bank and International Monetary Fund had thrown their weight behind the [telecom] sale, making it a condition for release of roughly $47 million in aid annually over three years and linking it to about $4.4 billion in foreign-debt relief for Nicaragua."

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