World Order, Failed States and Terrorism PART 6: Outsourcing public security By Henry C K Liu PART 1: The failed-state cancer PART 2: The privatization wave PART 3: The business of private security PART 4: Militarism and mercenaries PART 5: Militarism and the war on drugs This article appeared in AToL on April 9, 2005 Public security is the prime function of government. Public security is supposed to be provided by government to all citizens equally regardless of levels of wealth. It is one of the basic political goods government is obliged to provide equally to all. It is as sacred to democracy as the principle of one person, one vote. When public security is privatized, there is a structural danger that adequate protection, or at least added protection needed to meet newly perceived threats, is available only to those who can afford to pay for it. When the rich and the corporate population can get additional needed security from private contractors for a fee, political pressure on government to provide adequate public security for the general public is invariably weakened, just as the proliferation of private education reduces political pressure to improve public education. With income disparity increasingly institutionalized in market economies, the privatization of public security amounts to institutionalizing inequality in government protection, just as the privatization of other government services institutionalizes inequality in the delivery of other basic political goods by government. The US Supreme Court has long since declared the segregation of education by race unconstitutional, yet segregation of education by wealth continues to be widely accepted in the United States, despite an obvious coincidence between race and poverty. In response to increasingly inadequate security protection provided by government against rising levels of threat from terrorism and crime, a key characteristic of failed statehood, private security services have emerged as a major business sector. Government policies in recent decades have institutionalized income disparities, leading to trends of increased needs for government protection from threats generated by breakdowns in social cohesion; yet such increased needs are left unequally met by trends to privatize government services. Such a combination of trends erodes the role of government at both ends and is the most glaring evidence of the failed-state syndrome. Security in the homeland In recent years, the US government has escalated its commitment of funding to homeland-security needs. Including supplemental funding, the federal budget allocated only US$17 billion ($62 per capita) to homeland security in fiscal year 2001, which ended on September 30, when, until September 11 of that year, massively destructive threats from terrorism had still been just a theoretical proposition. The homeland-security budget after September 11, 2001, increased to $29 billion ($105 per capita) in fiscal year 2002. In fiscal year 2003, the federal budget for homeland-security activities was $38 billion ($135 per capita). In fiscal year 2005, it was $45.9 billion ($164 per capita). President George W Bush administration's budget request for fiscal year 2006 calls for $49.9 billion ($169 per capita) in total funding for homeland security, an increase of approximately 8.6% in real (inflation-adjusted) terms over the fiscal year 2005 budget. While the rate of rise in federal expenditure has moderated, the rate of increase in the need for homeland security has not. The slowdown in the rise in the federal budget for homeland security can only be explained by a shift of the cost to the private sector. A 2003 review by the Federal Reserve Bank of New York (FRBNY) suggests that the economic impact of increased homeland-security spending will be relatively small, and that it is unlikely to have major effects on the fiscal discipline of the government or on productivity in the private sector. Government spending on homeland security accounted for 0.35% of gross domestic product (GDP) in 2003 - an amount only one-tenth the size of national-defense outlays. In conjunction with this spending, even if the private sector were to double its security-related inputs, the report estimates that the total annual direct costs of homeland security would be only $72 billion, or 0.66% of 2003 GDP. Moreover, such a doubling of inputs would at most reduce the private sector's labor productivity level by only 1.12%. The report attaches two caveats to its conclusion. First, the results do not suggest that the economic damage of the September 11 terrorist attacks is negligible. The findings focus solely on the economic effects of the expenditures undertaken to prevent and prepare for future incidents. Second, the results do not suggest that homeland security is unimportant. The study is in essence focused only on the cost side of a cost-benefit analysis. The benefits of homeland security are not easy to measure. One simply cannot estimate or verify how many terrorist activities, if any, are being prevented because of increased security measures, or that if and when an catastrophic attack does take place, how much of its likelihood of occurrence would have been reduced by added security spending. Clearly, it is difficult to put a value on the heightened sense of safety that the homeland-security program provides. If such a program is viewed as insurance against loss from terrorist catastrophe, then the absence of catastrophe will have justified the cost of the insurance. Yet the value of prevention is not automatically positive. A false sense of security can come from the power of suggestion that when something is being done, some positive effect will result. It is known as the Hawthorne Effect, named after the General Electric Co experiment in Hawthorne, New York, to search for optimum lighting levels for highest efficiency in productivity by varying the levels of lighting. The experiment discovered that changes in lighting levels caused productivity to increase more than any fixed level of lighting. Workers are energized when they feel that they are being fussed over. However, real prevention depends on the real effectiveness of the spending. If directed toward wrong targets, spending may not prevent anything. Worse yet, it may divert focus and resources from the real targets. Nevertheless, given the relatively small expense of prevention as compared with the cost of failure, proponents of the homeland-security program argue that even if it should prevent just one major incident over the next several years, the return on homeland-security expenditures would more than justify the cost. Further, spending buys political coverage from criticism of officials and administrations. Unfortunately, the same generous rationale is not applied to the expenditure of removing the root causes of terrorism, ie, global socio-economic injustice. Privatization of homeland security reduces government expenditure by shifting part of the cost to the private sector. Private security spending contributes more than government spending to increases in GDP, and thus it minimizes the economic burden of security. The way the US plans to keep the increased cost of homeland security to minimum adverse economic impact is through the voodoo magic of input-output econometrics. When homeland security is privatized, its expenditure becomes a growth industry. Thus, by the rules of econometrics, preventing loss from threats to homeland security is an input, and security spending becomes an output that adds to GDP and creates little adverse impact on the economy as a whole, albeit the price is systemic inequality of protection. Further, econometric analysis ignores the fact that if the need for security is reduced, the output could have been directed toward more constructive uses. For example, after September 11, the US Congress provided the pharmaceutical industry with incentives to develop drugs for terrorism-related illnesses, including protection from normal product liability and proposals to extend patent rights on medication unrelated to homeland security. This reduces the expenditure of government research, but raised the price of drugs generally by delaying the entrance of generic drugs that are cheaper than brand-name drugs. The measure of economic failure The science of econometrics deals with economic measurements used to estimate the magnitude of quantitative relationships among economic variables within a model of the economy. It is used to test hypotheses and forecast outcomes, with wide application to business forecasting and market planning. There are two kinds of economic variables in a model: endogenous variables that are found within the model; and exogenous variables that are introduced from outside the model. Security threats are exogenous variables in an econometric model since their levels and intensity are independent of the internal construct of the model. Economists seek insights by examination of data. This is known as the inductive approach. They also attempt to validate or disprove existing theories by comparing theoretical claims against empirical data. This is known as the hypothetical approach. The two approaches are not mutually exclusive, their difference is analogous to different starting points in a conceptual circle. William Stanley Jevons (1835-82), an English economist and logician, simultaneously with Viennese economist Carl Menger and French economist Leon Walras launched the Marginalist Revolution of 1871-74 (diminishing marginal utility) that gave rise five decades later to neo-classical economics, which emphasizes the phenomenon of exchange over production. Marginalist theory of value puts forth the idea that the "natural value" of a good is determined only by its subjective scarcity, ie the degree to which people's desire for that good exceeds its availability. When clean water was in abundance, it had no economic value, even though its value to life is paramount. When industrialization pollutes the Earth's water supply, clean water commands a high price. Thus pollution, like security threats, serves an economic function in neo-classical economics. Privatization of water depends on water pollution for its economic justification. The focus on scarcity is behind the rise of market capitalism where price is not determined by the cost of production but by scarcity of supply. The cost of oil production remains around $4 a barrel on land and $7 a barrel offshore. It is scarcity that has driven the price of oil above $50 per barrel in recent months. The cost of production for additional copies of Microsoft's Windows is near zero, yet each copy can sell for $200 because Microsoft controls the supply through its intellectual property rights. Marginal utility gives rise to market failure through the emergence of monopolies and cartels whose purpose is to keep prices high by limiting supply rather than increasing production. It robs society of the material benefits of rising productivity from advanced technology. Surplus food from efficient agro-technology is dumped in the sea to keep prices high while billions starve around the world. Money is constantly kept scarce to maintain its value while poverty is kept widespread in a world of idle production overcapacity made possible by technological progress. If overcapacity were to be fully utilized, prices would have to fall or wages would have to rise to increase public purchasing power to absorb the added products. Both options are destabilizing to the state of scarcity without which the entire science of economics would have to be rethought. Thus workers are kept unemployed or underemployed to cut down on the production of goods they cannot afford on their low wages. The concept of marginal utility has created as much misery for mankind as racism, by keeping basic human needs at a constant level of scarcity. States that tolerate a failed market are by definition failed states. In 1803, Jean-Baptiste Say (1767-1832), in examining the evolution of trade between Britain and Brazil, observed that demand for a particular set of goods can only be expressed by equivalent supply of another set. Supply, therefore, "creates" its own demand. Almost all of classical and most neo-classical theory is based on this simple, even tautological, assertion. Say's Law concludes that general gluts cannot exist. Classical economists assert that unemployment and market failures were due to excess supplies over demands of particular commodities and not excess supplies (or gluts) of commodities generally as a whole. David Ricardo (1772-1823) notes: "Mistakes can be made, and commodities not suited to demand may be produced - of these there may be a glut" and that "it is at all times the bad adaptations of the commodities produced to the wants of mankind which is the specific evil, and not the abundance of commodities. Demand is only limited by the will and power to purchase." John Stuart Mill (1806-73) concurs by noting that in these situations, "production is not excessive, but merely ill-assorted". Ricardo and Mill extended this proposition to savings and investment. If one produces more than one consumes, then the surplus is saved and, by definition of terms, invested. No one would produce in excess of consumption needs if one does not have a desire either to exchange it or invest it. Supply, therefore, generates demand. This relationship virtually all the classical economists held to be an irrefutable truth. Thomas Robert Malthus (1766-1834) and French economist J C L Simonde de Simonde (1773-1842) are the exceptions who believed general gluts could exist. They reasoned that income is distributed among workers, entrepreneurs and landowners receiving wage income, profit and land rents respectively. And landowners will receive a portion of income, but they may choose not to consume it. And when they don't, there will be a general glut (excess supply of goods) even though the investment-savings identity still holds. Thus all classical economists, except for Malthus and Simonde, were generally in agreement over the validity of Say's Law, at least in the long run. They all also agree on the identity of savings and investment as well as the separation of output from price theory. The most famous under-consumption cycle theory was laid out by John Maynard Keynes in his General Theory (1936). The neo-classical story is often captured in diagrammatic form by the idea that equilibrium prices and quantities of goods are determined jointly and simultaneously by the demand and supply for goods. Yet demand is blocked by the need to skim off surplus value in the form of return on capital through profits, which can only come from lowering wages before the level of cost of material and capital needed to produce goods. Price is always the sum of cost of material, capital and labor. Of the three costs, labor is the only flexible variable. Yet if wages consistently fall below the level of prices for goods, a downward spiral of overproduction and unemployment will result, which is the basis of business cycles and long waves. According to the theory of marginal utility, since fear drives up demands for security, the demand and therefore the price for private security will rise if the supply of government provided security is reduced. Higher prices for private security are not inflationary if the value of the benefit (perceived safety) also rises. Thus rising fear from terrorism is good economics in that it creates rising demand for private security services at rising prices that are not inflationary because of rising fear, and contributes to a rising GDP. Such is the warped logic of econometrics employed by the FRBNY review on the economic impact of terrorism-induced homeland-security expenditure. The inductive approach has a long history of producing esoteric, at times bizarre theories. Jevons discerned from data evidence of a sunspot-driven business cycle (1875, 1884). Clement Juglar (1819-1905), a French doctor, statistician and father of business-cycle theory, was an early proponent (1862) of the development of an economic theory of the business cycle by identifying the "Juglar seven-to-11-year industrial cycle" that has since been associated with his name. His findings on credit cycles spurred the subsequent efforts of overinvestment theorists. Juglar saw in financial tables evidence for a credit-driven cycle. Similarly, Henry Ludwell Moore (1869-1958), a student of Menger in Vienna and an early disciple of Walras in France, was the only American member of the original Lausanne School grouping around the Frenchman Walras and the Italian Vilfredo Pareto. The central attribute of the Lausanne School was its development of general equilibrium theory and its extension of the applicability of the neo-classical approach to economics. Moore also delved deeply into discovering the connection between commodity business cycles and equilibrium theory. His theory of the cycle was externally driven by eight-year cycles of rainfall. His magnum opus, Synthetic Economics (1929), was a Herculean attempt to estimate Walras' general equilibrium system. Moore used the inductive approach in 1914 to argue for a weather and astral-driven cycle. The hypothetical approach was also used by economists to attempt to fit data to demand curves, as represented by Nikolai D Kondratiev (1892-1931?), Russian economist and founder of the Moscow Institute for Business Conditions. Kondratiev identified the half-century "long wave" in his famous 1922 tract and 1926 article "The Long Waves in Economic Life". One of the architects of the first Soviet Five Year Plan, he was imprisoned in a Siberian camp in which he died some time in the 1930s. Wesley C Mitchell and the National Bureau of Economic Research (NBER) used the hypothetical approach in their research. NBER today is the official diagnostician of recessions in the US economy. The measurement of business cycles was the main topic in the hypothetical approach. The NBER does not record Kondratiev Cycles (or "long waves") as its researchers do not believe these cycles exist. Nonetheless, four Kondratiev waves have been identified: 1. The Industrial Revolution (1787-1842) is the most famous Kondratiev wave: the boom began in about 1787 and turned into a recession at the beginning of the Napoleonic age in 1801 and, in 1814, deepened into a depression. The depression lasted until about 1827, after which there was a recovery until 1842. As is obvious, Kondratiev rode on the development of textile, iron and other steam-powered industries after 1842. 2. The Bourgeois Kondratiev (1843-1897): After 1842, the boom re-emerged and a new Kondratiev wave began, this one as a result of the railroad age in Northern Europe and the US and the accompanying expansion in the coal and iron industries. The boom ended approximately in 1857 when it turned into a recession. The recession turned into a depression in 1870, which lasted until about 1885. The recovery began after that and lasted until 1897. 3. The Neo-Mercantilist Kondratiev (1898-1950?): The boom began about 1898 with the expansion of electric power and the automobile industry and lasted until about 1911. The recession that followed turned into depression in about 1925 and lasted until around 1935. This third wave entered into a recovery immediately afterward, which one might suspect lasted until around 1950. 4. The Fourth Kondratiev (1950- 2010?). There has been much debate among believers on the dating of the fourth wave, largely because of the confusions generated by the low fluctuation in price levels and the issue of Keynesian policies, and hence this debate is yet to be resolved. Perhaps the most acceptable set of dates is that the boom began around 1950 and lasted until about 1974, wherein recession set in. When (and if) this recession fell into its depression phase may be more difficult to ascertain (circa 1981?), but what has been more or less agreed upon is that in 1992 (or thereabouts) the recovery began and has been projected to give way to a boom, and thus a new Kondratiev wave, around 2010 or so. Simon Kuznets (1901-85), neither a Keynesian nor an econometrician, took his cues from Mitchell's institutionalism. His initial work was on the empirical analysis of business cycles (1930) - a 15-20-year cycle he identified was later attached to his name, the "Kuznets Cycle". Kuznets was also one of the earliest workers on developmental economics, in particular collecting and analyzing the empirical characteristics of developing countries. His major thesis, which argued that underdeveloped countries of today possess characteristics different from those that industrialized countries faced before they developed, helped put an end to the simplistic view that all countries went through the same "linear stages" in their history and launched the separate field of development economics - which now focused on the analysis of modern underdeveloped countries' distinct experiences. Among his several discoveries that sparked important theoretical research programs was that of the inverted U-shaped relation between income inequality and economic growth; he also discovered the patterns in savings-income behavior. Kuznets won the Nobel Prize for economics in 1971 while he was at Harvard University. Private security industry giants Wackenhut Services, a subsidiary of the Wackenhut Corp, provides security services to private and public clients, including facilities operations and maintenance, emergency preparation and response, fire protection, hazardous-material management, and security and law-enforcement services. The company also operates a homeland-security division that provides border security, information analysis, and emergency response for situations involving chemical agents, biological warfare, and weapons of mass destruction. US government and public agencies, including the Internal Revenue Service, the National Aeronautics and Space Administration (NASA), the Department of Energy, and the US Army, are paying clients. The late George R Wackenhut, a former US Federal Bureau of Investigation (FBI) agent, built the Wackenhut Corp into an international security firm that promoted the use of private guards at prisons, airports and nuclear power plants. From the McCarthy era on, when a communist could be found hiding under almost every bed in the United States, the country's appetite for private security escalated into hysteria. George Wackenhut cashed in by persuading thousands of communities and government agencies to put private guards in public jobs, a move long resisted in vain by law-enforcement officials. Started in 1954 as a three-man detective agency in Miami, the struggling company turned to providing guard services to stay afloat and later earned contracts with Lockheed Martin and the Kennedy Space Center in Florida to protect classified projects from communist spies. To impress potential clients, Wackenhut dressed his guards in helmets and paratrooper boots, and he recruited former members of the Central Intelligence Agency (CIA), the FBI and elite military forces to join management and the company's board. Over the next four decades, Wackenhut personnel guarded corporate buildings during labor strikes, managed security for airlines at nearly 90 airports, and supplemented municipal services such as fire fighting and emergency medical services in several small communities. Its guards patrolled the Atomic Energy Commission's nuclear test site in Nevada and even a handful of US embassies. The company's expansion into prison security and other correctional operations in the 1980s became its most profitable move. It was one of the first private security firms hired by the Federal Bureau of Prisons and has since received federal contracts from the US Marshals Service and the immigration and customs enforcement division of the Department of Homeland Security. The privatization of prisons has had its critics and Wackenhut's guards have been accused of abusing inmates in Florida, Texas and Louisiana. The Wackenhut Correction Corp, the company's prisons subsidiary, now manages more than 40,000 prison beds, mostly in the United States, the United Kingdom, Australia and New Zealand. According to a head count taken in the middle of 2002, the 50 US states, the District of Columbia and the federal government held 1,355,748 prisoners (two-thirds of the total incarcerated population), and local municipal and county jails held 665,475 inmates, with a total of more than 2 million inmates. US jails held one of every 142 US residents. Males were incarcerated at the rate of 1,309 inmates per 100,000 men, while the female incarceration rate was 113 per 100,000 female residents. Of the 1,200,203 state prisoners, 3,055 were younger than 18 years of age. In addition, adult jails held 7,248 inmates under 18. As of June 30, 2002, state and federal correctional authorities held 88,776 non-citizens, a 1% increase from the 87,917 held a year earlier. Sixty-two percent were held in state prisons and 38% in federal institutions. Privately operated prisons held 86,626 inmates. By comparison, the US has 983,000 hospital beds, less than half of the number of prison beds. That is a failed-state syndrome if there were ever one. As his company grew, Wackenhut recruited prominent directors such as Clarence M Kelley, former head of the FBI; James J Rowley, former director of the US Secret Service; and Frank C Carlucci, former US defense secretary and former CIA deputy director. Before president Ronald Reagan appointed him director of central intelligence, William J Casey was Wackenhut's outside legal counsel. Such connections fueled speculation that the company was a front for the CIA, which Wackenhut denied. Wackenhut, outspoken in his conservative politics, was occasionally seen as overly zealous in his investigative assignments. In 1967, when governor Claude R Kirk Jr of Florida appointed him chief of a private police force to investigate organized crime, Wackenhut was criticized for saying publicly that he and his officers would not limit themselves to suspected criminals but would "investigate everyone and anyone who needs investigating". The police force was short-lived, but the company's tactics created a dispute again in 1991, when a congressional inquiry found that it had spied on an environmental advocate by installing miniature cameras in his hotel rooms and illegally taking documents from his home in his absence. Kroll is another major private security company. Its experts in security, protection, engineering, business continuity and emergency management help clients prevent, prepare for and respond to the many threats they face at home and abroad that the state fails to provide. Kroll's approaches are designed to respond quickly to changing threat conditions and ensure operational continuity in the wake of a crisis. Global threats are forcing companies to take a harder look at their security programs. From assessment to implementation, clients are told they can benefit from Kroll's seamless integration of services, resulting in a more efficient, cost-effective security program, albeit at times outside the law even if technically not illegal. Kroll experts develop proactive, tiered approaches that can respond quickly to changing threat conditions and help ensure operational continuity in the wake of a crisis. Private security programs can be free of civil-rights restraints. Kroll's 2003 sales were $485.5 million, with year-on-year sales growth of 67.9%. Last May 18, Kroll Inc and Marsh and McLennan Companies (MMC), the insurance broker now under investigation, announced that they had entered into a merger agreement under which MMC would acquire Kroll Inc in a $1.9 billion cash transaction. In October, New York Attorney General Elliot Spitzer sued Marsh & McLennan, the world's largest insurance broker, accusing it of rigging bids and fixing prices while steering business to insurers that paid the highest placement fees. In January, Marsh agreed to pay $850 million to settle the suit, in line with placement fees it collected in 2003, and agreed to change its business practices. Marsh took a pretax charge of $618 million in the fourth quarter for the settlement, in addition to a $232 million charge taken in the third quarter. The New York-based company reported a 2004 fourth-quarter loss of $676 million, or $1.28 a share, compared with a profit of $375 million, or 69 cents a share, a year earlier. In essence, US taxpayers paid for MMC settlement costs. Washington Group International Inc, based in Boise, Idaho, with approximately 27,000 employees at work in more than 40 US states and more than 30 countries, provides professional, scientific, management, and development services in more than two dozen major markets. Founded in 1964 by Dennis R Washington in Missoula, Montana, the company rose to the top of the civil-construction market in Montana, and expanded into mining, industrial construction, and environmental clean-up work. As his company grew into a major regional firm, Washington's vision for the future continued to expand also, leading to a series of acquisitions that produced the international powerhouse the company is today. In 1993, Washington Construction Co expanded its heavy civil-construction operation when it merged with Kasler Corp, a California-based firm with large-scale operations in heavy civil construction. In 1996, Washington Construction acquired Morrison Knudsen, gaining an 84-year heritage of mining, engineering and construction globally. With the acquisition, the company had capabilities and services that reached across five markets: infrastructure, mining, industrial/process, energy and environment, and power. In 1999, the company acquired the government-services operations of Westinghouse Electric Co, becoming a science and technology services leader. In 2000, the company expanded its market leadership by acquiring Raytheon Engineers and Constructors to produce one of the largest companies in the industry. Today, Washington Group holds leading positions in six top markets and a service offering that spans the entire range of its clients' needs, unifying a vision that has been 10 years in the making. Being the undisputed leader in the destruction of US stockpiles of chemical weapons, Washington Group has contracts with the US government worth more than $4.2 billion to design, build, operate, and close chemical-weapons destruction plants at four sites in the United States. Washington Group's Westinghouse Savannah River Co has operated since 1989 the 803-square-kilometer Savannah River Site (SRS) for the US Department of Energy (DOE). The site is home to the Defense Waste Processing Facility, the largest high-level radioactive-liquid stabilization plant in the world. The site's approximately 9,000 employees are engaged in environmental remediation and maintenance of the nation's nuclear stockpile. Washington Group's involvement at SRS is ever changing from production of weapons-grade plutonium and tritium during the Cold War to cleanup and disposal today. The SRS continues to meet the changing needs of the DOE. Cold War nuclear deterrence was based on the doctrine of mutually assured destruction (MAD) with long-range delivery systems armed with independently targetable re-entry warheads. The SRS in South Carolina was constructed in the early stages of the Cold War. The site's main purpose was to produce basic materials used in the fabrication of nuclear weapons, primarily tritium and plutonium-239. The five reactors built at the site produced weapons-grade nuclear materials that were used in weaponry as well as plutonium-238 for power sources for NASA deep-space missions. The SRS has operated for almost half a century. When Westinghouse Savannah River Co took over the site in 1989, its task was to re-engineer and upgrade three of the five 1950s-era nuclear reactors that produced plutonium and tritium. By the end of the decade the global balance of power had shifted. With the end of the Cold War, and the dissolution of the Soviet Union, the role of the Savannah River Site and other DOE defense-related facilities changed. Washington Group's history at the SRS is one of dealing with the changing needs of the DOE. It is a large and complex site and one of the many challenges the company tackles is how to adapt to new DOE missions and changing national priorities. As a result of privatization of DOE functions, private profit became a legitimate factor in the deliberation in the nation's nuclear policy. With the passage of arms-reduction treaties, the need for plutonium and tritium declined. The SRS mission shifted from nuclear armament to disarmament in areas such as groundwater remediation, cleaning up inactive waste sites, and waste management, pollution that had been part of the armament process. By the middle of the 1980s, construction was started on a major facility that would immobilize high-level radioactive waste and convert it into a durable glass form through a process called vitrification. The Defense Waste Processing Facility (DWPF) would become the world's largest system for stabilizing radioactive waste in glass. The terrorist attacks of September 11, 2001, heightened the United States' awareness of the wide-ranging consequences of such attacks. To reduce America's vulnerability to terrorism and other disasters, President Bush issued the National Strategy for Homeland Security (NSHS) to protect public health and safety and key assets vital to US government, economy and morale. Its mission is twofold: 1) to mobilize the entire nation in a concerted effort to protect its homeland from terrorists and 2) to ensure a high level of security in a free and ever-changing society. Washington Group International sees itself playing a crucial role in homeland security, helping to prevent, protect, and prepare for catastrophic threats to the US as well as developing recovery techniques should such attacks occur. These efforts are focused on protecting military bases, both at home and abroad, securing critical infrastructure against modern threats, such as dirty bombs, by utilizing innovative detection and mitigation systems. Washington Group provides a wide range of engineering, construction, and threat-analysis services to government customers. These specialized services include: Real-time threat simulation; security vulnerability analysis and mitigation; emergency and crisis response; security-related technology integration and deployment; hazard assessment; and threat and consequence assessment. Washington Group International claimed a leading role in ridding the US and the world of weapons of mass destruction (WMD) when operations began last August 9 at the Anniston Chemical Agent Disposal Facility (ANCDF) in Alabama. Over the next seven years, Washington Demilitarization Co and its subsidiary, Westinghouse Anniston, is scheduled to destroy hundreds of thousands of chemical weapons stored at the Anniston Army Depot. In the former Soviet Union (FSU), Lugar-Nunn legislation is providing funding to help former Soviet states dismantle their arsenals of WMD. Washington Group International is the first foreign organization successfully to license and design, construct and operate a Cooperative Threat Reduction (CTR) facility in the FSU. Washington Group was awarded six contracts by the US Defense Department's Defense Threat Reduction Agency (DTRA) to build a Neutralization and Dismantling Facility (NDF) in Dniepropetrovsk, Ukraine, where the company disassembled, eliminated, disposed and salvaged SS-19 missiles. After the collapse of the Soviet Union, Ukraine, a country of 52 million people, inherited the world's third-largest nuclear arsenal. There were more than 180 intercontinental ballistic missiles (ICBMs) with more than 1,200 warheads on Ukrainian territory. The stockpile consisted of 133 SS-19s and 46 SS-24s armed with nuclear warheads. There were an additional 14 SS-24s present in Ukraine but not deployed with warheads. Ukraine also inherited several dozen bombers with nuclear capabilities that were armed with approximately 600 air-launched bombs and more gravity bombs. As many as 3,000 tactical weapons rounded out the arsenal that totaled about 5,000 strategic and tactical weapons. A trilateral agreement signed in January 1994 by the US, Russia and Ukraine that would send the nuclear warheads back to Russia was the first step in making Ukraine a nuclear-free nation. Washington Group went to Ukraine in 1994 in a partnership with Thiokol, a rocket-motor maker. Thiokol needed a company with construction and engineering experience for work in the FSU. The US partners won the contract that turned into a disassembly and elimination project with the Defense Nuclear Agency, later renamed the Defense Threat Reduction Agency. From 1994 through 2003 the Department of Defense awarded Washington Group a series of contracts to disassemble, dispose, eliminate, salvage and store Soviet ICBMs for the DTRA. An early contract called for the design, construction management and operation of a 2694-square-meter Neutralization and Dismantling Facility (NDF) in the southern oblast of Dniepropetrovsk, a Soviet industrial/technology center that had produced trucks from 1944 until May of 1951, when production switched to ballistic missiles. During the final stages of the Cold War, Leonid Kuchma directed operations at the Dniepropetrovsk plant that produced missiles, space-launch vehicles, satellites and rocket engines. In the waning years of the Soviet regime, maintenance on the facility diminished as the Soviet economy collapsed. After the dissolution of the USSR, Kuchma became Ukraine's prime minister (1992-93) and then its second president in July 1994. He remained in power until January 23, 2005, when his hand-picked successor, Viktor Yanukovych, lost the presidential election to Viktor Yushchenko. Guardsmark is the world's largest employer of former FBI agents and also one of the largest security firms in the United States. Guardsmark operates in some 400 cities in North America, where it provides security services to the financial, utility, transportation, and health-care industries. The company offers security guards, private investigation, and drug-testing services. It consults with architects and builders to design security programs. Guardsmark also conducts background checks (employment, education, and criminal history) and provides outsourcing services (Peoplemark). Chairman and president Ira Lipman owns the company, which he founded in 1963. Allied-Barton Security Services, formerly Allied Security, is one of the largest private security firms in the US. The company serves more than 2,100 clients through more than 60 offices in 37 states. The company primarily provides security guards and staffing services for shopping malls, office buildings, hospitals, corporate complexes, and universities, but also offers 24-hour alarm monitoring, closed-circuit television systems, access-control systems, and burglar- and fire-alarm systems. In addition, Allied Security provides consulting services and facility assessment. The company, which is owned by MacAndrews and Forbes Holdings, has acquired and merged with Barton Protection Services. Sales in 2003 were $550 million, year-on-year sales growth was 10%, and it had 23,000 employees, boasting year-on-year employee growth of 21.1%. Inter-Con Security Systems, one of the largest private security consulting firms in the US, provides custom-designed security programs for commercial, governmental, and industrial clients in 25 countries on four continents. Its services include security consulting, protection, investigations, and training. It also provides security-guard and patrol services. Inter-Con's clients have included NASA, the Academy Awards, and the US government. The company, founded in 1973, is owned by chief executive officer Rick Hernandez and the Hernandez family. Sales in 2003 were $1 billion, and the company had 25,000 employees. Run by former US Secret Service agents, Vance International, a part of SPX's Security and Investigations Unit, offers executive protection, uniformed guards, investigations and training. It also provides asset protection and temporary labor for companies during strikes or natural disasters. Serving corporations and government agencies, as well as the occasional celebrity, Vance International has been called the "Rolls-Royce" of security firms; clients have included Bill Gates, Nelson Mandela and Arnold Schwarzenegger. President and chief executive officer Chuck Vance founded the firm in 1984, acquired by SPX in 2002. Security on the cheap By September 2001 there were an estimated 1 million to 2 million workers in some 13,000 private security companies in the US, and some say there are now twice as many private security workers as police officers. The number of workers in the industry grew nearly 20% in the last decade, and according to the Bureau of Labor Statistics, it will continue to increase as companies beef up security to allay fears of crime, vandalism and terrorism. These guards, however, are not police officers. Instead, they are uniformed watchmen, usually unarmed, who patrol airports, shopping malls, private businesses and college campuses. As companies downsize, they often have their security personnel - typically provided by third-party contractors - perform two jobs at once. These "guards" also double as receptionists or customer service workers. Even the government, in efforts to cut costs, sometimes subcontracts security in prisons and federal buildings to private security companies. And of course, these companies have been used to break union picket lines and defend strikebreakers. Public-sector unions are also keeping a wary eye on the small but growing trend of private security guards replacing unionized public employees. Unlike their public-sector or in-house counterparts, these private security guards are not highly trained or well paid. And while many in the security industry, including the managers of some security companies, are pushing for national standards concerning training and skill level, the industry does not pay enough to attract and maintain qualified personnel. Richard Marinaro, Long Island director of Boston-based Unico Security Services, told Newsday in 1998 that the security companies "can't get people at these wages, and we're in competition with the McDonald's and the Wendy's [fast-food chains] of the world". Yet the jobs that these guards are asked to do - working eight-hour shifts without a lunch break, showing restraint and judgment when dealing with the general public, serving as witnesses in court - require more skill, training, and dedication than working in fast food. Stories of shoddy work and/or theft by the security guards who are supposed to protect people and property are surprisingly commonplace among the companies that specialize in providing private security in the US. For example, workers for Argenbright, a company that provides workers for security checkpoints in airports, were involved in four airport security breaches in less than a year in 1997-98, as well as one that required an evacuation of the United Airlines terminal at Chicago's O'Hare Airport in 1999. In April 2000, federal prosecutors also found that Argenbright officials at Philadelphia International Airport routinely falsified records, hired convicted felons, and provided low-paid employees with answers to federally required tests for baggage screeners. One trend that has coincided with the increase in incidents involving private security and their low wages is the industry's drift toward consolidation. Last August, Pinkerton, a subsidiary of Sweden-based Securitas, merged with Burns International Corp, another industry leader, to create a private security giant with more than 600 offices internationally and annual revenue of more than $2.5 billion. Two Pennsylvania companies, Allied Security and SpectaGuard, also merged in 2000, making the company the largest independently held security company in the country and giving it business in more than 250 cities across the US. With consolidation has come corporatization of the industry, something that in the eyes of some industry insiders has led industry leaders to sacrifice quality service for an image that sells. "Pinkerton sold out to a low-end, minimum-wage type of service," said Roger Schmedlen, president of Loss Prevention Concepts Ltd, a Michigan-based security consulting agency, as he described Pinkerton's entry into lower-level watchman service in the early 1980s. "They put out all of these slick brochures and took on a national advertising campaign, and it changed the industry. They have some great pictures of guys that look like Superman, but government studies show that the typical security guard doesn't have much more than an eighth-grade education, and is elderly." But Pinkerton, and most other companies, also offer more "high end" security guards - ones who are better trained, more skilled, and better paid. "There are some really good guards out there," Schmedlen noted. "But a lot of these companies just go for the low bid and take it." Ultimately, these companies, which have reaped the benefits of exploding demand for security guards in the US, have skimped on wages whenever possible to maximize profit. "They're profit-making enterprises, and they have stockholders and shareholders," explained one industry observer. "In any kind of safety operation, the bulk of the expense goes towards personnel compensation. So if you want to try to make a profit, the first thing you make cuts in are wages and benefits." With its low wages, low standards, and poor working conditions, the private-security industry is one that, on the surface, seems ripe for unionization. But a provision of the National Labor Relations Act stipulates: "No labor organization shall be certified as the representative of employees in a bargaining unit of guards if such organization admits to membership, or is affiliated directly or indirectly with an organization which admits to membership, employees other than guards" (source: Section 159, Title 29 of the US Labor Code). This provision, known more commonly as the "Guard Law", gives management the right to refuse workers' petitions to join a union such as the Teamsters, the Service Employees International Union (SEIU), or any other international union that has members outside of the security sector. While it was originally written to prevent potential conflicts of interest in labor disputes (if United Auto Workers guards were assigned to defend against a UAW plant strike, for example), it also serves to undermine efforts by unions to gain an organizing foothold in the industry. There is, however, a loophole that unions can use to gain recognition. Management can voluntarily choose to recognize guards as part of a larger union, as some have in card-check elections. Argenbright airport workers in Los Angeles and San Francisco were able to do this when they voted to join the SEIU. Mitigating circumstances, such as public pressure or the fact that many companies prefer to deal with a union instead of individual employees, have helped international unions gain recognition from some of these security companies. And while other security guards have the option of joining other small, unaffiliated unions that represent only security personnel, still less than 10% of the US industry is organized. As with many of the increasing number of low-paying service jobs that have sprung up in the past decade, the growing ranks of private security guards represent another challenge for organized labor. If they are going to maintain their foothold among the blue-collar workforce, unions need to adapt and adjust to the realities of exploitative industries that will continue to sacrifice both quality service and decent wages until their workers gain a decent voice on the job. The employees of the private security sector, in essence a private army, are greater in number than the soldiers in the US Army. This private army thrives on social instability and state failure. These private security companies have no financial incentive to promote peace and stability. The dependence of the state on their contracted service gives them an influential voice in formulating state policies. Security threat is big business and any reduction of threats in fact threatens the economy. Markets provide a variety of incentives to producers, their customers, and local communities to guard against a wide range of risks, including the possibility of terrorism. Private producers of goods and services generally will benefit from safe operating practices (including physical security) and the purchase of insurance to help limit any financial losses. But the incentives for private businesses to reduce their vulnerability to attack, and the potential losses for those who would be affected, may be inadequate when the private costs of the threat of terrorism are lower than the social costs, or equivalently, when the private benefits from security measures are less than the social benefits. Private costs would be closely associated with damages to production and distribution facilities and the harm to industry workers, as well as the potential loss of business. But the total social costs could go further and include the harm or loss of life to individuals such as the neighbors of a targeted facility or the consumers of a tainted product, damage to the local environment, and negative effects on other businesses dependent on the targeted industry. If the product of the targeted industry became a potential weapon in attacks elsewhere, the social costs could be broader still. For example, stolen chemicals could be used to attack an office building. If the disparity between private costs and social costs is significant, the result is that private firms have insufficient incentive to meet social objectives. Many of the US government programs that existed before September 11 are intended to bring private and social costs into line. Many firms had long been subject to extensive government intervention because of the dangers that those industries' operations or products can pose to public safety, environmental quality, and local economies. Existing government programs provide a starting point for examining possible new efforts. Those programs may be adequate to prompt businesses to address much or all of the increased terrorist threat. But if private efforts are inadequate, policy options for prompting additional efforts will probably build on the incentives generated by existing requirements. Cost-effective policies for enhancing homeland security may involve expanding some programs that have non-security goals while reducing others. For example, programs that were intended primarily to help protect the public from relatively common threats, such as industrial accidents or food contamination, could be expanded to help address the terrorist threat. But programs that were intended to disseminate information on critical industries, such as the production and storage capacities of hazardous facilities, might need to be curtailed to keep that information out of the hands of terrorists. If a chemical-production facility were subject to an attack, for example, the ensuing fire or explosion could expose the surrounding community to dangerous toxins. That added exposure would represent a social cost that the private firm would not face - especially if the damage exceeded the limits of the owner's insurance coverage and other financial resources. As a result, the owner would have less incentive than otherwise to guard against such attacks, scale back operations, or relocate. Current government programs affecting the safety of chemical-plant operations and supporting local emergency preparations are a response to that social cost and also contribute to homeland security. However, the increased awareness of the terrorist threat since September 11, if not the threat itself, also may indicate a need to step up security efforts since the social benefits of spending on security have increased. The type of intervention that would force industry to internalize the costs of security and for which it would bear the immediate costs would include requirements to take preventive measures, assessment of penalties for failing to take certain actions, or imposition of taxes on certain activities or products. The type of intervention that would have the government socialize the cost - so that everyone paid for the enhanced security - would include new programs that rewarded industry for taking measures to protect vulnerable facilities or make those facilities less dangerous, for example, by supporting the adoption of safer production processes or the use of safer chemicals. Alternatively, rather than force or pay industry to make certain changes, new programs could help inform nearby residents of the dangers of an attack or inform industry of currently available options for reducing its vulnerabilities. The use of mercenaries in war The Guardian reported that with the casualty toll ticking ever upward and troops stretched thin on the ground in Iraq and Afghanistan, the Bush administration is looking to mercenaries to help control Iraq. These soldiers-for-hire are veterans of some of the most repressive military forces in the world, including that of the former Chilean dictator Augusto Pinochet and South Africa's apartheid regime. In February 2003, Blackwater USA, a North Carolina-based Pentagon contractor, began hiring former combat personnel in Chile, offering them up to $4,000 a month to guard oil wells in Iraq. The company flew the first batch of 60 former commandos to a training camp in North Carolina. These recruits will eventually wind up in Iraq where they will spend six months to a year. "We scour the ends of the Earth to find professionals - the Chilean commandos are very, very professional and they fit within the Blackwater system," Gary Jackson, the president of Blackwater USA, told the Guardian early last year. While Blackwater USA is not nearly as well known as Halliburton or Bechtel - two mega-corporations making a killing off the reconstruction of Iraq - it nevertheless is doing quite well financially thanks to the White House's "war on terror". The company specializes in firearms, tactics and security training, and in October 2003, according to Mother Jones magazine, the company won a $35.7 million contract to train more than 10,000 sailors from Virginia, Texas and California each year in "force protection". Business has been booming for Blackwater, which now owns, as its press release boasts, "the largest privately owned firearms training facility in the nation". In an interview with the Guardian, Jackson said: "We have grown 300% over each of the past three years [before March 2004] and we are small compared to the big ones. We have a very small niche market - we work towards putting out the cream of the crop, the best." The practice of using mercenaries to fight wars is hardly new, but it has become increasingly popular in recent years. During the first Gulf War (1990-91), one out of every 50 soldiers on the battlefield was a mercenary. That number climbed to one in 10 during the Bosnian conflict (1996). Currently there are thousands of Bosnian, Filipino and US soldiers under contract with private companies serving in Iraq. Their duties have ranged from airport security to protecting Paul Bremer, the former head of the Coalition Provisional Authority. Apart from Chile, the other popular source for military recruits is South Africa. The United Nations recently reported that South Africa "is already among the top three suppliers of personnel for private military companies, along with the UK and the US". There are more than 1,500 South Africans in Iraq today, most of whom are former members of the South African Defense Force and South African police. According to the Cape Times, among the South African companies under contract with the Pentagon are Meteoric Tactical Solutions, which "is providing protection and is also training new Iraqi police and security units", and Erinys, a joint South African-British company, which "has received a multimillion-dollar contract to protect Iraq's oil industry," the Cape Times reported early last year. The recruitment of its citizens, however, leaves the Chilean and South African governments less than happy. The Regulation of Foreign Military Assistance Act prohibits South African citizens from direct participation as a combatant in armed conflict for private gain. Michelle Bachelet, Chile's former defense minister, ordered an investigation into whether such recruitment was legal under Chilean laws. Bachelet also was troubled by stories that soldiers on active duty were leaving the company to sign up as mercenaries. It is also only a matter of time before US soldiers grow unhappy with the presence of mercenaries in their midst. The high salaries and shorter terms of employment offered to mercenaries will inevitably make a serious dent on the military's budget. As Blackwater's Jackson acknowledged in the Guardian, "If they are going to outsource tasks that were once held by active-duty military and are now using private contractors, those guys [on active duty] are looking and asking: Where is the money?" Raenette Taljaard, a member of the South African parliament, has describes the ubiquitous reach of this "booming cottage industry" of private security companies: "In addition to becoming an integral part of the machinery of war, they are emerging as cogs in the infrastructure of peace. US-allied military officials and civilians in Iraq and Afghanistan are quickly becoming familiar with the 'brand services' provided by companies." In the era of neo-liberal globalization, war has become just another industry to be outsourced. Next: Lessons of the Thirty Years' War for the "war on terrorism"