A New Transfer from US Taxpayers to Corporate America

This newly announced transfer is more subtle than some of the Bush administration’s many, many actions that have transferred wealth from US taxpayers to a few select corporations – and thus to those few individuals who own and run them – but it’s a transfer nonetheless.

What am I referring to? I’m referring to the Bush administration’s announcement that firms from Canada, France, Germany, Russia, and other war-opposers are not allowed to bid for the $19bn in Iraq reconstruction contracts. The result of such a ban will be to reduce the competition that the various contracts will be subject to. And when competition is reduced, prices almost always go up. A perfect example of what happens when contracts are awarded with less-than-full competition can be found in today’s NYTimes:

The United States government is paying the Halliburton Company an average of $2.64 a gallon to import gasoline and other fuel to Iraq from Kuwait, more than twice what others are paying to truck in Kuwaiti fuel, government documents show…

A company’s profits on the transport and sale of gasoline are usually razor-thin, with companies losing contracts if they overbid by half a penny a gallon. Independent experts who reviewed Halliburton’s percentage of its gas importation contract said the company’s 26-cent charge per gallon of gas from Kuwait appeared to be extremely high.

Less competition (and Halliburton faced none in receiving its contract), higher prices.

But who pays these higher prices? Naturally, the US taxpayer. Nearly all of the money for Iraq’s reconstruction is coming from US taxpayers, as we all know. And where does the extra money go? In this case, Halliburton will earn increased profits, most of which will probably go to its executives and largest shareholders.

With the Bush administration’s newly announced rules regarding bidding for future reconstruction contracts, we can be sure that the winners of future contracts to rebuild Iraq will also face less competition, charge higher prices, earn higher profits, and accomplish less than they would have if they had faced full international competition. Of course, some bids may still face competition, either between competing US firms, or with firms from the other members of the coalition such as the UK, Micronesia, or Albania. But many contracts will doubtless face less competition than they would have otherwise.

That’s why these new rules mean that US taxpayers will have to pay more money to get less rebuilding done in Iraq — and the difference will end up as increased profits for a few big American corporations. As AB put it yesterday in his excellent analysis of Medicare reform, I will leave it as an excercise for the reader to figure out which US firms will gain the most.