March 13, 2007

Privatizing War - Part 2

Guest Writer: L. Vincent Sebastian

SECOND in a Three-Part Series,

My recent posting, “Privatizing the War in Iraq”, describes the Bush administration’s growing reliance on private contractors such as Blackwater USA to conduct military operations in Iraq. Yet, the issues and potential problems with private contractors described in that posting are only the tip of the iceberg. In the new posting below, the many problems surrounding private military firms (PMFs) are more fully laid out. The source material for this posting is: P.W. Singer, “Corporate Warriors: The Rise and Ramifications of the Privatized Military Industry”, International Security, Vol. 26, No. 3, Winter 2001/2002. Although Singer’s article, turned into a book, was published before the U.S. invasion of Iraq, its relevance has only increased in the last five years.

Organization and Operation of the Privatized Military Industry

The privatized military industry is neither a capital-intensive sector, nor requires the heavy investment needed to maintain a public military structure. The barriers to entry are relatively low, as are the economies of scale. Unlike state militaries, which require substantial budget outlays, PMFs need only a modicum of financial and intellectual capital. All the necessary tools are readily available on the open market, often at bargain prices from the international arms bazaar. The labor input – predominantly skilled former soldiers – is also relatively inexpensive and widely available. Spurring their recruitment is the comparatively low pay and declining prestige of many state militaries. PMF employees tend to receive two to ten times as much as they did in the military, allowing the best and brightest to be lured away, as mentioned above.

Estimates suggest that annual revenues for the private military industry as a whole were $100 billion in 2001. Since then, revenues have increased by over 85 percent in industrial countries and 30 percent in developing countries, an indication of the industry's robust health and growing power. Many PMFs operate very efficiently as virtual companies with little investment in fixed (brick and mortar) assets. Most PMFs do not maintain standing forces but instead draw from databases of qualified personnel and specialized subcontractors on a per-contract basis. In 2001 the overall number of firms in the industry was in the high hundreds, although the industry is consolidating into fewer, larger transnational firms. Armor Holdings, for example, was listed among Fortune magazine’s 100 fastest-growing companies in 1999 and 2000 following its string of global acquisitions. However, niches will remain for smaller firms that can make informal deals and barter arrangements that bigger firms cannot. Such practices are less tenable for large “brand name” firms, which have formal accounting practices and may be subject to the oversight of institutional investors.

PMFs can be divided into the following three types, based on their capabilities and clients. (1) Military Provider Firms engage in actual fighting, direct command and control of field units, and/or the provision of weapons. In many cases, they are utilized as force multipliers, with their employees distributed across a client’s force to provide leadership and experience. Clients of type 1 firms tend to be those with comparatively low military capabilities facing immediate, high-threat situations.

(2) Military Consulting Firms provide advisory and training services. They also offer strategic, operational, and organizational analysis that is often integral to the function or restructuring of armed forces. The primary difference between type 1 and type 2 firms is that consultants do not to engage in combat. Type 2 clients are usually in the midst of force restructuring or are attempting a transformative gain in capabilities. Their contract requirements tend to be less immediate and more long term than those of type 1 clients.

(3) Military Support Firms provide rear-echelon and supplementary services. Although they do not participate in the planning or execution of direct hostilities, they do fill functional needs (including logistics, technical support, and transportation, among others) critical to overall combat operations. Clients of type 3 firms are typically engaged in long-duration interventions and have standing forces requiring a surge capacity.

End of the SECOND in a three-part series.

Part 1: The Privatized Military Industry in the Global Context

Part 3: Impacts of the Privatized Military Industry on Conflict, Security, and Public Policy


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