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The investigation into the Pentagon’s hiring of private security firms to conduct interrogations of Iraqi prisoners is only the latest – and most disturbing – example of the Bush administration’s commitment to take outsourcing into new territory. It is true that the private sector can increase efficiency and reduce costs by outsourcing some business functions. Government can as well, and not all outsourcing in the public arena is bad policy. But the Bush administration has brought a religious zeal to outsourcing the key functions of government, from providing retirement benefits to protecting the environment and from administering public education to delivering social welfare services. The underlying credo has become clear: there is nothing we can’t outsource.

But the Pentagon’s dependence on private security companies in Iraq has created an artificial market that has driven costs up and reduced the effectiveness of the entire military mission.

This is not the first administration to outsource military type jobs. After all, defense contractors such as Boeing and Lockheed Martin build weaponry. Service sectors firms such as DynCorp have managed various military installations for years. Companies routinely sell the military food services and consumer products for our troops. And the intelligence agencies have forever used businesses as part of their information gathering apparatus.

What is going on in Iraq is different. We are outsourcing soldiering itself, and the consequences are already proving to be disastrous.

Secretary of Defense Donald Rumsfeld viewed the war in Iraq as an opportunity to validate his theory that the overwhelming technological advantages enjoyed by the United States would allow a small, mobile ground force supported by high-tech weaponry to achieve military victory. Rumsfeld and other civilians in the Pentagon overruled the military commanders on the size of the force that would invade Iraq, and bet that the lightning ground assault and precision air attacks would enable us take control of the country largely intact. As a result, we were left woefully unprepared to provide basic security in the days and weeks immediately after the fall of Saddam’s regime, an error that we are still paying for in blood and treasure more than a year later.

As of this moment, there are only five uncommitted active duty Army brigades (about 25,000 personnel) potentially available for duty in Iraq. We have 135,000 troops in that country out of a total of roughly 650,000 active duty Army and Marines. In addition, there are approximately 50,000 troops in the National Guard and Reserves, but few are potentially deployable.

This lead to a situation where the 20,000 hired hands furnished by sixty different private sector firms to perform functions typically undertaken by combat troops represent the second largest foreign force in Iraq after the U.S. military. And because we are relying on companies like Halliburton to deliver fuel, food, and water, we have, as P.W. Singer of the Brookings Institutions says, “made our ability to wage war dependent on the market.”

Of the $80 billion spent so far in Iraq, an estimated $10 billion has been paid to firms that are furnishing personnel for core combat functions. The relative scarcity of available private soldiers has driven up the costs for their services, in some cases reaching as much as $1,500 a day.

Meanwhile, the average soldier in Iraq earns about $70 a day. This disparity has negative consequences on the morale of the U.S. forces, particularly the Guard and Reserve components. The Guard and Reserve are essentially the private security force of the Pentagon, but instead of commanding much higher salaries and better benefits, they are considered the step-child of the active duty forces and do not receive the same equipment, training or benefits.

The training given these “contractor” soldiers of Blackwater and other security firms is mixed at best, and the coordination with allied military forces is spotty or non-existent because they are not part of an integrated command and control structure. This fact alone can lead to fatal mishaps such as befell the four Blackwater men in Fallujah, who could only rely on informal relationships to call for help or to gather intelligence about potential attacks.

And now we have the events at Abu Ghraib prison. The involvement of the private security forces in the abuses is not clear, but the question should be raised: why would we even consider contracting out duties like interrogation?

When we outsource a function in the private sector, the objective is to have it done at less cost. Usually this means getting competent workers to do the job for less money than a company would have to pay its own employees. That is the rationale for computer companies to move their help desks to Bangalore. In Iraq, a kind of mirror dynamic has been created whereby a very small group of “competitors” qualified to do the work fulfills our government’s urgent requirements. Many companies profiting from this work are closely held or are non-reporting divisions of public companies. But in the case of Vice President Cheney’s former company, Halliburton did report revenue growth of 30 percent to $16 billion in 2003 “largely as a result of our government service work in the Middle East.” And its stock has risen from a low of $13 per share to $30 in the last couple of years.

Rumsfeld has wagered that our greater war fighting capabilities would permit us not just to win, but to win efficiently. Against the advice of a uniformed military with decades of post-conflict peace keeping experience, the Bush administration believed we could do nation building on the cheap. Those 20,000 men and women hired by private security companies are costing us billions, and there is no end in sight.

Now, we must chase our errors with ever greater expenditure of resources. The overarching irony of the muddle we are now in is that because of the ideological predilections and poor planning of the Bush administration, we have created a ruinous dynamic where we pay exorbitantly for what we could have received for little or no cost.

This administration thinks of waging war as a business. So it is especially strange that they would outsource functions crucial to the success of the enterprise. No business which adheres to best practices would do so. Even if you think invading Iraq was a good strategic decision, you have to agree that the execution is bad business. There are limits to what a government or a business should outsource.

Ken Miller is a senior Wall Street executive and the chief executive officer of Ken Miller Capital, LLC

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