Dividends of war

The US holds all the trumps, yet the market gains of war remain uncertain, writes Faiza Rady

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With the war on Iraq edging closer to its threshold on Monday, the stock market looked promising. For the first time in many months, and against all expectations, the US dollar rose sharply against the euro, while oil prices -- which had recently skyrocketed -- slumped ever so slightly. In London, the price of one barrel of Brent Crude dropped by 83 cents to $29.30.

On Wall Street, the Dow Jones Index gained 2.7 per cent, and the hi-tech NASDAQ Index was up by 2.9 per cent. Predictably, the good news promptly reached global markets, spreading a euphoria of sorts among traders. In London, the FTSE Index gained 3.35 per cent, and Frankfurt's Dax rose by four per cent.

In the wake of long months of a bear market casting its long shadow over the global economy, market optimists rejoiced, predicting a "good war" in market terms: a swift conquest of Baghdad, followed by an even swifter take-over of Iraq's major oil fields. The pessimists begged to differ. "There's a lot of idiots out there thinking it'll be a rerun of 1991, when a rapid victory over Iraq triggered a strong [market] rally," the BBC quoted a strategist at a London investment bank as saying. "But then we were running a bull market and now we're in the depths of a bear market. In any case, how can you make reliable decisions when even the vaguest of predictions are probably going to be wrong?"

In this context, political stability is key to establishing market stability, which constitutes the backbone of the major neo-liberal economies. Indeed, gains and losses on the stock market determine the rate of corporate profitability in the absence of strong manufacturing sectors in such economies. But there is a hitch. The market is fickle -- it alternatively soars or slumps with the tides. And the tides of war are highly volatile.

Hence, a "good" war on Iraq may propel the market into bull territory by pushing down the price of oil -- courtesy of the much-anticipated change of regime in Baghdad. Iraqi and Middle Eastern oil fields will then remain under the strict tutelage of the US and its allies, with the market rallying around and heaping profits on the victors.

On the other hand, a long and protracted "bad" war will most certainly lead to skyrocketing oil prices, soaring war costs, political instability and a slumping bear market -- miring the global economy into deeper recession.

All evidence points to the fact that the Bush administration has stacked its cards well in order to wage a "good" war. Investment in the industrial-military complex is the highest in the world. US defence expenditures account for 40 per cent of the world's military spending, reports economist Ismael Hossein-Zadeh in the American leftist weekly Counterpunch. The US now spends more each year than the next nine largest national defence budgets combined.

The highest item on the US federal budget, the defence budget for fiscal year 2003 amounts to $376 billion. While military spending officially comes second after social security, the latter is a self-financing trust fund that does not feed on the budget. In the real world, and contrary to appearances, military spending does, in fact, top the budget list.

All things being equal, the US president's declaration of an all-out and open-ended "war on terror" -- presumably lasting well into the next generation -- justifies the gargantuan investment in the military-industrial complex.

Regardless of their political persuasions, US taxpayers will just have to tag along. Never mind that regular women and men cannot see the purpose of pouring their hard-earned dollars into defence, clamouring instead for a comprehensive national health care system. Currently, an estimated 40 million Americans have no medical coverage and are unable to pay the prohibitive cost of medical services and pharmaceuticals.

Never mind that millions of the unemployed may need jobs in a period of record-high unemployment. In these hard times, the destitute may even settle for more modest demands: like job training programmes in lieu of jobs here and now.

This month, the US Labour Department reported that the economy suffered its worst jobs drop since 11 September, with 308,000 job losses in February. According to Labour Department statistics, an estimated two million jobs have been lost since the 2001 slump when profits in manufacturing took a sharp downturn and hundreds of thousands of jobs were axed in the sector.

However, let us forget about statistics old and new. The "war on terror" takes precedence, and the military is in. There is no way around it, just like the war on Iraq. As Boeing Vice Chairman Harry Stonecipher told the Wall Street Journal, "the purse is now open," so the big bucks are rolling in.

But this did not just happen out of the clear blue sky. Stonecipher and other like-minded corporate arms magnates dished out a great deal of good money and put in long hours of hard work to reach the top. It took much lobbying and strategic muscle flexing along the Republican campaign trail to get them positioned. As a result, the Bush administration includes 32 former arms industry executive consultants and major stockholders.

According to the Arms Trade and Resource Centre, Lockheed Martin vice president, Bruce Jackson, was the finance chair of the Bush for President Campaign. Incidentally, Lockheed tops the list of aeronautic manufacturing giants, being the US military's biggest supplier. The US Air Force and Marine Corps recently granted the multinational a $4 billion contract for 60 C-130J Super Hercules aircraft. But this is just the icing on the cake. Lockheed will pocket $225 billion over the next 12 years to build 3,000 Joint Strike Fighter planes for the US Air Force, Marines and Navy, reported Business Week. On the international market, Lockheed will reap another $175 billion in sales. Compared with Jackson's record at superstar Lockheed, US Vice President Dick Cheney's corporate portfolio does not quite make it. Although Cheney spent years as a Halliburton CEO, his company only ranked 18th on the Pentagon's top contractors list. But then Cheney's attractive wife, Lynne, served on Lockheed's board of directors. So Cheney has good connections with the Lockheed crowd. On the way to the top, a little nepotism goes a long way. Or, take George Bush the father, who figures on the board of the Carlyle Group -- an investment consortium contracting for United Defence. Then there is US Deputy Secretary of State Richard Armitage, a Boeing consultant, and US White House political advisor, Karl Rove, a Boeing shareholder. And the list goes on.

Regardless, the politico-corporate connection assures fat contracts to the military-industrial complex, prompt delivery to the field and soaring stocks on the market.

It is noteworthy that Lockheed's share value rose by a staggering 30 per cent in the aftermath of 11 September.

As the arms industry oils its wheels and goes into high gear, the US may very well be all set to fight a "good" war. But then again, the dice may roll the other way.

Al-Ahram Weekly Online : 20 - 26 March 2003 (Issue No. 630)
Located at: http://weekly.ahram.org.eg/2003/630/int6.htm