BOMBING OF BAGHDAD STAVES OFF FINANCIAL UNCERTAINTY
On Friday, February 16th, spurred on by the dot-com implosion and the climactic downfall of Nortel Networks Corporation, the world's leader in fiber optics, the value of high tech stocks plummeted on Wall Street in turbulent trading. The NASDAQ stock index declined by more than five percent to a record low.
But it could have been much worse. Did the bombing of Baghdad pull Wall Street out of danger? In fact, it did more than that. It put billions of dollars into the deep pockets of defense contractors and oil companies.
WARNINGS FROM WALL STREET
In the days leading up to the February 16 near-meltdown, stock market analysts had warned of a worst-case scenario. High tech stocks were heavily overvalued. But that day at 1:00 p.m., a few hours before trading closed on the New York Stock Exchange, American and British warplanes bombed Baghdad in what the Pentagon described as "a routine mission of self-defense."
Routine self-defense? The US media applauded. And on Wall Street, brokers did more than applaud; they gasped with relief. For in a cruel irony, the bombing raids had saved the day. As one British financial analyst noted with contempt:
. . .the American market didn't collapse. It didn't plummet. Indeed, the fall was less than one per -cent. This was a routine day-unless you happened to live in Baghdad.1
Meanwhile, with telecom and computer stocks in the doldrums, financial and defense analysts had been working hard to rebuild "confidence in the stock market":
Makers of the nation's warfare technologies along with Wall Street analysts and industry consultants spent a week bragging about new opportunities and the likelihood of changes to Pentagon policy that would foster growth after 15 years of strained budgets. What's more, defense and aerospace stocks ended on a high note, climbing amid a broad market slump as 24 U.S. and British warplanes struck Iraqi military targets using various long-range, precision-guided weapons.2
In the last hours of trading on the 16th, defense stocks spiraled; oil and energy stocks boomed following news that Iraq's oil industry might be impaired. The value of Exxon, Chevron, and Texaco stocks shot up. Harken Energy Corporation-in which George W. Bush served as company director and corporate consultant before entering politics--gained 5.4% by the end of trading. Harken Energy happens to be a key player in Colombian oil (with a multi-billion-dollar US military aid package under "Plan Colombia" on hand to protect its investments). Harken Energy CEO Mikel Faulkner is a former business associate of George W.
FINANCIAL MELTDOWN
The February 16th meltdown was already being predicted at the close of trading on the 15th. Business analysts on the evening news said that a major "correction" in the value of high tech stocks was "inevitable." The financial press had previously hinted that the US defense industry could also take a beating if the new Bush Administration were to curtail military procurement.
A few days earlier, Lockheed Martin (LMT)--America's largest defense contractor--had announced major cuts in its satellite division due to "flat demand" in the commercial satellite market. A company spokesman had reassured Wall Street that Lockheed "was moving in the right direction" by shifting financial resources out of its troubled commercial (that is, civilian) undertakings into the lucrative production of advanced weapon systems.
For weeks, defense contractors had been actively lobbying the new Administration. On Tuesday, February 12th, President Bush promised to hike defense spending based on "a comprehensive review of the military." According to the New York Times (12 February 2001), George W. Bush said:
. . . he planned to break with Pentagon orthodoxy and create 'a new architecture for the defense of America and our allies,' investing in new technologies and weapons systems rather than making 'marginal improvements' for systems in which America's arms industry has invested billions of dollars.
On the 14th, he confirmed "a $2.6 billion increase in the Pentagon's budget as a 'down payment' on new-weapons research and development."3
And two days later, Baghdad was bombed by the US Air Force.
The raids were a signal to Wall Street that Bush's promise "to revitalize the nation's defense" should be taken seriously. Had the Bush Administration decided otherwise, Lockheed Martin's listing on the New York Stock Exchange might well have experienced the same fate as that of Nortel. In fact, while (civilian) high-tech stocks (quoted on the NASDAQ) had plummeted, Lockheed Martin stocks ended the day up a comfortable 1.6%.
Meanwhile, the F-22 Raptor high-tech fighter jet was already scheduled--pending the Administration's final approval--to be assembled (at an estimated cost of $60 billion) at Lockheed Martin Marietta's plant in Georgia:
Defense Secretary Donald Rumsfeld was an F-22 advocate before joining the Bush Administration, and Lockheed officials said Thursday [February 15th , one day before the raids on Baghdad] they are confident Rumsfeld will support the technologically advanced plane. 4
The message to financial markets was crystal clear: the bear market was hitting "civilian" high tech stocks including Nortel, Dell Computers, and Hewlett Packard; but defense industry listings--including Boeing, General Dynamics, Lockheed Martin, Northrop-Grumman, and Raytheon (the "Big Five" defense contractors)--remained "safe" and "promising," (i.e. "a good place to put your money"). Wall Street analysts had concluded--without batting an eyelid-that
. . . with the Bush Administration's focus on defense, there is optimism the industry is on target to outperform the market again this year."5
The new buzz phrase on Wall Street is that-despite the slow-down of the US economy-defense stocks constitute "a safe-haven shelter from the dot-com implosion." More generally, the assumptions underlying Bush's new defense budget are considered "good for business": no wonder pension funds and institutional investors are busy changing the structure of their portfolios!
NEW WORLD 'ORDER'
War and globalization go hand in hand. Militarization is an integral part of the neoliberal agenda. The build-up of the defense budget contributes to beefing up the "Big Five" US defense contractors, while denying financial resources to civilian programs, including health, education, and social welfare, not to mention the rebuilding of America's deteriorating urban infrastructure. Whereas defense production has spiraled, recession has hit the sectors of the US economy which produce "civilian" consumer goods and services. The US domestic economy increasingly hinges on the military industrial complex and the sale of luxury goods (travel, leisure, luxury cars, etc.). And this satisfies the financial establishment, irrespective of the needs of ordinary people.
The bombing raids on Baghdad were certainly intended to intimidate countries committed to ending the sanctions on Iraq. But more generally, "missile diplomacy" is applied to enforce American political and economic domination under the guise of what is euphemistically called "the free market."
The hidden hand of the market will never work without a hidden fist-McDonald's cannot flourish without McDonnell Douglas, the designer of the F-15.6
And America's war machine is used in support of the conquest of new economic frontiers. In the Middle East, the Balkans, and Central Asia, the US military is positioning itself directly and through NATO not only to support the interests of the Anglo-American oil conglomerates, which are working hand-in-glove with defense contractors in lucrative joint ventures, but to further colonize the former Soviet Union and Asian countries. Meanwhile, spiraling defense spending pours wealth into the military industrial complex at the expense of civilian needs.
--Michel Chossudovsky is Professor of Economics, University of Ottawa, and author of The Globalization of Poverty, second edition, Common Courage Press, 2001.
NOTES:
1 Sunday Mail, London, 18 February 2001.
2 Reuters, 16 February 2001. About 80 warplanes were involved, of which 24 were strike aircraft. See Financial Times, 17 February 2001.
3 "Bush Vows to Modernize Military After Pentagon Review Is Completed," The Bulletin's Frontrunner, 14 February 2001.
4 Dave Hirschman, "F-22's Fate to be Decided Next Month; Not on Hold: Bush's Defense Review Won't Delay Judgment on Raptor," The Atlanta Journal and Constitution, 16 February 2001.
5 The Nightly Business Report, NPR, 19 February 2001.
6 Thomas L. Friedman, "A Manifesto for the Fast World," New York Times Magazine, Mar. 28, 1999.
--Published on Emperor's Clothes <http://www.tenc.net/> © Copyright by Michel Chossudovsky, Ottawa, February 2001.
All rights reserved. <chossudovsky@videotron.ca>, tel. 1-(613) 562-5800, ext. 1415 ; fax: 1-514-4256224.