Privatizing Security in Iraq and Elsewhere--Posner

There are reportedly 25,000 employees of private security firms in Iraq. Some 80 percent are employed by U.S. firms. It appears that most though not all of these employees are Americans, although I have not been able to locate a statistical breakdown. These employees provide armed guards for U.S. diplomats, journalists, and businessmen that ordinarily would be provided by the military, as well as providing military services (guarding convoys, training Iraqi troops, supplying food, and interrogation) under contract to the Pentagon. There is controversy over both the cost and discipline of these private security personnel. Privatization is a perennial issue in economics, and it was part of the deregulation movement that began in the late 1970s. The issue reflects the fact that there is no hard-and-fast line between the provision of services by government and by the private sector, and that private provision of services is generally more efficient than public because political interference is less. Conventionally it is thought that only government can provide services that cannot be denied to people who refuse to pay for them, so that efficiency in a broader sense requires public provision of such services. The classic example is national defense. If I install an antimissile defense in my back yard, it will of necessity protect my neighbor as well even if he refuses to contribute to its cost. Because of such free riding, the argument goes, national defense will be underprovided if it is left to the free market. That is correct, but it does not entail the actual provision of the service by government. The government must tax my neighbor to make him contribute to the national defense, but it can turn the tax revenues over to private companies to provide the actual service. The government already contracts out the manufacture of military weaponry. It could in principle contract out the operation of that weaponry as well. Education is a source of nonexcludable external benefits (everyone benefits from an educated population), so it is properly supported by taxes, but it doesn't follow that we need public schools, and indeed there is a great deal of private education indirectly financed by taxes; maybe all of it could be. And likewise there is a long history of mercenaries, including the Hessians whom the British employed against us in the Revolutionary War and the "soldiers of fortune" heavily employed in Africa's incessant civil wars. The Pope's Swiss Guards are a mercenary force. Swiss have been mercenaries since the Middle Ages. The French Foreign Legion is a quasi-mercenary force. Part of it rebelled against the DeGaulle government in the early 1960s over his decision to withdraw from Algeria, and disloyalty is a traditional concern about mercenaries, though surely not a concern about American private security personnel in Iraq. Indeed, the term "mercenary" is usually reserved for foreigners; that is why members of the U.S. armed forces today are not referred to as mercenaries even though they are employed voluntarily rather than conscripted. By the same token, however, non-Americans employed by private security companies in Iraq are mercenaries. Since we have a volunteer army, why should there be any concern about contracting out some or even many of its tasks? Many employees of the Defense Department are civilian; soldiers in a voluntary army are employees rather than slaves; and, as I mentioned, the manufacture of the weaponry is contracted out. Instead of just providing weapons and recruits, why not let the private market provide entire military formations? So Blackwater, one of the leading U.S. security contractors operating in Iraq, might be paid to furnish a tank battalion, complete with tanks and other equipment, officers, and enlisted personnel, to fight under U.S. command alongside army, marine, and national guard battalions. But that would probably be inefficient, because military units that fight together have to be very closely coordinated, and that is difficult when they have different organizational cultures. (The enlisted personnel of the French Foreign Legion are subject to full military discipline, and the officers are members of the regular French army; that is why I called the Legion only "quasi-mercenary.") The contract security personnel in Iraq do not fight alongside the U.S. military but instead operate in a service or supporting rather than combat role, though not without risk--hundreds of them have been killed and many others wounded. At first glance it might seem redundant for the military to hire contractors who in turn hire, say, armed guards, rather than to hire the guards directly, as soldiers. Soldiers are paid only between one-half and one-tenth as much as the security personnel furnished by contractors for service in Iraq, although the comparison is misleading because the soldiers tend to be less experienced (most of the private security personnel are veterans) and because pension, medical, housing, and other fringe benefits of soldiers are much more generous. This in itself is odd because if the two classes of worker--soldiers and contract security personnel--are doing the same work, why isn't the structure of their compensation the same? One reason is that for many soldiers the military is their career, while most of the contract security personnel in Iraq are temporary workers. Another is that there are nonpecuniary benefits to military service that are absent from its private substitute, including patriotic pride and the prestige that membership in our armed forces confers. The difference between temporary and permanent workers is the basis for the principal economic rationale for the heavy use of contract security personnel in Iraq. The military needs "temps." The need is not unique to the military, of course. The private sector has many companies that provide temporary workers on a contract basis to firms that could hire permanent employees to do the work, thus cutting out the middleman. But if the firm's demand for workers fluctuates, it may be cheaper to match supply to demand by contracting with companies that have arrangements with workers available for temporary jobs than to hire additional permanent employees but then lay them off when demand is slack, or to go hunting in the labor market, whenever there is a surge in demand, for qualified individuals who want to do temporary work. In the past, the end of a war or other national emergency that had caused a surge in the number of military personnel has led to large reductions in those personnel, which made a military career economically insecure. In order to place 20,000 additional soldiers on duty in Iraq, the military would probably have to hire a total of 60,000, since soldiers are rotated in and out of Iraq about every three years, and these soldiers might be surplus if the war ended or there was a large withdrawal of U.S. troops. Such fluctuations can be avoided by the use of temps. But of course we have temps built into the existing, pre-contracting-out system. They are the members of the National Guard and other reserve units. They are part-time soldiers available for temporary duty in Iraq and other war zones. So a proper cost-benefit analysis of the contracting-out program in Iraq (which has not to my knowledge been conducted) would compare the costs of the contracts with the cost of enlarging National Guard or other reserve formations to a point at which fewer or perhaps no contract security personnel would be needed. The comparison might favor the contractors simply because the private provision of services tends as I said to be more efficient than the public. There are, however, two residual concerns with the contract approach that should be considered. Both are political. The first is a suspicion that the use of the contractors is motivated not by cost considerations but rather by a political objective of concealing from the American public the extent of the U.S. commitment of troops to Iraq. The U.S. has about 130,000 troops in Iraq at present. The number would be about 150,000 if contract security personnel were replaced by U.S. soldiers; the number of casualties would also be higher. Increases in either number would reduce political support for the war. The second is that contract personnel are less restrained in their use of force than our soldiers because the U.S. military command is less concerned about misbehavior of contract personnel than misbehavior of soldiers. The contract personnel are not in the chain of command; apparently they are also immune from prosecution by Iraqi authorities. According to one U.S. general, "These guys run loose in this country and do stupid stuff. There's no authority over them, so you can't come down on them hard when they escalate force…They shoot people, and someone else has to deal with the aftermath. It happens all over the place." Yet the military is concerned with maintaining the goodwill of the Iraqi population, and that goodwill is impaired by excessive use of force by any foreign personnel. One might think, therefore, that the contracts would subject the employees to full military discipline--but if this were done, it would be difficult to maintain the fiction that they are not really soldiers and so shouldn't be counted in the total of U.S. military personnel in Iraq. Competition for these contracts should induce the contractors to screen the people they hire, but the screening is likely to be imperfect, and as a result the absence of a credible threat of criminal punishment, whether military or civilian, may indeed create a situation in which contract security personnel are less restrained in their use of force than our soldiers are.

Comments

[Xenophon]

Can we get a source for the claim that hundreds of security contractors have died in Iraq? It seems awfully high compared to what I have read.

I believe that the Iraqi government requested that the security contractors be in legal limbo, likely because these contractors directly protect them.

I also question the claim that the contractors are less restrained in the use of force than the military. While they may not face criminal incentives, acting like thugs would likely result in the loss of the government contract, as other firms who want the contract can point out the excessive violence during solicitation. Also, as the contractors are in legal limbo, a security supervisor could violently punish those who fail to act professionally (although I doubt this happens). Furthermore, as Posner pointed out, the contractors tend to be veterans (usually of elite combat arms units) and are older than the typical soldier. The added maturity would suggest more restraint, not less.

However, I do think that the contracts should begin to require that the contractors operate under some body of law, perhaps a quasi-UCMJ.

I also think that PMCs could provide a great opportunity for humanitarian operations in places like Darfur. See IPOA at http://www.ipoaonline.org/home/

As a side note, I am actually applying to be a security contractor (I have a Marine infantry and EMT background) as the pay, pride, and adventure are superior to what I could get as a newly minted lawyer and I have a lot of student loans (I just finished my law degree, BA economics). Serving as a JAG would only get me $60,000/year, and although the legal experience is great for the resume, I can wait for a year or so to serve as a contractor and pay off my student loans.

[Arun Khanna]

A military force multiplier model where foreign private contractors provide fully kitted units from trusted military manpower rich U.S. allies (India, Australia, News Zealand, U.K., Taiwan) is needed. U.S. military could provide the high-tech Humvee mobile units while private contractors could guard stationary targets.

On a different note, U.S. military personnel are employees stateside but once they are in a theatre of war they are essentially cogs since the average solider or marine does not have the luxury of refusing to follow orders.

[James]

Posner notes that contractors might be less restrained that soldiers in their use of force. He implicitly treats this as a problem, but that implies that the optimal level of force is closer to that carried out by our soldiers than that carried out by the contractors. This is probably a defensible assumption, but it's not obviously true. US commanders could be too sensitive to the casualty numbers, for instance, and fail to be aggressive when it's called for. Again, I have no idea if this is true, it's just a possibility.

[Stuart Wilder]

While I do not have the data at hand to prove this, I suspect that contractors capable of providing mercenaries are and will continue to be few and far between. This lack of effective competition will mean the absence of any incentive on the part of to compete over, and the inability of a government dependent on such services to demand, accountability and competence. This has already occurred with American military aircraft producers. The use of private contractors to do what our fathers and mothers did in World War II could lead to the monopolization of such services, such as has occurred with Haliburton's becoming nearly the sole provider of meals and living quarters for our troops in the field. And in a political environment wherein Congress objects to investigations of members who store their bribes in home freezers, it is not impossible to foresee a military action initiated to help such a company's sagging profits.

The President and the Congress have no business engaging this country in a war that its citizens do not feel worth dying for. Any war for which citizens will not sacrifice and place themselves in harmÔøΩs way is not worth the cost, whether paid in draftees, volunteers, or mercenaries.

[Haris]

Giving PSCs a bigger, or even a major role in US military operations might seem more economically efficient, but it ignores the risk of failure of private companies. Imagine an Enron-style collapse of a major supplier of PSCs in the middle of major combat operations in a situation where the US depends solely or mostly on those PSCs. While this issue is more complex than I make it out to be (regulation, a volunteer army backup system, the fact that the US is unlikely to be at risk anytime soon, etc) I think the military is one place where a country should minimize risk at all costs. I've heard the example of playing Russian roulette and either getting killed or getting 10 million dollars. In repeated games, one would probably die rich. In the military context, this means a major loss once in a while, perhaps at a time where it would be absolutely disastrous. Though I am all for economic efficiency, the high risk of failure in private companies makes me think that military operations aren't the right place for private competition.

[christopher garbacz]

Becker states that everyone benefits from an educated population and therefore the government is justified in taxing "everyone" to pay for such education. Of course education can be outsourced to the private sector for efficiency purposes. And that is the tie-in to outsourcing security services in Iraq.

Unfortunately, the education example as a extenality encounters problems when education is provided in an unbalanced fashion. In many classrooms education is associated with only one side of the issue. Any other side, if ever raised, is ridiculed or shouted down. So if one side of the political spectrum captures the educational system for purposes of indoctrination and such indoctrination is detrimental to society then the assertion that education benefits all fails.

[Closet Libertarian]

Your number of 150,000 for replacing contractors with troops is too low. See http://www.cbo.gov/showdoc.cfm?index=6794&sequence=0 Although, I'm not sure if you are talking just about private security firms or all contractors.

[Bill]

My concern with private security firms is that, as with any government contractor, there is an opportunity for two things: 1) PAC money going to politicians, or former politicians (agency heads, etc.) becoming employees/directors of private security firms and 2) opaqueness--basically, a function of government is not subject to FOIA or congressional oversight other than the initial contract or correspondence with an agency that is subject to FOIA.

[Bobby]

The highlighted issue that you've taken into limelight is quite inquisitive....there's a need to study it more closely before saying anything. I agree with the thing that education can be outsourced for efficiency purposes.

[robert]

Privatizing security in Iraq (and elsewhere) should be considered as an exception rather than the rule, e.g., only considered in times of extreme emergency.
As a matter of principle we grant to the government, i.e., the military, the right to the exclusive use of force in foreign affairs, just as we grant the police the right to the exclusive use of force in domestic affairs. In both instances, that use of force is constrained by various factors which are absent in the private sector. The potential danger of the use of force--including lethal force--being utilized without these constraints should militate against the use of private security in military matters. And while privatization is almost always preferable given the adroitness of market forces, in this context the privatizing of some degree of our nation's military involvement is wrong on principle irrespective of the advantages. Just as we would not privatize the police we should not privatize the military.

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[N.E.Hatfield]

Whatever happened to the concept of the Citizen soldier? The true foundation of any Republic. Have we corporatized the military to such an extent that the very foundation no longer exists? The Legions and its auxiliaries are on the march. Mercenaries and the like have always spelled trouble for Republics. What happened to Rome when mercenary's became the Army? It morphed into the Empire, owing all allegiance to the Emperor and their separate units; so much for the Republic. Efficiency and labor control, Bah-Humbug! I'll take the Republic any day.

Publius

[David]

Privatisation is the answer to many issues in today¥s society, but I say that the use of military force wether in war or peacekeeping should remain a prerogative of the armed forces of a sovereign state. The necessity for a combined chain of command in military actions speaks for this. So too does the ultimate civilian command of the military that exists in most civilized countries today.
On a different note, I don¥t care much for the comparison between PSPs and the french foreign legion. First of all the legion might be composed of a great many nationalities but it has only one employer: France. Unlike mercenary outfits and individuals who in the spirit of the free market are for hire by any one(Although I doubt that for example Blackwater would be hired by say, Iran), The legion answers solely to France. Furthermore, whereas mercs and PSPs are paid quite well, the gage of a legionnaire are hardly worth mentioning.

[Bill]

Where are the I/O economists who would analyze this using Oliver Williamson's organizational models. It is clear that you would want to be vertically integrated--that is, that the government would own the military--as there are contract specification problems, complexity issues, hold up games, etc. that come with outsourcing, in this case, the use of force.
It is amazing that we do not use some of the vertical integration arguments that are used to support vertical mergers in our analysis of what things are efficiently done by government, and what things can be contracted for.

[Xenophon]

Many commenters apparently do not know that Most (if not all) of the PSCs and PMCs in Iraq are employed through DoD contracts. Thus the military, and the Secretary of Defense, still have significant control over their behavior. Also, most of the contractors are American, and thus are not Mercs, but American citizens serving their nation, just with a different contract. Why is offering the troops a variety of contract choices a bad thing? Also, why are those foreign troops who volunteer seen as bad? They are individually joining the coalition of the willing. Isnít this far better than forcing troops to serve by a willing government which conscripts it troops?

Also, I again support PMCs operating under the UN, or other better designed organizations, to support operations in such places as Darfur, where most nations are not willing to force their troops to go. Shouldnít humanitarian missions be done by voluntary troops (voluntary to the military and to the operation)?

Essentially the arguments against PMCs are very analogous for arguments for the draft. Can someone here present any strong distinctions between the two, keeping in mind that the employers could be contracted to operate under a body of law?

[N.E.Hatfield]

Draft? Hardly. Any supporter of a strong Republic believes in a Universal Service for all.

Publius

[N.E.Hatfield]

Oh, BTW, I think we need to take a look at House Bill HR4752, "Universal Service Act of 2006". It looks as if Congress is finally waking up to the errors of its ways.

Publius

[James Wilson]

On the issue of mercenaries generally, one simply has to look at two of the most elite and feared infantry units in the world - the French Foreign Legion, with its distinguished record, and the British Army Ghurkas, whose combat history is quite magnificent - to realise they might be sources of very good soldiers.

Further, fear of casualties has been a major handicap in the wealthy, middle class west. For example, we were too scared of casualties to commit ground troops to Kosovo, withdrew from Somalia after a mere 18 deaths (which sent a message directly to Bin Laden that the US was weak) and held back from intervening in Fallujah early in the Iraqi insurgency (with disastrous results, as the insurgents got the message). Maybe the politicians and public might be happier with mercenaries doing the job for us and taking the casualties. Maybe they'd be better at it as well, since I wonder if the west has been too used to health and safety legislation and restricted working hours to produce enough toughened infantry soliders. (See, for example, the severe view taken by elite, veteran Delta Force soldiers of the US army Rangers in the book Black Hawk Down.)

There may be a role for private security not only in terms of supplying elite soldiers. In New Zealand the idea was mooted of hiring cheaper security guards to supplant the police. The idea was that they could take over mundane tasks such as guarding crime scenes, and thereby free up the police to tackle major crime. The emotive response of not wanting a privatised police force (there was much angst about deregulation and the sale of state assets at the time) killed what seemed an eminently sensible proposal. Perhaps cheaper contractors could be washing Humvees and sweeping bases to a greater extent than they are now.

Moving to the specific question of Iraq, it seems that a lot of the problems have stemmed from the unsuitability of rank and file US soliders to win the hearts and mind campaign and root out insurgents. I am not for one moment criticising those soldiers, but little in their training or life experience prepares them for dealing with the very alien environment in Iraq. They are instead trained to be good infantry soldiers, and the speed of the deposing of Saddam Hussain indicates they are very good at that indeed.

The most successful unit from what I have gathered was the Irish guards headed by the now famous Col. Tim Collins (whose stirring eve of battle speech was hung in the White House). Collins ran the town he was told to with great success - ie no insurgency. Why? Because Collins was a veteren solidier who had grown up in the brutal sectarian environment of Belfast, Northern Ireland, and knew precisely the mentality of potential insurgents and how to stop them. Logic suggests hiring his ilk as private contractors would be the key to success, but it is very doubtful if enough are available, never mind other practical problems.

[Michael]

I have a slightly different concern than many of those expressed on here, and one that perhaps explains why we only see privitization of certain areas. My question is how do you structure the contracts in a way to get optimal results. For example, imagine that the contract for soliders were based on how many "enemies" you killed. Obviosuly the result would be that you get a big increase in the number of purported enemies that are killed. This of course gets into an entire literature on the difficulty of writing complete contracts (which applies to a number of areas in I/O). Unfortunately I am not aware of a really good theoretical reason as to why such contracts do not work (I find Willimson somewhat unsatisfying). However, the observed fact is that such contracts are rather rare. Moreover, such contracts seem to become less common the less defined the task is. For example, providing food for troops is fairly easily defined and in fact often is provided by contractors. Perofrming the task of combat infantry is much more difficult to define and not surprisingly we see fewer contracts. As the example above noted, if you get the incentives in the contract wrong you can have very bad results. If the contract is also difficult to specify and mis-specification engenders bad results, it might be better for the governemnt to just run the operation itself, which is what we see happening in certain circumstances. Of course this raises a series of other questions (like if the government knows what it wants why can't it specify it in the contract.)

[Michael]

I have a slightly different concern than many of those expressed on here, and one that perhaps explains why we only see privitization of certain areas. My question is how do you structure the contracts in a way to get optimal results. For example, imagine that the contract for soliders were based on how many "enemies" you killed. Obviosuly the result would be that you get a big increase in the number of purported enemies that are killed. This of course gets into an entire literature on the difficulty of writing complete contracts (which applies to a number of areas in I/O). Unfortunately I am not aware of a really good theoretical reason as to why such contracts do not work (I find Willimson somewhat unsatisfying). However, the observed fact is that such contracts are rather rare. Moreover, such contracts seem to become less common the less defined the task is. For example, providing food for troops is fairly easily defined and in fact often is provided by contractors. Perofrming the task of combat infantry is much more difficult to define and not surprisingly we see fewer contracts. As the example above noted, if you get the incentives in the contract wrong you can have very bad results. If the contract is also difficult to specify and mis-specification engenders bad results, it might be better for the governemnt to just run the operation itself, which is what we see happening in certain circumstances. Of course this raises a series of other questions (like if the government knows what it wants why can't it specify it in the contract.)

[N.E.Hatfield]

Contrary to popular belief, the FFL and the Gurkhas are not mercenaries in any sense of the term. These are fully integrated units in the their respective nations military establisments whose allegiance is unquestionable. Unlike mercenaries or contract personnel who are notorious for cutting and running or changing sides on the eve of battle for a quarter more an hour (they have an employment at will clause in their contract).

As for the ability to take casaulities, merc's are notorious for cutting and running when things get dicey. That's why you always want to keep them in front of you under your guns. ;) As for "Universal Service" soldiers, take a quick look at their history, Antietam in particular (here they took 23,000 casualties KIA, approx. 70,000 wounded in less than 24 hours). Here's a group that came out of the State Militia Law system, a form of Universal Service of its time. Not able too take casualties? Never discount a group whose individual interests are on the line and whose allegiance is unquestionable.

[N.E.Hatfield]

Just a minor statistical error in need of correction. that 23,000 KIA and approx. 70,000 wounded ought to read 23,000 KIA and WIA. I apologize for that.

[James Wilson]

The Ghurkas and the French Foreign Legion are mercenaries in the sense that they are not natural citizens for the country in whose name they fight. They are, in that sense, hired guns, although as the other comment noted they are fully integrated into their respective countries' military, and therefore cannot be compared to other mercenaries