SYNOPSIS: Radical crony capitalist conservatives are using Iraq as a testing ground for their ideological view of the way the world ought to be

Last November the top economist at the Heritage Foundation was very optimistic about Iraq, saying Paul Bremer had just replaced "Saddam's soak-the-rich tax system" with a flat tax. "Few Americans would want to trade places with the people of Iraq," wrote the economist, Daniel Mitchell. "But come tax time next April, they may begin to wonder who's better off." Even when he wrote that, the insurgency in Iraq was visibly boiling over; by "tax time" last month, the situation was truly desperate.

Much has been written about the damage done by foreign policy ideologues who ignored the realities of Iraq, imagining that they could use the country to prove the truth of their military and political doctrines. Less has been said about how dreams of making Iraq a showpiece for free trade, supply-side tax policy and privatization — dreams that were equally oblivious to the country's realities — undermined the chances for a successful transition to democracy.

A number of people, including Jay Garner, the first U.S. administrator of Iraq, think that the Bush administration shunned early elections, which might have given legitimacy to a transitional government, so it could impose economic policies that no elected Iraqi government would have approved. Indeed, over the past year the Coalition Provisional Authority has slashed tariffs, flattened taxes and thrown Iraqi industry wide open to foreign investors — reinforcing the sense of many Iraqis that we came as occupiers, not liberators.

But it's the reliance on private contractors to carry out tasks usually performed by government workers that has really come back to haunt us.

Conservatives make a fetish out of privatization of government functions; after the 2002 elections, George Bush announced plans to privatize up to 850,000 federal jobs. At home, wary of a public backlash, he has moved slowly on that goal. But in Iraq, where there is little public or Congressional oversight, the administration has privatized everything in sight.

For example, the Pentagon has a well-established procurement office for gasoline. In Iraq, however, that job was subcontracted to Halliburton. The U.S. government has many experts in economic development and reform. But in Iraq, economic planning has been subcontracted — after a highly questionable bidding procedure — to BearingPoint, a consulting firm with close ties to Jeb Bush.

What's truly shocking in Iraq, however, is the privatization of purely military functions.

For more than a decade, many noncritical jobs formerly done by soldiers have been handed to private contractors. When four Blackwater employees were killed and mutilated in Falluja, however, marking the start of a wider insurgency, it became clear that in Iraq the U.S. has extended privatization to core military functions. It's one thing to have civilians drive trucks and serve food; it's quite different to employ them as personal bodyguards to U.S. officials, as guards for U.S. government installations and — the latest revelation — as interrogators in Iraqi prisons.

According to reports in a number of newspapers, employees from two private contractors, CACI International and Titan, act as interrogators at the Abu Ghraib prison. According to Sewell Chan of The Washington Post, these contractors are "at the center of the probe" into the abuse of Iraqi prisoners. And that abuse, according to the senior defense analyst at Jane's, has "almost certainly destroyed much of what support the coalition had among the more moderate section of the Iraqi population."

We don't yet know for sure that private contractors were at fault. But why put civilians, who cannot be court-martialed and hence aren't fully accountable, in that role? And why privatize key military functions?

I don't think it's simply a practical matter. Although there are several thousand armed civilians working for the occupation, their numbers aren't large enough to make a significant dent in the troop shortage. I suspect that the purpose is to set a precedent.

You may ask whether our leaders' drive to privatize reflects a sincere conservative ideology, or a desire to enrich their friends. Probably both. But before Iraq, privatization that rewarded campaign contributors was a politically smart move, even if it was a net loss for the taxpayers.

In Iraq, however, reality does matter. And thanks to the ideologues who dictated our policy over the past year, reality looks pretty grim.

Originally published in The New York Times, 5.4.04