The Rise of the Development Industrial Complex

by David Isenberg

The private military and security contracting (PMSC) industry has long claimed, not without some justification, that all the publicity about private security contractors—that is, guys carrying guns—overshadows and unfairly tars the work of reconstruction. This latter subcategory of unarmed contractors, much larger in terms of the number of people and contract value, is engaged in the far more prosaic but critically important work of rebuilding shattered infrastructure and restoring or creating the economic and social structures to enable a war torn country to rebuild and develop itself.

The international stability operations of the PMSC are considered so vital that they have required several U.S. oversight bodies over the years, such as the Commission on Wartime Contracting, the Special Inspector General for Iraq Reconstruction, and the Special Inspector General for Afghanistan Reconstruction.

Yet the IDC (international development contractor) sector is closely connected to the PSC (private security contractor) sector and shares the same neoliberal organizing principles. In fact, in a twist on President Eisenhower’s prescient warning about the military industrial complex, we now have a Development Industrial Complex (DIC).

This is the true multi-billion dollar industry, which includes whales like the Louis Berger Group or Chemonics. Compared to it, private security companies like the former Blackwater are small piranha..

For evidence, consider an article published last year by Vijay Kumar Nagaraj in Development and Change journal. Nagaraj’s article on “beltway bandits” and “poverty barons” discusses “how for-profit development contractors came to occupy and inhabit the international development regime and how this occupation continues to be sustained and legitimated. It also underlines how, in a context where the lines between development and security are increasingly blurred, for-profit development and military contracting have converged to generate potent market-led development-security assemblages.”

The PSCs and IDCs are the yin and yang of conflict profitmaking. Nagaraj succinctly captures this relationship when he opens his article with the Ferengi Rules of Acquisition, Nos. 34 and 35: “War is good for business. Peace is good for business.”

Very Good for Business

According Nagaraj’s article, in 2010, the United States Agency for International Development (USAID) awarded contracts worth $5.3 billion to IDCs, while it awarded a total of $5.1 billion to non-profits, UN agencies, and the World Bank. In 2011, more than 27 per cent of USAID’s overall funding went to American IDCs with the value of the 10 largest contracts totaling around US$ 3.19 billion

If Chemonics, one of the world’s biggest IDCs, were a country, it would have been the third-largest recipient of USAID funding in the world in 2011, behind only Afghanistan and Haiti. And in fiscal year 2012, USAID continued its practice of awarding most of its contracts, 61 percent, to for-profit groups. As of September 2012, nine of the top 20 recipients of USAID money were IDCs. Data available for fiscal year 2014 indicate that at least five of the top 10 vendors were for-profit IDCs.

Nagaraj writes the following about the connections between IDCs and PSCs:

The profitability of international development contracting coupled with the growing imprint of security on development and the consequent blurring of boundaries between the two have also attracted private military firms. Many of them have begun to expand their own portfolios—often through outright acquisition of IDCs—to take advantage of opportunities presented by humanitarian interventions and post-war reconstruction. At the same time, IDCs have steadily expanded their client base to include military establishments. These developments have paved the way for the rise of new market-led development-security assemblages, in which a key apparatus is the ‘military-development corporation’, one that profits equally from making war, talking peace, engaging in post-war reconstruction and doing development.

Among the examples of PSCs acquiring IDCs are:

• In 2007, Tetra Tech, a major contractors at the US Missile Defense Agency headquarters, acquired ARD Inc., an IDC that secures large international development contracts from USAID and other agencies for rural development, justice sector reforms, strengthening local government, coastal resources management, and so onin different parts of the world.
• L-3 Communications, a top contractor in aircraft modernization and maintenance, C3ISR [Command, Control, Communications, Intelligence, Surveillance and Reconnaissance] systems acquired the IDC, International Resources Group in 2008.
• In 2010 DynCorp Inc., an American company whose portfolio includes air operations, aviation, contingency operations, development, intelligence training, and security services announced the completion of its acquisition of Casals and Associates (Inc.), a well-known IDC.
• In July 2014, AECOM announced that the Madrid-based ACE International Consultants S.L. had joined its international development business. ACE International is a consulting firm specializing in economic and social development cooperation and private sector development whose clients include EuropeAid, the World Bank, and the Inter-American Development Bank

Connections to Privatization

Like their PMSC brethren, U.S. IDCs owe much of their origin story to the ideologies of privatization and outsourcing that became fashionable decades ago. According to Nagaraj, “International for-profit development contracting has both older and more recent histories. While colonialism is a key point of reference for the former, the latter engages two take-off points. The first lies in the onset of privatization of social services delivery and social welfare administration in the 1970s, especially in the USA. The second lies in the parallel emergence of the international development and aid system, on the one hand, and large multinational corporate entities with extremely diversified business interests, including development, on the other.”

He continues:

The emergence of “purchase of service contracting” (POSC) to deliver personal social services in the USA in the mid-1970s is an important milestone in the recent history of for-profit development contracting… A new managerialism, in the form of “new public management,” provided the rationale for the ‘adoption of private sector management techniques and practices… i.e., private sector solutions were sought for public sector problems’ The underlying thrust towards deregulation and privatization, soon to be a defining feature of neoliberal governance, laid the foundations for the emergence of the “contracting state”…

Some of today’s largest American IDCs trace their origins to this period, starting off either as contracted providers of social services, such as Creative Associates International and Abt Associates, or as executors of other public projects for the state, like the Louis Berger Group, which began with large public construction works contracts. Four inter-connected factors seem to have been critical in helping for-profit contractors gain over non-profits: (a) their ability to negotiate and handle increasingly large and complex contracting vehicles and modalities initiated by development agencies and the state; (b) the relative lack of strong normative constraints on for-profits that rendered them more amenable to aligning themselves with powerful interests, especially within state institutions; (c) the ever-expanding variety of means at their disposal to raise capital; and (d) a high value human resources and compensation policy).

Over the following years, the scale of international development—closely aligned to foreign policy and security interests in the Cold War—expanded considerably, especially after the establishment of USAID under the US State Department in 1961 and an independent ministry in the UK in 1964. The expansion meant that new markets opened for IDCs, whose expertise in rendering social services and executing development projects at home enabled them to stake their claim to do the same abroad. It is clear that in the post-World War II era of state-led developmentalism, the emergence of IDCs was also linked to the institutionalization of “knowledge hierarchies” in development. These hierarchies, arguably still far from dismantled, had epistemic/ideological and institutional dimensions with “international”/Northern knowledge and institutions holding sway over “local”/Southern knowledge and institutions. Given that development knowledge was (and often still is) considered as essentially flowing from North to South, who better to guide and oversee these projects than experts and professionals from the global North? American IDCs such as Chemonics and the Futures Group, for example, started off with contracts from USAID (which still continues to be amongst their biggest clients) to undertake studies and design projects in Third World countries.

Connections to Colonialism

One can go back much further in history to explain the rise of IDCs. Just as today’s private security contractors can point to a historic firm like the British East India Company as an essential part of their history so, it turns out, can today’s IDCs. Nagaraj found that:

Development contracting also has a colonial ancestry. The Dutch and British East India Companies were themselves mega-contractors which ran the imperial enterprise through a vast network of sub-contractors, focusing first on trade, commerce, shipping and military services but in the later years also on building public infrastructure. Contractors played a key role in building the imperial infrastructure in Africa, Asia and the Americas, and colonial rule gave rise to a large contracting business, especially in construction work, across Europe and in the colonies.

Another significant factor in explaining the rise of IDCs was the deliberate, persistent, and very successful attempt to hollow out and essentially gut the public sector institutions that previously did development work. Nagaraj writes that

The rise to prominence of IDCs in USA over the last two decades has to be seen alongside the continued chipping away of state institutions, in particular USAID. Between 1990 and 2008, USAID witnessed staff reductions of up to 40 per cent; even as its programmatic envelope expanded, its human resources shrank. Dunning notes that this meant “[f]ewer and fewer people at USAID had the responsibility to oversee more and more money.” Inevitably the “implementation of programs… shifted from Agency employees to contractors and grantees” and IDCs were amongst those who benefitted the most, growing rapidly and, in the process, absorbing many former USAID employees.

Just like the PMSC sector, the DIC has had a healthy share of failures, including many cases of fraud and waste. But that, as the saying goes, is another story.

The bottom line is that for IDCs today development is just another way of saying profit margin. As Nagaraj concludes:

For-profit development and private military contractors alike have reaped a windfall from the slicing up of the broader, transformative goals of development into discrete projects and narrow results, which are easier to manage and align with specific interests. Underlying this is an ever-increasing focus on the management and audit dimensions of international development that disguise the larger failure to grapple with the challenge of increasingly unstable political aims of international development and a “disavowal of external or international responsibilities” At the same time, the steady seepage of security into development has left both agendas riddled with “serious tensions and inconsistencies.”