The Creeping Privatization of America’s Armed Forces

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US Marines at Leatherneck Camp in Lashkar Gah in the Afghan province of Helmand on April 29, 2017. WAKIL KOHSAR/AFP/Getty

Given the absence of any kind of American grand strategy, rising tensions on the Korean peninsula and all the intrigue and posturing with Russia, it is hard to imagine how international security could get any more complicated.

But as these stories make headlines, another phenomenon grows beneath the surface that is even more concerning.

An increasing number of super-wealthy private citizens own private militaries and are looking for “business” in the Middle East, Africa and around the world.

Since the end of the Cold War, two trends have fed this expansion: 1) the rise of private equity (PE) and 2) the increased dependence of the United States on private military companies/contractors (PMCs).

Since the Berlin Wall came down in 1989, the number of global PE firms has increased from just a few hundred to more than 6,500, and the assets they manage have increased from under $500 million to more than $4.6 trillion.

However, it is not just the number of PE firms or the magnitude of assets under their management that is important, but the very nature of private equity is important to consider here.

Essentially, the owners of PE firms are private citizens, they often buy all of a company’s publicly traded stock (thus taking the company “private”), their only purpose is to make very high returns on risky investments by drastically cutting costs and boosting revenue because they want to move on to the next investment as quickly as possible, and all of this is done out of the public’s eye.

This is all fine when applied to ketchup and automotive companies. But what about when applied to private military contractors?

The second trend for concern here is the United States’ dependence on contractors to perform military, diplomatic and intelligence functions.

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We have used military contractors in every major conflict since the American Revolution. In fact, some Hessians employed by the British defected to the American’s side in return for land and farm animals.

However, according to the Congressional Research Service, within the last few years the U.S.’ dependence on contractors has grown to the point where about half of the U.S. Armed Forces in Iraq and Afghanistan is employed by private military contractors.  

In other words, about half of our armed forces is outsourced to private military contractors. These contractors, to include the company formerly known as Blackwater, are now increasingly owned by private equity firms. Thus, American and international security is largely in the hands of private equity partners.

Just to provide a few examples of this overlap: in 1997, Erik Prince, a former Navy SEAL, founded Blackwater. After the 2007 Nisour Square massacre  in Iraq in which four of Prince’s employees were convicted, he changed the company’s name to Xe Services. In 2010, he sold the company to two private equity firms for $200 million.  

These PE investors renamed the firm ACADEMI, bought two of Blackwater’s competitors, Triple Canopy and Olive Group, then sold all three PMCs in 2016 to the world’s largest private equity firm, Apollo, for an estimated $1 billion.

More recently, Prince has re-entered the industry recruiting a group of Chinese investors and starting his own private equity firm and another PMC. “This is not a patriotic endeavor of ours,” he made clear of his new PE firm’s goals. “We’re here to build a great business and make some money doing it.”  

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He also said his new firm’s focus was on securing Chinese businesses’ operations in Africa, especially in their efforts to acquire natural resources.

Another example of the private equity-PMC connection includes the 2004 sale of large military contractor DynCorp’s security-related businesses to Veritas, a private equity firm. In 2010, Veritas sold its DynCorp stake to another private equity firm, Cerberus Capital Management, for about $1.5 billion

The constant buying and selling of PMCs by sophisticated private equity partners suggests they are very attractive investments. A lot of money is made by providing security in an insecure world.  

One of the concerns, however, is that all of this money is made during periods of insecurity. What happens to these investments if peace breaks out? There is enormous financial incentive to maintain short-term insecurity in perpetuity because peace is bad for business.

The dependence of U.S. strategic objectives on a small group of super-wealthy investors, who are focused on short-term profit maximization has consequences. There is a misalignment of objectives between short-term focused PE-owned-PMCs and U.S. national security, which should include the long view.

What could possibly go wrong by PMCs scouring the Middle East and Africa for short-term profits? Plenty.

Bryan T. Stinchfield is an associate professor of organizational studies at Franklin & Marshall College.