This industry dates back thousands of years, is visible in TV news, is global in nature, and has annual sales of $100 billion. Yet participants do not even agree on how to label it, and most outsiders are clueless about its entrepreneurial nature and ethical dilemma. So, what industry is this? Many journalists and scholars call it the “private military industry.” Others label it the “private security industry.”

A leading British industry association formed in 2006 calls itself the British Association of Private Security Companies (BAPSC). A leading American industry association founded in 2001 names itself the International Peace Operations Association (IPOA). It has coined postmodern labels the “peace and stability industry” and the “peace operations industry.” For compositional simplicity, in this case, we call this industry the private military industry to emphasize its twin nature of private and military. Companies in this industry are thus called private military companies (PMCs).

From Rome to Syria 

The roots of this industry can be found in mercenaries. In fact, the very word “soldier” derives from solidus, the Roman gold coin. In other words, a soldier, by classical definition, is one who fought for money. During the American Revolution, mercenaries from Germany fought on the British side. The stereotype of mercenaries is the “dogs of war” who help win civil wars and topple governments (usually in resource-rich African countries).

However, modern PMCs hate to be associated with mercenaries. Today’s PMCs are proud of their professionalism and value added. Led by entrepreneurs who are often retired military officers, PMCs compete globally. There are three main types. First, closest to the battlefield are military provider firms that supply hired guns (often known as private contractors) who serve alongside national military forces. Blackwater is perhaps the best-known military provider firm. Second, military consulting firms offer assistance but do not directly engage in the battlefield. One example is Military Professional Resources, Inc. Third, military support firms such as Halliburton provide nonlethal support such as intelligence, logistics, technical support, and transportation. One of the rare publicly listed PMCs is DynCorp International, which went public in 2006 (NYSE: DCP). It has more than 16,800 employees and generates more than $2 billion revenue around the world.

Entrepreneurs thrive on chaos. To PMCs, the war in Iraq and Afghanistan was a pot of gold. While the United States and its allies were withdrawing their forces, PMCs rushed in. In Afghanistan in 2009, PMCs were the largest military force (130,000 personnel), outnumbering both the Afghan National Army (100,000 personnel) and US (national) forces (64,000 personnel). In Iraq, PMCs were the second-largest military contingent (about 113,000 personnel) after US (national) forces (130,000 personnel at its peak). Long after the official withdrawal of the US (national) military in Iraq in 2011, PMCs remain active in the country. The State Department alone at one point employed 5,000 PMC personnel in Iraq.

Private soldiers drive convoy trucks, build camps, guard dignitaries, and gather intelligence. The most lucrative job is not “guns on trucks,” but less glamorous but more steady work such as logistics. Well-muscled men with wraparound sunglasses may steal headlines (especially after they allegedly shoot Iraqi civilians), but the real money is in other lines of work.

Long before Iraq, the use of PMCs alongside US troops had become an indispensable component of America’s “Total Force.” In an age of outsourcing, the Pentagon has followed suit, contracting dozens of PMCs to carry out essential military work that were once exclusively performed by uniformed soldiers. It is not surprising that the driver behind such outsourcing is cost—both political and financial.

Dead private soldiers mean fewer dead uniformed soldiers. Military casualties are carefully recorded and often provoke fierce antiwar protests. Neither the media nor the public seem to care about PMC casualties, although about 1,800 died and 40,000 were wounded in Iraq and Afghanistan. One study reported that PMCs absorbed more than 25% of those killed in action in Iraq. Overall, given the scale and scope of PMC involvement (representing 50% of the defense workforce deployed to the Balkans, Iraq, and Afghanistan—see Exhibit 1), many experts now believe that the US (national) military is incapable of successfully carrying out large missions without PMCs. “Defense workforce” is defined as the combination of contractor (PMC) and uniformed (national military) workforce deployed to these theaters of operations. Civilian employees working for the Department of Defense (DOD) are excluded from these calculations. If they were included, the percentage would not change much because the DOD civilian employees represented less than 1% of the total force deployed there.

Global Competition and Challenges 

While well-connected American PMCs often win big contracts handed out by the US government, the competition is global. British PMCs, whose services represent Britain’s biggest export to Iraq and Afghanistan, grab more work from the private sector. Why are the British so competitive

in this line of work? Three reasons. First, many British PMCs are first movers, tracing their roots to the days when they were real mercenaries active in Africa when the British Empire collapsed in the 1950s and the 1960s. Second, British PMCs benefit from the clustering of many energy and mining companies in London, whose dangerous work often demands more security services. Third, British PMCs recruit from the British army, whose soldiers patrolled the mean streets of Northern Ireland without killing too many civilians. Such portable skills are highly sought after in Iraq, Afghanistan, and Syria.
Two ethical challenges associated with PMCs emerge. The first is the morality issue associated with their deployment.

For many regular soldiers, aid workers, and government officials, an instinctive reaction is, “Why should we respect these people who fight for money?” Nevertheless, privatization of government services is a global trend in general. In the military arena, the cost-effectiveness of PMCs is compelling.
Some argue that the UN Security Council should have contracted PMC services to limit the Rwanda genocide in the 1990s, as it was contemplating at the time but failed to do so. The more recent genocide in Sudan’s Darfur region and UN member countries’ hesitation to commit national troops as Blue Helmets again led to calls for PMCs, which, in theory, can be deployed more rapidly and at a lower cost than Blue Helmets.
The second and probably larger challenge confronting PMCs is accountability—or the apparent lack of it. For example, private contractors were involved in the torture scandal at the Abu Ghraib prison near Baghdad, but only military personnel were court-martialed while private contractors were outside the scope of court-martial jurisdiction.
Further, contracts are often impossible to monitor, particularly when private soldiers are deployed in dangerous situations. Where there is no accountability, “rogue”
firms and individuals may enter, severely undermining the industry’s reputation.
The presence of PMCs in conflict and postconflict environments creates a significant institutional challenge as to what and whose rules of the game should govern PMCs.
During a traditional war, national militaries are governed by the law of war or more specifically law of armed conflicts, whose most famous institution is the Geneva Convention.
At all other times, the law of peace prevails and civilian casualties are not acceptable. However, the distinction between “war” and “peace” has broken down. Technically, the US Congress never bothered to issue a declaration of war against Afghanistan or Iraq, but nobody would argue there was much “peace” in Afghanistan or Iraq since the 2000s. Given such ambiguity of “neither war nor peace,”
PMCs are essentially unregulated.
In 2004, Paul Bremer, head of the Coalition Provisional Authority (CPA) in charge of Iraq, signed CPA Order 17 stating that “[private military] contractors shall not be subject to Iraqi laws or regulations in matters relating to the terms and conditions of their contracts.” In other words, PMCs working for the CPA—representing the US government—
were granted immunity from Iraqi law. In October 2007, Blackwater found itself in hot water.

The Iraqi government alleged that on September 16, 2007, Blackwater personnel opened fire indiscriminately at a Baghdad crossroad and killed 17 innocent civilians.
Blackwater maintained that its men were under fire. Because Blackwater (and other PMCs) were formally immune from Iraqi law—thanks to Order 17—the best that the Iraqi government could do was to demand that Blackwater leave the country. The US Congress was in uproar concerning such an embarrassing incident and in October 2007 held a hearing on Blackwater—and, in fact, on the entire private military industry. Naturally, Blackwater’s staunchest defenders were the US officials protected by its private soldiers. US officials preferred Blackwater and other PMCs because PMC personnel were regarded as more highly trained than (national) military guards. Blackwater’s founder, Erik Prince, told the congressional committee that “no individual protected by Blackwater has ever been killed or seriously injured,” while 30 of its staff died on the job (up to that point). While measures for increased legal and regulatory oversight were called for by the highest levels of the US government, whether these measures would be implemented on the messy and dangerous ground in Iraq (and elsewhere) was not clear.
Because Blackwater had immunity from Iraqi law at the time of the incident, the most severe punishment it received for its alleged misconduct was the US government’s decision not to renew its contract for Iraq in January 2009.
However, the Iraqi government leveraged this incident and forced the US government to repudiate all PMCs’ immunity from Iraqi law in a status of forces agreement signed in December 2008. In other words, PMCs no longer have the “get out of jail free card” in Iraq. Back home, Blackwater faced a series of lawsuits, criminal charges, and investigations.
In February 2009, Blackwater’s notoriety forced it to rename itself Xe Services LLC (pronounced “zee”). In 2011, Blackwater was sold to new investors and changed its name to Academi.
In December 2009, President Obama announced the surge of 30,000 additional US (national) military personnel to be sent to Afghanistan. What he did not announce was that according to a study by the Congressional Research Service (CRS), these 30,000 US (national) military personnel would be accompanied by another surge of 26,000–56,000 PMC personnel, bringing the total number of PMC personnel in Afghanistan to more than 130,000.
Prior to these two surges, the percentage of people working for Pentagon who were PMC personnel already reached more than 60%, which, according to the same CRS study, “apparently represented the highest recorded percentage of contractors used by the Defense Department in any conflict in the history of the United States.” Clearly, despite the notoriety of some PMCs such as Blackwater, the private military industry has no problem increasing its market share in the business of war.

In Search of New Hot Spots 

As land wars in Iraq and Afghanistan were scaled back, some PMCs diversified. More recently, pirates in the Somali waters generated tremendous new business for PMCs that offer maritime security services. As of 2012, PMC personnel patrolled the decks of 40% of large vessels in the high-risk area in the Indian Ocean that stretches from the Somali coast to the Seychelles to the south and Maldives to the east. A four-man team can make $45,000 for safe passage through the high-risk area. While the price is high, PMCs have delivered value—no ship carrying PMC guards has been hijacked so far. If a ship were hijacked, ship owners would need to pay out millions of dollars in ransoms. Ship owners can offset some of the additional costs of having PMC maritime guards by savings on insurance. Basically, ships armed with PMC personnel can enjoy a lower insurance rate when plying the dangerous waters.
Other new hot spots were Libya and Syria. The turmoil generated new opportunities. Some PMCs rushed in. The bloody Libyan and Syrian civil wars turned out to be another gold mine for enterprising PMCs. Who said entrepreneurs couldn’t handle chaos?

Enlightened Self-Regulation?

As the industry aspires to become a “mature” one by diversifying into postconflict reconstruction and risk management such as in post-Qaddafi Libya (after all, there are only so many shooting wars to fight), its current unregulated nature is not sustainable. In the absence of regulation, PMCs’ seemingly secretive nature prevents them from being recognized as legitimate players. In response, the PMC community has set up the IPOA and BAPSC to advocate self-regulation. A very unmercenary code of conduct governing all IPOA members went into effect in 2001. Its 11th revision, publicized in 2006, promised that member PMCs only work for legitimate governments and organizations and that all rules of engagement must “emphasize appropriate restraint and caution to minimize casualties and damage.” In the long run, PMCs adhering to “aggressive self-regulation” hope to be perceived as reliable, professional, and high-quality service providers.
Far from being the dogs of war, declared BAPSC’s director-general, “we are actually the pussycats of peace.”
This thought-provoking statement is indicative of the ethical dilemma of PMCs: While they prefer to dispel any mercenary notion that they are dogs of war, they also thrive on the mean-and-tough warrior mystique. After all, wrote the Economist, “who would use a pussycat as a guard-dog?”

Case Discussion Questions 

1. From an institution-based view, explain what is behind the rise of this industry.

2. From a resource-based standpoint, explain (1) how PMCs can outperform national militaries and (2) how certain PMCs outperform others.

3. Why are industry associations such as the IPOA and BAPSC so interested in self-regulation?

4. ON ETHICS: As an investor, would you consider buying the stock of a PMC such as DynCorp? Why or why not? Do you have any ethical reservations?
5. ON ETHICS: As an oil company executive setting up operations in a politically unstable and dangerous country, would you consider hiring security personnel from Blackwater?

Transcribed Image Text:

EXHIBIT 1 Personnel of Private Military Companies as Percentage of Defense Workforce in Three Recent US Operations Balkans Afghanistan Iraq 50% 62% 47% Three operations combined 50%