The big guns - The Corporate State

New Internationalist, July, 2002 by Tim Shorrock

With board members like these, who needs lobbyists? Tim Shorrock uncovers the Bush connection to US defence giant the Carlyle Group.

ON 12 March 2002, Frank Carlucci, the former US Secretary of Defense and chair of the Carlvle Group, presided over a closed-door conference of US and Taiwanese defence officials. At Carlucci's invitation, Taiwan's Defence Minister Tang Yao-Ming flew in from Taipei and met with Deputy US Defense Secretary Paul Wolfowitz, the Bush administration's leading hawk and a man with close ties with conservative leaders in Asia.

The meeting turned out to be the highest-level defence contact between the United States and Taiwan since diplomatic relations were severed in 1979. It provided the Bush administration with an opening to pursue its policies of expanding arms sales to Taiwan outside the glare of the media. Wolfowitz promised to do 'whatever it takes' to strengthen Taiwan's military capabilities against China -- a policy of great interest to Carlyle and its largest defence subsidiary, United Defense Industries, which was one of 12 military contractors to sponsor the conference.

This incident illustrates the extraordinary reach of the Carlyle Group and the man at its helm. Carlucci came to Carlyle in 1987 after a long career in the top ranks of the US national security establishment, including stints as deputy director of the Central Intelligence Agency and National Security Advisor to former President Reagan. During the 1980s, he ran Sears World Trade, a company that became deeply involved in shady arms deals and commodity imports before going bankrupt.

Under Carlucci's leadership, Carlyle has become one of the world's largest private equity funds, with over $13 billion worth of investments in defence, manufacturing, telecommunications, healthcare and finance.

As the eleventh largest US defence contractor, Carlyle is involved in nearly every aspect of military production, including making the big guns used on US naval destroyers, the Bradley Fighting Vehicle used by US forces during the Gulf War and parts used in most commercial and military aircraft. United Defense has joint ventures in Saudi Arabia and Turkey, two of the United States' closest military allies in the Middle East.

Unbeatable contacts

Carlyle's extraordinary investment strategy is what sets it apart. It focuses on industries, such as defence and telecommunications, where government spending, regulations and policies play critical roles in defining the market. But unlike its competitors in the military-industrial complex or investment banking, Carlyle doesn't lobby Congress or the White House to fund pet projects or push for legislation that would help its interests. It doesn't need to. Instead, it has hired a stable of former statesmen and senior officials, including former President George Bush, former Secretary of State James Baker III and former British Prime Minister John Major, to exploit their experience in government and diplomacy to open doors and gather intelligence on investment opportunities.

Through their unbeatable high-level connections, Carlyle has direct lines to government leaders in Asia, the Middle East and Europe. And, not least, to George W Bush who once served as an executive with Caterair, one of hundreds of companies Carlyle has bought and sold over the past 15 years. In an unprecedented twist on the Washington influence game, through Bush Senior's ties to Carlyle and United Defense, President George W Bush's family is making untold sums from the war he is directing against terrorism. This fact is underscored by Carlyle's decision after the opening salvoes of the war to go public with two of its defence companies, including United Defense.

'We've never in the history of the republic had a former US president working for arms manufacturers,' says Charles Lewis, the executive director of the Center for Public Integrity, a Washington-based research group that investigates the influence of money and politics. 'What is most offensive to me is that we have a former president of the United States with a substantial pension from US taxpayers, and we cannot find out what he is doing for the eleventh largest defence contractor.'

Since 1987 Carlyle has invested $6.4 billion in 233 transactions, with a rate of return of 36 per cent on its completed investments. It invests on behalf of 435 pension funds, banks and investment funds, 40 per cent of which are based overseas. During a recent (and rare) public briefing on its investment strategies, one of Carlyle's senior managers disclosed that the Group has $7 billion in cash ready to invest. That's not chump change: $7 billion is the minimum amount the world community should invest every year to fight AIDS and HIV, UN Secretary-General Kofi Annan said last year.

The extraordinary connections with former high-level statesmen has given Carlyle a great deal of expertise on tap. Bush Senior, who was CIA director and US ambassador to China and the UN before becoming president, is the senior adviser on Asia and makes his money by giving speeches at Carlyle's investment conferences (Carlyle won't disclose where he makes those speeches or how much he earns). Baker, who also served as Treasury Secretary during the Reagan administration and defended George W during the disputed 2000 election with Al Gore, is Carlyle's senior counsellor and a member of the firm's Asia, Europe and Japan advisory boards. Since last spring, John Major has been chair of Carlyle Europe and heads meetings of its European advisory board.