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NOVEMBER2007

Private equity is on the prowl PAUL REBEYROLLE – ‘Small business’ (1999) GALERIEJEANNE BUCHER,PARIS

While critics of the economic horrors of globalisation argue, a new and even more brutal form of capitalism is in action. The new vultures are private equity companies, predatory investment funds with vast amounts of capital at their disposal and an enormous appetite for more (1). Their names, among them the Carlyle Group, KKR, the Blackstone Group, Colony Capital, Apollo Management, Cerberus Partners, Starwood Capital, Texas Pacific Group, Wendel, Euraze, are still not widely known. And while still a secret they are getting their hands on the global economy. Between 2002 and 2006 the capital raised by these funds from banks, insurance companies, pension funds and the assets of the super-rich rose from $135bn to $515bn. Their financial power is phenomenal, more than $1,600bn, and they cannot be stopped. In the United States, the principal private equity firms invested some $417bn in takeovers last year and more than $317bn in the first quarter of 2007, acquiring control of 8,000 companies. One American in four and almost one Frenchman or woman in every 12 now works for them (2). France is now their prime target, after the United Kingdom and the US. Private equity firms, mainly American or British, acquired 400 companies in France last year for $14bn. They now manage more than 1,600 French companies, including such famous names as Picard Surgeléés, Dim, the Quick restaurant chain, Buffalo Grill, Pages Jaunes (the French Yellow Pages), Allocinéé and Afflelou, and they are looking at other big names on the French stock market index, the CAC 40. Predatory funds are not new. They first appeared about 15 years ago but have recently reached alarming proportions, encouraged by cheap credit facilities and sophisticated financial instruments. The basic principle is simple: a group of wealthy investors buys up companies and manages them

privately, without reference to the stock exchange and its restrictive rules and without having to answer to shareholders (3). The idea is to get round the fundamental principles of capitalist morality and back to the law of the jungle. That is not quite how the system works, though. To acquire a company worth 100 units, the fund invests an average 30 units from its own pocket and borrows 70 from the banks, taking advantage of current very low interest rates. The fund spends three or four years reorganising the company with the existing management, rationalising production, developing new activities, and taking some or all of the profits to pay the interest on its debt. It then sells the company on for 200 units, often to another fund which repeats the process. After repaying the 70 units it borrowed, it will come away with 130 units for an initial investment of 30, a 300% return in four years. Not bad (4). While the directors of these funds make private fortunes, they have no qualms about applying the four great principles of rationalisation to the companies they buy: downsize staff, reduce wages, increase work rates and relocate. With the blessing of public authorities who dream, as they do in France now, of modernising production, and to the detriment of the unions, for which the process signifies the end of the social contract. Some people thought that, with the advent of globalisation, capital was sated. It is now clear that there is no end to its greed. IGNACIO RAMONET TRANSLATED BY BARBARA WILSON

(1) See Fréédééric Lordon, “High finance – a game of risk”, Le Monde diplomatique, English edition, September 2007. (2) See Sandrine Trouvelot and Philippe Eliakim, “Les fonds d'investissement, nouveaus maîîtres du capitalisme mondial”, Capital, Paris, July 2007. (3) See Philippe Boulet-Gercourt, “Le retour des rapaces”, Le Nouvel Observateur , Paris, 19 July 2007. (4) See Trouvelot and Eliakim, op cit.

INSIDE THIS ISSUE

Burma’s monks are on the march but there is no concerted campaign page 2

Britain’s mission in southern Iraq ends in complete failure page 3

Somalia stands on the brink of total collapse page 4

Is Yemen heading for another split between north and south? page 5

Poor prospects for peace at the Annapolis conference page 6

As housing costs soar,Brazil’s homeless take direct action page 10

Bringing a Nigerian twist to an Irish stage classic page 12

Macau overtakes Las Vegasas the world’s gambling centre page 16

SPECIAL DOSSIER ON THE NEW ‘BROADER’MIDDLE EAST Towards fresh disaster in Iran

What has possessed the Bush administration to pursue its grievances against Iran when it can’t cope with the wars it is failing to wage,let alone win,in neighbouring Iraq and Afghanistan?

BY ALAIN GRESH

There’s a substantial difference between declaring that the third world war has begun and identifying the new Hitler. Since 9/11 President George Bush’s enemies have included al-Qaida, the “axis of evil”, proliferators of weapons of mass destruction and Islamic fascism. But now Iran is public enemy number one, as incarnated in its provocative president, Mahmoud Ahmadinejad. According to the US under-secretary of state, Nicholas Burns: “Our beef with the Iranian government is not just about Iran; it’s about what Iran is doing in the broader Middle East. With the Middle East occupying the great majority of the time and attention of our administration and Congress – I want to set the problem of Iran in the larger context of what we are doing in the Middle East and in the world. Our view is that Iran is a generational challenge. It is not a challenge that is going to be episodic or fleeting; it will likely be on the front burners of our foreign policy in 2010, and 2012, and probably 2020” (1). Iran is a leading oil-exporting nation, but is it really an evil monster (2)? Its military expenditure has risen considerably since 2000, but the army is still under-equipped. Iraq’s fragmentation has increased the relative importance of Iran, but whose fault is that? A transnational Shia clergy may be an advantage: some Iraqi and Lebanese Shia are loyal to Iranian ayatollahs. But it could equally prove to be a weakness since many Iranian Shia are loyal to Iraqi and Lebanese ayatollahs. The Shia clergy is divided, not least over one of the present Iranian government’s basic tenets, velayat-e faqih (guardianship of jurisprudence), which gives absolute power to the Supreme Leader – once Ayatollah Khomeini, now Ayatollah Khamenei. Aside from the religious aspect, there are divisions in Iranian politics that do little to strengthen the regime. From the early 1990s several US reports predicted that Iran would have nuclear weapons within two to three years. This has regularly been denied but the forecasts have just as regularly been updated: in 1991, 1995, 2000, and today. And yet the International Atomic Energy Agency has stated several times that despite Tehran’s attempts to avoid controls, they had no evidence of an Iranian military nuclear programme. If Iran did obtain nuclear weapons tomorrow, what would happen? In an interview in January, Jacques Chirac, then French president, made a controversial statement that led to a hasty official correction. “Where could Iran drop its bomb?” he asked. “On Israel? If that were so, Tehran would be flattened by the time the bomb was 200 metres out of Iran. There would be retaliation and coercion. That’s what nuclear dissuasion is all about.” But as Chirac pointed out, Iran’s possession of nuclear weapons would accelerate nuclear proliferation in

the region. Egypt and the Gulf Cooperation Council countries (3) have already declared their intention to develop nuclear power for civilian purposes. The goal of a nuclear-free Middle East was supposed to be a priority, on condition that it included Israel – the first country in the region to possess nuclear weapons. But the US sees things in black and white. It does not think the idea of dissuasion is likely to work with an irrational Iranian government under Ahmadinejad, any more than it did with Gamal Abdel Nasser or Saddam Hussein. Professor Bernard Lewis, the “orientalist” historian who supported US intervention in Iraq, went so far as to warn, quite seriously, that Tehran might drop a nuclear bomb (which it does not have) on Israel on 22 August 2006, because that is the day the Muslim calendar commemorates the prophet Muhammad’s flight to Jerusalem and thence to heaven, and the Iranian president would believe that the ensuing apocalypse could hasten the return of the hidden imam (4). He wrote: “This might well be deemed an appropriate date for the apocalyptic ending of Israel and if necessary of the world. It is far from certain that Mr Ahmadinejad plans any such cataclysmic events precisely for August 22. But it would be wise to bear the possibility in mind” (5). This level of madness is commonplace in Washington, where hostility to Iran since the Islamic revolution has become pathological and has led to an aggressive anti-Iran stance, not only in the White House but also by most of the election candidates, Democrat and Republican, who accuse Iran of subverting Iraq and Afghanistan. A similar stance is taken by the French foreign minister, Bernard Kouchner, who claimed that Iran was behind everything in Iraq and was transforming it into a perfect training ground (6). France now stands out from its European colleagues by hardening its stance, demanding more sanctions against Iran and aligning itself with Washington, just when the US war on terror is clearly a failure. The US, as part of its regional strategy, is increasing aid to the Kurdish, Arab, Azeri and Baluchi minorities in Iraq. Will the fragmentation of Iraq spread to Iran? Such a policy can result in some surprising reverses: while the Kurdish Workers’Party is listed as a terrorist organisation, a delegation from its sister organisation in Iran, the Kurdistan Free Life Party, was welcomed in August in Washington with its leader Rahman Haj Ahmadi (7). That is not the only contradiction in the antiIranian strategy Bush is trying to put in place with Egypt, Jordan, Israel and the moderate Gulf countries, and will reinforce during the Annapolis conference (see page 6).

Continued on page 9