Janine Wedel - Shadow Elite - How the World's New Power Brokers Undermine Democracy, Government, and the Free Market

As inherently governmental functions are outsourced, Swiss-cheese bureaucracy develops even more holes. Because the number of government contracts and contractors has risen, while the number of civil servants available to supervise them has proportionately fallen, thus decreasing the government’s capacity to oversee the process, even when government officials sign on the dotted line, they are sometimes merely rubber stamping the work of contractors. New institutional forms of governing have gathered force. Yet not only the public but even government officials who should be in the know are often left out of the information loop.

The Information Revolution?

This is the information era, right? The age of Web 2.0, smartphones, and twenty-four-hour news cycles. But one of the most important dangers in contracting government functions is that information that is supposedly of and for government often ends up, and remains, in private hands. When contractors have superior information, they have the edge over their government overseers.

Government sometimes lacks the specific information it needs to carry out its work—let alone to monitor the entities that work for it. The GAO has examined contracts government-wide with this issue in mind. Katherine Schinasi, a top GAO official, reports that, in many cases, government deciders scarcely supervise the companies on their payrolls. As a result, she observes, they are unable to answer simple questions about what the firms are doing, whether they have performed well or not, and whether their performance has been cost effective. In April 2002, eleven months before the war in Iraq, the army reported to Congress that its best guess was that it directly or indirectly employed between 124,000 and 605,000 service contract workers—a discrepancy of half a million workers. 34

Lest one think it inconsequential whether the army or any other arm of government gathers information on its contractors, consider Defense’s meager ability to monitor contractors who work with classified information, as detailed by the GAO. In a report revealingly titled Industrial Security: DOD Cannot Ensure Its Oversight of Contractors Under Foreign Influence Is Sufficient , the GAO warned that the agency “cannot ensure that its oversight of contractors . . . is sufficient to reduce the risk of foreign interests gaining unauthorized access to U.S. classified information.” The report elaborated that Defense “does not systematically collect information to know if contractors are reporting certain foreign business transactions,” which would enable Defense to learn when a contractor has come under foreign influence and determine “what, if any, protective measures are needed to reduce the risk of foreign interests gaining unauthorized access to U.S. classified information.” For example, one foreign-owned contractor appeared to have had access to U.S. classified information for at least six months before a protective measure was implemented. Moreover, Defense neither centrally collects information to determine the magnitude of contractors under foreign influence nor assesses the effectiveness of its oversight so it can identify weaknesses in its protective measures and make necessary adjustments. In 2007 the GAO added a new category to its high-risk list: “ensuring the effective protection of technologies critical to U.S. national security interests.” 35

Further eroding government is the practice of outsourcing oversight itself—to contractors who are enmeshed with government. The BlackRock case cited earlier is one example. Another is known as SWIFT. Following the 9/11 terrorist attacks, one of the surveillance efforts undertaken by the U.S. government was a systematic program used to track money flowing into and out of the United States, transactions abroad and, in a small portion of cases, financial transactions within the United States. The “SWIFT” case takes its name from the Belgium-based Society for Worldwide Interbank Financial Telecommunications, a “member-owned cooperative” that processes international financial transactions. Through SWIFT the U.S. Treasury Department sought and gained access to large numbers of financial and communication records. Treasury then established the Terrorist Finance Tracking Program, run out of the CIA, to analyze the SWIFT data and later shared it with the CIA and FBI. It also hired Booz Allen as an “independent” auditor, which, along with SWIFT, reviewed Treasury’s logs of information searches. When the surveillance program was exposed amid controversy in 2006, a key question was how Booz Allen could be impartial given its record as a government contractor and the close ties of its executives to high government officials, and considering the fact that some of these executives are themselves one-time intelligence officials. As Barry Steinhardt, Director of the ACLU’s Technology and Liberty Project, put it: “It is bad enough that the administration is trying to hold out a private company as a substitute for genuine checks and balances on its surveillance activities. But of all companies to perform audits on a secret surveillance program, it would be difficult to find one less objective and more intertwined with the U.S. government security establishment.” 36

To sum up that interaction: A private company, given “government” access to sensitive and private data about citizens of the United States and other countries, not only worked alongside government to analyze the data, but then also (supposedly) oversaw the process.

While blended state-private power is busily governing, government officials are absent with leave. Conversations with officials and contractors, as well as those monitoring them (such as GAO investigators) and interacting with them (such as congressional staff) yield records of countless instances in which contractors vastly outnumber government officials in “government” meetings—or in which officials are altogether absent. 37

In some cases we see a disturbing role reversal, with vital information in the hands of the contractors rather than those of the relevant government officials, putting the contractors firmly in the driver’s seat. In one instance, the GAO, in its typical bureaucratese, warned that the practices of the Department of Homeland Security encourage “the risk that government decisions may be influenced by, rather than independent from, contractor judgments.” The result might be the DHS’s loss of control over decision making. 38

Companies also sometimes drive policy, rather than the other way around. Or they draft rules that benefit themselves. Conversations with government officials and contractors reveal that this happens frequently. To offer just two examples, both from the huge government contractor SAIC: The company suggested the idea of a biosurveillance shop in a study it conducted for DHS. The agency subsequently bought the idea of such an operation, decided to contract it out, and awarded SAIC the contract. In a separate instance, SAIC, while advising the Nuclear Regulatory Committee (NRC) on rules regarding the recycling of radioactive materials, also worked as a contractor on such a recycling project and concealed that fact, a federal jury found, even as the firm’s recycling business could benefit from its NRC consulting. Moreover, a top SAIC official also helped manage an association that promoted favorable nuclear recycling standards as the company was embarking on a venture that would be subject to the very rules it was helping to write, according to Department of Justice documents. While these stories have come to light, consider what others, given how much is outsourced, remain hidden. 39

The outsourcing of information technologies themselves also touches practically every area of government operations. While contracting much information technology (IT) such as computer network services may be unproblematic or even desirable, it often can’t be separated from other vital operations like logistics that are integral to an agency’s mission. Contractors perform most of the federal government’s IT work: An estimated upwards of three-quarters of governmental IT was outsourced even before the major Iraq war–related push to contract out. For companies in search of federal business, IT is “the new frontier,” according to Thomas Burlin, who is in charge of IBM Business Consulting Services’s federal practice. With evermore complex technologies always on the horizon, the outsourcing of IT only stands to grow. As Burlin observes, “What has really changed today in this market is . . . that line where the traditional IT services and best practices are blended with the mission.” In fact, in 2004, Dan Guttman speculated that, with regard to IT, “contractors are not simply the shadow government, but may become the primary government.” 40