Integrative Case 10

IntegratIve
Private Military Companies
375

Case

10
Private Military Companies1
Private military companies are entrepreneurial, profiting from land wars in Afghanistan, Iraq, and Syria as well
as Somali piracy in the Indian Ocean. Are private military companies dogs of war or pussycats of peace?

Mike W. Peng, University of Texas at Dallas

This industry dates back thousands of years, is visible private contractors) who serve alongside national military
in TV news, is global in nature, and has annual sales of forces. Blackwater is perhaps the best-known military
$100 billion. Yet participants do not even agree on how to provider firm. Second, military consulting firms offer
label it, and most outsiders are clueless about its entrepre- assistance but do not directly engage in the battlefield. One
neurial nature and ethical dilemma. So, what industry is example is Military Professional Resources, Inc. Third,
this? Many journalists and scholars call it the “private mili- military support firms such as Halliburton provide nonlethal
tary industry.” Others label it the “private security industry.” support such as intelligence, logistics, technical support,
A leading British industry association formed in 2006 calls and transportation. One of the rare publicly listed PMCs is
itself the British Association of Private Security Companies DynCorp International, which went public in 2006 (NYSE:
(BAPSC). A leading American industry association founded DCP). It has more than 16,800 employees and generates more
in 2001 names itself the International Peace Operations than $2 billion revenue around the world.
Association (IPOA). It has coined postmodern labels the Entrepreneurs thrive on chaos. To PMCs, the war in
“peace and stability industry” and the “peace operations Iraq and Afghanistan was a pot of gold. While the United
industry.” For compositional simplicity, in this case, we call States and its allies were withdrawing their forces, PMCs
this industry the private military industry to emphasize rushed in. In Afghanistan in 2009, PMCs were the largest
its twin nature of private and military. Companies in this military force (130,000 personnel), outnumbering both
industry are thus called private military companies (PMCs). the Afghan National Army (100,000 personnel) and US
(national) forces (64,000 personnel). In Iraq, PMCs were
From Rome to Syria the second-largest military contingent (about 113,000
The roots of this industry can be found in mercenaries. personnel) after US (national) forces (130,000 personnel
In fact, the very word “soldier” derives from solidus, the at its peak). Long after the official withdrawal of the US
Roman gold coin. In other words, a soldier, by classical defi- (national) military in Iraq in 2011, PMCs remain active
nition, is one who fought for money. During the American in the country. The State Department alone at one point
Revolution, mercenaries from Germany fought on the employed 5,000 PMC personnel in Iraq.
British side. The stereotype of mercenaries is the “dogs Private soldiers drive convoy trucks, build camps, guard
of war” who help win civil wars and topple governments dignitaries, and gather intelligence. The most lucrative job
(usually in resource-rich African countries). is not “guns on trucks,” but less glamorous but more steady
However, modern PMCs hate to be associated with work such as logistics. Well-muscled men with wrap-
mercenaries. Today’s PMCs are proud of their professionalism around sunglasses may steal headlines (especially after
and value added. Led by entrepreneurs who are often they allegedly shoot Iraqi civilians), but the real money is
retired military officers, PMCs compete globally. There are in other lines of work.
three main types. First, closest to the battlefield are military Long before Iraq, the use of PMCs alongside US troops
provider firms that supply hired guns (often known as had become an indispensable component of America’s

1. This research was supported by the Jindal Chair at the Jindal School of Management, University of Texas at Dallas. All views and errors are those of
the author. © Mike W. Peng. Reprinted with permission.

375

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“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 finan-
cial. Dead private soldiers mean fewer dead uniformed
soldiers. Military casualties are carefully recorded and of-
ten 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 (represent-
ing 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 con-
tractor (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 con-
tracts 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
EXHIBIT 1 Personnel of Private Military Companies
as Percentage of Defense Workforce in Three Recent
US Operations
Balkans Afghanistan Iraq
50% 62% 47%
Source: Extracted from Figure 1 in M. Schwartz, 2009, Department of
Defense Contractors in Iraq and Afghanistan: Background and Analysis
(p. 2), Washington, DC: Congressional Research Service.
376
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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, privatiza-
tion of government services is a global trend in general. In
the military arena, the cost-effectiveness of PMCs is com-
pelling. Some argue that the UN Security Council should
have contracted PMC services to limit the Rwanda geno-
cide 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 juris-
diction. Further, contracts are often impossible to monitor,
particularly when private soldiers are deployed in danger-
ous 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
Three operations environments creates a significant institutional challenge as
combined to what and whose rules of the game should govern PMCs.
50% 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
 Integrative Case 10 Private Military Companies 377

between “war” and “peace” has broken down. Technically, Research Service (CRS), these 30,000 US (national) mili-
the US Congress never bothered to issue a declaration of tary personnel would be accompanied by another surge of
war against Afghanistan or Iraq, but nobody would argue 26,000–56,000 PMC personnel, bringing the total number
there was much “peace” in Afghanistan or Iraq since the of PMC personnel in Afghanistan to more than 130,000.
2000s. Given such ambiguity of “neither war nor peace,” Prior to these two surges, the percentage of people working
PMCs are essentially unregulated. for Pentagon who were PMC personnel already reached
In 2004, Paul Bremer, head of the Coalition Provisional more than 60%, which, according to the same CRS study,
Authority (CPA) in charge of Iraq, signed CPA Order 17 “apparently represented the highest recorded percentage of
stating that “[private military] contractors shall not be sub- contractors used by the Defense Department in any con-
ject to Iraqi laws or regulations in matters relating to the flict in the history of the United States.” Clearly, despite
terms and conditions of their contracts.” In other words, the notoriety of some PMCs such as Blackwater, the pri-
PMCs working for the CPA—representing the US govern- vate military industry has no problem increasing its market
ment—were granted immunity from Iraqi law. share in the business of war.
In October 2007, Blackwater found itself in hot water.
The Iraqi government alleged that on September 16, In Search of New Hot Spots
2007, Blackwater personnel opened fire indiscriminately
As land wars in Iraq and Afghanistan were scaled back,
at a Baghdad crossroad and killed 17 innocent civilians.
some PMCs diversified. More recently, pirates in the Somali
Blackwater maintained that its men were under fire. Because
waters generated tremendous new business for PMCs that
Blackwater (and other PMCs) were formally immune from
offer maritime security services. As of 2012, PMC personnel
Iraqi law—thanks to Order 17—the best that the Iraqi gov-
patrolled the decks of 40% of large vessels in the high-risk
ernment could do was to demand that Blackwater leave
area in the Indian Ocean that stretches from the Somali
the country. The US Congress was in uproar concerning
coast to the Seychelles to the south and Maldives to the
such an embarrassing incident and in October 2007 held
east. A four-man team can make $45,000 for safe passage
a hearing on Blackwater—and, in fact, on the entire pri-
through the high-risk area. While the price is high, PMCs have
vate military industry. Naturally, Blackwater’s staunch-
delivered value—no ship carrying PMC guards has been
est defenders were the US officials protected by its pri-
hijacked so far. If a ship were hijacked, ship owners would
vate soldiers. US officials preferred Blackwater and other
need to pay out millions of dollars in ransoms. Ship own-
PMCs because PMC personnel were regarded as more
ers can offset some of the additional costs of having PMC
highly trained than (national) military guards. Blackwater’s
maritime guards by savings on insurance. Basically, ships
founder, Erik Prince, told the congressional committee that
armed with PMC personnel can enjoy a lower insurance rate
“no individual protected by Blackwater has ever been killed
when plying the dangerous waters.
or seriously injured,” while 30 of its staff died on the job
Other new hot spots were Libya and Syria. The turmoil
(up to that point). While measures for increased legal and
generated new opportunities. Some PMCs rushed in. The
regulatory oversight were called for by the highest levels
bloody Libyan and Syrian civil wars turned out to be an-
of the US government, whether these measures would be
other gold mine for enterprising PMCs. Who said entrepre-
implemented on the messy and dangerous ground in Iraq
neurs couldn’t handle chaos?
(and elsewhere) was not clear.
Because Blackwater had immunity from Iraqi law at
the time of the incident, the most severe punishment it re- Enlightened Self-Regulation?
ceived for its alleged misconduct was the US government’s As the industry aspires to become a “mature” one by di-
decision not to renew its contract for Iraq in January 2009. versifying into postconflict reconstruction and risk
However, the Iraqi government leveraged this incident and management such as in post-Qaddafi Libya (after all,
forced the US government to repudiate all PMCs’ immuni- there are only so many shooting wars to fight), its current
ty from Iraqi law in a status of forces agreement signed in unregulated nature is not sustainable. In the absence of
December 2008. In other words, PMCs no longer have the regulation, PMCs’ seemingly secretive nature prevents
“get out of jail free card” in Iraq. Back home, Blackwater them from being recognized as legitimate players. In re-
faced a series of lawsuits, criminal charges, and investiga- sponse, the PMC community has set up the IPOA and
tions. In February 2009, Blackwater’s notoriety forced it to BAPSC to advocate self-regulation. A very unmercenary
rename itself Xe Services LLC (pronounced “zee”). In 2011, code of conduct governing all IPOA members went into ef-
Blackwater was sold to new investors and changed its name fect in 2001. Its 11th revision, publicized in 2006, promised
to Academi. that member PMCs only work for legitimate governments
In December 2009, President Obama announced the and organizations and that all rules of engagement must
surge of 30,000 additional US (national) military person- “emphasize appropriate restraint and caution to minimize
nel to be sent to Afghanistan. What he did not announce casualties and damage.” In the long run, PMCs adhering
was that according to a study by the Congressional to “aggressive self-regulation” hope to be perceived as

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Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
378 ParT 4 INTEGRATED CASES

reliable, professional, and high-quality service provid- Case Discussion Questions

ers. Far from being the dogs of war, declared BAPSC’s
director-general, “we are actually the pussycats of peace.” 1. From an institution-based view, explain what is
This thought-provoking statement is indicative of the behind the rise of this industry.
ethical dilemma of PMCs: While they prefer to dispel any 2. From a resource-based standpoint, explain
mercenary notion that they are dogs of war, they also thrive (1) how PMCs can outperform national militaries
on the mean-and-tough warrior mystique. After all, wrote and (2) how certain PMCs outperform others.
the Economist, “who would use a pussycat as a guard-dog?”
3. Why are industry associations such as the IPOA
Sources: (1) Bloomberg Businessweek, 2011, As war winds down in Libya, and BAPSC so interested in self-regulation?
enter the consultants, September 26: 17–18; (2) BusinessWeek, 2006, Tainted
past? No problem, July 17; (3) Bloomberg Businessweek, 2011, For sale, 4. ON ETHICS: As an investor, would you consider
cheap, December 19: 32–35; (4) Economist, 2007, Blackwater in hot water, buying the stock of a PMC such as DynCorp? Why or
October 13; (5) Economist, 2009, Splashing and clashing in murky waters, why not? Do you have any ethical reservations?
August 22; (6) Economist, 2012, Laws and guns, April 14: 69; (7) Economist,
2013, Beyond Blackwater, November 23: 65–66; (8) Economist, 2016, 5. ON ETHICS: As an oil company executive setting
Cruisin’ with guns, January 23: 41; (9) T. Hammes, 2010, Private contractors up operations in a politically unstable and dangerous
in conflict zones, Strategic Forum of National Defense University, 260: 1–15; country, would you consider hiring security
(10) International Peace Operations Association, 2006, Code of conduct, personnel from Blackwater?
ipoaonline.org; (11) Newsweek, 2007, Blackwater is soaked, October
15; (12) C. Ortiz, 2007, Assessing the accountability of private security
provision, Journal of International Peace Operations, January; (13) J. Scahill,
2007, Blackwater: The Rise of the World’s Most Powerful Mercenary Army,
New York: Nation Books; (14) M. Schwartz, 2009, Department of Defense
Contractors in Iraq and Afghanistan: Background and Analysis, Washington:
Congressional Research Service.

Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.