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paul krugmancarlyle group

PAUL KRUGMAN VS.
THE CARLYLE GROUP

Who's Telling the Truth About "Crony Capitalism": Columnist Paul Krugman, or The Carlyle Group?

January 31, 2002

Before I get into Paul Krugman vs. The Carlyle Group, a bit of personal history:

Just about my first exposure to a non-corporate media source came from an unlikely place: the public library in my conservative suburban hometown.  It was the late '60's, the Vietnam War was raging, the cities were burning, and as a teenager I instinctively knew there had to be a lot more we should be told about than what was being reported on the nightly network evening news.

I decided to take a look at the periodical section of the library, and came across a magazine called Ramparts, which was a radical left-wing publication, long since defunct.  It was something I had never seen before: a magazine-length bunch of articles all severely criticizing the powers that be.  Sure, I had been handed leaflets by anti-war demonstrators, but this magazine had long and detailed stuff in it!

Anyway, the first article I read was an expose of pervasive sweetheart dealing between defense contractors and present and former government officials.  My shock at the outrageous duplicity and outright thievery described was matched only by my amazement at the level of factual detail provided in support of the author's contentions.  I said to myself, if only 10% of this stuff is true, our system is irretrievably corrupt.

Krugman vs. Carlyle: The Column

So given this cherished formative experience of mine, I knowingly smiled with a warm glow inside when in a recent column entitled "Crony Capitalism, U.S.A." Paul Krugman of the New York Times described some "I scratch your back, you scratch mine" dealings between some Bushies and (I love this description) "the secretive Carlyle Group, an investment company whose story sounds like the plot of a bad TV series":

Carlyle specializes in buying down-and-out defense contractors, then reselling them when their fortunes miraculously improve after they receive new government business. Among the company's employees is former President George H. W. Bush. Among the group's investors, until late October, was the bin Laden family of Saudi Arabia.

Another administration would have regarded the elder Bush's role at Carlyle as unseemly; this administration apparently does not. And Defense Secretary Donald Rumsfeld recently gave his old college wrestling partner Frank Carlucci, head of Carlyle, a very nice gift: Mr. Rumsfeld decided to proceed with the much-criticized Crusader artillery system, which even the Pentagon wanted to cancel. The result was another turnaround for a Carlyle-owned company.

Krugman vs. Carlyle: The Letter

Now it becomes interesting.  Shortly after Krugman's column appeared, the Vice-President for Corporate Communications of The Carlyle Group, Chris Ullman, fired off a letter to the Times attempting to refute Krugman's contentions.  After criticizing Krugman for relying on "on second hand sources, including Red Herring Magazine," Ullman went on to say:

Less than 10 percent of our investments are in the defense sector, and we specialize in buying healthy companies. The Crusader weapons system (built by United Defense, which is partly owned by Carlyle) has earned the strong support of the Pentagon, the Army, Congress, the White House and even the former Clinton administration, solely on its merits. Finally, our chairman, Frank C. Carlucci, does not lobby anyone in the Bush administration or the Defense Department on behalf of Carlyle or the companies it owns.

Let's parse this out:

Less than 10 percent of our investments are in the defense sector

Irrelevant to whether those transactions are questionable or not. Or is Ullman saying, if we're crooked, it's only a small part of our business?

and we specialize in buying healthy companies.

Directly contradicts Krugman, but even if true, again doesn't address the issue of the nature of the transactions involving the unhealthy ones.  Like the previous sentence, Ullman is here trying to undermine Krugman's general reliability.  And, notice that the letter doesn't deny that United Defense, the company building the weapons system in question, was down and out at the time it was awarded the contract by the Bush administration.

The Crusader weapons system (built by United Defense, which is partly owned by Carlyle) has earned the strong support of the Pentagon, the Army, Congress, the White House and even the former Clinton administration, solely on its merits.

Notice the language: "has earned the strong support."  When?!  Initially when the weapons system was conceived?  Or also -- when it would be relevant here -- later during the Bush administration when Krugman contends the Pentagon wanted to cancel it?

Finally, our chairman, Frank C. Carlucci, does not lobby anyone in the Bush administration or the Defense Department on behalf of Carlyle or the companies it owns.

Krugman never said Carlucci did.  You don't need to have direct lobbying when everyone understands who their friends are and how the contracts should be doled out.

Also note that Ullman's letter completely omits any discussion of the propriety of the President's father being employed by a major defense contractor seeking government contracts.

Like much corporate obfuscatory blather, a first reading of Carlyle flack Ullman's letter seems to make a strong argument.  Then when you think about it for a while, you realize that there's a lot less there than meets the eye.

This was a selection from The Daily Diatribe

More on Economic Injustice

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