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
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
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
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
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
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.