The Boys From Bechtel

Will Ronald Reagan reverse U.S. policy on nuclear proliferation?

American Republican politician George Shultz. Circa 1980. Credit: Paul Marnef/Hulton Archive/Getty

Only one subject rankled the new secretary of state. For two days before the Senate Foreign Relations Committee, he had been bland and reassuring, providing artful non-answers to the senators' fuzzy questions on every aspect of foreign policy. Then, for a moment, George P. Shultz lost his temper.

The subject was Bechtel, the awesomely large and secretive construction company in San Francisco that Shultz served as president. Senator Alan Cranston of California, recounting Bechtel's global adventures, suggested that the company makes its own foreign policy, sometimes in contravention of the U.S. government's.

"I resent what I regard as a kind of smear on Bechtel," Shultz declared in a heavy voice. "I think it is a marvelous, honorable, law-abiding company that does credit to our country here and all over the world."

His injured outrage succeeded in intimidating most of the senators at the confirmation hearing. Let the record reflect their consensus: George Shultz is an honorable man. And Bechtel is a marvelous company. There were no dissenting votes.

Still, the facts that Cranston patiently recited might be troubling to some citizens. In 1975, it seems, the Ford administration was belatedly attempting to prevent the specter of worldwide trade in plutonium – the essential ingredient for nuclear bombs –– which could be derived from reprocessing spent uranium fuel from nuclear power plants. Specifically, the U.S. government was trying to persuade West Germany not to sell uranium enrichment technology to Brazil. Meanwhile, unknown to Washington, a Bechtel executive was trying to sell Brazil the same technology.

The letter to the Brazilian minister of mines and energy was from John A. Damm, a Bechtel business development manager working for Uranium Enrichment Associates (UEA), a Bechtel-led firm selling nuclear fuel processes invented and held under tight government control. "UEA can offer Brazil," Damm wrote, "... the entire gamut, from the development of the mine, ore processing, enrichment, fuel processing, through the design and construction of the nuclear power plants themselves." An all-service builder.

Shultz dismissed the episode as the errant behavior of an "overenthusiastic" salesman. Cranston asked: "Were you aware of the U.S. policy of keeping sensitive nuclear technology out of Latin America?"

"I was generally aware of this issue," Shultz replied. "I thought this effort was improper, and I stopped it."

But what Shultz did not say –– and none of the senators really pressed the matter –– is that Bechtel's nuclear salesmen are again busy in the world, eager to open a new generation of global commerce in which sensitive technology will become a product for U.S. export. Those deals will require the blessing of the Reagan administration, but that should be no problem. Bechtel already has a zealous advocate for nuclear trade in the Department of Energy (DOE), Deputy Secretary W. Kenneth Davis, formerly Bechtel's vice-–president for nuclear development. And the policy decisions on such fateful questions as how to prevent every tin-pot republic from having its own bomb will ultimately reach George Shultz' in-basket at State.

Of course, Shultz has complied with all of the standard conflict-of-interest rules. He sold his stock in Bechtel and has formally promised to withdraw from any decisions directly involving his old company. However, Shultz told the senators he does intend to be directly involved in making policy on nuclear proliferation –– one of many issues on which Bechtel's business opportunities will depend. "If I'm not qualified to deal with that subject," he told them, "then I'm not qualified to be secretary of state. You need somebody else." No one took him up on that.

The question of the plutonium trade is the most obvious –– probably the most dangerous –– aspect of what's developed as Reagan's "Bechtel Cabinet." It isn't a legalistic question about conflict of interest, whether Davis or Shultz or their fellow Bechtellian, Defense Secretary Caspar Weinberger (formerly the firm's general counsel), are mixing their private interests with their public obligations. Nor is it fevered imaginings of a conspiracy. These men do not need telex messages from the Bechtel headquarters to tell them what to think about America and the world. They already think it.

The problem with the Bechtel Cabinet is more basic: It is an obscene expression of how narrow economic interests dominate our government. Surely it distorts democracy when one corporation sends three like-minded executives to fill these three crucial positions. But this economic domination of government no longer seems to shock most people. As Ronald Reagan said recently, "The business of business is America." And vice versa, as his hero Calvin Coolidge put it originally. Still, it was scandalous that the Senate accepted this distortion of representation so meekly. If Mobil Oil had put three executives in the Cabinet, maybe the senators would have asked tougher questions.

One reason they didn't, no doubt, is the appealing nature of Bechtel, a truly extraordinary organization. Anyone who played with an Erector Set as a child has to like this company. Bechtel builds. Everything from bridges and dams to hotels, hospitals, oil refineries, railroads, airports, mines, paper mills and nuclear plants. Half of the nuclear power plants in the U.S. are Bechtel projects. In the Arabian desert, Bechtel is building an industrial city nearly the size of Toledo. In Papua New Guinea, it is mining a mountain of gold and copper. It built the oil pipeline in Alaska and the new subway in Washington D.C. (both with horrendous cost overruns). During 1981, it managed 111 major projects around the world (each larger than $50 million), employed 120,000 engineers, managers and laborers and did $11.4 billion worth of work. It owns part of Peabody Coal, Mesa Petroleum and a Wall Street brokerage, Dillon, Read. Former chairman Stephen Bechtel is said to have declared years ago: "We will build anything, anywhere, anytime."

Yet that ethos of free enterprise conceals an essential fact about Bechtel. Bechtel also depends upon government. It always has. Its modern era of spectacular growth began in the Depression days, when it worked on Hoover Dam. During World War II, it built Liberty Ships and government shipyards. Like other conservative business interests, Bechtel espouses the standard free-market philosophy –– get out of our way and let us build –– while it simultaneously cultivates and manipulates government policy at home and abroad. It uses government to secure new contracts and subsidies, to open new markets and to win protection against risks.

When Bechtel wanted to build a $1.2 billion nuclear power plant in Korea, it helped arrange the largest credit granted up to that time by the U.S. Export-Import Bank; the latter also lists financing for seven other Bechtel projects totaling $914 million. The company has $250 million in Department of Energy contracts, plus synthetic fuels projects to be underwritten by the U.S. Synfuels Corporation.

Today, Bechtel executives are trying to persuade the governments of Japan, Panama and the United States to construct a $40 billion sea-level canal in Panama, which, of course, Bechtel would build. Since this canal would have great impact on defense, diplomacy and energy shipments, perhaps Weinberger, Shultz and Davis can decide the matter among themselves.

Bechtel's good government relations depend upon the "revolving door" through which executives move back and forth between government and commerce. One of Bechtel's World War II partners was John McCone, who went on to serve in the Defense Department, on the Atomic Energy Commission (AEC) and in the Central Intelligence Agency. When McCone became AEC chairman in 1958, Bechtel hired away the AEC's director of reactor development, W. Kenneth Davis, who led Bechtel's growth in the field. Last year, Davis returned to government, and now he reportedly runs the Energy Department because his boss, an amiable dentist from South Carolina, is not too swift.

George Shultz, as former budget director and treasury secretary for the Nixon administration, was attractive to Bechtel on several levels. As treasury secretary, he had served on the boards of the International Monetary Fund, the World Bank, the Inter-American Development Bank and the Asian Development Bank –– important sources of financing for foreign governments interested in building things. Shultz was well known to prime ministers and potentates around the world, many of whom understand better than most Americans that there is no sharp distinction between public and private influence in U.S. policy-making.

Despite these connections, Bechtel still enjoys a reputation as a non-political company. It should not. Bechtel expresses its political preferences as aggressively as other major corporations. The Bechtel Foundation gave annual gifts to the right-wing front groups and conservative think tanks that have churned out so much pro-defense and anti-government propaganda in recent years: the Heritage Foundation, the Media Institute, the Pacific Legal Foundation, the American Enterprise Institute and others.

Since 1978, Bechtel's Political Action Committee (PAC) spread $104,000 among congressional candidates, overwhelmingly conservative and Republican. According to computer-based research compiled by journalist Edward Roeder, Bechtel gave its biggest bucks in 1980 to the same Senate challengers whom the new right and Moral Majority were pushing against liberals like Frank Church and George McGovern. The Bechtel PAC also gave $3,000 to Senator Charles Percy, chairman of the Senate Foreign Relations Committee, to help pay off his 1978 campaign debt.

Bechtel plays politics because it cares about government, especially about who is running the government.

The company's quarrel with federal policy on plutonium was articulated in high-minded terms by Shultz back in 1978 in a speech entitled "Lightswitch Diplomacy." Shultz complained that the United States was losing its good standing in world trade as a "reliable supplier" because of the Carter administration's nuclear non-proliferation policies. Switching on and off, the government was allowing foreign competitors –– mainly France and West Germany –– to seize the lead in the expanding world market in advanced nuclear technology (the effort to control these sales had actually begun during the Republican administration of Gerald Ford, a point which Shultz finessed).

Before the Senate committee, he repeated many of the same arguments and emphasized that the way for the U.S. to control the risks is to engage in the marketplace, negotiating tight security agreements with any country that purchases the new technology. If the American government prohibits its companies from selling, it will simply lose the commerce to other nations and have no control over the outcome, an industry argument that is difficult to answer in an era of fierce competition for international trade. Shultz did not mention Bechtel's own active ambitions in this marketplace.

Two presidents, Ford and Carter, were sufficiently alarmed by the potential of a world awash in plutonium that they tried to slow down Bechtel and the other nuclear manufacturers. For nearly three decades, the nuclear industry assumed that eventually plutonium itself would be used as fuel in the light-water reactors that generate electricity. During the Seventies, however, it became clear to government policy-makers that the system of international controls was much too weak to guarantee that some of the plutonium would not be diverted for bomb-making. If more and more countries developed their own reprocessing plants, that would multiply the risk, too. It only takes 11 pounds of plutonium to make a bomb, and it is not difficult to envision a future in which tons and tons of the stuff are moving around the world, bought and sold as fuel but easily available to dictators and terrorists. That invites the ultimate scenario: a regional nuclear war in the Middle East, or perhaps Latin America, that draws the two nuclear superpowers into terminal combat.

It's scary. In 1978, Congress enacted non-proliferation legislation, admittedly flawed but intended to set an example for the world by imposing stringent safeguards that effectively curbed the U.S. industry's appetite for overseas sales. Cynical Europeans were not impressed: they suspected the American sermons on non-proliferation were merely a cover to give U.S. companies the competitive edge. As events are unfolding, their skepticism is being confirmed.

With a little help from Bechtel, the Reagan administration is lifting the government's lid on plutonium, watering down the 1978 law and encouraging Bechtel and the others to develop new international business in the advanced technologies. Davis has played a central role in this. Shultz, as secretary of state, will also be deeply involved in the final policy decisions. While he was still with Bechtel, before he joined the Energy Department, Davis helped draft the Reagan transition report on non-proliferation policy; it was a blueprint for opening up overseas trade. The domestic market for building nuclear power plants has collapsed, so companies have additional incentive for developing sales in the advanced-stage technologies, both at home and abroad. The transition report recommended, among other things, that enrichment and reprocessing be shared with nations that have "a legitimate need," including Japan, which worries about future energy sources. It suggested that nuclear-export decisions be shifted from the Nuclear Regulatory Commission to the State Department, where, inevitably, political and economic arguments would be weighed alongside safety issues. Over the months, the report has proved to be a reliable guide to Reagan policy.

Last December, according to administration sources, a Bechtel executive, Harry L. Browne, wrote to the Department of Energy, asking for approval to enter negotiations with Japan over sharing technology for a commercial-scale reprocessing plant. This was not an overzealous salesman; George Shultz was aware of the proposal and approved. This would be an important watershed, a signal to other countries that the United States now approves this business. Even if Japan could safeguard its plutonium, the political precedent would make it more difficult for the government to turn down other nations. If Japan can have one, why not other allies?

In early April, Bechtel received a tentative but favorable reply to Browne's letter. John A. Griffin of the DOE wrote that the administration was currently reviewing its plutonium-use policy, but he expected that review, when completed, to permit "a favorable decision on the Bechtel request." Shultz will presumably review this new policy before it becomes final.

Meanwhile, Bechtel is also pushing to revive the reprocessing industry at home –– at the uncompleted plant at Barnwell, South Carolina, abandoned when the Carter administration formulated its curbs on plutonium trade. Bechtel, which originally designed the Barnwell plant, wants to form a consortium of private companies that would finish the construction and run the production. But Bechtel also wants guarantees from the government that would, in effect, lock future administrations into the Reagan policy. Ashton O'Donnell, a Bechtel vice-president, told a March meeting of the Atomic Industrial Forum: "There is nothing to be lost by being as explicit as necessary under these circumstances. Two basic conditions must be met by the government. One, assurance against expropriation of investor capital, and, two, assurance of a predictable and stable licensing environment."

A proposal drafted by the Department of Energy, though not yet approved by the White House, gives those assurances and more –– it recommends that the government help guarantee a market for the plutonium Barnwell would produce and, more importantly, "protect investors in fuel reprocessing plants against changes in government policy." In other words, once the Reagan administration says yes to Barnwell, any future administration would be forced to pay off the private companies, perhaps as much as $750 million, if it halts the plutonium trade. The DOE confirms that Davis is personally urging his boss to send the Barnwell bailout proposal to the president.

Where would all this plutonium from Barnwell be sold? The immediate claim is that it will be needed to sustain development of the U.S. breeder reactor, another controversial project dear to the nuclear industry. But the industry perhaps hasn't given up on the idea that the world can safely buy and sell plutonium as a fuel for regular nuclear power plants. The May bulletin of the American Nuclear Society, Nuclear Report, stated that none other than W. Kenneth Davis still thinks it is a good idea.

"He is obviously seeking a firm rationale to support the administration's decision to reinstate reprocessing... " Nuclear Report said.

The same issue of Nuclear Report passed on the latest gossip from the DOE –– that Davis would probably succeed Energy Secretary James Edwards when Edwards leaves the Cabinet later this year. Of course, that may be wrong now that Bechtel has another, more important Cabinet post at State.

The revolving door spins so fast, it's hard to keep up. There was one other item George Shultz didn't tell the Senate Foreign Relations Committee about Bechtel. Philip Habib, the presidential envoy who has been trying to negotiate a settlement in Lebanon, is also on Bechtel's payroll as a consultant. When this connection was revealed, Senator Larry Pressler of South Dakota demanded that Habib resign, but nobody else seemed overly alarmed. After all, Bechtel hired Habib for his foreign contacts, and so did the U.S. government. The question of whose connections help whom gets so tricky that most senators throw up their hands and decide not to think about it.

The geopolitics of Bechtel, however, will have a fundamental impact on American policy, most clearly in the Middle East and the third world. Defense Secretary Weinberger has already been accused of tilting against Israel as he hustles arms sales to the Arab nations. Shultz' appointment makes the same point more strongly and, in fact, may reflect a historic turning point in American policy. In 1980, when Reagan was campaigning as a stalwart friend of Israel, George Shultz told a reporter: "If I have any differences with Reagan, it's about Middle Eastern policy."

The essential point, however, is not that Bechtel is anti-Israel or pro-Arab. It is that Bechtel is for doing business. Anywhere, anytime. Just as it wants to open a world market for plutonium, Bechtel wants to build whatever it chooses, regardless of foreign policy interests. It built an oil pipeline for Qaddafi in Libya and obtained financing for a fertilizer plant for the commies in Russia. Its fundamental bias was expressed by Shultz in his "Lightswitch Diplomacy" speech: "People who want to trade something should be able to develop their market and go ahead. They should not have to ask anyone's permission."

In immediate terms, Shultz' attitude will put him in collision with cold warriors in the Reagan administration who wish to cut off East-West trade with the Soviet Union, including construction of a gas pipeline to Western Europe. But Shultz' attitude will also offend liberals who believe that U.S. sanctions might help protect "human rights" in other regimes around the world. Shultz doesn't believe in either.

"We cannot expect to change the world," he declared, "by trying to judge other countries as good, bad, or indifferent, according to our changing set of values, and then use trade as a tool designed to alter the domestic policies of other countries."

The boys from Bechtel think the only business of the world is business.