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Make Money on the New Mercenary Army

Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com.


Considering all the flak that President Bush has endured for ordering 20,000 more troops to Baghdad, it's a wonder that he didn't just pick up the phone and dial 1-800-MERCENARY.

That's what the Pentagon is likely to do anyway, as it has throughout the Iraq conflict. Thanks to loopholes in the law and budgeting process, upward of 20,000 private military contractors -- sadly, the term mercenary is passe -- are believed to be at work for the U.S. in the region, and their ranks are growing all the time.

We've outsourced airliner and parka manufacturing to foreigners, after all. Why not the messy job of fighting, not to mention translating and spying? Independent companies are now the third-largest contributor of forces to Iraq, after regular American and British troops.

This has meant big bucks for a handful of little-known companies with Defense Department contracts. The most well-known of the bunch is privately held Blackwater USA, a secretive outfit run by a former Navy Seal that hires commandos from as far away as Chile, Bosnia and the Philippines to fight our wars and protect our diplomats. When four of its men lost their lives in an unusually savage attack in the Sunni stronghold of Fallujah three years ago, a spotlight was cast on the nasty business of private security forces. But since then, the attention has receded, and these companies' influence has grown.

Outsourced War

As the number of U.S. military personnel has fallen to around 1.5 million lately from around 3 million in 1970, the amount of money spent by the Pentagon on military operations has risen at a 6% annual rate from less than $50 billion to a bit more than $150 billion, adjusted for inflation. Much of the differential is being spent on outsourced services, and that is why independent personnel contractors -- a handful of which are public -- have become more important than ever.

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