- Bechtel Group and the Reagan Administration
- The Early Years of Bechtel
- Bechtel Connections
- Power Politics
- Editor's notes
When President Eisenhower concluded his term, he warned the nation in a parting message about the rapid growth of the "military industrial complex". The American people did not know what he was talking about. As a military man, Eisenhower had seen firsthand the growing political and economic power of two giant construction firms: Brown & Root of Houston, Texas, and the Bechtel Group of San Francisco.
Brown & Root put its man in the White House, Lyndon B. Johnson. The Bechtel Group has put its own man in the White House, Ronald Reagan, whose presidential campaign in 1980 was run by George Pratt Shultz, president of Bechtel, and Caspar Weinberger, vice president and general counsel of Bechtel. They were appointed Secretary of State and Secretary of Defense. The New York Times reports July 15, 1982:
"Shultz is the fourth member of Bechtel Group serving in Reagan's cabinet. Treasury Secretary Donald T. Regan was chairman of Merrill Lynch, whose White Weld unit is investment advisor to the Saudi Arabian Monetary Authority. Atty. Gen. William French Smith's California law firm, Gibson, Dunn & Crutcher, has branch offices in Washington and Riyadh (capital of Saudi Arabia) and represents the Saudi Ministry of Finance and National Economy."
On Dec. 5, 1980, the New York Times noted in a headline story, Business Section:
"Mr. Bechtel, a reclusive 55 year old engineer, informed his subordinates that 'we encourage and applaud the active participation of our employees in the democratic process'. Bechtel, a privately held concern at work on 130 projects in 21 countries, all of them budgeted at more than $25 million, has for decades struggled to keep a low profile and the affairs of its management private... Also working for Bechtel as consultant are Richard Helms, the former Director of Central Intelligence, and former Ambassador to Iran, and Frank Jungers, former Chmn of Arabian American Oil Co.
On the basis of its $6.9 billion revenues last year, the company ranked as the third largest engineering and construction concern in the U.S., after Brown & Root Inc. and the Fluor Corp. Bechtel's contracts are largely in huge industrial and energy-related projects that Larry Thomas, a Bechtel spokesman, refers to as 'mega-Projects'. At present, the company is under a 25 year contract for construction of a city for more than 3,000 people and an industrial complex at Jubail, Saudi Arabia, and to engineer a hydroelectric project at James Bay in Canada that would include a network of dams and earth-filled dikes large enough to substitute for 10 conventional power plants. Bechtel is also the country's leading builder of nuclear power plants."
Many Bechtel projects have been characterized as huge boondoggles. Many nuclear power projects have either failed to come "online" or have been abandoned, causing billion dollar writeoffs and shaky financial markets. Bechtel has built such problem-plagued ventures as BART (Bay Area Rapid Transit System) in San Francisco; METRO, the Washington D.C. subway system (the Washington Post recently noted it was already $200 million in the red and will ultimately cost $12 billion); and Jubail, called "the biggest boondoggle in history".
Time, July 12, 1982, wrote of Jubail: "Bechtel has spent $35 billion and plans to spend $100 billion more. Bechtel's original contract had been for a modest $9 billion." Jubail is described as lying 324 miles northeast of the Saudi Arabian capital, Riyadh, with 100 plus [degree] temperatures most of the year, a desolate area of salt flats washed by the Persian Gulf. 1600 Bechtel employees live on the site in 3 bedroom ranch houses built for $300,000 each, directing the activities of 39,000 construction workers. Time says, "The infant city could wind up being an enormously expensive ghost town, as marching dunes are expected to cover it by the year 2000."
Christopher Reid, who worked for Bechtel, says "Jubail is a massive WPA project, the biggest boondoggle in history." He predicts that the sands of the Dahana Desert will shift and cover Jubail before the end of this century. Saudi officials have stated they do not know who will live in Jubail, because of the hot temperatures, the isolation of the area, and the desolate surroundings. Historically, the dunes of the Dahana Desert shift massively every few years. Engineers expect the Jubail area to be completely covered by the year 2000. Future archeologists will be puzzled by this strange ruin, not realizing that the entire project resulted from the huge oil price increases inflicted upon the American people, and pressures compelling the Saudi Arabian leaders to return much of their profit to wealthy entrepreneurs such as the Bechtel Group. [See note E1]
The New York Times reported July 26, 1982:
"Pres. Reagan's special Middle East envoy, Philip C. Habib, is also serving as a private consultant to Bechtel Group, Inc. He had been hired by George P. Shultz while Shultz was president of Bechtel. State Dept. spokesman Dean Fischer said Mr. Habib's retention by Bechtel did not compromise U.S. diplomatic efforts in the Middle East. 'It doesn't strike me as a problem any more for Habib than it would be for Weinberger or Shultz,' Mr. Fischer said."
"Who's Who" shows Philip C. Habib has been a career State Dept. official since the 1950s, receiving a Rockefeller public service award in 1969, senior adviser to the Sec. of State, 1979-80, resident fellow Hoover Institution from 1980 to present. Hoover Institution, Stanford, and the Bohemian Club are an interlocking power structure dominating the Washington political scene.
On July 27, 1982, the New York Times noted further praise for Habib from the White House and State Dept. Senator Alan Cranston and other luminaries.
"A spokesman for the Israeli lobby voiced confidence today in Pres. Reagan's Special Envoy to the Middle East Philip C. Habib; Thomas A. Dine, executive director of American Israel Political Action Committee, said he had the highest regard for Ambassador Habib's integrity."
A letter to the Times July 27, 1982 from Gen. F.P. Henderson noted that when Count Bernadotte raised support for Palestine refugees in 1948, the largest contributors were Arabian American Oil Co. (Aramco) $200,000, and Bechtel International, $100,000. (UN Records No. 11 A 648).
The revelation of Habib's connection with Bechtel alarmed some Israeli leaders, because of Bechtel's contracts with the Arabs, and Sen. Larry Pressler, R., S.D. called for his resignation. The New York Times reported:
"British officials offered no immediate reaction to the news of 'Habib's departure' nor would they comment on his replacement by George Pratt Shultz, whose reputation as an economist is well known here. Lord Carrington said. 'Mr. Shultz is known to every one, and I am sure they will work with him.' Israeli Foreign Ministry spokesman said, 'Israel deeply regrets the resignation. Israel respected Mr. Habib as an outstanding statesman and faithful friend of the State of Israel'."
The Times failed to get the comments of any Arabs about Mr. Habib.
On July 10, 1982, Shultz, a member of the Standard Oil Pratts, was reported by the New York Times to have promised he would "divest" himself of his Bechtel holdings by putting them in a blind trust. Bechtel is a privately held company; 40% of the stock held by the family, the rest by its executives, who sign an agreement that when they leave the firm or die, the company has first option to repurchase their stock, which option is always exercised. The New York Times reported Jan. 18, 1979:
"Increasingly sensitive to accusations of secretiveness, the privately held Bechtel group of companies took a new step in implementing a policy of disclosure today when it issued for the first time something approaching an annual report. Since all stock is held by top executives and members of the Bechtel family, this took the form of a report to the 30,000 employees around the world rather than a report to stockholders."
The Times commented in 1982 that "Bechtel does not disclose its earnings". Informed estimates are that Bechtel earned 5% net profit on its $11.6 billion revenues in 1982. Stephen D. Bechtel Sr., now in his eighties, is said to be worth $750 million. His son, Stephen Jr. now head of the firm, is said to be worth $250 million. When his father dies, the younger Bechtel is expected to become a billionaire.
Newsweek reported Dec. 29, 1975:
"The Bechtel group of companies is hardly a household word. As a privately held corporation, it has operated for 77 years behind a wall of secrecy that is considered unequally impenetrable in the competitive world of heavy construction. Its revenues are estimated at $2 billion a year, equal to General Mills or Standard Oil of Ohio. Bechtel got that way by wheeling and dealing not only in private operations but with governments themselves. The company is building a new 34 story building on Fremont St. in San Francisco. The company, says one Federal energy official, is putting together a modern version of a military industrial complex machine, and they have an inside track on the growth market of the future. It will be called the new General Motors before the century is out."
Bechtel began in 1898 when a Midwestern farm boy, Warren (Dad) Bechtel, came to California to seek his fortune. He began with a mule team hauling dirt on small construction projects. In 1918, with war prosperity, his income increased. His first important project was building a railroad for Hutchinson Lumber Co. at Orotillo, Cal. His three sons, Warren, Steve and Ken joined him in the growing business. In 1928, he was elected president of Associated General Contractors of America, a powerful lobbying group. In 1931, Dad Bechtel became president of Six Companies, a consortium formed to build the $49 million Boulder Dam. It was incorporated in Delaware in Feb. 1931 by H.J. Kaiser Sr. and Jr.; Felix Kahn of MacDonald and Kahn; Henry W. Morrison of Morrison-Knudsen; W.A. Bechtel Co.; J.F. Shea of Los Angeles, which built the Pacific Bridge at Portland, and General Construction Co., Seattle. MacDonald and Kahn had built the Mark Hopkins Hotel; Morrison was a trustee of Stanford and close friend of Herbert Hoover and Leland Cutler.
Between 1931 and 1936, the consortium built the Bonneville Dam, the San Francisco Bay Bridge, and other projects. During the construction of Hoover (Boulder) Dam, a steel salesman, John McCone, called on Bechtel. He had been a friend of Steve Bechtel at the Univ. of California in 1922. Steve was now head of the firm, due to the mysterious death of Warren Bechtel in Moscow August 29, 1933. Dad Bechtel, 61, had come to Russia to inspect the Magnitogorsk Dam, on a 3 day tour which also included the Dnieperstroy Dam. He had been instructed by the Soviet authorities to come alone, and he left his wife in Vienna. While staying at the National Hotel in Moscow, before leaving on the tour, Dad Bechtel died suddenly of "an overdose of medicine". There was no autopsy. Someone in the Kremlin, perhaps Stalin, had changed his mind about allowing Bechtel to inspect the dam.
Stephen Bechtel found a ready ally in the aggressive business acumen of John McCone. They formed a separate company, Bechtel-McCone, in the nick of time before World War II broke out. In Dec. 1940, they got an order of $210 million for sixty British freighters, to be built in alliance with Admiral Vickery of Bath Iron Works. McCone and partners later made 844 million profit on Liberty ships built at their Sausalito plant. They also owned California Shipbuilding, a Los Angeles yard which turned out 967 ships during the war, as well as Marinship, the Oregon Shipbuilding Co. They owned Joshua Hendy Corp. an ironmonger which built the engines for Liberty ships. By Sept., 1943, they had more than $3 billion in shipbuilding orders. The crews of Liberty ships made wry jokes about the propensity of these hastily flung together productions to break in two during high seas. Many of them were torpedoed before they could fall apart. Time noted that "Marinship turned out 460 freighters and 90 tankers at breakneck speed."
The partners also built the colossal Army modification center at Birmingham Ala. to handle the B-29 output from Willow Run; they built the Alaskan Military Highway, and other projects. During this defense activity, Bechtel and McCone prudently remained in the background, allowing their proteges, the Kaisers, to be publicized as the important figures. Fortune pointed out that Kaiser was never more than a standin for Bechtel. Kaiser, after having been snubbed by AGC, became president of Associated General Contractors after the Bechtels recommended him. At the end of World War II, Bechtel Group held 20% of Kaiser Permanente Metals, which owned Richmond Shipbuilding, the Kaiser firm. The youngest son, Ken Bechtel, ran the Marin Shipyard.
Bechtel's rush program of building Liberty ships considerably antedated Pearl Harbor. Roosevelt (Dr. Win the War) issued his emergency shipbuilding order in January 1941; by Sept. 27, the first Liberty ships were being launched. FDR, as Asst. Sec. of the Navy in 1916, had done the same thing, awarding Navy contracts long before we entered World War I. "Preparedness". The Bechtel-McCone alliance, being short of capital, invented the ingenious "cost-plus" contract arrangement. Under this generous stipulation, the government guaranteed war contractors all costs of production, plus a guaranteed 10% profit. The more the contractor spent, the greater his profit. It was the greatest boondoggle for the fortunate few since the Federal Reserve System started printing paper money with no backing except paper bonds.
The free-flowing profits led to an inevitable intelligence connection. John McCone became president of the Air Pollution Committee in 1947, and in 1948, became deputy Secretary of Defense. Ralph Casey of the General Accounting Office later testified that while holding this office, McCone gave contracts to Standard Oil and Kaiser, firms in which he had large investments. McCone went on to become Under Secretary of the Air Force 1950-51, Chairman of the Atomic Energy Commission 1958-60, and Director of the Central Intelligence Agency 1961-65, resulting in a close connection between Bechtel and the CIA. While McCone served as chairman of the Atomic Energy Commission, Bechtel became the largest contractor of nuclear plants in the world. Bechtel completed the world's first nuclear plant at Ara, Idaho in 1951. McCone later became a director of Pacific Mutual Life, Standard Oil of California, and ITT.
The Bechtels were now counted among the most influential wheeler-dealers in Washington. Stephen Sr. and Jr. and John McCone were key members of the small group of millionaires who regularly played golf with President Eisenhower and Arthur Godfrey at the mecca of all lobbyists, Washington's Burning Tree Country Club. When George Pratt Shultz became a Washington official, he regularly played golf with Stephen Bechtel Jr. at Burning Tree, which led to his being named president of Bechtel Group.
The Bechtels had come a long way from the anxious days of 1931, when a small sand and gravel contractor was asked to put up $8 million working capital for the Boulder Dam job. They did manage to come up with $5 million, financed by the Schroder-Rockefeller group. Their later success has been due principally to their connection with the international financiers.
Bechtel had been rescued in its time of need by J. Henry Schroder and Avery Rockefeller. John Lowery Simpson, vice president of J. Henry Schroder, was placed on Bethtel's board as chairman of its finance committee, in total charge of the company's financial arrangements. Huge government contracts followed this connection as naturally as night follows day.
The New York Times announced the debut of Schroder-Rockefeller on July 9, 1936, with Avery Rockefeller, son of Percy, and godson of William, allied in a new holding company. Avery's grandfather was James Stillman, who built the National City Bank to a giant concern. Avery Rockefeller held 42% of the stock in Schroder-Rockefeller; Baron Bruno von Schroder of London and Baron Kurt von Schroder of Cologne (who was Hitler's personal banker) held 47%.
On June 3, 1954, the New York Times announced that Stephen Bechtel, chmn of Bechtel Corp. had become partner of J.P. Morgan Co. In 1955, Fortune reported that as Under Secretary of State, C. Douglas Dillon had arranged important contracts for Bechtel with the Saudi Arabian government, culminating in the present $135 billion Jubail operation.
Allen Dulles, director of the CIA, was also a director of Schroder Co. The vice president of Bechtel Saudi Arabian operations, C. Stribling Snodgrass, also ran a CIA firm called LSG Associates. Bechtel built the 1100 mile long Trans Arabia Pipeline for $100 million, the largest contract let to that time. A worldwide construction firm, with entree to many countries, can also be a conduit for intelligence agents. In 1980, Bechtel was building apartments in Saudi Arabia, a hydropower complex in Quebec, a coal fueled power project in Utah, an oil refinery in Indonesia, a $500 million tourist resort in Malaysia, a copper and gold mine in Paint, New Guinea, and a $250 million palace for the Sultan of Brunei. It was an ideal operation for the CIA, even without the ubiquitous Schroder connection.
Bechtel was awarded the billion dollar contract for cleaning up the situation at Three Mile Island. In 1979, about half of its business derived from nuclear power activity, despite many complaints about its faulty construction in this field. Bechtel made a $14 million settlement of complaints from Consumers Power Co. that the Palisades nuclear plant leaked radioactive water into the steam generating system. At Bechtel's Midland, Mich. nuclear power station, the reinforcing bar joints were found to be defective. Bechtel settled out of court with Portland General Electric, which had charged Bechtel with "negligent design" in its Trojan nuclear power plant at Rainier, Oregan. Nevertheless, when Brown & Root was removed from construction at South Texas Nuclear Project, Bechtel took over. A commentator noted at that time, "Bechtel is politically untouchable. So anybody who gets Bechtel on its side is assured of protection."
In January, 1975, Fortune pointed out that Bechtel had never been in the red for a single year, because "Its engineering projects are invariably financed by its clients." These clients are usually governments, a lesson which may have been learned from the Rothschilds. The Export Import Bank frequently steps in and offers to finance the huge projects proposed by Bechtel. The American taxpayer finances many Bechtel projects through the World Bank and the International Monetary Fund. It could be said that every American has a stake in Bechtel. The president of Export Import Bank, William H. Draper III, resides at Palo Alto, California -- home address of the Hoover Institution and Hewlett-Packard Co., and Stanford University, the present headquarters of the Reagan-Bechtel complex.
Draper's father, William H. Draper Jr. began his career with National City Bank in 1919, went to Bankers Trust as treasurer, and joined Dillon Read in 1927, later becoming president. In 1940 he was named Presidential Adviser on Selective Service. In 1944, he was in charge of contract termination for the War Dept. From 1945 to 1946, he was dictator of Germany's economy, chief of the economic division of the Four Power Economic Directorate, Allied Military Government. He formulated the Draper Plan to revive German industry. In 1947, he was military adviser to the Secretary of State at the Moscow Conference. James V. Forrestal, his partner at Dillon, Read, named him Under Secretary of the Army in 1947. From 1947 to 1949, Draper directed the occupation of Japan, as MacArthur's superior. He allowed MacArthur to be portrayed as the absolute ruler of Japan, but Draper issued all the directives. In 1952 and 1953, Draper was U.S. representative to NATO with the rank of Ambassador. He then became chmn of Combustion Engineering Systems Worldwide, a $3.15 billion company. He was also director of the George Putnam Fund of Boston which handles Harvard's huge endowment, Freeport Minerals, Chubb Corp. and Chase International Investment. He later became chmn of Planned Parenthood, consultant to the UN Fund for Population Control, and author of the Draper Plan for population control.
Bechtel now has a fulltime Washington Lobbyist, Parker Hart; a foundation, incorporated in 1953 with $7 million (the Bechtel Foundation has been called a "rightwing foundation" by Mother Jones, although it seems to have no particular loyalties). Stephen Jr. also has a foundation with $2 million assets. Shultz is president of these foundations.
Time, Oct. 4, 1954 noted that:
"Stephen Bechtel went to Korea for the American-Korea Foundation. While there, he paid a courtesy call on Coordinator C. Tyler Wood of the Foreign Operations Administration; Wood persuaded Bechtel to build three thermonuclear plants in Korea for $34 million, the largest FOA contract ever issued in Korea."
Even when occupied with good works, bread cast upon the waters is returned.
On April 2, 1974, the Washington Post reviewed a Mother Jones article which stated that a Bechtel representative, Yoon Sik Cho, a Korean-American with connections reaching to the Korean Presidency, had bribed Korean officials to win four separate billion dollar projects between 1978 and 1980. The Post said:
"The FBI, Justice Dept. and IRS are investigating allegations that the Bechtel Corp., a large San Francisco conglomerate, used a paid consultant to bribe South Korean officials between 1978 and 1980 to obtain nuclear power plant construction projects in violation of the 1977 Corrupt Practices Act, sources said yesterday."
Although the Post spent millions investigating Watergate, it was content to rely on Mother Jones' slender resources for this investigation. The Post continued: "The magazine quoted an FBI informant as saying 'it was common knowledge among lawyers at Bechtel that anyone who didn't keep Weinberger informed would be on the street the next day". The article cited a source close to Weinberger as saying "Cap only wanted to know what it was safe to know."
The article also pointed out that Shultz was the executive sponsor for internal auditing during the time in question. It said two audits were cancelled at Bechtel in 1980 'at the insistence of Cho; those audits would have revealed the large undocumented cash advances being paid to Cho'." At the time of the bribery, Secretary of State Shultz was president of Bechtel, and Secretary of Defense Weinberger was vice president and general counsel of Bechtel. In the ensuing months, the Post and the FBI have been content to ignore the matter, four billion dollar contracts being "small change" in Washington.
Newsweek noted July 12, 1982 that Kenneth Davis, vice president of Bechtel in charge of nuclear plant construction since 1979, had joined Reagan's administration as Deputy Secretary of Energy involving nuclear production, becoming the fifth member of Bechtel to join Reagan's team. Most reporters would be up in arms if five executives of General Motors joined a White House team.
Like most family concerns, Bechtel has a paternal attitude towards its employees. Fortune noted it paid 100% bonuses in good years. Newsweek quoted a former employee, March 18, 1968, "They are all robots there. They tend to pigeonhole you for years and years." Fortune noted that Stephen Bechtel Sr. had stepped down as head of the firm in 1961 at the age of 60, turning the presidency over to Stephen Jr. "Steve, Ken, and Jr. own one-half of the shares of the common stock, and most of the preferred. The corporation has first option on stock when one leaves or dies." Fortune usually writes about Bechtel with reverence, but did mention "occasionally dissatisfied customers" and bravely concluded, "A world like that can hardly do without a company like Bechtel." In April, 1968, Bechtel dedicated a new bronze 23 story building in San Francisco.
The Feb., 1951 Fortune had run a full page color portrait of Stephen Bechtel Sr., citing some of the firm's recent achievements, a 506 mile pipeline for Pacific Gas & Electric, a $25 million plant for Lever in Los Angeles, and others. In Nov. 1952, Bechtel proposed a 2500 mile pipeline from the Arctic to Paris, promising to deliver oil [gas?] at 25¢ per 1000 cu ft, much cheaper than coal. Nothing came of this proposal, but Bechtel, after acquiring Peabody Coal Co. (the nation's largest) in a consortium with Newmont Mining for $1.2 billion, Bechtel joined with Lehman Bros. Energy Transport System to build 70% of the world's coal slurry lines. Peabody had been founded by Francis Stuyvesant Peabody, of the famed philanthropic family which originated the American foundation network to control the American people.
Bechtel now began frenetic lobbying to build coal slurry lines. An intensive campaign in Virginia failed in 1983, because of the countervailing power of the Norfolk & Western Railroad, 40% of whose revenues come from hauling coal. The legislators were bemused by the amount of money spent on the coal slurry bill, but never knew it was a Bechtel lobbying operation. Steven D. White, president of Bechtel Investments, said in a letter to Forbes, April 9, 1984, "Bechtel remains strongly committed to the concept of coal slurry pipelines and in particular to the ETSI coal slurry pipeline." In 1982, Bechtel offered to build a coal slurry line in Russia, but perhaps because of its well known CIA connection, the offer was ignored. The UPI reported from Houston Aug. 2, 1984 that a $3 billion proposal for a slurry line from Wyoming to the Gulf Coast had been defeated.
Michael Berryhill noted in Harpers, Dec. 1983, that Dallas was planning an $8.3 billion rail network. "The Bechtel Corp., the huge and secretive San Francisco firm with strong ties to the Republican Party, prepared the feasibility study, and will probably get the design contract." Bechtel is also planning a $5 billion convention center in Hoffman Estates III, near Chicago and other huge projects.
Bechtel frequently remains behind the scenes in its major projects. The proposed MX missile plan was headline news for weeks, but not a single journalist bothered to find out that the MX proposal had been drawn up by a presidential commission composed of John McCone, Richard Helms, and Nicholas Brady, former Senator from New Jersey and now chairman of Dillon Read -- loyal Bechtelites, one and all. Mother Jones pointed out in June 1984 that Stephen Bechtel Sr. was on the advisory committee of the Export Import Bank, which finances many Bechtel projects, and that Bechtel Corp. created a new position for John Moore, president of EX-IM Bank, as "executive vice president for financial services", which he had no doubt rendered. Mother Jones continued:
"Never before has a corporation been so visibly linked to the presidency. It has had close ties with every chief of state since Eisenhower. Bechtel contributed heavily to Reagan's campaign in 1980. Peter Flanigan of Dillon Read played a key role. Shultz and Weinberger endorsed Reagan in the spring of 1980, joined by Walter Wriston of Citibank, who is on the Bechtel board of counselors, and Robert Quenon, president of Peabody Coal Co. Kenneth Davis, a Bechtel vice president, is No. 2 in the Dept. of Energy. Casey (CIA) represented Pertomina, the giant oil company of Indonesia which has been a good customer of Bechtel."
When any business places this many men in a President's office, it is no longer a matter of "influence"; it is a matter of control. A Reagan panel of business leaders, including Stephen Bechtel Jr. recently recommended that the nation must spend $3.5 billion a year to rebuild its "infrastructure", roads, subways, bridges etc. Bechtel could expect to get a large share of this business. The Prime Minister of Canada, John Turner, was director of Canadian Bechtel.