We smiled and smiled at Saddam

It is a year since the British and American governments called off their four-day bombardment of Iraq, which was designed (and failed) to humble Saddam Hussein for his refusal to co-operate with the UN on arms inspections. The missile attacks were followed by a sporadic bombing campaign which has always looked more like a manifestation of frustration than a concerted attempt to put pressure on the Iraqi dictator. On Friday, the UN Security Council approved a resolution that sets up a new inspection programme and offers to suspend sanctions if Baghdad co-operates. Four members of the council abstained, and Iraq's immediate reaction was hostile.

How do you influence a man who is willing to let his people starve? There is no doubt that Saddam poses an intractable problem for the world community. But do not feel too sorry for the countries trying to curtail his ambitions. For this is a story about global capitalism, which bankrolled Saddam, and governments that turned a blind eye to crimes against humanity. This is not a cynical view. It is based on cold, hard facts.

The Ba'ath party, which seized power in Iraq in 1968, is a fascist organisation which celebrated its coup with public hangings. Once Saddam became President in 1979, he established a reign of terror. Thousands of Iraqis have disappeared or been murdered, torture is widespread and opponents have been assassinated abroad. Saddam is also a war criminal, who has used chemical weapons extensively - most notably at Halabja, in March 1988, when he gassed thousands of Kurds. So how did foreign governments respond to this ghastly record?

By making regular visits to Baghdad to promote trade. By lending money to Saddam, even when his economy was in ruins. In Britain, the Scott report revealed the frustration of government ministers who wanted to see guidelines on arms sales relaxed as late as 1990, even though the Foreign Office described Iraq's human rights record as "among the worst in the world". Now, from documents released in Washington under the freedom of information act, we have a dramatic glimpse of how top American businessmen conducted themselves towards this pariah state.

The scene is Baghdad, June 1989. At the American embassy someone is preparing a cable for the State Department in Washington, outlining a meeting of the anodyne-sounding US-Iraq Business Forum. But this is no piddling chamber of commerce. The forum has sent representatives of 25 American companies to Baghdad, including the presidents of Westinghouse, Brown and Root, Kellogg and Bell Helicopter. A senior American politician, Senator Percy, is also there. Together, the companies grossed $500bn in 1988, and they have been "warmly received". Saddam himself, dressed in a business suit, makes notes as delegation chairman Abboud (First City Bank of Texas) explains that the group represents the US banking, oil, construction and food production sectors.

If they were a country, boasts Mr Abboud, their total worth would make them the third largest economy in the free world. They are able to speak freely to senior administration officials and congressmen, and did so at the time of the sanctions legislation on chemical weapons in late 1988. Ah, that little matter of genocide - best get it out of the way as quickly as possible. Mr Abboud goes on to say that the forum hopes to double US exports to Iraq, currently worth $1.5bn, in two years. Suddenly, someone mentions torture. It is easy to imagine the sharp intakes of breath, especially as it comes from an unexpected quarter.

Saddam, observes the cable, "then made a curious excursion into the human rights field". So certain is the dictator of his audience's acquiescence, he brazenly announces Iraq "deserves credit from the whole world for its human rights record".

Nobody questions "this extraordinary assertion", as even US embassy staff characterise it in their report. The richest, most powerful men in America, probably the world, meekly allow this genial war criminal to lie in their faces. A few miles away, in the notorious Abu Ghraib prison, torture is going on much as usual. But Saddam understands capitalism. Revealing an unsuspected sense of irony, he adds that one of the functions of Iraq's exemplary human rights record is "comfort money" - to make international investors feel better about dealing with him.

The tycoons are comfortable. That is why they are there, with their government's blessing. Their only anxiety is the President's refusal to restructure his debts. It will take another 14 months, and Iraq's fatal decision to invade Kuwait, for the West to change its tune on Saddam. When it comes, the alteration is abrupt. "I used to love him", as the Rolling Stones nearly said, "but it is all over now."