The Shock Doctrine: The Rise of Disaster Capitalism – Naomi Klein
Leo: hit me by the whack, perspective change, strengthen my belief in value & long term investment. The importance of economic aspects in bringing freedom & equality among people. If any change even in political rights, freedom doesn’t bring up the living standard of major people – what then, is the change worth for?
Book reminds me of “Death by China” but the US instead. The Dark Side.
It’s more like opportunism than disaster capitalism.
A bit of repeated work, like a list of things (over to make a point) – can skip some chapters because their frame & actions are more or less the same.
US is like a yin-yang circle, ever changing between black & white, how they manage their karma will ultimately decide the sustainability of this superpower.
There is still faith in humanity when we’re standing together & building from scrap (not scratch), and each shock will make us stronger & more resilient.
*** Quote from book ***
For more than three decades, Friedman and his powerful followers had been perfecting this very strategy: waiting for a major crisis, then selling off pieces of the state to private players while citizens were still reeling from the shock, then quickly making the “reforms” permanent.
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The slogan for contemporary capitalism—fear and disorder are the catalysts for each new leap forward.
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The ultimate goal for the corporations at the center of the complex is to bring the model of for-profit government, which advances so rapidly in extraordinary circumstances, into the ordinary and day-to-day functioning of the state—in effect, to privatize the government.
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Now wars and disaster responses are so fully privatized that they are themselves the new market; there is no need to wait until after the war for the boom—the medium is the message.
One distinct advantage of this postmodern approach is that in market terms, it cannot fail.
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Now wars and disaster responses are so fully privatized that they are themselves the new market; there is no need to wait until after the war for the boom—the medium is the message.
One distinct advantage of this postmodern approach is that in market terms, it cannot fail. As a market analyst remarked of a particularly good quarter for the earnings of the energy services company Halliburton, “Iraq was better than expected.” 31 That was in October 2006, then the most violent month of the war on record, with 3,709 Iraqi civilian casualties. Still, few shareholders could fail to be impressed by a war that had generated $20 billion in revenues for this one company.
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A more accurate term for a system that erases the boundaries between Big Government and Big Business is not liberal, conservative or capitalist but corporatist. Its main characteristics are huge transfers of public wealth to private hands, often accompanied by exploding debt, an ever-widening chasm between the dazzling rich and the disposable poor and an aggressive nationalism that justifies bottomless spending on security.
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“a significant temporary lowering of intellectual efficiency occurred during and immediately after the period of perceptual deprivation.”
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In a 1960 paper, Cameron said there are “two major factors” that allow us to “maintain a time and space image”—that allow us, in other words, to know where we are and who we are. Those two forces are “(a) our continued sensory input, and (b) our memory.” With electroshock, Cameron annihilated memory; with his isolation boxes, he annihilated sensory input.
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regression—the idea that by depriving people of their sense of who they are and where they are in time and space, adults can be converted into dependent children whose minds are a blank slate of suggestibility.
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Just as ecosystems self-regulate, keeping themselves in balance, the market, left to its own devices, would create just the right number of products at precisely the right prices, produced by workers at just the right wages to buy those products—an Eden of plentiful employment, boundless creativity and zero inflation.
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Eff market theory which it’s not true in real life. (Leo)
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Where leftists promised freedom for workers from bosses, citizens from dictatorship, countries from colonialism, Friedman promised “individual freedom,” a project that elevated atomized citizens above any collective enterprise and liberated them to express their absolute free will through their consumer choices.
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These three forms of shock converged on the bodies of Latin Americans and the body politic of the region, creating an unstoppable hurricane of mutually reinforcing destruction and reconstruction, erasure and creation. The shock of the coup prepared the ground for economic shock therapy; the shock of the torture chamber terrorized anyone thinking of standing in the way of the economic shocks. Out of this live laboratory emerged the first Chicago School state, and the first victory in its global counterrevolution.
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September 11, 1973, was far more than the violent end of Allende’s peaceful socialist revolution; it was the beginning of what The Economist would later describe as a “counterrevolution”—the first concrete victory in the Chicago School campaign to seize back the gains that had been won under developmentalism and Keynesianism
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Before the coup, Augusto Pinochet had a reputation for deference that bordered on the obsequious, forever flattering and agreeing with his civilian commanders. As a dictator, Pinochet found new facets of his character. He took to power with unseemly relish, adopting the airs of a monarch and claiming that “destiny” had given him the job. He called them the technos—the technicians—which appealed to the Chicago pretension that fixing an economy was a matter of science, not of subjective human choices.
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De Castro privatized almost five hundred state-owned companies and banks, practically giving many of them away, since the point was to get them as quickly as possible into their rightful place in the economic order. 29 He took no pity on local companies and removed even more trade barriers; the result was the loss of 177,000 industrial jobs between 1973 and 1983
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Shock treatment was an apt description for what Friedman had prescribed. Pinochet had deliberately sent his country into a deep recession, based on the untested theory that the sudden contraction would jolt the economy into health. In its logic, it was strikingly similar to that of the psychiatrists who started mass-prescribing ECT in the 1940s and 1950s, convinced that deliberately induced grand mal seizures would magically reboot their patients’ brains.
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a corporatist one. Corporatism, or “corporativism,” originally referred to Mussolini’s model of a police state run as an alliance of the three major power sources in society—government, businesses and trade unions—all collaborating to guarantee order in the name of nationalism. What Chile pioneered under Pinochet was an evolution of corporatism: a mutually supporting alliance between a police state and large corporations, joining forces to wage all-out war on the third power sector—the workers—thereby drastically increasing the alliance’s share of the national wealth.
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Perhaps shock treatment was never really about jolting the economy into health. Perhaps it was meant to do exactly what it did—hoover wealth up to the top and shock much of the middle class out of existence.
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By the mid-seventies, disappearances had become the primary enforcement tool of the Chicago School juntas throughout the Southern Cone—and none embraced the practice more zealously than the generals occupying Argentina’s presidential palace. By the end of their reign, an estimated thirty thousand people had disappeared. 65 Many of them, like their Chilean counterparts, were thrown from planes into the muddy waters of the Rio de la Plata.
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The Argentine junta was particularly sloppy about disposing of its victims. A country walk could end in horror because mass graves were barely concealed. Bodies would show up in public garbage bins, missing fingers and teeth (much as they do today in Iraq), or they would wash ashore on the banks of the Rio de la Plata, sometimes half a dozen at a time, after one of the junta’s “death flights.” On occasion, they even rained down from helicopters into farmers’ fields
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“We did not know what nobody could deny.”
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Again and again they testify to the trademark methods codified in the Kubark manual: early morning arrests, hooding, intense isolation, drugging, forced nudity, electroshock.
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The vast majority of the victims of the Southern Cone’s terror apparatus were not members of armed groups but non-violent activists working in factories, farms, shantytowns and universities. They were economists, artists, psychologists and left-wing party loyalists. They were killed not because of their weapons (which most did not have) but because of their beliefs. In the Southern Cone, where contemporary capitalism was born, the “War on Terror” was a war against all obstacles to the new order.
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Letelier rejected a frequently articulated notion that the junta had two separate, easily compartmentalized projects—one a bold experiment in economic transformation, the other an evil system of grisly torture and terror. There was only one project, the former ambassador insisted, in which terror was the central tool of the free-market transformation.
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He explained that the killings were part of a system, planned far in advance, duplicated in identical fashion across the country, and committed with clear intent not of attacking individual persons but of destroying the parts of society that those people represented. Genocide is an attempt to murder a group, not a collection of individual persons; therefore, argued the judge, it was genocide.
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Before the terror campaign descended on Argentina, Rodolfo Walsh had written, “Nothing can stop us, neither jail nor death. Because you can’t jail or kill a whole people and because the vast majority of Argentines … know that only the people will save the people.”
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It wasn’t only unionists who faced preemptive attack—it was anyone who represented a vision of society built on values other than pure profit
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The point of the exercise was getting prisoners to do irreparable damage to that part of themselves that believed in helping others above all else, that part of themselves that made them activists, replacing it with shame and humiliation.
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The ultimate acts of rebellion in this context were small gestures of kindness between prisoners, such as tending to each other’s wounds or sharing scarce food. When such loving acts were discovered, they were met with harsh punishment.
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After detailing some of the most horrific crimes, the authors pose that central question so studiously avoided by others: Why? They answer matter-of-factly: “Since the economic policy was extremely unpopular among the most numerous sectors of the population, it had to be implemented by force
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“Foreign monopolies impose crops on us, they impose chemicals that pollute our earth, impose technology and ideology. All this through the oligarchy which owns the land and controls the politics. But we must remember—the oligarchy is also controlled, by the very same monopolies, the very same Ford Motors, Monsanto, Philip Morris. It’s the structure we have to change. This is what I have come to denounce. That’s all.”
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Nixon’s tenure was a stark lesson for Friedman. The University of Chicago professor had built a movement on the equation of capitalism and freedom, yet free people just didn’t seem to vote for politicians who followed his advice. Worse, dictatorships—where freedom was markedly absent—were the only governments who were ready to put pure free-market doctrine into practice.
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Leftists in the developing world have long argued that genuine democracy, with fair rules preventing corporations from buying elections, would necessarily result in governments committed to the redistribution of wealth. The logic is simple enough: in these countries, there are far more poor people than rich ones. Policies that directly redistribute land and raise wages, not trickle-down economics, are in the clear self-interest of a poor majority. Give all citizens the vote and a reasonably fair process, and they will elect the politicians who appear most likely to deliver jobs and land, not more free-market promises.
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In Britain, Thatcher parlayed her victory in the Falklands and over the miners into a major leap forward for her radical economic agenda. Between 1984 and 1988, the government privatized, among others, British Telecom, British Gas, British Airways, British Airport Authority and British Steel, while it sold its shares in British Petroleum.
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Thatcher’s successful harnessing of the Falklands War was the first definitive evidence that a Chicago School economic program did not need military dictatorships and torture chambers in order to advance. She had proved that with a large enough political crisis to rally around, a limited version of shock therapy could be imposed in a democracy.
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Still, Thatcher had needed an enemy to unite the country, a set of extraordinary circumstances that justified her use of emergency measures and repression—a crisis that made her look tough and decisive rather than cruel and regressive.
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It was in 1982 that Milton Friedman wrote the highly influential passage that best summarizes the shock doctrine: “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”
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Crises are, in a way, democracy-free zones—gaps in politics as usual when the need for consent and consensus do not seem to apply.
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In sharp contrast, says Grinspun, “the orthodox approach is to shift all the social cost onto the poor through shock therapy.” That, he told me, is precisely what happened in Bolivia.
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This extraordinary state of siege stayed in place for three months, and since the plan was pushed through in one hundred days, that meant the country was under lockdown during the decisive shock therapy period. One year later, when the Paz government moved ahead with mass layoffs in the tin mines, the unions once again took to the streets, and the same series of dramatic events unfolded: a state of siege was declared, and two Bolivian Air Force planes carried one hundred of the country’s top labor leaders to internment camps in Bolivia’s tropical flatlands.
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The World Bank, meanwhile, later tracked what happened to $35 billion in foreign loans borrowed by the junta and found that $19 billion—46 percent of the total—was moved offshore.
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The transcript proves that the U.S. government approved loans to the junta knowing they were being used in the midst of a campaign of terror. In the early eighties, it was these odious debts that Washington insisted Argentina’s new democratic government had to repay.
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Soaring interest rates meant higher interest payments on foreign debts, and often the higher payments could only be met by taking on more loans. The debt spiral was born.
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The more the global economy followed his prescriptions, with floating interest rates, deregulated prices and export-oriented economies, the more crisis-prone the system became, producing more and more of precisely the type of melt-downs he had identified as the only circumstances under which governments would take more of his radical advice.
In this way, the crisis is built into the Chicago School model. When limitless sums of money are free to travel the globe at great speed, and speculators are able to bet on the value of everything from cocoa to currencies, the result is enormous volatility. And, since free-trade policies encourage poor countries to continue to rely on the export of raw resources such as coffee, copper, oil or wheat, they are particularly vulnerable to getting trapped in a vicious circle of continuing crisis. A sudden drop in the price of coffee sends entire economies into depression, which is then deepened by currency traders who, seeing a country’s financial downturn, respond by betting against its currency, causing its value to plummet. When soaring interest rates are added, and national debts balloon overnight, you have a recipe for potential economic mayhem.
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When countries were sent spiraling into crisis in the eighties, they had nowhere else to turn but the World Bank and the IMF. When they did, they hit a wall of orthodox Chicago Boys, trained to see their economic catastrophes not as problems to solve but as precious opportunities to leverage in order to secure a new free-market frontier. Crisis opportunism was now the guiding logic of the world’s most powerful financial institutions.
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Like the UN, the World Bank and the IMF were created in direct response to the horror of the Second World War. With the goal of never again repeating the mistakes that had allowed fascism to rise in the heart of Europe, the world powers came together in 1944 in Bretton Woods, New Hampshire, to create a new economic architecture. The World Bank and the IMF, financed through contributions by their initial forty-three member countries, were given the explicit mandate to prevent future economic shocks and crashes like the ones that had so destabilized Weimar Germany. The World Bank would make long-term investments in development to pull countries out of poverty, while the IMF would act as a kind of global shock absorber, promoting economic policies that reduced financial speculation and market volatility. When a country looked as though it was falling into crisis, the IMF would leap in with stabilizing grants and loans, thereby preventing crises before they occurred
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The IMF and the World Bank did not live up to that universal vision; from the start they allocated power not on the basis of “one country, one vote,” like the UN General Assembly, but rather on the size of each country’s economy—an arrangement that gives the United States an effective veto over all major decisions, with Europe and Japan controlling most of the rest. That meant that when Reagan and Thatcher came to power in the eighties, their highly ideological administrations were essentially able to harness the two institutions for their own ends, rapidly increasing their power and turning them into the primary vehicles for the advancement of the corporatist crusade.
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These policies, masquerading as technical and uncontentious, included such bald ideological claims as all “state enterprises should be privatized” and “barriers impeding the entry of foreign firms should be abolished.”
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The IMF issued its first full-fledged “structural adjustment” program in 1983. For the next two decades, every country that came to the fund for a major loan was informed that it needed to revamp its economy from top to bottom.
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Despite this radical (and highly profitable) new mission, the IMF and the bank always claimed that everything they did was in the interest of stabilization.
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The fund’s official mandate was still crisis prevention—not social engineering or ideological transformation—so stabilization needed to be the official rationale.
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In the long term, Cavallo’s program in its entirety would prove disastrous for Argentina. His method of stabilizing the currency—pegging the peso to the U.S. dollar—made it so expensive to produce goods inside the country that local factories could not compete with the cheap imports flooding the country. So many jobs were lost that well over half the country would eventually be pushed below the poverty line. In the short term, however, the plan worked brilliantly: Cavallo and Menem had smuggled privatization while the country was in shock from hyperinflation. Crisis had done its job.
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The empty space was a fitting metaphor because, by that time, everyone seemed to see what they wanted in Solidarity: the Nobel Committee saw a man who “espoused no other weapon than the peaceful strike weapon.” 9 The left saw redemption, a version of socialism that was not tainted by the crimes of Stalin or Mao. The right saw evidence that Communist states would meet even moderate expressions of dissent with brutal force. The human rights movement saw prisoners jailed for their beliefs. The Catholic Church saw an ally against Communist atheism. And Margaret Thatcher and Ronald Reagan saw an opening, a crack in the Soviet armor, even though Solidarity was fighting for the very rights that both leaders were doing their best to stamp out at home. The longer the ban lasted, the more powerful the Solidarity mythology became.
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Friedman’s definition of freedom, in which political freedoms were incidental, even unnecessary, compared with the freedom of unrestricted commerce, conformed nicely with the vision taking shape in the Chinese Politburo. The party wanted to open the economy to private ownership and consumerism while maintaining its own grip on power—a plan that ensured that once the assets of the state were auctioned off, party officials and their relatives would snap up the best deals and be first in line for the biggest profits. According to this version of “transition,” the same people who controlled the state under Communism would control it under capitalism, while enjoying a substantial upgrade in lifestyle. The model the Chinese government intended to emulate was not the United States but something much closer to Chile under Pinochet: free markets combined with authoritarian political control, enforced by iron-fisted repression.
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What ignited the protests, he recalls, was popular discontent in the face of Deng’s “revolutionary” economic changes, which were lowering wages, raising prices and causing “a crisis of layoffs and unemployment.” 45 According to Wang, “These changes were the catalyst for the 1989 social mobilization.” 46
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The demonstrations were not against economic reform per se; they were against the specific Friedmanite nature of the reforms—their speed, ruthlessness and the fact that the process was highly antidemocratic.
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In the three years immediately following the bloodbath, China was cracked open to foreign investment, with special export zones constructed throughout the country. As he announced these new initiatives, Deng reminded the country that “if necessary, every possible means will be adopted to eliminate any turmoil in the future as soon as it has appeared. Martial law, or even more severe methods, may be introduced.”*53
It was this wave of reforms that turned China into the sweatshop of the world, the preferred location for contract factories for virtually every multinational on the planet. No country offered more lucrative conditions than China: low taxes and tariffs, corruptible officials and, most of all, a plentiful low-wage workforce that, for many years, would be unwilling to risk demanding decent salaries or the most basic workplace protections for fear of the most violent reprisals.
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A 2006 study, 90 percent of China’s billionaires (calculated in Chinese yuan) are the children of Communist Party officials
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The note was only two sentences long, and it decisively put the matter to rest: “The nationalisation of the mines, banks and monopoly industries is the policy of the ANC, and the change or modification of our views in this regard is inconceivable. Black economic empowerment is a goal we fully support and encourage, but in our situation state control of certain sectors of the economy is unavoidable.”
That was what Mandela was confirming with his two-sentence note from prison: he still believed in the bottom line that there would be no freedom without redistribution.
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If there was a third path between Communism and capitalism—a way of democratizing the country and redistributing wealth at the same time—South Africa under the ANC looked uniquely positioned to turn that persistent dream into reality.
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We will never know which of these forces would have proved more powerful. In the years that passed between Mandela’s writing his note from prison and the ANC’s 1994 election sweep in which he was elected president, something happened to convince the party hierarchy that it could not use its grassroots prestige to reclaim and redistribute the country’s stolen wealth. So, rather than meeting in the middle between California and the Congo, the ANC adopted policies that exploded both inequality and crime to such a degree that South Africa’s divide is now closer to Beverly Hills and Baghdad. Today, the country stands as a living testament to what happens when economic reform is severed from political transformation. Politically, its people have the right to vote, civil liberties and majority rule. Yet economically, South Africa has surpassed Brazil as the most unequal society in the world.
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This plan was successfully executed under the noses of ANC leaders, who were naturally preoccupied with winning the battle to control Parliament. In the process, the ANC failed to protect itself against a far more insidious strategy—in essence, an elaborate insurance plan against the economic clauses in the Freedom Charter ever becoming law in South Africa. “The people shall govern!” would soon become a reality, but the sphere over which they would govern was shrinking fast.
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Padayachee faxed the paper in the morning and didn’t hear back for weeks. “Then, when we asked what happened, we were told, ‘Well, we gave that one up.’” Not only would the central bank be run as an autonomous entity within the South African state, with its independence enshrined in the new constitution, but
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it would be headed by the same man who ran it under apartheid, Chris Stals. It wasn’t just the central bank that the ANC had given up: in another major concession, Derek Keyes, the white finance minister under apartheid, would also remain in his post—much as the finance ministers and central bank heads from Argentina’s dictatorship somehow managed to get their jobs back under democracy.
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Patrick Bond, who worked as an economic adviser in Mandela’s office during the first years of ANC rule, recalls that the in-house quip was “Hey, we’ve got the state, where’s the power?” As the new government attempted to make tangible the dreams of the Freedom Charter, it discovered that the power was elsewhere.
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A long time antiapartheid activist, Rassool Snyman, described the trap to me in stark terms. “They never freed us. They only took the chain from around our neck and put it on our ankles.” Yasmin Sooka, a prominent South African human rights activist, told me that the transition “was business saying, ‘We’ll keep everything and you [the ANC] will rule in name…. You can have political power, you can have the façade of governing, but the real governance will take place somewhere else.’”
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I put the question to William Gumede, a third-generation ANC activist who, as a leader of the student movement during the transition, was on the streets in those tumultuous years. “Everyone was watching the political negotiations,” he recalled, referring to the de Klerk–Mandela summits. “And if people felt it wasn’t going well there would be mass protests. But when the economic negotiators would report back, people thought it was technical; no one was interested.” This perception, he said, was encouraged by Mbeki, who portrayed the talks as “administrative” and of no popular concern (much like the Chileans with their “technified democracy”). As a result, he told me, with great exasperation, “We missed it! We missed the real story.”
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Gumede points out that most people simply assumed that no matter what compromises had to be made to get into power, they could be unmade once the ANC was firmly in charge. “We were going to be the government—we could fix it later,” he said.
What ANC activists didn’t understand at the time was that it was the nature of democracy itself that was being altered in those negotiations, changed so that—once the web of constraints had descended on their country—there would effectively be no later.
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At least 40 percent of the new phones lines were no longer in service by 2003.15 As for the “banks, mines and monopoly industry” that Mandela had pledged to nationalize, they remained firmly in the hands of the same four white-owned mega conglomerates that also control 80 percent of the Johannesburg Stock Exchange. 16 In 2005, only 4 percent of the companies listed on the exchange were owned or controlled by blacks. 17 Seventy percent of South Africa’s land, in 2006, was still monopolized by whites, who are just 10 percent of the population.
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Perhaps the most striking statistic is this one: since 1990, the year Mandela left prison, the average life expectancy for South Africans has dropped by thirteen years.
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The rules were simple and crude, the electronic equivalent of monosyllabic grunts: justice—expensive, sell; status quo—good, buy. When, shortly after his release, Mandela once again spoke out in favor of nationalization at a private lunch with leading businessmen, “the All-Gold Index plunged by 5 per cent.”
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A slower, more careful approach, on the other hand, may be less brutal, but it deprives the market of these hype-bubbles, during which the real money gets made. Shock therapy is always a significant gamble, and in South Africa it didn’t work: Mbeki’s grand gesture failed to attract long-term investment; it resulted only in speculative betting that ended up devaluing the currency even further.
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I would look at the systematic effects of the policies of apartheid, and I would devote only one hearing to torture because I think when you focus on torture and you don’t look at what it was serving, that’s when you start to do a revision of the real history.”
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Despite Mandela’s acknowledgment that paying the apartheid bills has become a disfiguring burden, the party has opposed all suggestions that it default. The fear is that even though there is a strong legal case that the debts are “odious,” any move to default would make South Africa look dangerously radical in the eyes of investors, thus provoking another market shock.
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In other words, not only did the ANC renege on Mandela’s original pledge of “the nationalisation of the mines, banks and monopoly industry” but because of the debt, it was doing the opposite—selling off national assets to make good on the debts of its oppressors.
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The concession meant that the new ANC government carried the cost of two governments—its own, and a shadow white government that was out of power. Forty percent of the government’s annual debt payments go to the country’s massive pension fund. The vast majority of the beneficiaries are former apartheid employees.
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“People supported [Yeltsin] because he promised us democracy, but he shot up that democracy. Not only did he violate it, but he shot it up.”
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In practice, the Communist state was simply replaced with a corporatist one: the beneficiaries of the boom were confined to a small club of Russians, many of them former Communist Party apparatchiks, and a handful of Western mutual fund managers who made dizzying returns investing in newly privatized Russian companies.
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The scandal wasn’t just that Russia’s public riches were auctioned off for a fraction of their worth—it was also that, in true corporatist style, they were purchased with public money.
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When in Doubt, Blame Corruption
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The real problem with the blame-Russia narrative is that it preempts any serious examination of what the whole episode has to teach about the true face of the crusade for unfettered free markets, the most powerful political trend of the past three decades. The corruption of many of the oligarchs is still spoken of as an alien force that infected otherwise worthy free-market plans. But corruption wasn’t an intruder to Russia’s free-market reforms: quick and dirty deals were actively encouraged by Western powers at every stage as the fastest way to kick-start the economy. National salvation through the harnessing of greed was the closest thing Russia’s Chicago Boys and their advisers had to a plan for what they were going to do after they finished destroying Russia’s institutions.
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The point of shock therapy is to open up a window for enormous profits to be made very quickly—not despite the lawlessness but precisely because of it.
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In much of the Southern Hemisphere, neoliberalism is frequently spoken of as “the second colonial pillage”: in the first pillage, the riches were seized from the land, and in the second they were stripped from the state.
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Sachs could not see the most glaring political reality confronting him in Russia: there was never going to be a Marshall Plan for Russia because there was only ever a Marshall Plan because of Russia. When Yeltsin abolished the Soviet Union, the “loaded gun” that had forced the development of the original plan was disarmed. Without it, capitalism was suddenly free to lapse into its most savage form, not just in Russia but around the world. With the Soviet collapse, the free market now had a global monopoly, which meant all the “distortions” that had been interfering with its perfect equilibrium were no longer required.
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This liberation from all constraints is, in essence, Chicago School economics (otherwise known as neoliberalism or, in the U.S., neoconservatism): not some new invention but capitalism stripped of its Keynesian appendages, capitalism in its monopoly phase, a system that has let itself go—that no longer has to work to keep us as customers, that can be as antisocial, antidemocratic and boorish as it wants. As long as Communism was a threat, the gentlemen’s agreement that was Keynesianism would live on; once that system lost ground, all traces of compromise could finally be eradicated, thereby fulfilling the purist goal Friedman had set out for his movement a half century earlier.
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Williamson’s remarks represented a major leap forward for the shock doctrine. In a room filled with enough finance ministers and central bank chiefs to hold a major trade summit, the idea of actively creating a serious crisis so that shock therapy could be pushed through was now being openly discussed.
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Two years after the deficit hysteria peaked, the investigative journalist Linda McQuaig definitively exposed that a sense of crisis had been carefully stoked and manipulated by a handful of think tanks funded by the largest banks and corporations in Canada
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He characterized the IMF’s entire program of structural adjustment as a form of mass torture in which “‘screaming-in-pain’ governments and peoples [are] forced to bend on their knees before us, broken and terrified and disintegrating, and begging for a sliver of reasonableness and decency on our part. But we laugh cruelly in their face, and the torture goes on unabated.”
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After the letter was published, the government of Trinidad commissioned two independent studies to investigate the allegations and found that they were correct: the IMF had inflated and fabricated numbers, with tremendously damaging results for the country.
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The IMF also demanded that the governments make deep budget cuts, leading to mass layoffs of public sector workers in countries where people were already taking their own lives in record numbers. Fischer admitted after the fact that the IMF had concluded that in Korea and Indonesia, the crisis was unrelated to government overspending. Nonetheless, he used the extraordinary leverage granted by the crisis to extract these painful austerity measures. As one New York Times reporter wrote, the IMF’s actions were “like a heart surgeon who, in the middle of an operation, decides to do some work on the lungs and kidneys, too.”* While the IMF certainly failed the people of Asia, it did not fail Wall Street—far from it.
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These fun-seeking firms understood that as a result of the IMF’s “adjustments,” pretty much everything in Asia was now up for sale—and the more the market panicked, the more desperate Asian companies would be to sell, pushing their prices through the floor.
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All told, there were 186 major mergers and acquisitions of firms in Indonesia, Thailand, South Korea, Malaysia and the Philippines by foreign multinationals in a span of only twenty months.
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Employment rates have still not reached pre-1997 levels in Indonesia, Malaysia and South Korea. And it’s not just that workers who lost their jobs during the crisis never got them back. The layoffs have continued, with new foreign owners demanding ever-higher profits for their investments. The suicides have also continued: in South Korea, suicide is now the fourth most common cause of death, more than double the pre-crisis rate, with thirty-eight people taking their own lives every day. That is the untold story of the policies that the IMF calls “stabilization programs,” as if countries were ships being tossed around on the market’s high seas. They do, eventually, stabilize, but that new equilibrium is achieved by throwing millions of people overboard: public sector workers, small-business owners, subsistence farmers, trade unionists. The ugly secret of “stabilization” is that the vast majority never climb back aboard. They end up in slums, now home to 1 billion people; they end up in brothels or in cargo ship containers. They are the disinherited, those described by the German poet Rainer Maria Rilke as “ones to whom neither the past nor the future belongs.”
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The Asian crisis certainly showed how well disaster exploitation worked. At the same time, the destructiveness of the market crash and the cynicism of the West’s response sparked powerful countermovements.
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Unlike in the former Soviet Union, where the planned misery of shock therapy could be passed off as part of the “painful transition” from Communism to market democracy, Asia’s crisis was plainly a creation of the global markets. Yet when the high priests of globalization sent missions to the disaster zone, all they wanted to do was deepen the pain.
The result was that these missions lost the comfortable anonymity they had enjoyed previously.
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What was left was the real world track record of the free-market crusade: the dismal reality of inequality, corruption and environmental degradation left behind when government after government embraced Friedman’s advice, given to Pinochet all those years ago, that it was a mistake to try “to do good with other people’s money.”
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Keynes had argued that governments should spend their way out of recessions, providing economic stimulus with public works. Bush’s solution was for the government to deconstruct itself—hacking off great chunks of the public wealth and feeding them to corporate America, in the form of tax cuts on the one hand and lucrative contracts on the other. Bush’s budget director, the think-tank ideologue Mitch Daniels, pronounced, “The general idea—that the business of government is not to provide services, but to make sure that they are provided—seems self-evident to me.”
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Far from shaking their determination to weaken the public sphere, the security failures of 9/11 reaffirmed their deepest ideological (and self-interested) beliefs—that only private firms possessed the intelligence and innovation to meet the new security challenge. Although it was true that the White House was on the verge of spending huge amounts of taxpayer money to stimulate the economy, it most certainly was not going to be on the model of FDR. Rather, Bush’s New Deal would be exclusively with corporate America, a straight-up transfer of hundreds of billions of public dollars a year into private hands. It would take the form of contracts, many offered secretively, with no competition and scarcely any oversight, to a sprawling network of industries: technology, media, communications, incarceration, engineering, education, health care.
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Although the stated goal was fighting terrorism, the effect was the creation of the disaster capitalism complex—a full-fledged new economy in homeland security, privatized war and disaster reconstruction tasked with nothing less than building and running a privatized security state, both at home and abroad.
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When widespread discomfort about big-brother technologies stalled many of these initiatives, it caused dismay to both marketers and retailers. September 11 loosened this logjam in the market: suddenly the fear of terror was greater than the fear of living in a surveillance society. So now, the same information collected from cash cards or “loyalty” cards can be sold not only to a travel agency or the Gap as marketing data but also to the FBI as security data, flagging a “suspicious” interest in pay-as-you-go cell phones and Middle Eastern travel
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In other words, you have corporatism: big business and big government combining their formidable powers to regulate and control the citizenry.
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There’s something civil servants have that the private sector doesn’t. And that is the duty of loyalty to the greater good—the duty of loyalty to the collective best interest of all rather than the interest of a few. Companies have duties of loyalty to their shareholders, not to the country.
—David M. Walker, comptroller general of the United States, February 2007
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In his 2006 book Overthrow, the former New York Times correspondent Stephen Kinzer tries to get to the bottom of what has motivated the U.S. politicians who have ordered and orchestrated foreign coups d’état over the past century. Studying U.S. involvement in regime change operations from Hawaii in 1893 to Iraq in 2003, he observes that there is often a clear three-stage process that takes place. First, a U.S.-based multinational corporation faces some kind of threat to its bottom line by the actions of a foreign government demanding that the company “pay taxes or that it observe labor laws or environmental laws. Sometimes that company is nationalized or is somehow required to sell some of its land or its assets,” Kinzer says. Second, U.S. politicians hear of this corporate setback and reinterpret it as an attack on the United States: “They transform the motivation from an economic one into a political or geo-strategic one. They make the assumption that any regime that would bother an American company or harass an American company must be anti-American, repressive, dictatorial, and probably the tool of some foreign power or interest that wants to undermine the United States.” The third stage happens when the politicians have to sell the need for intervention to the public, at which point it becomes a broadly drawn struggle of good versus evil, “a chance to free a poor oppressed nation from the brutality of a regime that we assume is a dictatorship, because what other kind of a regime would be bothering an American company?” 7 Much of U.S. foreign policy, in other words, is an exercise in mass projection, in which a tiny self-interested elite conflates its needs and desires with those of the entire world.
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Torturers know that one of their most potent weapons is the prisoner’s own imagination—often just showing fearsome instruments is more effective than using them
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In hostile interrogations, the first stage of breaking down prisoners is stripping them of their own clothes and any items that have the power to evoke their sense of self—so-called comfort items. Often objects that are of particular value to a prisoner, like the Koran or a cherished photograph, are treated with open disrespect. The message is “You are no one, you are who we want you to be,”
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As the war planners were quick to point out, the looting was done by Iraqis, not foreign troops. And it’s true that Rumsfeld did not plan for Iraq to be sacked—but he did not take measures to prevent it from happening either, or to stop it once it had begun. These were failures that cannot be dismissed as mere oversights.
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If the mission was “nation creating,” as so many clearly believed it to be, then everything that remained of the old country was only going to get in the way.
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Agresto was the former president of St. John’s College in New Mexico, which specializes in a Great Books curriculum. He explained that although he knew nothing of Iraq, he had refrained from reading books about the country before making the trip so that he would arrive “with as open a mind as I could have.” 31 Like Iraq’s colleges, Agresto would be a blank slate.
If Agresto had read a book or two, he might have thought twice about the need to erase everything and start over. He could have learned, for instance, that before the sanctions strangled the country, Iraq had the best education system in the region, with the highest literacy rates in the Arab world—in 1985, 89 percent of
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Iraqis were literate. By contrast, in Agresto’s home state of New Mexico, 46 percent of the population is functionally illiterate, and 20 percent are unable do “basic math to determine the total on a sales receipt.”*32 Yet Agresto was so convinced of the superiority of American systems that he seemed unable to entertain the possibility that Iraqis might want to salvage and protect their own culture and that they might feel its destruction as a wrenching loss.
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It’s hard to believe—but then again, that was pretty much Washington’s game plan for Iraq: shock and terrorize the entire country, deliberately ruin its infrastructure, do nothing while its culture and history are ransacked, then make it all okay with an unlimited supply of cheap household appliances and imported junk food. In Iraq, this cycle of culture erasing and culture replacing was not theoretical; it all unfolded in a matter of weeks.
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Bremer’s vanguard participation in the homeland security industry was ideal preparation for Iraq. That’s because the Bush administration used the same formula to rebuild Iraq that it had pioneered to respond to 9/11: it treated postwar Iraq as if it was an exciting IPO, brimming with freewheeling, quick-profit potential. So while Bremer may have stepped on plenty of toes, his mission never was to win Iraqi hearts and minds. Rather, it was to get the country ready for the launch of Iraq Inc. Seen in that light, his early, much-maligned decisions have an unmistakable logical coherence.
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The Bush cabinet had in fact launched an anti-Marshall Plan, its mirror opposite in nearly every conceivable way. It was a plan guaranteed from the start to further undermine Iraq’s badly weakened industrial sector and to send Iraqi unemployment soaring. Where the post-Second World War plan had barred foreign firms from investing, to avoid the perception that they were taking advantage of countries in a weakened state, this scheme did everything possible to entice corporate America (with a few bones tossed to corporations based in countries that joined the “Coalition of the Willing”). It was this theft of Iraq’s reconstruction funds from Iraqis, justified by unquestioned, racist assumptions about U.S. superiority and Iraqi inferiority—and not merely the generic demons of “corruption” and “inefficiency”—that doomed the project from the start.
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In fact, all the forces tearing Iraq apart today—rampant corruption, ferocious sectarianism, the surge in religious fundamentalism and the tyranny of death squads—escalated in lockstep with the implementation of Bush’s anti–-Marshall Plan. After the toppling of Saddam Hussein, Iraq badly needed and deserved to be repaired and reunited, a process that could only have been led by Iraqis. Instead, at precisely that precarious moment, the country was transformed into a cutthroat capitalist laboratory—a system that pitted individuals and communities against each other, that eliminated hundreds of thousands of jobs and livelihoods and that replaced the quest for justice with rampant impunity for foreign occupiers.
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In fact, many seemed to believe that the process was unnecessary. James Haveman, in charge of rebuilding Iraq’s health care system, was so ideologically opposed to free, public health care that, in a country where 70 percent of child deaths are caused by treatable illnesses such as diarrhea, and incubators are held together with duct tape, he decided that an overarching priority was to privatize the drug distribution system.
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Corruption during the occupation was not the result of poor management but of a policy decision: if Iraq was to be the next frontier for Wild West capitalism, it needed to be liberated from laws.
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In other words, the U.S. government presence in Iraq during the first year of its economic experiment had been a mirage—there had been no government, just a funnel to get U.S. taxpayer and Iraqi oil dollars to foreign corporations, completely outside the law. In this way, Iraq represented the most extreme expression of the anti-state counterrevolution—a hollow state, where, as the courts finally established, there was no there, there.
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So while the reconstruction of Iraq was certainly a failure for Iraqis and for U.S. taxpayers, it has been anything but for the disaster capitalism complex.
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The result, predictably, was that after all the layers of subcontractors had taken their cut, there was next to nothing left for the people doing the work. For instance, the author Mike Davis tracked the way FEMA paid Shaw $175 a square foot to install blue tarps on damaged roofs, even though the tarps themselves were provided by the government. Once all the subcontractors took their share, the workers who actually hammered in the tarps were paid as little as $2 a square foot.
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It is not a war that can be won by any country, but winning is not the point. The point is to create “security” inside fortress states bolstered by endless low-level conflict outside their walls. In a way, it is the same goal that the private security companies have in Iraq: secure the perimeter, protect the principal. Baghdad, New Orleans and Sandy Springs provide glimpses of a kind of gated future built and run by the disaster capitalism complex. It is in Israel, however, that this process is most advanced: an entire country has turned itself into a fortified gated community, surrounded by locked-out people living in permanently excluded red zones. This is what a society looks like when it has lost its economic incentive for peace and is heavily invested in fighting and profiting from an endless and unwinnable War on Terror. One part looks like Israel; the other part looks like Gaza.
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In 1976, Orlando Letelier, one of the counterrevolution’s first victims, had insisted that the massive wealth inequalities that the Chicago Boys opened up in Chile were “not an economic liability but a temporary political success.” For Letelier, it was obvious that the dictatorship’s “free market” rules were doing exactly what they were designed to do: they were not creating a perfectly harmonious economy but turning the already wealthy into the super rich and the organized working class into the disposable poor. These patterns of stratification have been repeated everywhere that the Chicago School ideology has triumphed…not state communism, but markets existing alongside the nationalization of the banks and mines, with the income used to build comfortable neighborhoods and decent schools—economic as well as political democracy.
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It is precisely because the dream of economic equality is so popular, and so difficult to defeat in a fair fight, that the shock doctrine was embraced in the first place.
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In sharp contrast to the model offered by the disaster capitalism complex in Iraq, Afghanistan and the Gulf Coast, the leaders of Latin America’s rebuilding efforts are the people most affected by the devastation. And unsurprisingly, their spontaneous solutions look very much like the real third way that had been so effectively shocked out of the way by the Chicago School campaign around the world—democracy in daily life.
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Though ALBA is still in its early stages, Emir Sader, the Brazil-based sociologist, describes its promise as “a perfect example of genuinely fair trade: each country provides what it is best placed to produce, in return for what it most needs, independent of global market prices.” 29 So Bolivia provides gas at stable discounted prices; Venezuela offers heavily subsidized oil to poorer countries and shares expertise in developing reserves; and Cuba sends thousands of doctors to deliver free health care all over the continent, while training students from other countries at its medical schools.
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In his 2007 State of the Union address, President Néstor Kirchner said that the country’s foreign creditors had told him, “‘You must have an agreement with the International Fund to be able to pay the debt.’ We say to them, ‘Sirs, we are sovereign. We want to pay the debt, but no way in hell are we going to make an agreement again with the IMF.’” As a result, the IMF, supremely powerful in the eighties and nineties, is no longer a force on the continent. In 2005, Latin America made up 80 percent of the IMF’s total lending portfolio; in 2007, the continent represented just 1 percent—a sea change in only two years. “There is life after the IMF,” Kirchner declared, “and it’s a good life.”
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According to official government sources, in 2005 there were a staggering eighty-seven thousand large protests in China, involving more than 4 million workers and peasants.*33 China’s activist wave has been met with the most extreme state repression since 1989, but it has also resulted in several concrete victories: major new spending in rural areas, better health care, pledges to eliminate education fees. China too is coming out of shock.
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We do not always respond to shocks with regression. Sometimes, in the face of a crisis, we grow up—fast.
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Despite all the successful attempts to exploit the 2004 tsunami, memory also proved to be an effective tool of resistance in some areas where it struck, particularly in Thailand. Dozens of coastal villages were flattened by the wave, but unlike in Sri Lanka, many Thai settlements were successfully rebuilt within months. The difference did not come from the government. Thailand’s politicians were just as eager as those elsewhere to use the storm as an excuse to evict fishing people and hand over land tenure to large resorts. Yet what set Thailand apart was that villagers approached all government promises with intense skepticism and refused to wait patiently in camps for an official reconstruction plan. Instead, within weeks, hundreds of villagers engaged in what they called land “reinvasions.” They marched past the armed guards on the payroll of developers, tools in hand, and began marking off the sites where their old houses had been. In some cases, reconstruction began immediately. “I am willing to bet my life on this land, because it is ours,”
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Uniting all these examples of people rebuilding for themselves is a common theme: participants say they are not just repairing buildings but healing themselves. It makes perfect sense. The universal experience of living through a great shock is the feeling of being completely powerless: in the face of awesome forces, parents lose the ability to save their children, spouses are separated, homes—places of protection—become death traps. The best way to recover from helplessness turns out to be helping—having the right to be part of a communal recovery.
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These are movements that do not seek to start from scratch but rather from scrap, from the rubble that is all around. As the corporatist crusade continues its violent decline, turning up the shock dial to blast through the mounting resistance it encounters, these projects point a way forward between fundamentalisms. Radical only in their intense practicality, rooted in the communities where they live, these men and women see themselves as mere repair people, taking what’s there and fixing it, reinforcing it, making it better and more equal. Most of all, they are building in resilience—for when the next shock hits.
