“The best time to invest is while there’s still blood on the ground.” —A delegate at the Rebuilding Iraq 2 conference in Washington, D.C.
Naomi Klein’s project in The Shock Doctrine is twofold. First, the book is a critical history of laissez-faire economics, a theory centered upon eliminating government intervention in the economy, which remains popular in conservative and libertarian circles today. Klein argues that these ideas have had their day in court and been found guilty. She traces a history of the latter half of the 20th and early 21st centuries, through Argentina, Chile, South Africa, Russia, Southeast Asia, the Caribbean, and the Middle East, in which the tenets of laissez-faire economics were forced upon the citizens of these countries—often literally at gunpoint—in a kind of grand-scale experiment rare in the discipline of economics, and that in all cases the results were disastrous: prolonged unemployment, deeper poverty, wider income gaps, and thwarted democracies.
Why, then, would any country choose such a path? This is Klein’s second argument: that such policies, which should be profoundly unpopular for benefiting only a handful at the expense of everyone else, depend on crisis for their implementation. Only when the masses are in shock—from war, from economic and political upheaval, or natural disasters—will they stand by while their their country is auctioned off to the best-connected bidder. Klein begins the book with the psychology of shock and how it puts people into a state of psychological regression: infantile, disoriented, and open to suggestion. Shock is thus a way to short-circuit the political process: instead of making your case for change to the people, wait for a traumatic disaster to occur (or engineer one yourself), and take advantage of their state of shock to usher in a new order. One example of such logic on brazen display comes from the economist Milton Friedman, writing in The Wall Street Journal just after Hurricane Katrina:
Most New Orleans schools are in ruins, as are the homes of the children who have attended them. The children are now scattered all over the country. This is a tragedy. It is also an opportunity to radically reform the educational system.
Friedman’s suggestions were indeed radical: abandon the public school system and instead provide families with vouchers to offset the costs of for-profit schools. It seems like a blatant cash-grab, a hard sell under normal circumstances, but Friedman knew that the shock and disorientation produced by disaster is the perfect time to push through otherwise inconceivable changes…
On September 11, 1973, Augusto Pinochet overthrew the democratically-elected president Salvador Allende with the help of the CIA and inaugurated a decades-long dictatorship. At the behest of his economic adviser, Milton Friedman, Pinochet privatized publicly-owned companies, deregulated the financial sector, and slashed government spending on social programs while expanding his military. It did not go well:
In 1974, inflation reached 375 percent—the highest rate in the world and almost twice the top level under Allende… At the same time, Chileans were being thrown out of work because Pinochet’s experiment with “free trade” was flooding the country with cheap imports. Local businesses were closing, unable to compete, unemployment hit record levels and hunger became rampant.
When Pinochet wrote Friedman about the situation, the high priest of laissez-faire economics suggested “shock treatment”—deeper cuts to government, more privatization:
Pinochet and [Chilean finance minister Sergio] de Castro got to work stripping away the welfare state to arrive at their pure capitalist utopia. In 1975, they cut public spending by 27 percent in one blow—and they kept cutting until, by 1980, it was half of what it had been under Allende. Health and education took the heaviest hits. Even The Economist, a free-market cheerleader, called it “an orgy of self-mutilation.” De Castro privatized almost almost five hundred state-owned companies and banks, practically giving them away, since the point was to get them as quickly as possible into their rightful place in the economic order. He took no pity on local companies and removed even more trade barriers the result was a loss of 177,000 industrial jobs between 1973 and 1983.
In 1976, a military junta seized power from Isabel Perón and began enacting Friedman’s “Chicago doctrine”.
The human impact was unmistakable: within a year, wages lost 40 percent of their value, factories closed, poverty spiraled. Before the junta took power, Argentina had fewer people living in poverty than France of the United States—just 9 percent—and an unemployment rate of only 4.2 percent. Now the country began to display signs of the underdevelopment thought to have been left behind.
After the coup, the military dictatorship used violence to sustain the sense of shock and keep people docile:
The juntas of the Southern Cone made no secret of their revolutionary ambitions to remake their respective societies, but they were savvy enough to publicly deny what Walsh was accusing them of: using massive violence in order to achieve economic goals, goals that, in the absence of a system of terrorizing the public and eliminating obstacles, would have certainly provoked popular revolt.
Some American companies even got on board. In Argentina, Ford supplied the junta with green Ford Falcons in exchange for a military crackdown on union organizers:
Workers have testified to the presence of a battalion of one hundred soldiers permanently stationed at [Ford’s Buenos Aires plant].
Klein reports that at least 25 Ford union reps were kidnapped and tortured, many in detention facilities inside the factory compound.
Klein devotes a large part of the book to providing evidence that in the absence of natural disasters, torture is a common method of inducing shock for both the tortured and in society at large.
The widespread abuse of prisoners is a virtually foolproof indication that politicians are trying to impose a system—whether political, religious, or economic—that is rejected by large numbers of the people they are ruling.
This is why “shock treatment” is such an important metaphor, and why Klein starts the book with psychiatry. Shock therapy makes people regress developmentally, become more docile and obedient. Shock is how you re-wire people who would naturally reject a system that does not share their values.
In Brazil, as in Argentina, American corporations contributed to the atrocities when it helped their bottom line:
In Brazil, several multinationals banded together and privatized their own torture squads. In mid-1969, just as the junta entered its most brutal phase, an extralegal police force was launched called Operation Bandeirantes, known as OBAN. Staffed with military officers, OBAN was funded, according to Brazil: Never Again, “by contributions from various multinational corporations, including Ford and General Motors.” Because it was outside official military and police structures, OBAN enjoyed “flexibility and impunity with regard to interrogation methods,” the report states, and quickly gained a reputation for unparalleled sadism.
Klein quotes Simone de Beauvoir on the futility of separating these “excesses” of the system, this torture use to shock people into compliance with an unwanted economic order, from the order itself:
To protest in the name of morality against “excesses” or “abuses” is an error which hints at active complicity. There are no “abuses” or “excesses” here, simply an all-pervasive system.
One must now consider Abu Ghraib in a different light.
South African apartheid is yet another example of repression in support of an economic order:
…apartheid was not only a political system regulating who was allowed to vote and move freely. It was also an economic system that used racism to enforce a highly lucrative arrangement: a small white elite had been able to amass enormous profits from South Africa’s mines, farms, and factories because a large black majority was prevented from owning land and forced to provide its labor for far less than it was worth—and was beaten and imprisoned when it dared to rebel.
I initially balked at Klein’s phrase “less than it was worth”. After all, isn’t the point of the Chicago doctrine to institute a perfectly free market, and in a free market, wouldn’t wages have to rise to what labor is worth? But of course, for all the laissez-faire bluster, this wasn’t a free market. A monopoly is the opposite of a free market, and in South Africa the white minority held a monopoly on jobs and could offer that at whatever price it saw fit.
This is a common theme implicit in Klein’s criticism of laissez-faire economics. While in theory the doctrine supports a free market and all of the legitimate advantages of an “invisible hand” running things, in practice it’s often used hypocritically as a power-grab for entrenched monopolies to squash competition, making the market precisely less free.
After apartheid, inequality in South Africa actually got worse. While the ruling white minority gave up a good deal of political power, they held on to and in some cases magnified their economic power, which proved even more important. The negotiations focused on political concessions, and the economic negotiations were seen as “technical” and “administrative.” In hindsight, it was the economic negotiations which would determine the course of South Africa’s post-apartheid history. When Mandela’s government came into office and tried to enact the Freedom Charter and its promises of redistribution of South Africa’s wealth, nationalization of resources, and more progressive reforms, the government found its hands tied by private property protections and global trade agreements that the whites in power had signed on their way out the door.
Even worse, Mandela’s ANC party ceded some other “technical” economic points in the transition: they agreed to take responsibility for the white government’s debt (at a crushing cost of $4.5 billion a year) and pay lucrative pensions to white government workers who were now out of a job since their illegitimate government was out of power:
In the end, South Africa has wound up with a twisted case of reparations in reverse, with the white businesses who reaped enormous profits from black labor during the apartheid years paying not a cent in reparations, but the victims of apartheid continuing to send large paychecks to their former victimizers.
It’s an important lesson in where power truly lies: Mandela’s ANC party had a 90% majority and a clear political mandate to make society more fair, but because they failed to realize the critical importance of first making the economy more fair, things are more unfair now than ever.
Canada provides one case of a manufactured crisis designed to shock the people into accepting an economic order they did not want. In February 1993, Canada underwent an imaginary financial crisis. The media spun a story that Canada’s debt was out of control and than when its credit ran out, “our lives will change dramatically.” Klein, a Canadian, recounts:
The phrase “debt wall” suddenly entered the vocabulary. What it meant was that, although life seemed comfortable and peaceful now, Canada was spending so far beyond its means that, very soon, powerful Wall Street firms like Moody’s and Standard and Poor’s would downgrade our national credit from its perfect Triple A status to something much lower. When that happened, hypermobile investors, liberated by the new rules of globalization and free trade, would simply pull their money from Canada and take it somewhere safer. The only solution, we were told, was to radically cut spending on such programs as unemployment insurance and health care. Sure enough, the governing Liberal Party did just that, despite having been elected on a platform of job creation…
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.
McQuaig spoke with Vincent Truglia, the senior analyst at Moody’s in charge of issuing Canada’s credit rating. Truglia confirmed that there was never any question of Canada’s credit-worthiness, and that he “was under constant pressure from Canadian corporate executives and bankers to issue damning reports about the country’s finances, something he refused to do because he considered Canada an excellent, stable investment.” Bankers and corporations had manufactured a crisis and then used it to create the political will to tear down a safety net that helped the sick, poor, and unemployed—all in the name of lowering taxes.
Trinidad and Tobago
In an open resignation letter to the IMF after twelve years of service, Davison Budhoo admitted to “statistical malpractices” in which he was asked to exaggerate statistics about how bad the economy in oil-rich Trinidad and Tobago really was, in order to justify Chicago-style plundering of its public resources. He admitted that he had (in Klein’s words):
more than doubled a crucial statistic measuring the labor costs in the country, making it appear highly unproductive—even though, as he said, [the IMF] had the correct information on hand. In another instance, he claimed that the fund “invented, literally out of the blue,” huge unpaid government debts.
This directly led to a financial crisis in the country which drove them to the IMF, begging for a bailout. One was given, but only on the condition of layoffs, wage cuts, and deregulation. This lead to unnecessary suffering and even deaths, of which Budhoo was painfully aware. Also from his resignation letter to the IMF:
I hope to wash my hands of what in m mind’s eye is the blood of millions of poor and starving peoples… The blood is so much, you know, it runs in rivers. It dries up, too; it cakes all over me; sometimes I feel that there is not enough soap in the whole world to cleanse me from the things that I did do in your name.
Klein, on her opposition to the second Iraq War, and how “extreme violence has a way of preventing us from seeing the interests it serves”:
Most of us chose to oppose the war as an act of folly by a president who mistook himself for a king, and his British sidekick who wanted to be on the winning side of history. There was little interest in the idea that war was a rational policy choice, that the architects of the invasion had unleashed ferocious violence because they could not crack open the closed economies of the Middle East by peaceful means, that the level of terror was proportional to what was at stake.
The human cost aside, our trademark strategy of “Shock and Awe” meant as much as possible would be destroyed in the war—and as much as possible would need to be rebuilt at great cost to the U.S. taxpayer, and at great profit to American corporations:
[Iraqi] factories received nothing—no contracts, no generators, no help. American companies preferred to import their cement, like their workforce, from abroad, at up to ten times the price.
Not only was this an outrageously unnecessary expense to the U.S. taxpayer, but this shock to the Iraqi economy, which put so many young, hard-working Iraqi men out of work, feeling left out of their country’s economy and with all this free time, certainly contributed to the rise of extremism.
While Iraq was reeling from the “Shock and Awe,” the Bush administration capitalized on that state to push through a new Iraqi constitution, even though the country’s existing constitution (written in 1970 and simply ignored by Saddam) was perfectly democratic. The reasons for its replacement become obvious once you see the new document, which includes a provision for American companies’ contracts with the provisional, American-run government to last 40 years, denying Iraq’s eventual, democratically-elected government the ability to negotiate a fair deal.
If any of this actually worked—if today Iraq were a functional state privately-contracted running water, electricity, hospitals—maybe there’d be some excuse. But of course,
Freed of all regulations, largely protected from criminal prosecution and on contracts that guaranteed their costs would be covered, plus a profit, many foreign corporations did something entirely predictable: they scammed wildly.
Klein reports on the firm Parsons, which was
handed $186 million to build 142 health clinics. Only 6 were ever completed. Even the projects held up as reconstruction success stories have been called into question. In April 2007, U.S. inspectors in Iraq looked into 8 projects completed by U.S. contractors… and found that “seven were no longer operating as designed,” according to The New York Times
Iraq’s government today is corrupt and ineffectual, but is it any surprise given the example we set?
It was a graphic glimpse into the acceptable role of government in a corporatist state—to act as a conveyer belt for getting public money into private hands, a job for which ideological commitment is far more relevant than elaborate field experience.
That nonstop conveyer belt was part of what was so enraging to Iraqis about the U.S. insistence that they adapt to a strict free market, without state subsidies or trade protections. In one of his many lectures to Iraqi businesspeople, Michael Fleischer explained that “protected businesses never, never become competitive.” He appeared to be impervious to the irony that Halliburton, Bechtel, Parsons, KPMG, RTI, Blackwater, and all the other U.S. corporations that were in Iraq to take advantage of the reconstruction were part of a vast protectionist racket whereby the U.S. government had created their markets with war, barred their competitors from even entering the race, and the paid them to do all the work, while guaranteeing them a profit to boot—all at taxpayer expense.
If there’s any doubt that these policies depended for their implementation on shock and chaos, look at what happens when the disaster gets worse. Later, in 2006, the Bush administration drafted
a radical new oil law for Iraq, which would allow companies like Shell and BP to sign thirty-year contracts in which they could keep a large share of Iraq’s oil profits, amounting to tens or even hundreds of billions of dollars—unheard-of in countries with as much easily accessible oil as Iraq, and a sentence to perpetual poverty in a country where 95% of government revenues come from oil. This was a proposal so wildly unpopular that even Paul Bremer [neocon and head Washington man in Iraq] had dared not make it in the first year of occupation. Yet is was coming up now, thanks to deepening chaos.
Only a handful of Iraqi parliamentarians had even heard of the law before it was passed, showing how Washington took advantage of more pressing concerns (like the civil war gaining steam) to usher it through unnoticed. And the law as passed was even more flagrant:
it excluded Iraq’s elected parliamentarians from having any say in the terms for future oil contracts. Instead, it created a new body, the Federal Oil and Gas Council, which, according to The New York Times, would be advised by “a panel of oil experts from inside and outside Iraq.” This unelected body, advised by unspecified foreigners, would have ultimate decision-making power on all oil matters…
New Orleans is Iraq in miniature, with a Green Zone where the wealthy are protected from the forces of nature and protected by private militias (in some documented cases, the very same mercenary forces deployed to Iraq), while the poor inhabit a dangerous Red Zone outside the walls of these gated communities. Unsurprisingly, the Bush administration committed many of the same wrongs in New Orleans as in Iraq, handing out billions of taxpayer dollars for shoddy, overpriced, and subcontracted-out reconstruction work done by more-expensive outside contractors rather than putting locals to work, denying them the control and the healing of putting their own lives back together. And this is from Congress:
On contracts valued at $8.75 billion, congressional investigators found “significant overcharges, wasteful spending, or mismanagement.
To this, Klein finally finally makes plain the point implicit in the entire book:
When the same mistakes are repeated over and over again, it’s time to consider the possibility that they are not mistakes at all.
When the contractor infrastructure built up during the Bush years is looked at as a whole, what is seen is a fully articulated state-within-a-state that is as muscular and capable as the actual state is frail and feeble. This corporate shadow state has been built almost exclusively with public resources (90 percent of Blackwater’s revenues come from state contracts) including the training of its staff (overwhelmingly former civil servants, politicians and soldiers). Yet the vast infrastructure is all privately owned and controlled. The citizens who have funded it have absolutely no claim to this parallel economy or its resources.
No Conspiracy Required
Klein concludes, dramatically and perhaps surprisingly, by dismissing conspiracy theories that some of these disasters are engineered for profit. Addressing suspicions that the Bush administration allowed 9/11 to happen or that the levies in New Orleans Were detonated:
The truth is at once less sinister and more dangerous. An economic system that requires constant growth, while bucking almost all serious attempts at environmental regulation, generates a steady stream of disasters all on its own, whether military, ecological, or financial. The appetite for easy, short-term profits offered by purely speculative investment has turned stock, currency, and real estate markets into crisis-creation machines, as the Asian financial crisis, Mexican peso crisis, and dot-com collapse all demonstrate. Our common addiction to dirty, nonrenewable energy sources keeps other kinds of emergencies coming: natural disasters (up 430 percent since 1975) and wars waged for control over scarce resources (not just Iraq and Afghanistan but lower-intensity conflicts such as those that rage in Nigeria, Colombia, and Sudan), which in turn create terrorist blowback (a 2007 study calculated that the number of terrorist attacks since the start of the Iraq war had increased sevenfold.)
Given the boiling temperatures, both climatic and political, future disasters need not be cooked up in dark conspiracies. All indications that simply by staying the current course, they will keep coming with ever more ferocious intensity. Disaster generation can therefore be left to the market’s invisible hand.
Regardless of whether or now we believe in this new economy, Wall Street does. After 9/11, the stock marked famously plummeted over 600 points. But in the years following, now that the disaster capitalism complex has ramped up, the stock market actually tends to respond positively to acts of terrorism and natural disaster. It’s telling that behind all the hand-wringing and PR spin, the numbers don’t lie.
Surprisingly, though perhaps of necessity given how discouraging her investigations are, Klein ends the book on an upbeat note. She describes how after the tsunami in Thailand, people refused to be ushered into camps while their government brokered a reconstruction deal with foreign corporations, selling the peoples’ land out from under them. The people forced their way past army guard stations and began finding, clearing, and rebuilding their former homes. She describes a small delegation of Katrina survivors who visited Thailand and were amazed at the speed of reconstruction, and related that in New Orleans people felt helpless, waiting around for the government to tell them how to proceed.
Disasters and crises naturally make us feel helpless, which some will try to capitalize on. If there’s one thing we must do, it’s to fight that helplessness. To ignore to those claiming “this changes everything” as a justification for changing everything themselves. To avoid being sidelined while they try to remake our world for their benefit. In the wake of disaster, we must rebuild.