The Shock Doctrine. Naomi Klein
The author strikes at the heart of market fundamentalists’ claim that freedom and democracy are the hallmarks of deregulated capitalism. Instead, she presents market fundamentalism as a far reaching ideology that has some surprising similarities to Twentieth Century communism. These include a strategy for world-wide dissemination, implementation by extensive coercive violence in much of the world, and marked indifference to suffering imposed undemocratically on the masses. But unlike communism, market fundamentalism is presented as a cynical war by the rich against the middle class and poor that inevitably leads to extreme concentration of riches in the hands of the few who can then capture government to perpetuate their dominance.
The rise of the modern version of market fundamentalism began in the 1950s with Milton Friedman and others at the Chicago School of Economics. This was a counterrevolution to the successful Keynesian mixed economies of the time that relied on markets for growth but employed government regulation and taxation to counter market excesses, failures, and inequalities. The Chicago School regarded these government actions as distortions of the purity of markets according to their closed-loop thinking that relied on mathematical equations and models but very little real-world evidence.
Friedman laid out the neoconservative economic agenda in 1962 in Capitalism and Freedom: First, governments must remove all rules and regulations standing in the way of the accumulation of profits. Second, they should sell off any assets they own that corporations could be running at a profit. And third, they should dramatically cut back funding of social programs. This became the well-known formula of deregulation, privatization, and cutbacks. The many specifics included low taxes for the rich, no worker protections like unions and minimum wage laws, no regulation of business, and elimination of government support for health care, pensions, and education.
Implementation of this agenda in western democracies was difficult for the obvious reason that it required the majority to vote against its own interests to favor the rich. For equally obvious reasons, there was no shortage of plutocrats who provided overwhelming financial support for this agenda by extensive funding of lobbying, political campaigns, numerous think tanks, and media propaganda, particularly in the US. Consequently, gradual change was achieved, particularly beginning with Reagan and Thatcher, so that since the 1980s inequality has increased markedly in the US as nearly all economic gains from rising productivity have gone to the rich. Nevertheless, this transformation has been regarded as too slow, messy, and incomplete.
In countries outside of the western democracies, many much swifter transformations to deregulated markets have been achieved by the strategy the author calls the shock doctrine, usually with disastrous consequences. In 1962, Friedman observed that “only a crisis—actual or perceived—produces real change.” He added that it was vital to keep his agenda alive and ready for rapid and irreversible implementation after political or natural disasters when populations were still too stunned to resist the “bitter medicine” that was to follow. He coined the phrase economic “shock treatment” for this painful tactic. The author reports three distinct phases of that shock treatment that follow in rapid succession: (1) the shock of the coup itself, (2) the shock of severe recessions with massive unemployment, falling wages, lost savings, and lost social insurance, and (3) the shock of imprisonment, torture (often featuring electric shock), and death for many tens of thousands who resisted.
The mechanism to get Friedman’s agenda in place began with the Chile Project launched in 1956. This project brought 100 Chilean students to graduate school at the University of Chicago from 1957 to 1970. In 1965, the program was expanded to include students from across Latin America. As a result, hundreds of Chicago School economists along with some from other institutions were ready and waiting throughout Latin America and eventually throughout the world to administer shock treatment when opportunities arose. This program was greatly amplified by the International Monetary Fund (IMF) and World Bank in 1989 by adoption of the Washington Consensus for a similar market fundamentalist reform package for developing nations.
From 1964 to 1985, numerous government crises, many of them after US-sponsored military coups, provided the opportunities for shock treatment throughout Latin America in Brazil, Chile, Argentina, Uruguay, and Bolivia, as well as in Indonesia. In 1989, the fall of the Soviet Union brought the opportunity for shock therapists to manage the sudden transition to market economies in Poland, other Soviet satellites, and finally Russia itself in 1991. Eventually other crises were exploited elsewhere, such as in South Africa during the change from apartheid, Thailand, South Korea, the Philippines, and Indonesia (again) after the 1997-1998 Asian financial crisis, war-torn Iraq immediately after the US invasion, Sri Lanka after the catastrophic 2004 Asian tsunami, and in New Orleans after Hurricane Katrina.
The severe recessions that followed in many countries had drastic consequences for the general public. These included loss of fragile local industries and massive bankruptcy of farming after withdrawal of protection, rising unemployment up to 30% or more, falling wages by as much as 40%, increases by tens of millions for people living in poverty, and enhancement of this suffering from simultaneous withdrawal of social programs. Once the harsh impact of these policies became apparent, they became extremely unpopular and had to be implemented by force.
Particularly in Latin America, military juntas engaged in book burning, closure of newspapers and magazines, occupation of universities, imposition of curfews, banning strikes and political meetings, raiding union halls, jailing community workers and union leaders, and deployment of tanks against demonstrators. The worst countries resorted to widespread torture and targeted extrajudicial killing, such as with the 300 torture camps and 30,000 “disappeared” individuals in Argentina. These brutal measures were always presented to international outsiders as part of the fight against communism. In reality, the majority of the people swept up were not terrorists, but rather those identified as posing the most serious barriers to the juntas’ economic programs. In 1976, 80% of Chile’s political prisoners were workers and peasants.
Despite all of this, market fundamentalists claimed these outcomes as economic miracles, particularly for Chile. Unfortunately, the collaboration of Friedman and his Chicago boys with the brutal Pinochet dictatorship after the 1973 CIA-led coup was hardly an economic triumph, except for foreign companies and financiers. The first year of shock therapy resulted in a 15% contraction of the economy and increased unemployment from 3% to 20%. The economy crashed again in 1982 with exploding debt, recurrent hyperinflation, and unemployment of 30%. By 1988, when rapid growth returned, 45% of the population had fallen below the poverty line. Even in 2007, Chile remained one of the most unequal countries in the world, ranking 116 out of 123. All of this came about at the cost of 3,200 people disappeared or executed, 80,000 imprisoned, and 200,000 fleeing the country for political reasons.
Shock therapy in Russia in 1991 was particularly catastrophic. Gorbachev reportedly sought to move the Soviet Union in the direction of the Nordic social democracies (whose combined growth and equality lead the developed world). However, Yeltsin wrested control of Russia and brought in Harvard economist Jeffrey Sachs to administer shock therapy for the transition from communism. What followed was the worst depression in modern history. In Russia, 80% of farms went bankrupt; 70,000 state factories closed; people living in poverty increased from 2 million to 74 million, suicide doubled, alcohol consumption doubled, violent crime quadrupled, life expectancy and population fell, and state property was turned over to corrupt oligarchs. When the people and parliament objected, Yeltsin illegally dissolved parliament, sent forces that killed 100 demonstrators, and attacked parliament with tanks and troops with 500 additional deaths. These events facilitated the rise of Vladimir Putin, the oligarchs, and the political climate we are stuck with today.
In general, everywhere the Chicago School crusade has triumphed, it has created a permanent underclass of between 25% and 60% of the population. According to Grinspun, Keynesianism sought to mobilize support and share the burden through a negotiated process involving key stakeholders—government, employers, farmers, unions, and so on—when stabilization measures were implemented. In sharp contrast the market fundamentalist approach was to shift all the social cost onto the poor through shock therapy. Thus, in disseminating his ideology, Friedman can be seen as a Lenin-like figure who managed to create misery for large numbers of people throughout the world, purportedly for their own good.
Although I liked the book, I do have some criticisms. The author does a reasonably persuasive job of reporting the ideology, pervasiveness, implementation, and consequences of shock therapy. However, in my view, she sometimes extends her discussion too far, such as to the 1989 Tiananmen Square massacre and to the killing of 500,000 to 1,000,000 Indonesians after the 1965 CIA-backed coup. In addition, serious problems before initiation of shock therapy, such as hyperinflation, are sometimes underemphasized. These diversions needlessly create opportunities for criticism from her ideological opponents to distract from the core of what she is reporting. I also disliked the way statistical fragments and examples are scattered throughout the text. I would have preferred a more chronologic account and even tables listing changes in GDP, unemployment, inequality, and so on. I found the index to be nearly worthless when trying to retrieve statistics for use in this review.
30. The Shock Doctrine (disastrous switch to free markets in Russia, E. Europe, and S. America)
