The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

Within nineteen months, with most of the city’s poor residents still in exile, New Orleans’ public school system had been almost completely replaced by privately run charter schools. Before Hurricane Katrina, the school board had run 123 public schools; now it ran just 4.

the American Enterprise Institute, a Friedmanite think tank, enthused that “Katrina accomplished in a day … what Louisiana school reformers couldn’t do after years of trying.”

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.

If Friedman’s close friend Walter Wriston, head of Citibank, had come forward and argued that the minimum wage and corporate taxes should both be abolished, he naturally would have been accused of being a robber baron. And that’s where the Chicago School came in. It quickly became clear that when Friedman, a brilliant mathematician and skilled debater, made those same arguments, they took on an entirely different quality. They might be dismissed as wrongheaded but they were imbued with an aura of scientific impartiality.

With more funding from USAID, Chile’s Chicago Boys became enthusiastic regional ambassadors for ideas Latin Americans call “neoliberalism,” traveling to Argentina and Colombia to set up more University of Chicago franchises in order to “expand this knowledge throughout Latin America, confronting the ideological positions which prevented freedom and perpetuated poverty and backwardness,”

It was in Chile—the epicenter of the Chicago experiment—that defeat in the battle of ideas was most evident. By Chile’s historic 1970 elections, the country had moved so far left that all three major political parties were in favor of nationalizing the country’s largest source of revenue: the copper mines then controlled by U.S. mining giants.

It was Nixon who would give the Chicago Boys and their professors something they had long dreamed of: a chance to prove that their capitalist utopia was more than a theory in a basement workshop—a shot at remaking a country from scratch. Democracy had been inhospitable to the Chicago Boys in Chile; dictatorship would prove an easier fit.

Although Allende pledged to negotiate fair terms to compensate companies that were losing property and investments, U.S. multinationals feared that Allende represented the beginning of a Latin America-wide trend, and many were unwilling to accept the prospect of losing what was a growing portion of their bottom line.

As soon as Allende won the vote, and before he was even inaugurated, corporate America declared war on his administration.

In testimony and documents, it became clear that ITT was directly involved in shaping U.S. policy toward Chile at the highest level. At one point, a senior ITT executive wrote to National Security Adviser Henry Kissinger and suggested that “without informing President Allende, all U.S. aid funds already committed to Chile should be placed in the ‘under review’ status.”

In September 1971, a year into Allende’s mandate, the top business leaders in Chile held an emergency meeting in the seaside city of Viña del Mar to develop a coherent regime-change strategy. According to Orlando Sáenz, president of the National Association of Manufacturers (generously funded by the CIA and many of the same foreign multinationals doing their own plotting in Washington), the gathering decided that “Allende’s government was incompatible with freedom in Chile and with the existence of private enterprise, and that the only way to avoid the end was to overthrow the government.”

In the years leading up to the coup, U.S. trainers, many from the CIA, had whipped the Chilean military into an anti-Communist frenzy,

For the Chicago Boys, September 11 was a day of giddy anticipation and deadline adrenalin. Sergio de Castro had been working down to the wire with his contact in the navy, getting the final sections of “The Brick” approved page by page.

September 1971

Chile’s U.S.-trained economists had tried to introduce these ideas peacefully, within the confines of a democratic debate, but they had been overwhelmingly rejected.

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.

Friedman was greeted by the junta-controlled press as something of a rock star, the guru of the new order. Each of his pronouncements made headlines, his academic lectures were broadcast on national television and he had the most important audience of all: a private meeting with General Pinochet.

Friedman emphasized the importance of “shock” repeatedly, using the word three times and underlining that “gradualism is not feasible.”

Pinochet and 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.

In the first year of Friedman-prescribed shock therapy, Chile’s economy contracted by 15 percent, and unemployment—only 3 percent under Allende—reached 20 percent,

contrary to Friedman’s sunny predictions, the unemployment crisis lasted for years, not months.

Many children weren’t getting milk at school either, since one of the junta’s first moves had been to eliminate the school milk program. As a result of this cut compounding the desperation at home, more and more students were fainting in class, and many stopped going altogether.

Undeterred, Pinochet’s economic team went into more experimental territory, introducing Friedman’s most vanguard policies: the public school system was replaced by vouchers and charter schools, health care became pay-as-you-go, and kindergartens and cemeteries were privatized.

Pinochet held power for seventeen years, and during that time he changed political direction several times. The country’s period of steady growth that is held up as proof of its miraculous success did not begin until the mid-eighties—a full decade after the Chicago Boys implemented shock therapy and well after Pinochet was forced to make a radical course correction.

The situation was so unstable that Pinochet was forced to do exactly what Allende had done: he nationalized many of these companies.

If that track record qualifies Chile as a miracle for Chicago school economists, 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.

Brazil was already under the control of a U.S.-supported junta, and several of Friedman’s Brazilian students held key positions. Friedman traveled to Brazil in 1973, at the height of the regime’s brutality, and declared the economic experiment “a miracle.”

Next to join the experiment was Argentina in 1976, when a junta seized power from Isabel Perón. That meant that Argentina, Chile, Uruguay and Brazil—the countries that had been showcases of developmentalism—were now all run by U.S.-backed military governments and were living laboratories of Chicago School economics.

Since those wanted by the various juntas often took refuge in neighboring countries, the regional governments collaborated with each other in the notorious Operation Condor. Under Condor, the intelligence agencies of the Southern Cone shared information about “subversives”—aided by a state-of-the-art computer system provided by Washington—and then gave each other’s agents safe passage to carry out cross-border kidnappings and torture,

High-value prisoners were kept in absolute isolation for more than a decade. “We were beginning to think we were dead, that our cells weren’t cells but rather graves, that the outside world didn’t exist, that the sun was a myth,” one of these prisoners, Mauricio Rosencof, recalled. He saw the sun for a total of eight hours over eleven and a half years. So deprived were his senses during this time that he “forgot colors—there were no colors.”

The most ubiquitous technique, used in the torture chambers of all the region’s military regimes, was electroshock.

The exact number of people who went through the Southern Cone’s torture machinery is impossible to calculate, but it is probably somewhere between 100,000 and 150,000, tens of thousands of them killed

To be a leftist in those years was to be hunted. Those who did not escape to exile were in a minute-by-minute struggle to stay one step ahead of the secret police—an existence of safe houses, phone codes and false identities.

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.

The Chicago Boys and their professors, who provided advice and took up top posts in the military regimes of the Southern Cone, believed in a form of capitalism that is purist by its very nature. Theirs is a system based entirely on a belief in “balance” and “order” and the need to be free of interferences and “distortions” in order to succeed. Because of these traits, a regime committed to the faithful application of this ideal cannot accept the presence of competing or tempering worldviews. In order for the ideal to be achieved, it requires a monopoly on ideology;

When the junta seized power in Argentina, soldiers marched into the University of the South in Bahía Blanca and imprisoned seventeen academics on charges of “subversive instruction”; once again, most were from the economics department.

A total of eight thousand “ideologically suspect” leftist educators were purged as part of Operation Clarity.

In high schools, they banned group presentations—a sign of a latent collective spirit, dangerous to “individual freedom.”

In Santiago, the legendary left-wing folk singer Victor Jara was among those taken to the Chile Stadium. His treatment was the embodiment of the furious determination to silence a culture. First the soldiers broke both his hands so he could not play the guitar, then they shot him forty-four times, according to Chile’s truth and reconciliation commission.

The majority of the people swept up in the raids were not “terrorists,” as the rhetoric claimed, but rather the people whom the juntas had identified as posing the most serious barriers to their economic program. Some were actual opponents, but many were simply seen as representing values contrary to the revolution’s.

In Brazil, several multinationals banded together and financed their own privatized 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.”

It was in Argentina, however, that the involvement of Ford’s local subsidiary with the terror apparatus was most overt. The company supplied cars to the military, and the green Ford Falcon sedan was the vehicle used for thousands of kidnappings and disappearances.

While Ford supplied the junta with cars, the junta provided Ford with a service of its own—ridding the assembly lines of troublesome trade unionists.

Just a decade earlier, the countries of the Southern Cone—with their exploding industrial sectors, rapidly rising middle classes and strong health and education systems—had been the hope of the developing world. Now rich and poor were hurtling into different economic worlds, with the wealthy gaining honorary citizenship in the State of Florida and the rest being pushed back into underdevelopment, a process that would deepen throughout the neoliberal “restructurings” of the postdictatorship era.

these countries were now terrifying warnings about what happens to poor nations that think they can pull themselves out of the Third World.

In the sixties, Rumsfeld used to attend seminars at the University of Chicago, gatherings he later described in reverential terms. Rumsfeld called Friedman and his colleagues “a cluster of geniuses,”

Nixon knew that if he followed Friedman’s laissez-faire advice, millions of angry citizens would vote him out of a job. He decided to put caps on the prices of necessities such as rent and oil. Friedman was outraged:

According to Rumsfeld, Friedman instructed him, “You have got to stop doing what you are doing.” The novice bureaucrat replied that it seemed to be working—inflation was going down, the economy was growing. Friedman fired back that that was the greatest crime of all: “People are going to think that you’re doing it … they’re going to learn the wrong lesson.”

In his second term, the president proceeded to shred even more of Friedman’s orthodoxies, passing a slew of new laws imposing higher environmental and safety standards on industry. “We are all Keynesians now,” Nixon famously proclaimed—the cruelest cut of all.

Friedman would later describe Nixon as “the most socialist of the presidents of the United States in the 20th century.”

Chicago School policies, now known as Reaganomics, certainly held sway in Washington. But even Reagan didn’t dare implement the kind of sweeping shock therapy that Friedman dreamed of, the kind he had prescribed in Chile.