The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

In 1982, just before Argentina’s dictatorship collapsed, the junta did one last favor for the corporate sector. Domingo Cavallo, president of Argentina’s central bank, announced that the state would absorb the debts of large multinational and domestic firms that had, like Chile’s piranhas, borrowed themselves to the verge of bankruptcy. The tidy arrangement meant that these companies continued to own their assets and profits, but the public had to pay off between $15 and $20 billion of their debts; among the companies to receive this generous treatment were Ford Motor Argentina, Chase Manhattan, Citibank, IBM and Mercedes-Benz.

In China, democracy and Chicago School economics were not proceeding hand in hand; they were on opposite sides of the barricades surrounding Tiananmen Square.

Deng was enthusiastically committed to converting to a corporate-based economy—so committed that, in 1980, his government invited Milton Friedman to come to China and tutor hundreds of top-level civil servants, professors and party economists in the fundamentals of free-market theory.

Gorbachev was moving toward a mixture of a free market and a strong safety net, with key industries under public control—a process he predicted would take ten to fifteen years to be completed. His end goal was to build social democracy on the Scandinavian model, “a socialist beacon for all mankind.”

So what happened at the G7 meeting in 1991 was totally unexpected. The nearly unanimous message that Gorbachev received from his fellow heads of state was that, if he did not embrace radical economic shock therapy immediately, they would sever the rope and let him fall. “Their suggestions as to the tempo and methods of transition were astonishing,” Gorbachev wrote

Russia, like China, was forced to choose between a Chicago School economic program and an authentic democratic revolution.

once Yeltsin declared a state of emergency, the two projects were on a collision course, with Yeltsin and his shock therapists in direct opposition to the elected parliament and the constitution. Nevertheless, the West threw its weight behind Yeltsin, who was still cast in the role of a progressive “genuinely committed to freedom and democracy, genuinely committed to reform,” in the words of then U.S. president Bill Clinton.

In the spring of 1993, the collision drew closer when parliament brought forward a budget bill that did not follow IMF demands for strict austerity. Yeltsin responded by trying to eliminate the parliament.

Yeltsin, confident that he had the West’s support, took his first irreversible step toward what was now being openly referred to as the “Pinochet option”: he issued decree 1400, announcing that the constitution was abolished and parliament dissolved. Two days later, a special session of parliament voted 636–2 to impeach Yeltsin for this outrageous act

Despite the fact that Russia’s Constitutional Court once again ruled Yeltsin’s behavior unconstitutional, Clinton continued to back him, and Congress voted to give Yeltsin $2.5 billion in aid.

A clear signal from Washington or the EU could have forced Yeltsin to engage in serious negotiations with the parliamentarians, but he received only encouragement.

But Russia wasn’t a repeat of Chile—it was Chile in reverse order: Pinochet staged a coup, dissolved the institutions of democracy and then imposed shock therapy; Yeltsin imposed shock therapy in a democracy, then could defend it only by dissolving democracy and staging a coup. Both scenarios earned enthusiastic support from the West.

before shock therapy, 2 million people in the Russian Federation were living in poverty, on less than $4 a day. By the time the shock therapists had administered their “bitter medicine” in the mid-nineties, 74 million Russians were living below the poverty line,

the entire thirty-year history of the Chicago School experiment has been one of mass corruption and corporatist collusion between security states and large corporations, from Chile’s piranhas, to Argentina’s crony privatizations, to Russia’s oligarchs, to Enron’s energy shell game, to Iraq’s “free fraud zone.”

When Rumsfeld joined the cabinet of George W. Bush in 2001, it was with a personal mission to reinvent warfare for the twenty-first century—turning it into something more psychological than physical, more spectacle than struggle, and far more profitable than it had ever been before.

the defense secretary had not only described the Pentagon as a grave threat to America but declared war against the institution where he worked.

“I believe that Reagan made a mistake when he chose Bush as his vice-presidential candidate,” Friedman wrote in his memoirs; “indeed, I regard it as the worst decision not only of his campaign but of his presidency. My favorite candidate was Donald Rumsfeld. Had he been chosen, I believe he would have succeeded Reagan as president, and the sorry Bush-Clinton period would never have occurred.”

Dick Cheney, a protégé of Rumsfeld’s in the Ford administration, has also built a fortune based on the profitable prospect of a grim future, though where Rumsfeld saw a boom market in plagues, Cheney was banking on a future of war.

Thanks to the loosely worded contract that Halliburton and Cheney had crafted when he was at the Pentagon, the company was able to stretch and expand the meaning of the term “logistical support” until Halliburton was responsible for creating the entire infrastructure of a U.S. military operation overseas.

Before taking office as vice president, Cheney “valued his net worth at between $18 million and $81.9 million, including between $6 million and $30 million worth of stock in Halliburton Co … . Overall, Cheney was given some 1,260,000 Halliburton options, with 100,000 already used, 760,000 eligible to be redeemed and 166,667 to become valid this December [2000].”

The future president’s commitment to auctioning off the state, combined with Cheney’s leadership in outsourcing the military and Rumsfeld’s patenting of drugs that might prevent epidemics, provided a preview of the kind of state the three men would construct together—it was a vision of a perfectly hollow government.

The first major victory of the Friedmanite counterrevolution in the United States had been Ronald Reagan’s attack on the air traffic controllers’ union and his deregulation of the airlines. Twenty years later, the entire air transit system had been privatized, deregulated and downsized, with the vast majority of airport security work performed by underpaid, poorly trained, nonunion contractors. After the attacks, the inspector general of the Department of Transportation testified that the airlines, which were responsible for security on their flights, had skimped significantly to keep costs down.

For weeks after the attacks, the president went on a grand tour of the public sector—public schools, firehouses and memorials, the Centers for Disease Control and Prevention—embracing and thanking civil servants for their contributions and humble patriotism.

Cost-cutting was suddenly off the agenda, and in every speech the president gave, he announced some ambitious new public program.

Public pronouncements and photo ops aside, Bush and his inner circle had no intention of converting to Keynesianism. 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.

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.

The mantra “September 11 changed everything” neatly disguised the fact that for free-market ideologues and the corporations whose interests they serve, the only thing that changed was the ease with which they could pursue their ambitious agenda.

Between September 11, 2001, and 2006, the Department of Homeland Security handed out $130 billion to private contractors—money that was not in the economy before and that is more than the GDP of Chile or the Czech Republic. In 2003, the Bush administration spent $327 billion on contracts to private companies—nearly 40 cents of every discretionary dollar.

the alliance between a small corporate elite and a right-wing government has been written off as some sort of aberration—mafia capitalism, oligarchy capitalism and now, under Bush, “crony capitalism.” But it’s not an aberration; it is where the entire Chicago School crusade—with its triple obsessions—privatization, deregulation and union-busting—has been leading.

“It’s the best 18 months we ever had,” said Carlyle’s chief investment officer, Bill Conway, referring to the first eighteen months of the war in Iraq. “We made money and we made it fast.” The war in Iraq, already clearly a disaster, translated into a record-breaking $6.6 billion payout to Carlyle’s select investors.

Former secretary of state George Shultz headed up the Committee for the Liberation of Iraq, a pressure group formed in 2002 at the request of the Bush White House to help it build the case for war in the public mind. Shultz certainly obliged.

Shultz did not disclose to his readers that he was, at the time, a member of the board of directors of Bechtel, where he had served many years earlier as CEO. The company would collect $2.3 billion to reconstruct the country that Shultz was so eager to see destroyed.

And then there is Henry Kissinger, the man who kicked off the counterrevolution with his support for Pinochet’s coup. In his 2006 book State of Denial, Bob Woodward revealed that Dick Cheney holds monthly meetings with Kissinger, while Bush meets with Kissinger about half as frequently, “making him the most regular and frequent outside adviser to Bush on foreign affairs.”

Since 1982, when he started his privately held and secretive company, Kissinger Associates, his job has been to represent a roster of clients that is said to have included everyone from Coca-Cola to Union Carbide to Hunt Oil to the engineering giant Fluor (one of the biggest reconstruction contract winners in Iraq)—and even his old partner in the Chilean covert action, ITT.

The neocons—a group that includes Cheney, Rumsfeld, Shultz, Jackson and, I would argue, Kissinger—take great pains to project themselves as egghead intellectuals or hawkish realists, driven by ideology and big ideas, not anything so worldly as profit.

The invasion of Iraq was sold to the public on the basis of fear of weapons of mass destruction because, as Paul Wolfowitz explained, WMDs were “the one issue that everyone could agree on”—it

Since the entire Arab world could not be conquered all at once, a single country needed to serve as the catalyst. The U.S. would invade that country and turn it into, as Thomas Friedman, chief media proselytizer of the theory, put it, “a different model in the heart of the Arab-Muslim world,” one that in turn would set off a series of democratic /neoliberal waves throughout the region.

Thomas Friedman was forthright about what it meant for Iraq to be selected as the model. “We are not doing nation-building in Iraq. We are doing nation-creating,” he wrote—as if shopping around for a large, oil-rich Arab nation to create from scratch was a natural, even “noble” thing to do in the twenty-first century.

That year, Gerald Ford was president, Dick Cheney was his chief of staff, Donald Rumsfeld was his secretary of defense, and Kissinger’s executive assistant was an ambitious young man named Paul Bremer. These men faced no truth-and-justice process for their roles in supporting the juntas and went on to enjoy long and prosperous careers. So long, in fact, that they would be around three decades later to implement a strikingly similar—if far more violent—experiment in Iraq.

During the 1991 Gulf War, roughly three hundred Tomahawk cruise missiles were fired over the course of five weeks. In 2003, more than three hundred and eighty were launched in a single day.

Between March 20 and May 2, the weeks of “major combat,” the U.S military dropped more than thirty thousand bombs on Iraq, as well as twenty thousand precision-guided cruise missiles—67 percent of the total number ever made.

Many Iraqis say that the shredding of their phone system was the most psychologically wrenching part of the air attack. The combination of hearing and feeling bombs going off everywhere while being unable to call a few blocks away to find out if loved ones were alive, or to reassure terrified relatives living abroad, was pure torment.

“There was no audible explosion, no discernible change in the early evening bombardments, but in an instant, an entire city of 5 million people was plunged into an awful, endless night,” The Guardian reported on April 4. Darkness was “relieved only by the headlights of passing

“The hundreds of looters who smashed ancient ceramics, stripped display cases and pocketed gold and other antiquities from the National Museum of Iraq pillaged nothing less than records of the first human society,” reported the Los Angeles Times. “Gone are 80 per cent of the museum’s 170,000 priceless objects.”

The national library, which contained copies of every book and doctoral thesis ever published in Iraq, was a blackened ruin.

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

in 1985, 89 percent of 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.”

In Iraq, Washington cut out the middlemen: the IMF and the World Bank were relegated to supporting roles, and the U.S. was front and center. Paul Bremer was the government; as a top U.S. military official told the Associated Press, there was no point in negotiating with the local government because “at this point, we’d be negotiating with ourselves.”

Bremer was no quiet American, maneuvering and manipulating behind the scenes. With his movie-of-the-week looks and his fondness for news crews, he seemed intent on flaunting his absolute power over Iraqis, crisscrossing the country in a flashy Black-hawk helicopter flanked by GI Joe private security guards from Black-water and always in his trademark uniform: immaculately pressed Brooks Brothers suits and beige Timberland boots.

By his own admission, Bremer knew little of Iraq