The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

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,

No longer inspirational examples, these countries were now terrifying warnings about what happens to poor nations that think they can pull themselves out of the Third World.

who were often referred to inside the camps as apestosos, the dirty or diseased ones. They would heal them of the sickness that was socialism, of the impulse toward collective action.q

For most Latin American leftists, that most cherished principle was what Argentina’s radical historian Osvaldo Bayer called “the only transcendental theology: solidarity.”

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.

This language is, of course, the same intellectual construct that allowed the Nazis to argue that by killing “diseased” members of society they were healing the “national body.”

This chapter in Argentina’s history has some striking parallels with the mass theft of indigenous children from their families in the U.S., Canada and Australia, where they were sent to residential schools, forbidden to speak their native languages, and beaten into “whiteness.”

For Argentines who know their history, the mall stands as a chilling reminder that just as an older form of capitalist conquest was built on the mass graves of the country’s indigenous peoples, the Chicago School Project in Latin America was quite literally built on the secret torture camps where thousands of people who believed in a different country disappeared.

People were in prison so that prices could be free. —Eduardo Galeano, 1990

the United Nations Universal Declaration of Human Rights. No sooner had the document been written than it became a partisan battering ram, used by both sides in the Cold War to accuse the other of being the next Hitler.

The refusal to connect the apparatus of state terror to the ideological project it served is characteristic of almost all the human rights literature from this period.

That made the Ford Foundation, intentionally or not, the leading source of funding for the dissemination of the Chicago School ideology throughout Latin America, more significant even than the U.S. government.

After the left in those countries had been obliterated by regimes that Ford had helped shape, it was none other than Ford that funded a new generation of crusading lawyers dedicated to freeing the hundreds of thousands of political prisoners being held by those same regimes.

White saviorism

In the Southern Cone, the contradictions were surreal: the philanthropic legacy of the very company most intimately associated with the terror apparatus—accused of having a secret torture facility on its property and of helping to disappear its own workers—was the best, and often the only, chance of putting an end to the worst of the abuses.

In the end, as Rodolfo Walsh predicted, many more lives would be stolen by “planned misery” than by bullets.

Structural violence

what happened in the Southern Cone of Latin America in the seventies is that it was treated as a murder scene when it was, in fact, the site of an extraordinarily violent armed robbery. “It was as if that blood, the blood of the disappeared, covered up the cost of the economic program,”

Just as ecologists define ecosystems by the presence of certain “indicator species” of plants and birds, torture is an indicator species of a regime that is engaged in a deeply anti-democratic project, even if that regime happens to have come to power through elections.

Robbery, whether of land or a way of life, requires force or at least its credible threat; it’s why thieves carry guns, and often use them.

These days, we are once again living in an era of corporatist massacres, with countries suffering tremendous military violence alongside organized attempts to remake them into model “free market” economies; disappearances and torture are back with a vengeance. And once again the goals of building free markets, and the need for such brutality, are treated as entirely unrelated.

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.

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.

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.

Friedman had spent a fair bit of time staring down an intellectual paradox: as the heir to Adam Smith’s mantle, he believed passionately that humans are governed by self-interest and that society works best when self-interest is allowed to govern almost all...

“Votes are more equally distributed than income … . Voters with incomes at the median or below gain by transferring income to themselves.”

Thatcher’s catastrophic first term seemed to further confirm the lessons of the Nixon years: that the radical and highly profitable policies of the Chicago School couldn’t survive in a democratic system. It seemed clear that the successful imposition of economic shock therapy required some other sort of shock—whether of a coup, or of the torture chamber delivered by a repressive regime.

By the early eighties, Friedmanites were facing the prospect that their revolution, less than a decade old, could not survive a new populist wave.

From a military standpoint, the eleven-week battle appears to have almost no historic significance. Overlooked, however, was the war’s impact on the free-market project, which was enormous: it was the Falklands War that gave Thatcher the political cover she needed to bring a program of radical capitalist transformation to a Western liberal democracy for the first time.

She famously declared, “We had to fight the enemy without in the Falklands and now we have to fight the enemy within, which is much more difficult but just as dangerous to liberty.”27 With British workers now categorized as “the enemy within,” Thatcher unleashed the full force of the state on the strikers,

it sent a clear message to the others: if Thatcher was willing to go to the wall to break the coal miners, on whom the country depended for its lights and warmth, it would be suicide for weaker unions producing less crucial products and services to take on her new economic order.

By not showing up to work, they had “forfeited their jobs and will be terminated,” Reagan said. Then he fired 11,400 of the country’s most essential workers in a single blow—a shock from which the U.S. labor movement has yet to fully recover.

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.”

The kind of crisis Friedman had in mind was not military but economic. What he understood was that in normal circumstances, economic decisions are made based on the push and pull of competing interests—workers want jobs and raises, owners want low taxes and relaxed regulation, and politicians have to strike a balance between these competing forces. However, if an economic crisis hits and is severe enough—a

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.

Bolshevik theory that hyperinflation, by destroying the value of money, takes the masses one step closer to the destruction of capitalism itself.

And 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.

The siege, which turned a large section of Bolivia into a military zone, didn’t just choke the coca trade, but cut off the source of roughly half of the country’s export revenues, triggering an economic meltdown.

The idea that policy change should be like launching a surprise military attack is a recurring theme for economic shock therapists.

Economic shock works according to a similar theory: the premise is that people can develop responses to gradual change—a slashed health program here, a trade deal there—but if dozens of changes come from all directions at once, a feeling of futility sets in, and populations go limp.

One immediate result of this resolve was that many of Bolivia’s desperately poor were pushed to become coca growers, because it paid roughly ten times as much as other crops (somewhat of an irony since the original economic crisis was set off by the U.S.-funded siege on the coca farmers.)

Just two years after the “atomic bomb,” illegal drug exports were generating more income for Bolivia than all its legal exports combined, and an estimated 350,000 people were earning a living in some facet of the drug trade.

Well, what is the sense of ruining my head and erasing my memory, which is my capital, and putting me out of business? It was a brilliant cure but we lost the patient. —Ernest Hemingway on his electroshock therapy, shortly before committing suicide, 1961

John Williamson, one of the most influential right-wing economists in Washington and a key adviser to the IMF and the World Bank, was watching Sachs’s experiment closely, and he saw something of far greater significance in Bolivia. He described the shock therapy program as “the big bang” moment—a breakthrough in the campaign to bring the Chicago School doctrine to the entire globe.

For hard-core Chicago School ideologues like Williamson, that meant that hyperinflation was not a problem to be solved, as Sachs believed, but a golden opportunity to be seized.

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.

The deepest pain, however, was felt outside the U.S. In developing countries carrying heavy debt loads, the Volcker Shock—also known as the “debt shock” or the “debt crisis”—was like a giant Taser gun fired from Washington, sending the developing world into convulsions. 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.

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.

Ooof

they had the collective epiphany that free people and unfettered free markets go hand in hand. That epiphany was always fictional. What actually happened is that just as citizens were finally winning their longdenied freedoms, escaping the shock of the torture chambers under the likes of the Philippines’ Ferdinand Marcos and Uruguay’s Juan María Bordaberry, they were hit with a perfect storm of financial shocks—debt shocks, price shocks and currency shocks—created by the increasingly volatile, deregulated global economy.

Other options were available to politicians in Alfonsín’s position. He could have defaulted on Argentina’s huge debts. He could have joined with neighboring governments in the same crisis and formed a debtors’ cartel. These governments could have created a common market based on developmentalist principles, a process that had begun when the region was torn apart by sadistic military regimes. But part of the challenge at the time had to do with the legacy of state terror faced by new democracies.

A debtors cartel

Understandably unwilling to go to war with the Washington institutions that owned their debts, crisis-struck new democracies had little choice but to play by Washington’s rules. And then, in the early eighties, Washington’s rules got a great deal stricter. That’s because the debt shock coincided precisely, and not coincidentally, with a new era in North-South relations, one that would make military dictatorships largely unnecessary. It was the dawn of the era of “structural adjustment”—otherwise known as the dictatorship of debt.

Dictatorship of debt

Crisis opportunism was now the guiding logic of the world’s most powerful financial institutions. It was also a fundamental betrayal of their founding principles.