The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

The IMF and the World Bank did not live up to that universal vision; from the start they allocated power not on the basis of “one country, one vote,” like the UN General Assembly, but rather on the size of each country’s economy—an arrangement that gives the United States an effective veto over all major decisions, with Europe and Japan controlling most of the rest. That meant that when Reagan and Thatcher came to power in the eighties, their highly ideological administrations were essentially able to harness the two institutions for their own ends, rapidly increasing their power and turning them into the primary vehicles for the advancement of the corporatist crusade.

The IMF issued its first full-fledged “structural adjustment” program in 1983. For the next two decades, every country that came to the fund for a major loan was informed that it needed to revamp its economy from top to bottom.

The principle was simple: countries in crisis desperately need emergency aid to stabilize their currencies. When privatization and free-trade policies are packaged together with a financial bailout, countries have little choice but to accept the whole package. The really clever part was that the economists themselves knew that free trade had nothing to do with ending a crisis, but that information was expertly “obfuscated.”

The Cavallo Plan, as it came to be called, was based on the clever packaging trick that both the World Bank and the IMF had perfected: harnessing the chaos and desperation of a hyperinflation crisis to pass privatization off as an integral part of the rescue mission.

In the long term, Cavallo’s program in its entirety would prove disastrous for Argentina. His method of stabilizing the currency—pegging the peso to the U.S. dollar—made it so expensive to produce goods inside the country that local factories could not compete with the cheap imports flooding the country. So many jobs were lost that well over half the country would eventually be pushed below the poverty line.

Tired of living in a country that worshipped an idealized working class but abused actual workers, Solidarity members denounced the corruption and brutality of the party functionaries who answered not to the people of Poland but to remote and isolated bureaucrats in Moscow.

And the financial stakes were even higher than in Latin America: Eastern Europe was untouched by Western capitalism, with no consumer market to speak of. All of its most precious assets were still owned by the state—prime candidates for privatization. The potential for rapid profits for those who got in first was tremendous.

If the dream of Solidarity began with Walesa’s energetic vault over the steel fence in Gdask, then Mazowiecki’s exhaustedly succumbing to shock therapy represented the end of that dream.

Finally, the decision came down to money. Solidarity’s members did not decide that their vision for a cooperatively run economy was wrongheaded, but their leaders became convinced that all that mattered was winning relief from the Communist debts and immediately stabilizing the currency.

Balcerowicz, the finance minister, has since admitted that capitalizing on the emergency environment was a deliberate strategy—a way, like all shock tactics, to clear away the opposition.

“Extraordinary politics,” he said, “by definition is a period of very clear discontinuity in a country’s history. It could be a period of very deep economic crisis, of a breakdown of the previous institutional system, or of a liberation from external domination (or end of war).

Everywhere, old regimes were collapsing, and the new ones rising in their place had yet to take shape.

Within a few years it seemed as if half the world was in a period of “extraordinary politics,” or “in transition,” as liberated countries came to be called in the nineties—suspended in an existential in-betweenness of past and future.

For Fukuyama, then a senior policy maker at the U.S. State Department, the strategy for advocates of unfettered capitalism was clear: don’t debate with the third-way crowd; instead, preemptively declare victory.

Donald Trump

Democracy and radical capitalism were fused not only with each other but also with modernity, progress and reform. Those who objected to the merger were not just wrong but “still in history,” as Fukuyama put it, the equivalent of being left behind after the Rapture, since everyone else had already transcended to a celestial “posthistorical” plane.

The demonstrators, on the other hand, demanded democracy, but many opposed the government’s moves toward unregulated capitalism, a fact largely left out of the coverage of the movement in the Western press.

Tiananmen Square

These historic protests were almost universally portrayed in the international media as a clash between modern, idealistic students who wanted Western-style democratic freedoms and old-guard authoritarians who wanted to protect the Communist state. Recently, another analysis of the meaning of Tiananmen has emerged, one that challenges the mainstream version while putting Friedmanism at the heart of the story. This alternative narrative is being advanced by, among others, Wang Hui, one of the organizers of the 1989 protests, and now a leading Chinese intellectual of what is known as China’s “New Left.” In his 2003 book, China’s New Order, Wang explains that the protesters spanned a huge range of Chinese society—not just elite university students but also factory workers, small entrepreneurs and teachers. What ignited the protests, he recalls, was popular discontent in the face of Deng’s “revolutionary” economic changes, which were lowering wages, raising prices and causing “a crisis of layoffs and unemployment.”45 According to Wang, “These changes were the catalyst for the 1989 social mobilization.” 46

There will never be reliable estimates for how many people were killed and injured in those days. The party admits to hundreds, and eyewitness reports at the time put the number of dead at between two thousand and seven thousand and the number of injured as high as thirty thousand.

As in Latin America, the government reserved its harshest repression for the factory workers, who represented the most direct threat to deregulated capitalism.

A Wall Street Journal headline claimed that “China’s Harsh Actions Threaten to Set Back [the] 10-Year Reform Drive”—as if Deng was an enemy of those reforms and not their most committed defender, determined to take them into bold new territory.

For Deng and the rest of the Politburo, the free-market possibilities were now limitless. Just as Pinochet’s terror had cleared the streets for revolutionary change, so Tiananmen paved the way for a radical transformation free from fear of rebellion. If life grew harder for peasants and workers, they would either have to accept it quietly or face the wrath of the army and the secret police. And so, with the public in a state of raw terror, Deng rammed through his most sweeping reforms yet.

It was this wave of reforms that turned China into the sweatshop of the world, the preferred location for contract factories for virtually every multinational on the planet. No country offered more lucrative conditions than China: low taxes and tariffs, corruptible officials and, most of all, a plentiful low-wage workforce that, for many years, would be unwilling to risk demanding decent salaries or the most basic workplace protections for fear of the most violent reprisals.

According to a 2006 study, 90 percent of China’s billionaires (calculated in Chinese yuan) are the children of Communist Party officials. Roughly twenty-nine hundred of these party scions—known as “the princelings”—control $260 billion.54 It is a mirror of the corporatist state first pioneered in Chile under Pinochet: a revolving door between corporate and political elites who combine their power to eliminate workers as an organized political force.

“The creation of today’s market society was not the result of a sequence of spontaneous events,” writes Wang Hui, “but rather of state interference and violence.”

In a strange coincidence, the Tiananmen Square massacre took place on the same day as Solidarity’s historic election sweep in Poland—June 4, 1989. They were, in a way, two very different studies in the shock doctrine. Both countries had needed to exploit shock and fear to push through a free-market transformation.

In China, where the state used the gloves-off methods of terror, torture and assassination, the result was, from a market perspective, an unqualified success. In Poland, where only the shock of economic crisis and rapid change were harnessed—and there was no overt violence—the effects of the shock eventually wore off, and the results were far more ambiguous.

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. In the mines, whites were paid up to ten times more than blacks, and, as in Latin America, the large industrialists worked closely with the military to have unruly workers disappeared.

the weapon that activists wielded most effectively was the corporate boycott—both of South African–made products and of international firms that did business with the apartheid state.

In the process, the ANC failed to protect itself against a far more insidious strategy—in essence, an elaborate insurance plan against the economic clauses in the Freedom Charter ever becoming law in South Africa. “The people shall govern!” would soon become a reality, but the sphere over which they would govern was shrinking fast.

“It was dead before it was even launched,” the economist Vishnu Padayachee told me of Make Democracy Work. By the time the draft was complete, “there was a new ball game.”

Not only would the central bank be run as an autonomous entity within the South African state, with its independence enshrined in the new constitution, but it would be headed by the same man who ran it under apartheid, Chris Stals.

From Padayachee’s point of view, none of this happened because of some grand betrayal on the part of ANC leaders but simply because they were outmaneuvered on a series of issues that seemed less than crucial at the time—but turned out to hold South Africa’s lasting liberation in the balance.

Want to redistribute land? Impossible—at the last minute, the negotiators agreed to add a clause to the new constitution that protects all private property, making land reform virtually impossible. Want to create jobs for millions of unemployed workers? Can’t—hundreds of factories were actually about to close because the ANC had signed on to the GATT, the precursor to the World Trade Organization, which made it illegal to subsidize the auto plants and textile factories. Want to get free AIDS drugs to the townships, where the disease is spreading with terrifying speed? That violates an intellectual property rights commitment under the WTO, which the ANC joined with no public debate as a continuation of the GATT. Need money to build more and larger houses for the poor and to bring free electricity to the townships? Sorry—the budget is being eaten up servicing the massive debt, passed on quietly by the apartheid government.

The bottom line was that South Africa was free but simultaneously captured; each one of these arcane acronyms represented a different thread in the web that pinned down the limbs of the new government.

new governments are, in effect, given the keys to the house but not the combination to the safe.

the ANC, once it became the government, accepted the dominant logic that its only hope was to pursue new foreign investors who would create new wealth, the benefits of which would trickle down to the poor. But for the trickle-down model to have a hope of working, the ANC government had to radically alter its behavior to make itself appealing to investors.

Every time a top party official said something that hinted that the ominous Freedom Charter might still become policy, the market responded with a shock, sending the rand into free fall.

Of all the constraints on the new government, it was the market that proved most confining—and this, in a way, is the genius of unfettered capitalism: it’s self-enforcing. Once countries have opened themselves up to the global market’s temperamental moods, any departure from Chicago School orthodoxy is instantly punished by traders in New York and London who bet against the offending country’s currency, causing a deeper crisis and the need for more loans, with more conditions attached.

“Though the ANC still has a powerful leftist wing,” The Wall Street Journal observed, “Mr. Mandela has in recent days sounded more like Margaret Thatcher than the socialist revolutionary he was once thought to be.”

(This emphasis on secrecy and insulation was particularly ironic given that, under the tyranny of apartheid, the ANC had pulled off a remarkably open and participatory process to come up with the Freedom Charter. Now, under a new order of democracy, the party was opting to hide its economic plans from its own caucus.)

Some commissioners felt that multinational corporations that had benefited from apartheid should be forced to pay reparations. In the end the Truth and Reconciliation Commission made the modest recommendation of a onetime 1 percent corporate tax to raise money for the victims, what it called “a solidarity tax.” Sooka expected support for this mild recommendation from the ANC; instead, the government, then headed by Mbeki, rejected any suggestion of corporate reparations or a solidarity tax, fearing that it would send an antibusiness message to the market. “The president decided not to hold business accountable,” Sooka told me. “It was that simple.” In the end, the government put forward a fraction of what had been requested, taking the money out of its own budget, as the commissioners had feared.

Archbishop Desmond Tutu, confronted journalists with freedom’s unfinished business. “Can you explain how a black person wakes up in a squalid ghetto today, almost 10 years after freedom? Then he goes to work in town, which is still largely white, in palatial homes. And at the end of the day, he goes back home to squalor?

because the government continues to pay the apartheid debt. In the first years after the handover, it cost the new government 30 billion rand annually (about $4.5 billion) in servicing—a sum that provides a stark contrast with the paltry total of $85 million that the government ultimately paid out to more than nineteen thousand victims of apartheid killings and torture and their families.

They got governmental control, but are forced to pay the debt of the apartheid, where they were the victims, and got no say in the economy (controlled by white supremacist).

In other words, not only did the ANC renege on Mandela’s original pledge of “the nationalisation of the mines, banks and monopoly industry” but because of the debt, it was doing the opposite—selling off national assets to make good on the debts of its oppressors.

Sums it up nicely

The concession meant that the new ANC government carried the cost of two governments—its own, and a shadow white government that was out of power.

In the end, South Africa has wound up with a twisted case of reparations in reverse, with the white businesses that 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.

This says it all

in South Africa the dismantling of the state and the pillaging of its coffers continue to this day.

Blue IQ had identified tourism as a major growth area for investment, and its market research showed that for tourists visiting South Africa, a large part of the attraction is the ANC’s global reputation for having triumphed over oppression. Hoping to build on this powerful draw, Blue IQ determined that there was no better symbol of the South African triumph-over-adversity narrative than the Freedom Charter.

Wowwwwwww..

Since 1994, the year the ANC took power, the number of people living on less than $1 a day has doubled, from 2 million to 4 million in 2006.45 • Between 1991 and 2002, the unemployment rate for black South Africans more than doubled, from 23 percent to 48 percent.46 • Of South Africa’s 35 million black citizens, only five thousand earn more than $60,000 a year. The number of whites in that income bracket is twenty times higher, and many earn far more than that amount.47 • The ANC government has built 1.8 million homes, but in the meantime 2 million people have lost their homes.

Not so long ago, the document represented the ultimate threat to white privilege in the country; today it is embraced in business lounges and gated communities as a statement of good intentions, at once flattering and totally unthreatening, on a par with a flowery corporate code of conduct.