The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

Before the invasion, Iraq’s economy had been anchored by its national oil company and by two hundred state-owned companies, which produced the staples of the Iraqi diet and the raw materials of its industry, everything from cement to paper and cooking oil. The month after he arrived in his new job, Bremer announced that the two hundred firms were going to be privatized immediately. “Getting inefficient state enterprises into private hands,” Bremer said, “is essential for Iraq’s economic recovery.”

Rumsfeld described Bremer’s “sweeping reforms” as creating “some of the most enlightened—and inviting—tax and investment laws in the free world.” At first, investors seemed to appreciate the effort. Within a few months, there was talk of a McDonald’s opening in downtown Baghdad—the ultimate symbol of Iraq joining the global economy—funding was almost in place for a Starwood luxury hotel, and General Motors was planning to build an auto plant. On the financial side, HSBC, the international bank headquartered in London, was awarded a contract to open branches all over Iraq,

Bremer’s laws, designed to create the conditions for an investor frenzy, were not exactly original—they were merely an accelerated version of what had been implemented in previous shock therapy experiments. But Bush’s disaster capitalism cabinet was not content to wait for the laws to take effect. Where the Iraq experiment entered bold new terrain was that it transformed the invasion, occupation and reconstruction into an exciting, fully privatized new market. This market was created, just as the homeland security complex was, with a huge pot of public money. For reconstruction alone, the boom was kicked off with $38 billion from the U.S. Congress, $15 billion from other countries and $20 billion of Iraq’s own oil money.

As these foreign corporations descended on the country, the machinery in Iraq’s two hundred state firms stood still, frozen by chronic power blackouts. Iraq once had one of the most sophisticated industrial economies in the region; now its largest firms couldn’t even get a subsubsubcontract in their own country’s reconstruction.

As is now well known, nothing about Bush’s anti–Marshall Plan went as intended. Iraqis did not see the corporate reconstruction as “a gift”; most saw it as a modernized form of pillage, and U.S. corporations didn’t wow anyone with their speed and efficiency; instead they have managed to turn the word “reconstruction” into, as one Iraqi engineer put it, “a joke that nobody laughs at.”22 Each miscalculation provoked escalating levels of resistance, answered with counterrepression by foreign troops, ultimately sending the country spiraling into an inferno of violence. As of July 2006, according to the most credible study, the war in Iraq had taken the lives of 655,000 Iraqis who would not have died had there been no invasion or occupation.

In fact, all the forces tearing Iraq apart today—rampant corruption, ferocious sectarianism, the surge in religious fundamentalism and the tyranny of death squads—escalated in lockstep with the implementation of Bush’s anti–Marshall Plan. After the toppling of Saddam Hussein, Iraq badly needed and deserved to be repaired and reunited, a process that could only have been led by Iraqis. Instead, at precisely that precarious moment, the country was transformed into a cutthroat capitalist laboratory—a system that pitted individuals and communities against each other, that eliminated hundreds of thousands of jobs and livelihoods and that replaced the quest for justice with rampant impunity for foreign occupiers.

Only someone deeply inclined to see government purely as a burden and public sector workers as dead wood could have made the choices Bremer did. That ideological blindness had three concrete effects: it damaged the possibility of reconstruction by removing skilled people from their posts, it weakened the voice of secular Iraqis, and it fed the resistance with angry people.

Patrick Graham wrote in Harper’s that Iraqi businessmen “are outraged by the new foreign investment laws, which allow foreign companies to buy up factories for very little. Their revenues have collapsed, because the country has been flooded with foreign goods … . The violence, these businessmen realize, is their only competitive edge. It is simple business logic: the more problems there are in Iraq, the harder it is for outsiders to get involved.”

Like the lifting of all trade restrictions, Bremer’s plan to privatize Iraq’s two hundred state companies was regarded by many Iraqis as yet another U.S. act of war.

At the end of our meeting, I asked Mahmud what would happen if the plant was sold despite their objections. “There are two choices,” he said, smiling kindly. “Either we will set the factory on fire and let the flames devour it to the ground, or we will blow ourselves up inside it. But it will not be privatized.” It was an early warning—one of many—that the Bush team had definitely overestimated its ability to shock Iraqis into submission.

The paucity of experienced civil servants in the Green Zone was not an oversight—it was an expression of the fact that the occupation of Iraq was, from the start, a radical experiment in hollow governance.

Michael Fleischer explained that “protected businesses never, never become competitive.”33 He appeared to be impervious to the irony that Halliburton, Bechtel, Parsons, KPMG, RTI, Blackwater and all the other U.S. corporations that were in Iraq to take advantage of the reconstruction were part of a vast protectionist racket whereby the U.S. government had created their markets with war, barred their competitors from even entering the race, then paid them to do the work, while guaranteeing them a profit to boot—all at taxpayer expense.

Having suffered through the sanctions and the invasion, most Iraqis naturally assumed that they had the right to benefit from the reconstruction of their country—not just from the final product but from the jobs created along the way.

“When the Iraqi people see all these contracts going to foreigners and these people bring in their own security guards and all their own engineers, and we’re just supposed to watch them, what do you expect?” Nouri Sitto, an Iraqi American, told me when we met in the Green Zone.

The Bush administration could easily have stipulated that any company receiving U.S. tax dollars had to staff its projects with Iraqis. It could also have contracted for many jobs directly with Iraqi firms. Such simple, common-sense measures did not happen for years because they conflicted with the underlying strategy of turning Iraq into an emerging market economic bubble—and everyone knows that bubbles are not inflated with rules and regulations but by their absence.

If within six months of the invasion, Iraqis had found themselves drinking clean water from Bechtel pipes, their homes illuminated by GE lights, their infirm treated in sanitary Parsons-built hospitals, their streets patrolled by competent DynCorp-trained police, many citizens (though not all) would probably have overcome their anger at being excluded from the reconstruction process. But none of this happened, and well before Iraqi resistance forces began systematically targeting reconstruction sites it was clear that applying laissez-faire principles to such a huge government task had been a disaster.

100%

Known in Iraq as “the primes,” the big contractors engaged in elaborate subcontracting schemes. They set up offices in the Green Zone, or even Kuwait City and Amman, then subcontracted to Kuwaiti companies, who subcontracted to Saudis, who, when the security situation got too rough, finally subcontracted to Iraqi firms, often from Kurdistan, for a fraction of what the contracts were worth.

“The contract goes to a subcontractor, which goes to another subcontractor, and a fourth-level subcontractor. And the payment for air-conditioning turns out to be payments to four contractors, the fourth of which puts a fan in a room. Yes, the American taxpayer paid for an air-conditioner and, after the money goes through four hands like ice cubes travel around the room, there is a fan put in a room in Iraq.”35 More to the point, all this time Iraqis watched their aid money stolen as their country boiled.

The mismanagement continued for three and a half years until all the major U.S. reconstruction contractors pulled out of Iraq, their billions spent, the bulk of the work still undone.

As of December 2006, when all the main reconstruction contracts were ending, the Inspector General’s Office was investigating eighty-seven cases of possible fraud relating to U.S. contractors in Iraq.38 Corruption during the occupation was not the result of poor management but of a policy decision: if Iraq was to be the next frontier for Wild West capitalism, it needed to be liberated from laws.”

the Bush administration had indemnified U.S. corporations working in Iraq from any liability under Iraqi laws; if the CPA wasn’t subject to U.S. law either, it meant that the contractors weren’t subject to any law at all—U.S. or Iraqi.

In other words, the U.S. government presence in Iraq during the first year of its economic experiment had been a mirage—there had been no government, just a funnel to get U.S. taxpayer and Iraqi oil dollars to foreign corporations, completely outside the law.

Wow. Straight theiviery.

The catastrophic failure to reconstruct also shared direct responsibility for the most lethal form of blowback—the dangerous rise of religious fundamentalism and sectarian conflict.

These militias are corporatism’s legacy too: if the reconstruction had provided jobs, security and services to Iraqis, al-Sadr would have been deprived of both his mission and many of his newfound followers. As it was, corporate America’s failures laid the groundwork for al-Sadr’s successes.

Bremer wrote a policy paper for his clients explaining why multinational corporations faced increased risks of terrorist attacks at home and abroad. In the paper, titled “New Risks in International Business,” he told his elite clients that they faced increased dangers because of the economic model that had made them so wealthy. Free trade, he wrote, has led to “the creation of unprecedented wealth,” but it has “immediate negative consequences for many.” It “requires laying off workers. And opening markets to foreign trade puts enormous pressure on traditional retailers and trade monopolies.” All these changes lead to “growing income gaps and social tensions,” which in turn can lead to a range of attacks on U.S. firms, including terrorist attacks.3 That certainly is what happened in Iraq.

The democratic enthusiasm, combined with the clear rejection of Bremer’s economic program, put the Bush administration in an extremely difficult position.

So Washington abandoned its democratic promises and instead ordered increases in the shock levels in the hope that a higher dosage would finally do the trick. It was a decision that brought the crusade for a pure free market back full circle to its roots in the Southern Cone of Latin America, when economic shock therapy was enforced by brutally suppressing democracy and by disappearing and torturing anyone who stood in the way.

At the end of June, only his second month in Iraq, Bremer sent word that all local elections must stop immediately. The new plan was for Iraq’s local leaders to be appointed by the occupation, just as the Governing Council had been.

At that point, Iraqis were still expecting Washington to make good on its promise to organize national elections and hand over power directly to a government elected by the majority of citizens. But in November 2003, after he canceled local elections, Bremer flew back to Washington for huddled meetings at the White House. When he returned to Baghdad, he announced that general elections were off the table.

The about-turn may well have had something to do with a poll, conducted in this period by the Washington-based International Republican Institute. It asked Iraqis what kind of politicians they would vote for if they had the chance. The results were a wake-up call for the Green Zone corporatists: 49 percent of Iraqi respondents said they would vote for a party promising to create “more government jobs.” Asked if they would vote for a party promising to create “more private sector jobs,” only 4.6 percent said yes. Asked if they would vote for a party promising to “keep coalition forces until security is good,” only 4.2 percent said they would.9 Put simply, if Iraqis were allowed to freely elect the next government, and if that government had real power, Washington would have to give up on two of the war’s main goals: access to Iraq for U.S. military bases and full access to Iraq for U.S. multinationals.

Democracy doesn't work with corporatism...

Bremer’s canceling of national elections was a bitter betrayal for Iraq’s Shia. As the largest ethnic group, they were certain to dominate an elected government after decades of subjugation. At first, Shia resistance took the form of massive peaceful demonstrations: 100,000 protesters in Baghdad, 30,000 in Basra. Their unified chant was “Yes, yes, elections. No, no selections.”

Love that chant.

denouncing the process and the constitution as illegitimate and openly comparing Bremer to Saddam Hussein. He also started building up the Mahdi Army in earnest. After peaceful protests had no effect, many Shia became convinced that if majorityrule democracy was ever to become a reality, they would have to fight for it.

keeping that promise would have meant sacrificing the economic agenda behind the war, something that was never going to happen—and that is why the violent repercussions of America’s denial of democracy in Iraq must also be counted as a form of ideological blowback.

One factor that made the surge in torture tactics all but inevitable was Donald Rumsfeld’s determination to run the military like a modern, outsourced corporation. He had planned the troop deployment less like a defense secretary and more like a Wal-Mart vice president looking to shave a few more hours from the payroll.

In the early days of the occupation, the Green Zone had played host to economic shock therapists from Poland and Russia; now it became a magnet for a different breed of shock experts, those specializing in the darker arts of suppressing resistance movements. The private security companies padded their ranks with veterans of the dirty wars in Colombia, South Africa and Nepal. According to journalist Jeremy Scahill, Blackwater and other private security firms hired more than seven hundred Chilean troops—many of them special forces operators—for Iraq deployment, some of whom had trained and served under Pinochet.

Two weeks later, on August 31, Major General Geoffrey Miller, warden of the Guantánamo Bay prison, was brought to Iraq on his mission to “Gitmoize” the Abu Ghraib prison.17 Two weeks after that, on September 14, Lieutenant General Ricardo Sanchez, top commander in Iraq, authorized a wide range of new interrogation procedures based on the Guantánamo model, including deliberate humiliation (called “pride and ego down”), “exploit[ing] Arab fear of dogs,” sensory deprivation (called “light control”), sensory overload (yelling, loud music) and “stress positions.” It was shortly after the Sanchez memo was sent out, in early October, that the incidents documented in the infamous Abu Ghraib photographs took place.

Like thousands of his fellow prisoners, Ali was released from Abu Ghraib without charge, pushed off a truck after being told “You were arrested by mistake.” The Red Cross has said that U.S. military officials have admitted that somewhere between 70 and 90 percent of the detentions in Iraq were “mistakes.”

Saddam had always relied heavily on torture to hold on to power. If torture was to recede in post-Saddam Iraq, it would have required a focused effort to repudiate such tactics on the part of a new government. Instead, the U.S. embraced torture for its own purposes, setting a degraded standard at the very time it was training and supervising the new Iraqi police force.

In Iraq, there are also more high-tech ways of conveying messages of terror. Terrorism in the Grip of Justice is a widely watched TV show on the U.S.-funded Al Iraqiya network. The series is produced in conjunction with the Salvadorized Iraqi commandos. Several released prisoners have explained how the show’s content is produced: detainees, often grabbed at random in neighborhood sweeps, are beaten and tortured, and threats are made against their families until they are ready to confess to any crime—even crimes that lawyers have proved never took place. Then the video cameras come out to record the prisoners “confessing” to being insurgents, as well as thieves, homosexuals and liars. Every night, Iraqis watch these confessions, coming from the bruised and swollen faces of the unmistakably tortured. “The show has a good effect on civilians,” Adnan Thabit, leader of the Salvadorized commandos, told Maass.

Iraq’s shock therapists blasted away at the layers too, seeking that elusive blank slate on which to create their new model country. They found only the piles of rubble that they themselves had created, and millions of psychologically and physically shattered people—shattered by Saddam, shattered by war, shattered by one another.

Countries, like people, don’t reboot to zero with a good shock; they just break and keep on breaking.

Key note

In the seventies, when the corporatist crusade began, it used tactics that courts ruled were overtly genocidal: the deliberate erasure of a segment of the population. In Iraq, something even more monstrous has happened—the erasure not of a segment of the population but of an entire country; Iraq is disappearing, disintegrating.

Torture has also emerged as a thriving industry. Human rights groups have documented numerous cases of Iraqi police demanding thousands of dollars from the families of prisoners in exchange for a halt to torture.35 It’s Iraq’s own domestic version of disaster capitalism.

That is what happens with projects to build model societies in other people’s countries. The cleansing campaigns are rarely premeditated. It is only when the people who live on the land refuse to abandon their past that the dream of the clean slate morphs into its doppelgänger, the scorched earth—only then that the dream of total creation morphs into a campaign of total destruction.

On my flight leaving Baghdad, every seat was filled by a foreign contractor fleeing the violence. It was April 2004, and both Fallujah and Najaf were under siege; fifteen hundred contractors pulled out of Iraq that week alone.

The investors Bremer had done so much to attract had never shown up—not HSBC, or Procter & Gamble, which put its joint venture on hold, as did General Motors. New Bridge Strategies, the company that had gushed about how “a Wal-Mart could take over the country,” conceded that “McDonald’s is not opening any time soon.”

It turns out that funding Iraqis to rebuild their own country is more efficient than hiring lumbering multinationals who don’t know the country or the language, surround themselves with $900-a-day mercenaries and spend as much as 55 percent of their contract budgets on overhead.

the Bush administration immediately pushed ahead by helping to draft a radical new oil law for Iraq, which would allow companies like Shell and BP to sign thirty-year contracts in which they could keep a large share of Iraq’s oil profits, amounting to tens or even hundreds of billions of dollars—unheard of in countries with as much easily accessible oil as Iraq, and a sentence to perpetual poverty in a country where 95 percent of government revenues come from oil.42 This was a proposal so wildly unpopular that even Paul Bremer had not dared make it in the first year of occupation.

To sell a country..

Iraq’s main labor unions declared that “the privatization of oil is a red line that may not be crossed” and, in a joint statement, condemned the law as an attempt to seize Iraq’s “energy resources at a time when the Iraqi people are seeking to determine their own future while still under conditions of occupation.”

It’s hard to overstate the disgrace of this attempted resource grab. Iraq’s oil profits are the country’s only hope of financing its own reconstruction when some semblance of peace returns. To lay claim to that future wealth in a moment of national disintegration was disaster capitalism at its most shameless.