The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

should UNICEF rebuild schools when it can be done by Bechtel, one of the largest engineering firms in the U.S.?

This book is a challenge to the central and most cherished claim in the official story—that the triumph of deregulated capitalism has been born of freedom, that unfettered free markets go hand in hand with democracy. Instead, I will show that this fundamentalist form of capitalism has consistently been midwifed by the most brutal forms of coercion, inflicted on the collective body politic as well as on countless individual bodies. The history of the contemporary free market—better understood as the rise of corporatism—was written in shocks.

The ideologies that long for that impossible clean slate, which can be reached only through some kind of cataclysm, are the dangerous ones.

No matter how fully he regressed his patients, they never absorbed or accepted the endlessly repeated messages on his tapes. Though he was a genius at destroying people, he could not remake them. A follow-up study conducted after Cameron left the Allan Memorial Institute found that 75 percent of his former patients were worse off after treatment than before they were admitted.

and new social programs unveiled to prevent growing numbers of people from turning hard left. It was a time when compromise between left and right was not a dirty word but part of what many saw as a noble mission to prevent a world, as Keynes wrote to President Franklin D. Roosevelt in 1933, in which “orthodoxy and revolution” are left “to fight it out.”

When grilled by the Senate committee about his brazen attempts to harness the force of the U.S. government to subvert Chile’s constitutional process in order to further ITT’s own economic interests, the company’s vice president, Ned Gerrity, seemed genuinely confused. “What’s wrong with taking care of No. 1?” he asked. The committee offered a response in its report: “‘No. 1’ should not be allowed an undue role in determining U.S. foreign policy.”

Of interest was not only Suharto’s brutality but also the extraordinary role played by a group of Indonesian economists who had been educated at the University of California at Berkeley, known as the Berkeley Mafia. Suharto was effective at getting rid of the left, but it was the Berkeley Mafia who prepared the economic blueprint for the country’s future.

After his meeting with Pinochet, Friedman made some personal notes about the encounter, which he reproduced decades later in his memoirs. He observed that the general “was sympathetically attracted to the idea of a shock treatment but was clearly distressed at the possible temporary unemployment that might be caused.”22 At this point, Pinochet was already notorious the world over for ordering massacres in football stadiums; that the dictator was “distressed” by the human cost of shock therapy might have given Friedman pause.

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

The tidy arrangement meant that these companies continued to own their assests 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.

Argentina 1982

When limitless sums of money are free to travel the globe at great speed, and speculators are able to bet on the value of everything from cocoa to currencies, the result is enormous volatility.

The Solidarity plan stated, “We demand a self-governing and democratic reform at every management level and a new socioeconomic system combining the plan, self-government and the market.” The centrepiece was a radical vision for the huge state-run companies, which employed millions of Solidarity members, to break away from governmental control and become democratic workers’ cooperatives.

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. As Henryk Wujec, one of Poland’s leading advocates of cooperatives, put it at the time, “If we had enough time, we might even be able to pull it off. But we don’t have time.”28 Sachs, meanwhile, could deliver the money.

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.

student strikers in 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.

A longtime antiapartheid activist, Rassool Snyman, described the trap to me in stark terms. “They never freed us. They only took the chain from around our neck and put it on our ankles.” Yasmin Sooka, a prominent South African human rights activist, told me that the transition “was business saying, ‘We’ll keep everything and you [the ANC] will rule in name … . You can have political power, you can have the façade of governing, but the real governance will take place somewhere else.’”ai13 It was a process of infantilization that is common to so-called transitional countries—new governments are, in effect, given the keys to the house but not the combination to the safe.

Communism may have collapsed without the firing of a single shot, but Chicago-style capitalism, it turned out, required a great deal of gunfire to defend itself: Yeltsin called in five thousand soldiers, dozens of tanks and armored personnel carriers, helicopters and elite shock troops armed with automatic machine guns—all to defend Russia’s new capitalist economy from the grave threat of democracy.

more than anywhere else up to this point, the situation in Russia exposed the myth of the technocrat, the egghead free-market economist supposedly imposing textbook models out of pure conviction.

Once you accept that profit and greed as practiced on a mass scale create the greatest possible benefits for any society, pretty much any act of personal enrichment can be justified as a contribution to the great creative cauldron of capitalism, generating wealth and spurring economic growth—even if it’s only for yourself and your colleagues.

"Greed is good." - McJesus

Soros, through Sachs’s work, had been one of the prime movers behind the push for the shock approach to economic transformation. By the late nineties, however, he had an apparent change of heart, becoming one of the leading critics of shock therapy and directing his foundations to fund NGOs that focus on putting anticorruption measures in place before privatizations occur.

decades ago, André Gunder Frank, the dissident Chicago economist, wrote a letter to Milton Friedman accusing him of “economic genocide.” Many Russians describe the slow disappearance of their fellow citizens in similar terms today.

Rereading Western news reports on Russia’s shock therapy period, it is striking how closely discussions at that time paralleled debates about Iraq that would unfold more than a decade later.

Nor were these catastrophic results unique to Russia; 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.”

Goni was also forced to flee the presidential palace to live in exile in the U.S., but, as in de la Rúa’s case, not before many lives were lost. After Goni ordered the military to put down street demonstrations, soldiers killed close to seventy people—many of them bystanders—and injured four hundred others. As of early 2007, Goni was wanted by Bolivia’s Supreme Court on charges relating to the massacre.98

This liberation from all constraints is, in essence, Chicago School economics (otherwise known as neoliberalism or, in the U.S., neoconservatism): not some new invention but capitalism stripped of its Keynesian appendages, capitalism in its monopoly phase, a system that has let itself go—that no longer has to work to keep us as customers, that can be as antisocial, antidemocratic and boorish as it wants.

When Budhoo quit in 1988, he decided to devote himself to exposing the secrets of his former workplace.

All told, there were 186 major mergers and acquisitions of firms in Indonesia, Thailand, South Korea, Malaysia and the Philippines by foreign multinationals in a span of only twenty months. Watching this sale unfold, Robert Wade, an LSE economist, and Frank Veneroso, an economic consultant, predicted that the IMF program “may even precipitate the biggest peacetime transfer of assets from domestic to foreign owners in the past fifty years anywhere in the world.”48

They further observed that “Bush is working on a large economic stimulus package to stave off recession. He said a weak economy needs its pump primed by government with a big infusion of money—a

Although it was true that the White House was on the verge of spending huge amounts of taxpayer money to stimulate the economy, it most certainly was not going to be on the model of FDR.

Rather than meet the security challenge posed by September 11 with a comprehensive plan to plug the holes in the public infrastructure, the Bush team devised a new role for government, one in which the job of the state was not to provide security but to purchase it at market prices.

the newest arrival, the Department of Homeland Security. 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.

In just a few years, the homeland security industry, which barely existed before 9/11, has exploded to a size that is now significantly larger than either Hollywood or the music business.

“Conservatives cannot govern well for the same reason that vegetarians cannot prepare a world-class boeuf bourguignon: If you believe that what you are called upon to do is wrong, you are unlikely to do it very well.” He adds, “As a way of governing, conservatism is another name for disaster.”30

Iraq under Bremer was the logical conclusion of Chicago School theory: a public sector reduced to a minimal number of employees, mostly contract workers, living in a Halliburton city state, tasked with signing corporate-friendly laws drafted by KPMG and handing out duffle bags of cash to Western contractors protected by mercenary soldiers, themselves shielded by full legal immunity. All around them were furious people, increasingly turning to religious fundamentalism because it’s the only source of power in a hollowed-out state. Like Russia’s gangsterism and Bush’s cronyism, contemporary Iraq is a creation of the fifty-year crusade to privatize the world. Rather than being disowned by its creators, it deserves to be seen as the purest incarnation yet of the ideology that gave it birth.

Bowersox, who worked as the health adviser at the U.S. embassy in Baghdad, offered this radical observation: the problem with Iraq’s reconstruction, he said, was its desire to build everything from scratch. “We could have gone in and done low-cost rehabs, and not tried to transform their health-care system in two years.”38

Mercenaries represented the largest contingent of soldiers after the U.S. military—more than all the other members of the “Coalition of the Willing” combined.

this kind of privatized warfare has already overshadowed the United Nations. The UN’s budget for peacekeeping in 2006–2007 was $5.25 billion—that’s just over a quarter of the $20 billion Halliburton got in Iraq contracts, and the latest estimates are that the mercenary industry alone is worth $4 billion.

Yet in an era when Halliburton treats the U.S. government as its personal ATM for six years, withdraws upward of $20 billion in Iraq contracts alone, refuses to hire local workers either on the Gulf Coast or in Iraq, then expresses its gratitude to U.S. taxpayers by moving its corporate headquarters to Dubai (with all the attendant tax and legal benefits), Chávez’s direct subsidies to regular people look significantly less radical.

“In every act, in every gesture, in every sentence, Aznar told the people he was right, that he was the owner of the truth and those who disagreed with him were his enemies.” 44 In other words, the very same qualities that Americans identified as “strong leadership” in their president after September 11 were, in Spain, regarded as ominous signs of a rising fascism.

the f word