The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

In one of his most influential essays, Friedman articulated contemporary capitalism’s core tactical nostrum, what I have come to understand as the shock doctrine. He observed that “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.”12 Some

Friedman predicted that the speed, suddenness and scope of the economic shifts would provoke psychological reactions in the public that “facilitate the adjustment.”14 He coined a phrase for this painful tactic: economic “shock treatment.” In the decades since, whenever governments have imposed sweeping free-market programs, the all-at-once shock treatment, or “shock therapy,” has been the method of choice. Pinochet also facilitated the adjustment with his own shock treatments; these were performed in the regime’s many torture cells, inflicted on the writhing bodies of those deemed most likely to stand in the way of the capitalist transformation. Many in Latin America saw a direct connection between the economic shocks that impoverished millions and the epidemic of torture that punished hundreds of thousands of people who believed in a different kind of society. As the Uruguayan writer Eduardo Galeano asked, “How can this inequality be maintained if not through jolts of electric shock?”15

For economic shock therapy to be applied without restraint—as it was in Chile in the seventies, China in the late eighties, Russia in the nineties and the U.S. after September 11, 2001—some sort of additional major collective trauma has always been required, one that either temporarily suspended democratic practices or blocked them entirely. This ideological crusade was born in the authoritarian regimes of South America, and in its largest newly conquered territories—Russia and China—it coexists most comfortably, and most profitably, with an iron-fisted leadership to this day.

When the Republicans gained control of Congress in 1995, David Frum, a transplanted Canadian and future speechwriter for George W. Bush, was among the so-called neoconservatives calling for a shock therapy-style economic revolution in the U.S. “Here’s how I think we should do it. Instead of cutting incrementally—a little here, a little there—I would say that on a single day this summer we eliminate three hundred programs, each one costing a billion dollars or less. Maybe these cuts won’t make a big deal of difference, but, boy, do they make a point. And you can do them right away.”25

The primary economic role of wars, however, was as a means to open new markets that had been sealed off and to generate postwar peacetime booms. Now wars and disaster responses are so fully privatized that they are themselves the new market; there is no need to wait until after the war for the boom—the medium is the message.

“There is an interval—which may be extremely brief—of suspended animation, a kind of psychological shock or paralysis. It is caused by a traumatic or sub-traumatic experience which explodes, as it were, the world that is familiar to the subject as well as his image of himself within that world. Experienced interrogators recognize this effect when it appears and know that at this moment the source is far more open to suggestion, far likelier to comply, than he was just before he experienced the shock.”37

The stakes are high. The corporatist alliance is in the midst of conquering its final frontiers: the closed oil economies of the Arab world, and sectors of Western economies that have long been protected from profit making—including responding to disasters and raising armies. Since there is not even the veneer of seeking public consent to privatize such essential functions, either at home or abroad, escalating levels of violence and ever larger disasters are required in order to reach the goal. Yet because the decisive

role played by shocks and crises has been so effectively purged from the official record of the rise of the free market, the extreme tactics on display in Iraq and New Orleans are often mistaken for the unique incompetence or cronyism of the Bush White House. In fact, Bush’s exploits merely represent the monstrously violent and creative culmination of a fifty-year campaign for total corporate liberation.

If the most committed opponents of the corporatist economic model are systematically eliminated, whether in Argentina in the seventies or in Iraq today, that suppression is explained as part of the dirty fight against Communism or terrorism—almost never as the fight for the advancement of pure capitalism. I am not arguing that

This desire for godlike powers of total creation is precisely why free-market ideologues are so drawn to crises and disasters. Nonapocalyptic reality is simply not hospitable to their ambitions. For thirty-five years, what has animated Friedman’s counterrevolution is an attraction to a kind of freedom and possibility available only in times of cataclysmic change—when people, with their stubborn habits and insistent demands, are blasted out of the way—moments when democracy seems a practical impossibility.

That is what makes the Bush regime different: after the attacks of September 11, it dared to demand the right to torture without shame. That left the administration subject to criminal prosecution—a problem it dealt with by changing the laws. The chain of events is well known: then–secretary of defense Donald Rumsfeld, empowered by George W. Bush, decreed that prisoners captured in Afghanistan were not covered by the Geneva Conventions because they were “enemy combatants,” not POWs, a view confirmed by the White House legal counsel at the time, Alberto Gonzales (subsequently U.S. attorney general).66

A large part of the appeal of Chicago School economics was that, at a time when radical-left ideas about workers’ power were gaining ground around the world, it provided a way to defend the interests of owners that was just as radical and was infused with its own claims to idealism.

It quickly became clear that when Friedman, a brilliant mathematician and skilled debater, made those same arguments, they took on an entirely different quality. They might be dismissed as wrongheaded but they were imbued with an aura of scientific impartiality. The enormous benefit of having corporate views funneled through academic, or quasi-academic, institutions not only kept the Chicago School flush with donations but, in short order, spawned the global network of right-wing think tanks that would churn out the counterrevolution’s foot soldiers worldwide.

The two men came up with a plan that would eventually turn Santiago, a hotbed of state-centered economics, into its opposite—a laboratory for cutting-edge free-market experiments, giving Milton Friedman what he had longed for: a country in which to test his cherished theories. The original plan was simple: the U.S. government would pay to send Chilean students to study economics at what pretty much everyone recognized was the most rabidly anti-“pink” school in the world—the University of Chicago. Schultz and his colleagues at the university would also be paid to travel to Santiago to conduct research into the Chilean economy and to train students and professors in Chicago School fundamentals.

Officially launched in 1956, the project saw one hundred Chilean students pursue advanced degrees at the University of Chicago between 1957 and 1970, their tuition and expenses paid for by U.S. taxpayers and U.S. foundations. In 1965, the program was expanded to include students from across Latin America, with particularly heavy participation from Argentina, Brazil and Mexico. The expansion was funded through a grant from the Ford Foundation and led to the creation of the Center for Latin American Economic Studies at the University of Chicago. Under the program, there were forty to fifty Latin Americans studying graduate-level economics at any given time—roughly one-third of the department’s total student population. In comparable programs at Harvard or MIT, there were just four or five Latin Americans. It was a startling achievement: in just a decade, the ultraconservative University of Chicago had become the premier destination for Latin Americans wanting to study economics abroad, a fact that would shape the course of the region’s history for decades to come.

The head of the program, and the man in charge of making the Latin Americans feel welcome, was Arnold Harberger, a safari-suit-wearing economist who spoke fluent Spanish, had married a Chilean and described himself as “a seriously dedicated missionary.”23 When the Chilean students started arriving, Harberger created a special “Chile workshop” where University of Chicago professors presented their highly ideological diagnosis of what was wrong with the South American country—and offered their scientific prescriptions on how to fix it. “Suddenly, Chile and its economy

It was in Chile—the epicenter of the Chicago experiment—that defeat in the battle of ideas was most evident. By Chile’s historic 1970 elections, the country had moved so far left that all three major political parties were in favor of nationalizing the country’s largest source of revenue: the copper mines then controlled by U.S. mining giants.33 The Chile Project, in other words, was an expensive bust. As ideological warriors waging a peaceful battle of ideas with their left-wing foes, the Chicago Boys had failed in their mission. Not only was the economic debate continuing to shift leftward, but the Chicago Boys were so marginal that they did not even register on the Chilean electoral spectrum.

The Brazilians had made little use of the power of shock, waiting years before demonstrating their appetite for brutality. It was a near-fatal error, since it gave their opponents the chance to regroup and for some to form left-wing guerrilla armies.

Suharto, on the other hand, had shown that if massive repression was used preemptively, the country would go into a kind of shock and resistance could be wiped out before it even took place. His use of terror was so merciless, so far beyond even the worst expectations, that a people who only weeks earlier had been collectively striving to assert their country’s independence were now sufficiently terrified that they ceded total control to Suharto and his henchmen.

From the start, Pinochet had complete control of the army, navy, marines and police. Meanwhile, President Salvador Allende had refused to organize his supporters into armed defense leagues, so he had no army of his own.

It didn’t, and the coverage of his declaration of war on the Pentagon was sparse. That’s because the date of his contentious address was September 10, 2001.

what was left was “the core”—those functions so intrinsic to the concept of governing that the idea of handing them to private corporations challenged what it meant to be a nation-state: the military, police, fire departments, prisons, border control, covert intelligence, disease control, the public school system and the administering of government bureaucracies.

By the late nineties, a powerful move was afoot to break the taboos protecting “the core” from privatization.

Just as Russia’s oil fields, Latin America’s telecoms, and Asia’s industry had supplied the stock market with superprofits in the nineties, now it would be the U.S. government itself that would play that central economic role—all the more crucial because the backlash against privatization and free trade was spreading rapidly through the developing world, closing off other avenues for growth.

institutions that had the power both to create and respond to cataclysmic events—the military, the CIA, the Red Cross, the UN, emergency “first responders”—had been some of the last bastions of public control.

Now, with the core set to be devoured, the crisis-exploiting methods that had been honed over the previous three decades would be used to leverage the privatization of the infrastructure of disaster creation and disaster response. Friedman’s crisis theory was going postmodern.

For Rumsfeld, the idea of applying “market logic” to the U.S. military was a project that dated back four decades. It began in the early sixties, when he used to attend seminars at the University of Chicago’s Economics Department. He had developed a particularly close connection with Milton Friedman, who, after Rumsfeld was elected to Congress at the age of thirty, took the precocious Republican under his wing, helping him to develop a bold free-market policy platform and tutoring him in economic theory.

As CEO of the international drug and chemical company Searle Pharmaceuticals, he used his political connections to secure the controversial and extraordinarily lucrative Food and Drug Administration (FDA) approval for aspartame (marketed as NutraSweet); and when Rumsfeld brokered the deal to sell Searle to Monsanto, he personally earned an estimated $12 million.15

Gilead, for its part, sees epidemics as a growth market, and it has an aggressive marketing campaign to encourage businesses and individuals to stockpile Tamiflu,

These companies are banking on an apocalyptic future of rampant disease, one in which governments are forced to buy, at top dollar, whatever lifesaving products the private sector has under patent.

A select group of companies was invited to apply to provide unlimited “logistical support” for U.S. military missions, an extremely vague work description. Furthermore, no dollar value was attached to the contract: the winning company was simply assured that whatever it did for the military, it would have its costs covered by the Pentagon, plus a guaranteed profit—what is known as a “cost plus” contract. These were the final days of the Bush Sr. administration, and the company that won the contract in 1992 was none other than Halliburton. As the Los Angeles Times’s T. Christian Miller noted, Halliburton “beat out thirty-six other bidders to win a five-year contract—not surprising perhaps, given that it was the company that drew up the plans.”

The result, first on display in the Balkans, was a kind of McMilitary experience in which deploying abroad resembled a heavily armed and perilous package vacation. “The first person to greet our soldiers as they arrive in the Balkans and the last one to wave goodbye is one of our employees,” a Halliburton spokesperson explained, making the company’s staff sound more like cruise directors than army logistics coordinators.21 That was the Halliburton difference: Cheney saw no reason why war shouldn’t be a thriving part of America’s highly profitable service economy—invasion with a smile.

allowed to grow dangerously weak: radio communications for the New York City police and firefighters broke down in the middle of the rescue operation, air traffic controllers didn’t notice the off-course planes in time, and the attackers had passed through airport security checkpoints staffed by contract workers, some of whom earned less than their counterparts at the food court.33

By early 2006, this informal exchange had become an official arm of the Pentagon: the Defense Venture Catalyst Initiative (DeVenCI), a “fully operational office” that continually feeds security information to politically connected venture capitalists, who, in turn, scour the private sector for start-ups that can produce new surveillance and related products. “We’re a search engine,” explains Bob Pohanka,

According to the Bush vision, the role of government is merely to raise the money necessary to launch the new war market, then buy the best products that emerge out of that creative cauldron, encouraging industry to even greater innovation. In other words, the politicians create the demand, and the private sector supplies all manner of solutions—a booming economy in homeland security and twenty-first-century warfare entirely underwritten by taxpayer dollars.

As Jane Alexander, deputy director of the research wing of the Department of Homeland Security, explained, “We don’t make things. If it doesn’t come from industry, we are not going to be able to get it.”44

And it’s not necessary to prove that a threat is real for it to merit a full-scale response—not with Cheney’s famous “1 percent doctrine,” which justified the invasion of Iraq on the grounds that if there is a 1 percent chance that something is a threat, it requires that the U.S. respond as if the threat is a 100 percent certainty.

From a military perspective, these sprawling and amorphous traits make the War on Terror an unwinnable proposition. But from an economic perspective, they make it an unbeatable one: not a flash-in-the-pan war that could potentially be won but a new and permanent fixture in the global economic architecture.

When widespread discomfort about big-brother technologies stalled many of these initiatives, it caused dismay to both marketers and retailers. September 11 loosened this logjam in the market: suddenly the fear of terror was greater than the fear of living in a surveillance society. So now, the same information collected from cash cards or “loyalty” cards can be sold not only to a travel agency or the Gap as marketing data but also to the FBI as security data,

(Part of the reason the Bush administration has relied so heavily on private intelligence contractors working in new structures like Rumsfeld’s secretive Office of Special Plans is that they have proven far more willing than their counterparts in governments to massage and manipulate information to meet the political goals of the administration—after all, their next contract depends on it.)

rarely about the much broader and deeper phenomenon of what it means to be engaged in a fully privatized war built to have no end.

Peter Swire, who served as the U.S. government’s privacy counselor during the Clinton administration, describes the convergence of forces behind the War on Terror bubble like this: “You have government on a holy mission to ramp up information gathering and you have an information technology industry desperate for new markets.” 62 In other words, you have corporatism: big business and big government combining their formidable powers to regulate and control the citizenry.

That’s because what is unquestionably good for the bottom line of these companies is cataclysm—wars, epidemics, natural disasters and resource shortages—which is why all their fortunes have improved dramatically since Bush took office.

What makes their acts of projection even more perilous is the fact that, to an unprecedented degree, key Bush officials have maintained their interests in the disaster capitalism complex even as they have ushered in a new era of privatized war and disaster response, allowing them to simultaneously profit from the disasters they help unleash.

Yet despite this glaring conflict of interest, Rumsfeld failed to sell off his Gilead stocks for his entire term in office, holding on to somewhere between $8 million and $39 million worth of Gilead holdings.10

Rumsfeld’s defiance definitely paid off. If he had sold his Gilead stocks at inauguration, in January 2001, he would have received a mere $7.45 each. By keeping them through all the avian flu scares, all the bioterror hysteria and through his own administration’s decisions to invest heavily in the company, Rumsfeld ended up with stocks worth $67.60 each when he left office—an 807 percent increase. (By April 2007 the price had reached $84 each.)15 That meant that when Rumsfeld left his post as defense secretary, he did so a significantly wealthier man than when he arrived—a rare occurrence for a multimillionaire in public office.

Iraq seems to fit Kinzer’s formula perfectly. Saddam did not pose a threat to U.S. security, but he did pose a threat to U.S. energy companies, since he had recently signed contracts with a Russian oil giant and was in negotiations with France’s Total, leaving U.S. and British oil firms

with nothing; the third-largest proven oil reserves in the world were slipping out of the Anglo-American grasp.18

Saddam’s removal from power has opened vistas of opportunities for the oil giants, including ExxonMobil, Chevron, Shell and BP, all of whom have been laying the groundwork for new deals in Iraq, as well as for Halliburton, which, with its move to Dubai, is perfectly positioned to sell its energy services to all these companies.19 Al...