The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

“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.”

“No two countries that both have a Mc-Donald’s have ever fought a war against each other,” boldly declared the New York Times columnist Thomas Friedman in December 1996 .30 Not only was he proven wrong two years later, but thanks to the model of for-profit warfare, the U.S. Army goes to war with Burger King and Pizza Hut in tow, contracting them to run franchises for the soldiers on military bases from Iraq to the “mini city” at Guantánamo Bay.

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.

By 1988, when the economy had stabilized and was growing rapidly, 45 percent of the population had fallen below the poverty line.50 The richest 10 percent of Chileans, however, had seen their incomes increase by 83 percent.51 Even in 2007, Chile remained one of the most unequal societies in the world—out of 123 countries in which the United Nations tracks inequality, Chile ranked 116th, making it the 8th most unequal country on the list.52 If that track record qualifies Chile as a miracle for Chicago school economists, perhaps shock treatment was never really about jolting the economy into health. Perhaps it was meant to do exactly what it did—hoover wealth up to the top and shock much of the middle class out of existence.

According to court testimony quoted in the country’s truth commission report, Brazil: Never Again, published in 1985, military officers attended formal “torture classes” at army police units where they watched slides depicting various excruciating methods. During these sessions, prisoners were brought in for “practical demonstrations”—brutally tortured while as many as a hundred army sergeants looked on and learned. The report states that “one of the first people to introduce this practice into Brazil was Dan Mitrione, an American police officer.

He recalled that “before detaining me, they walked me around the factory, they did it right out in the open so that the people would see: Ford used this to eliminate unionism in the factory.”43 Most startling was what happened next: rather than being rushed off to a nearby prison, Troiani and others say soldiers took them to a detention facility that had been set up inside the factory gates. In their place of work, where they had been negotiating contracts just days before, workers were beaten, kicked and, in two cases, electroshocked.44 They were then taken to outside prisons where the torture continued for weeks and, in some cases, months.45 According to the workers’ lawyers, at least twenty-five Ford union reps were kidnapped in this period, half of them detained on the company grounds in a facility that human rights groups in Argentina are lobbying to have placed on an official list of former clandestine detention facilities.

Among the youngest were a group of high-school students who, in September 1976, banded together to ask for lower bus fare. For the junta, the collective action showed that the teenagers had been infected with the virus of Marxism, and it responded with genocidal fury, torturing and killing six of the high-schoolers who had dared to make this subversive request.

As is the case with most state terror, the targeted killings served a dual purpose. First, they removed real obstacles to the project—the people most likely to fight back. Second, the fact that everyone witnessed the “troublemakers” being disappeared sent an unmistakable warning to those who might be thinking of resisting, thereby eliminating future obstacles. And it worked. “We were confused and anguished, docile and waiting to take orders … people regressed; they became more dependent and fearful,” recalled the Chilean psychiatrist Marco Antonio de la Parra.58 They were, in other words, in shock.

Of course all interrogation is purportedly about gaining valuable information and therefore forcing betrayal, but many prisoners report that their torturers were far less interested in the information, which they usually already possessed, than in achieving the act of betrayal itself. 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.

The ultimate acts of rebellion in this context were small gestures of kindness between prisoners, such as tending to each other’s wounds or sharing scarce food. When such loving acts were discovered, they were met with harsh punishment. Prisoners were goaded into being as individualistic as possible, constantly offered Faustian bargains, like choosing between more unbearable torture for themselves or more torture for a fellow prisoner. In some cases, prisoners were so successfully broken that they agreed to hold the picana on their fellow inmates or go on television and renounce their former beliefs. These prisoners represented the ultimate triumph for their torturers: not only had the prisoners abandoned solidarity but in order to survive they had succumbed to the cutthroat ethos at the heart of laissez-faire capitalism—“looking out for No. 1,” in the words of the ITT executive.

An estimated five hundred babies were born inside Argentina’s torture centers, and these infants were immediately enlisted in the plan to reengineer society and create a new breed of model citizens. After a brief nursing period, hundreds of babies were sold or given to couples, most of them directly linked to the dictatorship. The children were raised according to the values of capitalism and Christianity deemed “normal” and healthy by the junta and never told of their heritage, according to the human rights group the Grandmothers of the Plaza de Mayo that has painstakingly tracked down dozens of these children.

After Milton Friedman’s fateful trip to Chile in 1975, the New York Times columnist Anthony Lewis asked a simple but inflammatory question: “If the pure Chicago economic theory can be carried out in Chile only at the price of repression, should its authors feel some responsibility?”

human rights abuses in Chile and Argentina. The economics prize is actually independent from the peace prize, awarded by a different committee and handed out in a different city. From afar, however, it seemed as if, with the two Nobel prizes, the most prestigious jury in the world had issued its verdict: the shock of the torture chamber was to be forcefully condemned, but economic shock treatments were to be applauded—and the two forms of shock were, as Letelier had written with dripping irony, “entirely unrelated.”

Contributing to the problem was the particular way that these acts of terror were framed as narrow “human rights abuses” rather than as tools that served clear political and economic ends.

But by focusing purely on the crimes and not on the reasons behind them, the human rights movement also helped the Chicago School ideology to escape from its first bloody laboratory virtually unscathed.

To prove that it was not using human rights to advance a particular political agenda, each Amnesty chapter was instructed to simultaneously “adopt” three prisoners of conscience, one each “from communist, Western, and Third World countries.”13 Amnesty’s position, emblematic of the human rights movement as a whole at that time, was that since human rights violations were a universal evil, wrong in and of themselves, it was not necessary to determine why abuses were taking place but to document them as meticulously and credibly as possible.

Between the Chicago Boys in Chile and the Berkeley Mafia in Indonesia, Ford was gaining an unfortunate reputation: graduates from two of its flagship programs were now dominating the most notoriously brutal right-wing dictatorships in the world.

But when Ford rode to the rescue, its assistance came at a price, and that price was—consciously or not—the intellectual honesty of the human rights movement. The foundation’s decision to get involved in human rights but “not get involved in politics” created a context in which it was all but impossible to ask the question underlying the violence it was documenting: Why was it happening, in whose interests?

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.

Her point was that the occupation could not be done humanely; there is no humane way to rule people against their will. There are two choices, Beauvoir wrote: accept occupation and all the methods required for its enforcement, “or else you reject, not merely certain specific practices, but the greater aim which sanctions them, and for which they are essential.” The same stark choice is available in Iraq and Israel/Palestine today, and it was the only option in the Southern Cone in the seventies. Just as there is no kind, gentle way to occupy people against their determined will, there is no peaceful way to take away from millions of citizens what they need to live with dignity—which is what the Chicago Boys were determined to do.

Thatcher used her war to launch the first mass privatization auction in a Western democracy. This was the real Operation Corporate, one with historic implications. Thatcher’s successful harnessing of the Falklands War was the first definitive evidence that a Chicago School economic program did not need military dictatorships and torture chambers in order to advance. She had proved that with a large enough political crisis to rally around, a limited version of shock therapy could be imposed in a democracy.

The idea that market crashes can act as catalysts for revolutionary change has a long history on the far left, most notably in the Bolshevik theory that hyperinflation, by destroying the value of money, takes the masses one step closer to the destruction of capitalism itself.35 This theory explains why a certain breed of sectarian leftist is forever calculating the exact conditions under which capitalism will reach “the crisis,” much as evangelical Christians calibrate signs of the coming Rapture.

A few months earlier, a delegation of Bolivian politicians had visited Harvard and seen Sachs in action; they had been impressed by his bravado—he had told them that he could turn around their inflationary crisis in a day. Sachs had no experience in development economics, but, by his own admission, “I thought that I knew just about everything that needed to be known” about inflation.

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. In the early eighties, it was these odious debts that Washington insisted Argentina’s new democratic government had to repay.

In this way, crisis is built into the Chicago School model. 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. 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.

How had they done it? Years later, Cavallo explained. “At the time of hyperinflation it’s terrible for the people, particularly for low-income people and small savers, because they see that in a few hours or in a few days they are being told their salaries got destroyed by the price increases, which take place at an incredible speed. That is why the people ask the government, ‘Please do something.’ And if the government comes with a good stabilization plan, that is the opportunity to also accompany that plan with other reforms … the most important reforms were related to the opening up of the economy and to the deregulation and the privatization process. But the only way to implement all those reforms was, at that time, to take advantage of the situation created by hyperinflation, because the population was ready to accept drastic changes in order to eliminate hyperinflation and to go back to normality.”

As Latin Americans had just learned, authoritarian regimes have a habit of embracing democracy at the precise moment when their economic projects are about to implode.

A sort of revival meeting for those who embraced this worldview was held in that eventful winter of 1989; the location, fittingly, was the University of Chicago. The occasion was a speech by Francis Fukuyama titled “Are We Approaching the End of History?”ae 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.

When he pointed out that South Africa wanted to do nothing more radical than what Western Europe had done under the Marshall Plan after the Second World War, the Dutch minister of finance dismissed the parallel. “That was what we understood then. But the economies of the world are interdependent. The process of globalization is taking root. No economy can develop separately from the economies of other countries.”

Yeltsin’s privatization minister, Anatoly Chubais (whom Sachs once described as “a freedom fighter”), became one of the most outspoken proponents of the Pinochet option.61 “In order to have a democracy in society there must be a dictatorship in power,” he pronounced. 62 It was a direct echo of both the excuses made for Pinochet by Chile’s Chicago Boys and Deng Xiaoping’s philosophy of Friedmanism without the freedom.

The economist Anders Åslund had claimed that the “temptations of capitalism” alone would transform Russia, that the sheer power of greed would provide the momentum to rebuild the country. Asked a few years later what went wrong, he replied, “Corruption, corruption and corruption,” as if corruption was something other than the unrestrained expression of the “temptations of capitalism” that he had so enthusiastically praised.

The edges of the market needed to be softened with public sector jobs and by making sure no one went hungry—the very future of capitalism was at stake. During the Cold War, no country in the free world was immune to this pressure. In fact, the achievements of mid-century capitalism, or what Sachs calls “normal” capitalism—workers’ protections, pensions, public health care and state support for the poorest citizens in North America—all grew out of the same pragmatic need to make major concessions in the face of a powerful left.

Sachs admires Keynes, but he seems uninterested in what made Keynesianism finally possible in his own country: the messy, militant demands of trade unionists and socialists whose growing strength turned a more radical solution into a credible threat, which in turn made the New Deal look like an acceptable compromise. This unwillingness to recognize the role of mass movements in pressuring reluctant governments to embrace the very ideas he advocates has had serious ramifications. For one, it meant that Sachs could not see the most glaring political reality confronting him in Russia: there was never going to be a Marshall Plan for Russia because there was only ever a Marshall Plan because of Russia. When Yeltsin abolished the Soviet Union, the “loaded gun” that had forced the development of the original plan was disarmed. Without it, capitalism was suddenly free to lapse into its most savage form, not just in Russia but around the world. With the Soviet collapse, the free market now had a global monopoly, which meant all the “distortions” that had been interfering with its perfect equilibrium were no longer required.

The truth is that Asia’s crisis is still not over, a decade later. When 24 million people lose their jobs in a span of two years, a new desperation takes root that no culture can easily absorb. It expresses itself in different forms across the region, from a significant rise in religious extremism in Indonesia and Thailand to the explosive growth in the child sex trade. Employment rates have still not reached pre-1997 levels in Indonesia, Malaysia and South Korea. And it’s not just that workers who lost their jobs during the crisis never got them back. The layoffs have continued, with new foreign owners demanding ever-higher profits for their investments. The suicides have also continued: in South Korea, suicide is now the fourth most common cause of death, more than double the pre-crisis rate, with thirty-eight people taking their own lives every day.50 That is the untold story of the policies that the IMF calls “stabilization programs,” as if countries were ships being tossed around on the market’s high seas. They do, eventually, stabilize, but that new equilibrium is achieved by throwing millions of people overboard: public sector workers, small-business owners, subsistence farmers, trade unionists. The ugly secret of “stabilization” is that the vast majority never climb back aboard. They end up in slums, now home to 1 billion people; they end up in brothels or in cargo ship containers. They are the disinherited, those described by the German poet Rainer Maria Rilke as ...

Through all its various name changes—the War on Terror, the war on radical Islam, the war against Islamofascism, the Third World War, the long war, the generational war—the basic shape of the conflict has remained unchanged. It is limited by neither time nor space nor target. 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.

In the nineties, tech companies endlessly trumpeted the wonders of the borderless world and the power of information technology to topple authoritarian regimes and bring down walls. Today, inside the disaster capitalism complex, the tools of the information revolution have been flipped to serve the opposite purpose.

Wherever it has emerged over the past thirty-five years, from Santiago to Moscow to Beijing to Bush’s Washington, the alliance between a small corporate elite and a right-wing government has been written off as some sort of aberration—mafia capitalism, oligarchy capitalism and now, under Bush, “crony capitalism.” But it’s not an aberration; it is where the entire Chicago School crusade—with its triple obsessions—privatization, deregulation and union-busting—has been leading.

As for journalists and activists, we seemed to be exhausting our attention on the spectacular physical attacks, forgetting that the parties with the most to gain never show up on the battlefield.

Terrorists don’t try to win through direct confrontation; they attempt to break public morale with spectacular, televisual displays that at once expose their enemy’s vulnerability and their own capacity for cruelty. That was the theory behind the 9/11 attacks, just as it was the theory behind the invasion of Iraq.

Ahmed and Iqbal had been grabbed by the Northern Alliance while visiting Afghanistan on their way to a wedding. They had been violently beaten, injected with unidentified drugs, put in stress positions for hours, sleep deprived, forcibly shaven and denied all legal rights for twenty-nine months.34 And yet they were supposed to “forget it” in the face of the overwhelming allure of Pringles. That was actually the plan.

While the pickup trucks stuffed with loot were still being driven to buyers in Jordan, Syria and Iran, passing them in the opposite direction were convoys of flatbeds piled high with Chinese TVs, Hollywood DVDs and Jordanian satellite dishes, ready to be unloaded on the sidewalks of Baghdad’s Karada district. Just as one culture was being burned and stripped for parts, another was pouring in, prepackaged, to replace it.

The leadership of the company’s Iraq operation was dominated by high-level Mormons—people like James Mayfield, who told his mission back in Houston that he thought Muslims could be persuaded to embrace the Book of Mormon as compatible with the teachings of the prophet Muhammad. In an e-mail home, he imagined that Iraqis would erect a statue to him as their “founder of democracy.”bi19

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.

The most widely recognized case of blowback was provoked by Bremer’s first major act, the firing of approximately 500,000 state workers, most of them soldiers, but also doctors, nurses, teachers and engineers. “De-Baathification,” as it was called, was supposedly driven by a desire to clean out the government of Saddam loyalists. No doubt that was part of the motivation, but it does not explain the scale of the layoffs or how deeply they savaged the public sector as a whole, punishing workers who were not high-level officials.

Bremer knew people would be upset about losing their jobs, but as his memoir makes clear, he did not consider how the sudden amputation of Iraq’s professional class would make it impossible for the Iraqi state to function and therefore hinder his own work. That blindness had little to do with anti-Saddamism and everything to do with free-market fervor. 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.

As The Washington Post’s Rajiv Chandrasekaran revealed, the CPA was such a skeletal organization that it had just three people assigned to the enormous task of privatizing Iraq’s state-owned factories. “Don’t bother starting,” the three lonely staffers were counseled by a delegation from East Germany—which, when it sold off its state assets, had assigned eight thousand people to the project.29 In short, the CPA was itself too privatized to privatize Iraq.

The Democratic senator Byron Dorgan described this web, using an air-conditioning contract in Baghdad as an example: “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.

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.

Had the Bush administration kept its promise to hand over power quickly to an elected Iraqi government, there is every chance that the resistance would have remained small and containable, rather than becoming a countrywide rebellion. But 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.

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.” According to Ali, many of those human errors emerged from U.S.-run jails looking for revenge. “Abu Ghraib is a breeding ground for insurgents … . All the insults and torture make them ready to do just about anything. Who can blame them?”