The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

“The violation of human rights, the system of institutionalized brutality, the drastic control and suppression of every form of meaningful dissent is discussed (and often condemned) as a phenomenon only indirectly linked, or indeed entirely unrelated, to the classical unrestrained ‘free market’ policies that have been enforced by the military junta,” Letelier wrote in a searing essay for The Nation. He pointed out that “this particularly convenient concept of a social system, in which ‘economic freedom’ and political terror coexist without touching each other, allows these financial spokesmen to support their concept of ‘freedom’ while exercising their verbal muscles in defense of human rights.”

There was, he wrote, “an inner harmony” between the “free market” and unlimited terror.4

The refusal to connect the apparatus of state terror to the ideological project it served is characteristic of almost all the human rights literature from this period. Although Amnesty’s reticence can be understood as an attempt to remain impartial amid Cold War tensions, there was, for many other groups, another factor at play: money.

Why? They answer matter-of-factly: “Since the economic policy was extremely unpopular among the most numerous sectors of the population, it had to be implemented by force.”

In a way, what happened in the Southern Cone of Latin America in the seventies is that it was treated as a murder scene when it was, in fact, the site of an extraordinarily violent armed robbery.

The widespread abuse of prisoners is a virtually foolproof indication that politicians are trying to impose a system—whether political, religious or economic—that is rejected by large numbers of the people they are ruling.

Simone de Beauvoir, writing on the same subject, concurred: “To protest in the name of morality against ‘excesses’ or ‘abuses’ is an error which hints at active complicity. There are no ‘abuses’ or ‘excesses’ here, simply an all-pervasive system.”24 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.”

Robbery, whether of land or a way of life, requires force or at least its credible threat; it’s why thieves carry guns, and often use them. Torture is sickening, but it is often a highly rational way to achieve a specific goal; indeed, it may be the only way to achieve those goals. Which raises the deeper question, one that so many were incapable of asking at the time in Latin America. Is neo-liberalism an inherently violent ideology, and is there something about its goals that demands this cycle of brutal political cleansing, followed by human rights cleanup operations?

“The line is continuous—those who took the land from the Indians continue to oppress us with their feudal structures.”25

“Foreign monopolies impose crops on us, they impose chemicals that pollute our earth, impose technology and ideology. All this through the oligarchy which owns the land and controls the politics. But we must remember—the oligarchy is also controlled, by the very same monopolies, the very same Ford Motors, Monsanto, Philip Morris. It’s the structure we have to change. This is what I have come to denounce. That’s all.”

“I am sure you will agree that, in Britain with our democratic institutions and the need for a high degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution. At times the process may seem painfully slow.”

Across the Atlantic, Thatcher was attempting an English version of Friedmanism by championing what has become known as “the ownership society.” The effort centered on Britain’s public housing, or council estates, which Thatcher opposed on philosophical grounds, believing that the state had no role to play in the housing market. The council estates were filled with the type of people who wouldn’t vote Tory because it wasn’t in their economic self-interest; Thatcher was convinced that if they could be brought into the market, they would start to identify with the interests of the wealthier people who opposed redistribution. With that in mind, she offered strong incentives to the residents of public housing to buy their flats at reduced rates. Those who could became homeowners, while those who couldn’t faced rents that were almost twice as high as before. It was a divide-and-conquer strategy, and it worked: the renters continued to oppose Thatcher, the streets of Britain’s large cities saw a visible increase in homelessness, but polls showed that more than half of the new owners did switch their party affiliation to the Tories.

Churchillian battle mode.

“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.”

“Ideas are alternatives waiting on a crisis to serve as the catalyst of change. Friedman’s model of influence was to legitimize ideas, to make them bearable, and worth trying when the opportunity comes.”

Crises are, in a way, democracy-free zones—gaps in politics as usual when the need for consent and consensus do not seem to apply.

“seize control of the environment and paralyze or so overload an adversary’s perceptions and understanding of events so that the enemy would be incapable of resistance.”

This is where Friedman’s crisis theory became self-reinforcing. The more the global economy followed his prescriptions, with floating interest rates, deregulated prices and export-oriented economies, the more crisis-prone the system became, producing more and more of precisely the type of melt-downs he had identified as the only circumstances under which governments would take more of his radical advice.

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. A sudden drop in the price of coffee sends entire economies into depression, which is then deepened by currency traders who, seeing a country’s financial downturn, respond by betting against its currency, causing its value to plummet. When soaring interest rates are added, and national debts balloon overnight, you have a recipe for potential economic mayhem.

Friedman’s neoliberal triumvirate of privatization, deregulation/free trade and drastic cuts to government spending.

Structural adjustment was sold as the process that countries needed to undergo in order to save their economies from the crisis.

“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.”

This points to a nagging and important question about free-market ideologues: Are they “true believers,” driven by ideology and faith that free markets will cure underdevelopment, as is often asserted, or do the ideas and theories frequently serve as an elaborate rationale to allow people to act on unfettered greed while still invoking an altruistic motive? All ideologies are corruptible, of course (as Russia’s apparatchiks made abundantly clear when, during the Communist era, they collected their abundant privileges), and there are certainly honest neoliberals. But Chicago School economics does seem particularly conducive to corruption. 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.

Another Iraq parallel: no matter how baldly Yeltsin defied anything resembling democracy, his rule was still characterized in the West as part of “a transition to democracy,” a narrative that would change only when Putin began cracking down on the illegal activities of several of the oligarchs. Similarly, the Bush administration has always portrayed Iraq as on the road to freedom, even in the face of overwhelming evidence of rampant torture, out-of-control death squads and pervasive press censorship. Russia’s economic program was always described as “reform,” just as Iraq is perennially under “reconstruction,” even after the U.S. contractors have mostly all fled, leaving the infrastructure in a shambles, as the destruction roars on. In Russia in the mid-nineties, anyone who dared question the wisdom of “the reformers” was dismissed as nostalgic for Stalin, just as critics of Iraq’s occupation were, for years, met with accusations that they thought life was better under Saddam Hussein.

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 real problem with the blame-Russia narrative is that it pre-empts any serious examination of what the whole episode has to teach about the true face of the crusade for unfettered free markets, the most powerful political trend of the past three decades. The corruption of many of the oligarchs is still spoken of as an alien force that infected otherwise worthy free-market plans. But corruption wasn’t an intruder to Russia’s free-market reforms: quick and dirty deals were actively encouraged by Western powers at every stage as the fastest way to kick-start the economy. National salvation through the harnessing of greed was the closest thing Russia’s Chicago Boys and their advisers had to a plan for what they were going to do after they finished destroying Russia’s institutions.

The movement that Milton Friedman launched in the 1950s is best understood as an attempt by multinational capital to recapture the highly profitable, lawless frontier that Adam Smith, the intellectual forefather of today’s neoliberals, so admired—but with a twist. Rather than journeying through Smith’s “savage and barbarous nations” where there was no Western law (no longer a practical option), this movement set out to systematically dismantle existing laws and regulations to re-create that earlier lawlessness. And where Smith’s colonists earned their record profits by seizing what he described as “waste lands” for “but a trifle,” today’s multinationals see government programs, public assets and everything that is not for sale as terrain to be conquered and seized—the post office, national parks, schools, social security, disaster relief and anything else that is publicly administered.

Under Chicago School economics, the state acts as the colonial frontier, which corporate conquistadors pillage with the same ruthless determination and energy as their predecessors showed when they hauled home the gold and silver of the Andes. Where Smith saw fertile green fields turned into profitable farmlands on the pampas and the prairies, Wall Street saw “green field opportunities” in Chile’s phone system, Argentina’s airline, Russia’s oil fields, Bolivia’s water system, the United States’ public airwaves, Poland’s factories—all built with public wealth, then sold for a trifle.92 Then there are the treasures created by enlisting the state to put a patent and a price tag on life-forms and natural resources never dreamed of as commodities—seeds, genes, carbon in the earth’s atmosphere. By relentlessly searching for new profit frontiers in the public domain, Chicago School economists are like the mapmakers of the colonial era, identifying new waterways through the Amazon, marking off the location of a hidden cache of gold inside an Inca temple.

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. As long as Communism was a threat, the gentlemen’s agreement that was Keynesianism would live on; once that system lost ground, all traces of compromise could finally be eradicated, thereby fulfilling the purist goal Friedman had set out for his movement a half century earlier.

In an extraordinary act of interference with a sovereign nation’s political process, the IMF refused to release the money until it had commitments from all four main candidates that they would stick to the new rules if they won. With the country effectively held at ransom, the IMF was triumphant: each candidate pledged his support in writing.25 Never before had the central Chicago School mission to protect economic matters from the reach of democracy been more explicit: you can vote, South Koreans were told, but your vote can have no bearing on the managing and organization of the economy. (The day the deal was signed was instantly dubbed Korea’s “National Humiliation Day.”)26

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 “ones to whom neither the past nor the future belongs.”

During the 1990s, many companies that had traditionally manufactured their own products and maintained large, stable workforces embraced what became known as the Nike model: don’t own any factories, produce your products through an intricate web of contractors and subcontractors, and pour your resources into design and marketing. Other companies opted for the alternative, Microsoft model: maintain a tight control center of shareholder/employees who perform the company’s “core competency” and outsource everything else to temps, from running the mailroom to writing code. Some called the companies that underwent these radical restructurings “hollow corporations” because they were mostly form, with little tangible content left over.

the Bush regime: that the job of government is not to govern but to subcontract the task to the more efficient and generally superior private sector.

It was a move that brought the shock doctrine to a new, self-referential phase: until that point, disasters and crises had been harnessed to push through radical privatization plans after the fact, but the 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.

Keynes had argued that governments should spend their way out of recessions, providing economic stimulus with public works.

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.59 Yet what is most striking is how little the security boom is analyzed and discussed as an economy, as an unprecedented convergence of unchecked police powers and unchecked capitalism, a merger of the shopping mall and the secret prison. When information about who is or is not a security threat is a product to be sold as readily as information about who buys Harry Potter books on Amazon or who has taken a Caribbean cruise and might enjoy one in Alaska, it changes the values of a culture. Not only does it create an incentive to spy, torture and generate false information but it creates a powerful impetus to perpetuate the fear and sense of peril that created the industry in the first place. When new economies emerged in the past, from the Fordist revolution to the IT boom, they sparked a flood of analysis and debate about how such seismic shifts in the production of wealth were also altering the way we as a culture worked, the way we traveled, even the way our brains process information. The new disaster economy has been subject to none of this kind of far-reaching discussion. There have been and are debates, of course—about the constitutionality of the Patriot Act, about indefinite detention, about torture and extraordinary rendition—but discussion of what it means to have these function...

In his 2006 book Overthrow, the former New York Times correspondent Stephen Kinzer tries to get to the bottom of what has motivated the U.S. politicians who have ordered and orchestrated foreign coups d’état over the past century. Studying U.S. involvement in regime change operations from Hawaii in 1893 to Iraq in 2003, he observes that there is often a clear three-stage process that takes place. First, a U.S.-based multinational corporation faces some kind of threat to its bottom line by the actions of a foreign government demanding that the company “pay taxes or that it observe labor laws or environmental laws. Sometimes that company is nationalized or is somehow required to sell some of its land or its assets,” Kinzer says. Second, U.S. politicians hear of this corporate setback and reinterpret it as an attack on the United States: “They transform the motivation from an economic one into a political or geo-strategic one. They make the assumption that any regime that would bother an American company or harass an American company must be anti-American, repressive, dictatorial, and probably the tool of some foreign power or interest that wants to undermine the United States.” The third stage happens when the politicians have to sell the need for intervention to the public, at which point it becomes a broadly drawn struggle of good versus evil, “a chance to free a poor oppressed nation from the brutality of a regime that we assume is a dictatorship, because what other kind ...

By then, most drugstores in Baghdad had sold out of sleeping aids and antidepressants, and the city was completely cleaned out of Valium.

“The hundreds of looters who smashed ancient ceramics, stripped display cases and pocketed gold and other antiquities from the National Museum of Iraq pillaged nothing less than records of the first human society,” reported the Los Angeles Times. “Gone are 80 per cent of the museum’s 170,000 priceless objects.”24 The national library, which contained copies of every book and doctoral thesis ever published in Iraq, was a blackened ruin. Thousand-year-old illuminated Korans had disappeared from the Ministry of Religious Affairs, which was left a burned-out shell. “Our national heritage is lost,” pronounced a Baghdad high-school teacher.25 A local merchant said of the museum, “It was the soul of Iraq. If the museum doesn’t recover the looted treasures, I will feel like a part of my own soul has been stolen.”

McGuire Gibson, an archaeologist at the University of Chicago, called it “a lot like a lobotomy. The deep memory of an entire culture, a culture that has continued for thousands of years, has been removed.”

During the 1991 Gulf War, thirteen Iraqi museums were attacked by looters, so there was every reason to believe that poverty, anger at the old regime and the general atmosphere of chaos would prompt some Iraqis to respond in the same way (especially given that Saddam had emptied the prisons several months earlier). The Pentagon had been warned by leading archaeologists that it needed to have an airtight strategy to protect museums and libraries before any attack, and a March 26 Pentagon memo to coalition command listed “in order of importance, 16 sites that were crucial to protect in Baghdad.” Second on the list was the museum. Other warnings had urged Rumsfeld to send an international police contingent in with the troops to maintain public order—another suggestion that was ignored.28

Bremer enacted a radical set of laws described by The Economist in glowing terms as the “wish-list that foreign investors and donor agencies dream of for developing markets.”10 One law lowered Iraq’s corporate tax rate from roughly 45 percent to a flat 15 percent (straight out of the Milton Friedman playbook). Another allowed foreign companies to own 100 percent of Iraqi assets—preventing a repeat of Russia, where the prizes went to the local oligarchs. Even better, investors could take 100 percent of the profits they made in Iraq out of the country; they would not be required to reinvest, and they would not be taxed. The decree also stipulated that investors could sign leases and contracts that would last for forty years and then be eligible for renewal, which meant that future elected governments would be saddled with deals signed by their occupiers.

In March 2006, a federal jury in Virginia ruled against the company, finding it guilty of fraud, and forced it to pay $10 million in damages. The company then asked the judge to overturn the verdict, with a revealing defense. It claimed that the CPA was not part of the U.S. government, and therefore not subject to its laws, including the False Claims Act. The implications of this defense were enormous: 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. This time, the judge ruled in the company’s favor: he said there was plenty of evidence that Custer Battles had submitted to the CPA “false and fraudulently inflated invoices,” but he ruled that the plaintiffs had “failed to prove that the claims were presented to the United States.”40 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. In this way, Iraq represented the most extreme expression of the anti-state counterrevolution—a hollow state, where, as the courts finally established, there was no there, there.