The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

In Brazil, several multinationals banded together and financed their own privatized torture squads. In mid-1969, just as the junta entered its most brutal phase, an extralegal police force was launched called Operation Bandeirantes, known as OBAN.

Staffed with military officers, OBAN was funded, according to Brazil: Never Again, “by contributions from various multinational corporations, including Ford and General Motors.”

It was in Argentina, however, that the involvement of Ford’s local subsidiary with the terror apparatus was most overt. The company supplied cars to the military, and the green Ford Falcon sedan was the vehicle used for thousands of kidnappings and disappearances.

The Argentine psychologist and playwright Eduardo Pavlovsky described the car as “the symbolic expression of terror. A death-mobile.”40

Mercedes-Benz (a subsidiary of DaimlerChrysler) is facing a similar investigation stemming from allegations that the company collaborated with the military during the 1970s to purge one of its plants of union leaders, allegedly giving names and addresses of sixteen workers who were later disappeared, fourteen of them permanently.

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.69

Milton Friedman had been awarded the 1976 Nobel Prize for Economics

In 1967, press reports revealed that the International Commission of Jurists, the preeminent human rights group focused on Soviet abuses, was not the impartial arbiter it claimed to be but was receiving secret funding from the CIA.

Without an examination of the larger plan to impose “pure” capitalism on Latin America, and the powerful interests behind that project, the acts of sadism documented in the report made no sense at all—they were just random, free-floating bad events, drifting in the political ether, to be condemned by all people of conscience but impossible to understand.

By far the most significant source of funding for this work was the Ford Foundation, then the largest philanthropic organization in the world. In the sixties, the organization spent only a small portion of its budget on human rights, but in the seventies and eighties, the foundation spent a staggering $30 million on work devoted to human rights in Latin America. With these funds, the foundation backed Latin American groups like Chile’s Peace Committee as well as new U.S.-based groups, including Americas Watch.

As discussed earlier, the Ford Foundation was the primary funder of the University of Chicago’s Program of Latin American Economic Research and Training, which churned out hundreds of Latino Chicago Boys. Ford also financed a parallel program at the Catholic University in Santiago, designed to attract undergraduate economics students from neighboring countries to study under Chile’s Chicago Boys. That made the Ford Foundation, intentionally or not, the leading source of funding for the dissemination of the Chicago School ideology throughout Latin America, more significant even than the U.S. government.

Thatcher’s personal approval rating more than doubled over the course of the battle, from 25 percent at the start to 59 percent at the end, paving the way for a decisive victory in the following year’s election.

When the coal miners went on strike in 1984, Thatcher cast the standoff as a continuation of the war with Argentina, calling for similarly brutal resolve. She famously declared, “We had to fight the enemy without in the Falklands and now we have to fight the enemy within, which is much more difficult but just as dangerous to liberty.”

In Britain, Thatcher parlayed her victory in the Falklands and over the miners into a major leap forward for her radical economic agenda. Between 1984 and 1988, the government privatized, among others, British Telecom, British Gas, British Airways, British Airport Authority and British Steel, while it sold its shares in British Petroleum.

With the leaders of the labor federation on a hunger strike, Paz directed the police and military to round up the country’s top two hundred union leaders, load them on planes and fly them to remote jails in the Amazon.42 According to Reuters, the detainees included “the leadership of the Bolivian Labor Federation and other senior trade union officials,” and they were taken “to isolated villages in the Amazon basin in northern Bolivia, where their movements [were] restricted.”43 It was a mass kidnapping, complete with a ransom demand: the prisoners would be released only if the unions called off their protests, which they eventually agreed to do.

Most dramatic are the number of people in poverty: in 1989, 15 percent of Poland’s population was living below the poverty line; in 2003, 59 percent of Poles had fallen below the line.

The new convert is always more zealous at these things. They want to please even more,” remarked the Durban-based writer Ashwin Desai

Despite the fact that Russia’s Constitutional Court once again ruled Yeltsin’s behavior unconstitutional, Clinton continued to back him, and Congress voted to give Yeltsin $2.5 billion in aid. Emboldened, Yeltsin sent in troops to surround the parliament and got the city to cut off power, heat and phone lines to the White House parliament building.

In the absence of major famine, plague or battle, never have so many lost so much in so short a time. By 1998, more than 80 percent of Russian farms had gone bankrupt, and roughly seventy thousand state factories had closed, creating an epidemic of unemployment. In 1989, before shock therapy, 2 million people in the Russian Federation were living in poverty, on less than $4 a day. By the time the shock therapists had administered their “bitter medicine” in the mid-nineties, 74 million Russians were living below the poverty line, according to the World Bank. That means that Russia’s “economic reforms” can claim credit for the impoverishment of 72 million people in only eight years. By 1996, 25 percent of Russians—almost 37 million people—lived in poverty described as “desperate.”

During the Cold War, widespread alcoholism was always seen in the West as evidence that life under Communism was so dismal that Russians needed large quantities of vodka to get through the day. Under capitalism, however, Russians drink more than twice as much alcohol as they used to—and they are reaching for harder painkillers as well. Russia’s drug czar, Aleksandr Mikhailov, says that the number of users went up 900 percent from 1994 to 2004, to more than 4 million people, many of them heroin addicts. The drug epidemic has contributed to another silent killer: in 1995, fifty thousand Russians were HIV positive, and in only two years that number doubled; ten years later, according to UNAIDS, nearly a million Russians were HIV positive.81

As soon as shock therapy was introduced in 1992, Russia’s already high suicide rate began to rise; 1994, the peak of Yeltsin’s “reforms,” saw the suicide rate climb to almost double what it had been eight years earlier. Russians also killed each other with much greater frequency: by 1994, violent crime had increased more than fourfold.

Between 1992, the first full year of shock therapy, and 2006, Russia’s population shrank by 6.6 million.

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.

Those “gross irregularities,” which Budhoo claims were deliberate and not mere “sloppy calculations,” were taken as fact by the financial markets, which promptly classified Trinidad as a bad risk and cut off its financing. The country’s economic problems—triggered by a drop in the price of oil, its primary export—quickly became calamitous, and it was forced to beg the IMF for a bailout. The fund then demanded that it accept what Budhoo described as the IMF’s “deadliest medicine”: layoffs, wage cuts and the “whole gamut” of structural adjustment policies. He described the process as the “deliberate blocking of an economic lifeline to the country through subterfuge”

In his letter, Budhoo, who died in 2001, made it clear that his dispute was over more than the treatment of one country by a handful of officials. He characterized the IMF’s entire program of structural adjustment as a form of mass torture in which “‘screaming-in-pain’ governments and peoples [are] forced to bend on their knees before us, broken and terrified and disintegrating, and begging for a sliver of reasonableness and decency on our part. But we laugh cruelly in their face, and the torture goes on unabated.”

In South Korea, television stations ran a massive campaign calling on citizens to donate their gold jewelry so that it could be melted down and used to pay off the country’s debts.

As had happened during the Great Depression, the crisis led to a wave of suicides as families saw their life savings disappear and tens of thousands of small businesses shut their doors. In South Korea, the suicide rate went up by 50 percent in 1998. The spike was steepest among people over sixty, with older parents attempting to lessen the economic burden on their struggling children. The Korean press also reported an alarming increase in family suicide pacts in which fathers led their debt-ridden households in group hangings.

In South Korea, the IMF subversion of democracy was even more overt. There, the end of the IMF negotiations coincided with scheduled presidential elections in which two of the candidates were running on anti-IMF platforms. 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.

“the markets are asking themselves the question of just how much the senior Indonesian leadership is committed to this program, and particularly to the major reform measures.” The article went on to predict that the IMF would punish Indonesia by withholding billions in promised loans. As soon as it appeared, Indonesia’s currency fell through the floor, losing 25 percent of its value in a single day.28

The International Labor Organization estimates that a staggering 24 million people lost their jobs in this period and that Indonesia’s unemployment rate increased from 4 to 12 percent. Thailand was losing 2,000 jobs a day at the height of the “reforms”—60,000 a month. In South Korea, 300,000 workers were fired every month—largely the result of the IMF’s totally unnecessary demands to slash government budgets and hike interest rates. By 1999, South Korea’s and Indonesia’s unemployment rates had nearly tripled in only two years.

Behind every statistic was a story of wrenching sacrifice and degraded decisions. As is always the case, women and children suffered the worst of the crisis. Many rural families in the Philippines and South Korea sold their daughters to human traffickers who took them to work in the sex trade in Australia, Europe and North America. In Thailand, public health officials reported a 20 percent increase in child prostitution in just one year—the year after the IMF reforms. The Philippines tracked the same trend.

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

In the mountain of evidence that has cascaded out of Abu Ghraib and Guantánamo Bay, two forms of prisoner abuse come up again and again: nudity and the deliberate interference with Islamic practice whether by forcing prisoners to shave their beards, kicking the Koran, wrapping prisoners in Israeli flags, forcing men into homosexual poses, even touching men with simulated menstrual blood.

Unfortunately, the money didn’t go to the Russian people, the true victims of the corrupt privatization process, but back to the U.S. government—the same way that the “whistle-blower” lawsuits against U.S. contractors in Iraq divvy up the settlement between the U.S. government and the American whistle-blower.