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Naomi Klein

When They’re Reeling, Knock ’Em Down

Author Naomi Klein traces 35 years of “disaster capitalism”—from Augusto Pinochet to Hurricane Katrina and the war in Iraq

By Bryan Lynch

Milton Friedman, the Nobel-laureate economist and champion of unfettered global markets, was a great believer in preparing for disaster. As he wrote in the opening of his 1962 manifesto, Capitalism and Freedom, “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.” And Friedman worked his long career to ensure that the economic ideas lying closest to powerful politicians and bureaucrats in times of trouble were the ones he espoused most fervently: deregulation of industry; privatization of state-owned companies and resources; the shrinking of government to its barest essentials; and the complete freedom of capital to move according to its whims.

Friedman’s success in this lifelong campaign can be gauged by the glowing eulogies he received from politicians, economists, and pundits around the globe when he died last year at the age of 94. But the true mark of his influence, according to Canadian writer and activist Naomi Klein, is in the cynical opportunism of those committed to laissez-faire capitalism. As she argues in her wide-ranging, caustic new book, The Shock Doctrine: The Rise of Disaster Capitalism, Friedman’s followers have learned to take swift advantage of public disorientation in the wake of large-scale catastrophes in order to perform what Friedman himself called economic “shock therapy.”

Klein explains that she first noticed this pattern during a trip to Sri Lanka in the summer of 2005 to report on the devastation the Asian tsunami had wreaked on that country’s shores six months before. What she saw there, she says, was “a sort of amping up of a corporate agenda from free-trade light to free-trade heavy, with no veneer of consent—just exploiting people in their deepest moment of vulnerability and disorganization, when there’s no possibility of democratic participation.”

Within mere days of the disaster, Klein says, the Sri Lankan government passed a bill opening the way for the privatization of water and began creating legislation to sell off the national electricity company. Moreover, by the time she arrived in the battered country, government officials had set up a “buffer zone” that stretched the length of the island’s east coast, preventing traditional fishing communities from returning to the waterfront to rebuild their shattered homes. The ruling ostensibly was for the sake of public safety, in case of another monstrous wave. But, as Klein argues in detail in her book, the motives behind it seemed questionable, given that the tourism industry was exempted from such restrictions. Resort owners in Sri Lanka had long sought to have the fishing villages removed from the otherwise pristine beaches; in fact, they had increased the pressure in early 2003, when the government began touting an economic-growth program, formulated in part by the World Bank, that singled out high-end tourism as the key to the country’s future prosperity in the global marketplace.

“The force of that natural disaster,” Klein says, “was immediately harnessed by international lenders . . . and the need for tremendous aid was used as leverage to make many of the countries hit by the tsunami, including Sri Lanka, submit to what used to be called ‘structural adjustment’—privatization and deregulation.”

All of this was, in her view, eerily similar to the sweeping economic program imposed on war- ravaged Iraq in 2003. In the direct aftermath of the U.S.-led invasion and its vaunted campaign of “shock and awe,” the Coalition Provisional Authority supervised a massive selloff of state-owned industries, at the same time establishing a 15- percent flat tax and laws that allowed foreign owners to remove 100 percent of their profits from the country. This was textbook Friedmanism, Klein argues, and all set down at a moment when Iraqis themselves were reeling, unable to object or to offer alternatives about how their economy should be run.

Yet it was the official response to another 2005 disaster, one much closer to home, that led Klein to write The Shock Doctrine, convincing her that what she had detected in the earlier catastrophes were not isolated examples of large-scale exploitation but rather a strategy being refined by free-market ideologues.

“When [Hurricane] Katrina hit New Orleans,” she says, “we started to see this very same pattern emerge instantly, and we started to hear immediately from the think tanks in Washington that this is really an opportunity to get rid of the public-school system and have a charter-school system, or to get rid of all those housing projects and turn them into mixed-use housing, which really means condos. Then I thought, ‘OK, this is the thesis.’ But when I started to write, I realized that what I had thought was a new tactic—this use of disaster and crisis and trauma to impose these economic policies—has actually been in play now for 35 years. And so I sort of traced the roots of this chapter of economic history.”

According to Klein, the roots go back to 1973, when the U.S.-backed toppling of Chile’s elected, left-leaning president, Salvador Allende, brought right-wing dictator Augusto Pinochet to power. As Shock Doctrine recounts, the coup had been planned along two parallel lines, with the military plot linked to a program for a drastic neoliberal overhaul of the country’s economy. The resemblance of this program to Friedman’s theories was no accident: Most of its authors belonged to a group of economists known as the Chicago Boys, trained by Friedman and his colleagues at the University of Chicago. In fact, not long after the coup, Friedman himself acted as Pinochet’s personal economic adviser, helping implement the free-market plan even as the junta kidnapped, jailed, tortured, and executed thousands who opposed the reforms.

Here, Klein says, we have “the first laboratory for Chicago School, radical, free-market policies”—policies that, she says, are so corrosive to economic justice and social safety nets, and thus so consistently unpopular with average citizens, that they can only be “imposed violently . . . only with some kind of shock.”

The jolts always come in waves, Klein says. There is a vast initial crisis, either planned or accidental: Chile’s coup, or Poland’s crumbling economy when Solidarity took power in 1988, or Southeast Asia’s currency meltdowns of the late ’90s, to name just a few of the nation-sized calamities examined in Shock Doctrine’s 500-plus pages. Then, quickly, while the populace is distracted—often by the straightforward problem of survival—the economic shock therapy is applied, pillaging the public sector and sweeping aside any rival ideas about how the country’s wealth should be apportioned and used. These, Klein claims, are the greed- driven mechanics of globalization, a process celebrated for years by its proponents as one through which economic liberalization fosters social liberation, but depicted in Shock Doctrine as the work of innately antidemocratic forces.

“It’s not actually a radical analysis,” Klein says of her book’s theme. “It only feels radical here. It doesn’t feel radical if you say this in Argentina or Chile or Poland or Russia, where people lived it—they know it. They know there’s a relationship between the fact that [former Russian president Boris] Yeltsin had to burn down the parliament [in 1993] and the fact that their whole country was sold off in the next year. It’s obvious.”

Still, Klein’s book is clearly bound to provoke argument. The many fans she made with No Logo, her best-selling anticorporate tract of 2000, will likely consider it another work of uncompromising defiance, wielding strong words like maniacal in its chapter headings, just as the earlier book flaunted the word bullies in its subtitle. Others will be disturbed, perhaps outraged, by some of the larger comparisons Klein draws while making her case.

Welcome to paradise: The Sri Lankan government took advantage the 2004 tsunami aftermath to run poor fishermen off their land, enabling wealthy investors to build exclusive oceanside hotels.

The fiercest of these is the analogy she regularly makes between Friedmanite economics and torture. The opening chapters of Shock Doctrine contend that economic shock therapy bears a hideous resemblance to the work of Ewan Cameron, the CIA-funded Montreal psychiatrist who, in the 1950s and ’60s, tried to dismantle and then rebuild the personalities of his unwitting patients by means of experimental drugs, electroshock devices, and sensory deprivation. This, Klein argues, is no mere metaphor. In her view—as in the view of many political commentators and human-rights activists, from the 1970s onward—Friedman himself shares a terrible burden of guilt with the operatives who brutally suppressed opposition to the policies he advocated in South America.

“There aren’t that many stops in between,” Klein says. “In Chile, there weren’t that many stops, in the sense that in the person of Pinochet you had a regime that was both the laboratory for new torture methods and also the laboratory for these economic methods. And the torture was enforcing the economic model.”

Klein’s critics also will be unhappy with how widely she spreads the blame for the economic exploitation described in Shock Doctrine. Among the book’s main villains are not only right-wing dictators but also the International Monetary Fund, the global financing organization established in the 1940s with the help of John Maynard Keynes, the British economist famous for championing market regulation and other policies crucial to U.S. President Franklin D. Roosevelt’s New Deal. The IMF may have been set up partly to help bail out crisis-wracked countries, Klein argues in her book, but it has since been hijacked by free-market thinkers with a privatize-and-deregulate agenda similar to Friedman’s own. This was especially apparent, she says, during the Asian financial crisis of 1997, when the IMF offered the many countries embroiled in it billions in assistance packages on the condition that they agree to “structural adjustments” that would radically reshape their economies along neoliberal lines.

The IMF’s conduct in this case remains controversial. But not everyone who disagrees with Klein’s version of it sits on the political right. Among those with qualms is Paul Blustein, a journalist in residence at the Brookings Institution, a progressive Washington, DC-based think tank. Blustein is a former Washington Post financial reporter and the author of two highly regarded—and highly critical—books about the IMF, The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF and The Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina. Blustein’s image of the IMF, though, is of an organization far more vulnerable to mundane human foibles like vanity and bullheadedness than the corporate-backed enforcer described by Klein.

“This is one of the things that bothers me about the real fierce critics of the IMF,” Blustein says. Such detractors, he says, make “the staff and the board and others out to be people who are kind of like [The Simpsons character] Montgomery Burns, rubbing their hands and counting their chips and trying to think of ways of ruining people’s lives. . . . It just doesn’t correspond to what I’ve seen, and I think I’ve gotten about as up close as any journalist has in the past 10 years to these people.”

Blustein agrees that it’s fair to criticize the IMF for often having been far too dogmatic in its insistence that cash-strapped governments slash spending, and that it has turned a blind eye when the slashing came at the expense of, say, health-care programs rather than fighter jets. Even so, he says, he has “some sympathy for the terrible dilemmas” that IMF officials faced in late 1997, as one Southeast Asian economy after another began to plummet, weighed down by huge selloffs of their currencies on panic-prone international money markets.

IMF officials “aren’t as smart as they think they are, but the fact is they’re very smart,” Blustein says, after pointing out that most of the people at the IMF that he’s met over the years are more like “centrist Democrats” than laissez-faire ideologues. “The real problem is that global financial markets, starting in the ’90s, have become so enormous and so complicated and so prone to booms and busts that even the smartest and best-intentioned of institutions can’t, in many cases, do anything to stop really bad consequences from ensuing. . . . Quite honestly, I’d say the overwhelming desire on the part of those people [IMF economists] at the time of the crises of the ‘90s was . . . to do whatever was possible to help these countries recover quickly from these financial panics. The problem was that they were running around like chickens with their heads cut off. They didn’t know what to do, because the amount of money sloshing around the world these days is just so vast and operates in such complicated and unpredictable ways, and with these bizarre connections that people just don’t think of until they see it happening. . . . That’s their problem.”

Such debate over the mission of bodies like the IMF has continued for a decade now, and it’s unlikely Shock Doctrine will provide the last word. Yet the book closes with something new and disturbing, a vision of precisely where we’re headed on this wave of regulation-free capitalism, with its disdain for the public sector and its fetishlike regard for the profit motive. It is an image of disaster capitalism folding in upon itself, reaching its logical conclusion, becoming self-sustaining—not simply using catastrophe as a pretext for advancing its ideals, but thriving on violent upheaval.

This, Klein argues in her book, can be seen most clearly in the Bush administration’s approach to the chaos in places like Iraq and New Orleans, where major aspects of disaster response have been turned over to private contractors, many of them big corporations. The result, she notes, is the creation of huge new industries in surveillance, intelligence-gathering, and disaster reconstruction—even in the supply of private security contractors of the kind now on the ground in Iraq by the thousand. It’s an inversion of the old idea that free markets need political and social tranquility to function best. In this rapidly growing sector, quarterly earnings drop in times of peace.

As Klein contends, “The drive to devour the Keynesian state started on the peripheries like the nationalized mines and then moved more and more closely to government functions like water and roads. . . . So once you’ve fed off everything else, all that’s left is the absolute core of state functions, which is security. And if security is the new frontier for hyper-profit-making, which it is, then you have this added layer to be quite concerned about, which is that now there’s such a powerful economic incentive against stability. Because what sustains this market is continued instability. The more disasters, the better it is for the industry.”

It’s a menacing note on which to end Shock Doctrine’s often bleak trip through the decades and across the map. And it arrives with few obvious consolations. Even the work of Jeffrey Sachs, the American economist held up as a hero by such celebrities as Bono for his social conscience and dedication to improving the lot of the world’s destitute, is largely dismissed by the book’s end. Sachs, Klein says, is rightly praised for leading a highly influential international campaign to increase aid and debt relief to the world’s poorest regions. Yet, she claims, his track record reveals him as a proponent of what boils down to a “kinder, gentler Friedmanis,” filled with good intentions but ready to advise crisis-stricken countries to adopt the sudden deregulate-and-deunionize policies formulated by the Chicago School, without public knowledge or consent.

“Sachs writes an entire chapter in his book about his wonderful triumph of democratic, free-market reform in Bolivia,” Klein offers as an example, referring to Sachs’ 2005 bestseller, The End of Poverty, and its account of his efforts to help the Bolivian government tackle serious hyperinflation in the mid ’80s. “Yet he doesn’t mention that they imposed a state of siege twice and kidnapped the 200 top union leaders twice, boarded them on a plane, and interned them in the jungle. How is that not a footnote of history? It’s amazing how they’ve been allowed to tell this unbelievably facile version of history. And all I’ve done is to go back over it and put the shocks back in—to say, you know, this happened and surely that matters, surely there’s a relationship.”

Still, according to Klein, sources of optimism are everywhere in Shock Doctrine. The book’s litany of chaos, greed, and injustice produces a sharp mirror image, she says, revealing the huge range of viable economic options that have simply been forced aside over the years, despite their widespread popularity.

“What gives me most hope,” she explains, “is realizing that the single greatest stumbling block for progressive forces is the pervasive idea that the ideas of the left have been tried and failed. And so even when we’re disgusted collectively with the track record of the ideological right, whether in New Orleans or Iraq, we’ve got plenty of energy and enthusiasm for our disgust but lose our confidence when it comes to proposing our own alternatives as real solutions. . . .

“When I look back at these triumphant moments for capitalism, I realize there were alternatives at every juncture that were never tried. And, in fact, those alternatives were democratically chosen and had democratic support, and they were blasted out of the way, using various forms of shock therapy—whether it’s Poland’s Solidarity program for worker ownership and co-ops that was never allowed to fail . . . or the African National Congress’s program for redistribution of wealth in South Africa that was never allowed to fail, because the market disciplined the ANC before they even tried it. So realizing that we didn’t lose, that our ideas weren’t discredited, that they were blocked , actually makes me feel quite hopeful. Because I really do think that the idea that we’re damaged goods makes us lose our nerve and confidence in key moments—like right now.”

In this sense, the book is a manual for disaster preparedness, equipped with crisis-ready ideas powerful enough, Klein hopes, to counteract Milton Friedman’s own. Shock hardly works if it is anticipated, and an economic strategy that bases its success on widespread confusion must fail if the public knows exactly what’s coming. Simply to diagram the pattern, then, as Shock Doctrine does in globe-spanning detail, is to set up resistance in the path of an intellectual current that has flowed freely for more than 30 years and prodded economies around the world along a single, dangerously narrow route.

Bryan Lynch is a staff writer for The Georgia Straight, in Vancouver, B.C., where this article first appeared.


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