The Shock Doctrine by Naomi Klein is a study of the history of economic shock therapy, which is a method of (supposedly) boosting a country’s economy through rapid deregulation, privatization, and severe cuts to government spending.
The Shock Doctrine also studies how economic shock therapy gave rise to what Klein calls the disaster capitalism complex: a privatized system of destruction and reconstruction that funnels billions of dollars into corporate pockets.
In this summary, we’ll discuss:
Briefly, economic shock therapy is a way to quickly improve a country’s economy through rapid privatization, deregulation, and severe cuts in government spending. In other words, it imposes strict free-market policies on the country in question as quickly as possible.
However, as Klein shows over and over again throughout The Shock Doctrine, this economic plan doesn’t improve an economy. Instead, economic shock therapy invariably leads to mass unemployment, increased poverty, and widespread starvation, while a few select people become extremely rich.
The Shock Doctrine begins with a description of shock therapy as it’s traditionally known: A treatment for mental disorders wherein electric shocks are administered to a patient’s brain to intentionally trigger a seizure. The treatment was pioneered in the 1940s and 1950s by Dr. Ewen Cameron.
Cameron’s goal was to regress his patients’ minds to infancy, what he termed a “blank slate.” He thought that once all their current thoughts and memories were wiped away, he could easily reprogram them with new, healthy thought patterns.
However, while Cameron was very successful at breaking his patients’ minds, he was completely unsuccessful at rebuilding them. On top of that, many of his patients suffered from new and much more severe symptoms—both physical and psychological—than they’d shown before treatment. In short, Cameron fundamentally misunderstood what he was doing to his patients. He wasn’t wiping their minds clean—he was destroying them.
Disaster capitalism—taking advantage of disasters to push economic reforms that would otherwise fail—also can’t seem to distinguish between destroying and healing.
For example, when the US invaded Iraq in 2003, the Bush administration intended to completely destroy the existing Iraqi economy and build a radical free-market democracy in its place. However, no matter how much the US military blasted away at Iraq, they never managed to create that sought-after blank slate. As a result, they weren’t able to rebuild as the Bush administration intended.
We’ll discuss the Iraq invasion and its numerous failures in greater detail later.
Disaster capitalism got its start in the famous University of Chicago’s Economics Department back in the 1950s under Milton Friedman. Friedman believed in unfettered capitalism. He maintained that in an unregulated economy, the natural economic forces of supply and demand naturally balance one another perfectly, leading to an ideal market wherein products are perfectly priced, everyone who wants to work can find a job, and inflation doesn’t exist. He believed that all economic problems are due to government interference in an otherwise perfect system.
Much like Cameron, Friedman believed that he needed to start with a blank slate in order to build this perfect economy. He dreamed of a country that was free from economic regulations, rules, and special interests, where pure capitalism could run its natural course. Also like Cameron, Friedman thought that the only way to reach such a state was through painful, destructive shocks to the country’s standing economy.
(Shortform note: To learn more about Milton Friedman’s ideas, read our summary of Friedman’s Capitalism and Freedom.)
From the 1930s to the 1950s, economies that blended capitalism with strong government regulation became popular. The most notable of them was Franklin Roosevelt’s New Deal. The world was prospering under these mixed systems, and things were good for the common folks. Those facts left Friedman and his free-marketeering colleagues with few supporters.
However, major US corporations were unhappy being forced to redistribute a lot of their money in the form of taxes and increased worker salaries. To counter this, they promoted Friedman’s policies.
(Shortform note: One of the major difficulties in discussing Friedman’s movement is that it has rebranded itself many times, often using terms that seem to have opposite meanings to one another. For example, Friedman called himself liberal—but his followers in the US associate that term with long hair and high taxes, and prefer to call themselves conservatives. The ideas that Friedman promoted would be called neoliberal in most of the world, but the American branch of this movement adopted the term neoconservative in the 1990s. In our guide, we’ll use the term neoliberal to describe Friedman’s policies.)
By any name, Friedman’s ideology was a three-part agenda that he believed would return the economy to its natural, healthy state:
Friedman’s economic strategy aimed to overturn New Deal policies and reset the American economy to how it was before the Great Depression. However, Friedman’s ideas were impossible to implement in America at the time. Even when Eisenhower—a hard-line Republican—took office in 1953, the New Deal’s programs were incredibly popular, and overturning them would almost certainly have cost Eisenhower his shot at re-election. Instead, neoliberals started looking abroad for easier targets.
Chile, not the US, would become the first testing ground for Friedman’s economic shock therapy. The Chicago School of Economics—with the backing of the US government—trained Chilean economists in Milton Friedman’s free-market orthodoxy so they could build a new economic system back in Chile based on Chicago School ideals.
Chile’s President Allende wasn’t interested in the Chicago-trained economists’ theories, preferring to run the country on a mixed system of capitalism with strong government regulation and social spending. Chilean general Augusto Pinochet, who overthrew President Allende in a swift and brutal military coup, adopted their ideas. Pinochet, a lifetime soldier with no economics training, knew that he’d need help handling the country’s economic affairs. Therefore, he turned to the economists of the Chile Project.
With the backing of Pinochet, the Chicago School-trained economists laid out this lengthy plan for the country bearing all the hallmarks of Milton Friedman’s teachings. It called for deregulation, privatization, and few government-funded social programs (if any). Now that Allende and his supporters were dead, imprisoned, or terrified into submission, the fundamentalists didn’t need to win popular support. Pinochet and his military government adopted the policy suggestions.
Pinochet held power for 17 years, from his coup in 1973 until he stepped down in 1990. Chile did experience years of steady economic growth under Pinochet, and after his death in 2006 many publications, including the New York Times and the Washington Post, praised his free-market policies and the economic miracle they’d created. However, the facts behind that “miracle” are deeply questionable.
Chile’s economic growth that the Times and the Post praised didn’t actually happen until the mid-80s, a decade after Pinochet tried Friedman’s economic shock therapy, and long after he’d radically changed course. The reality is that the Chicago School’s extreme free-market experiment was a disaster. Inflation skyrocketed, many people lost their jobs as the market flooded with cheap imports, and starvation quickly spread. The only ones benefiting from the shock therapy were foreign corporations and a few Chilean financiers who made a great deal of money on market speculation.
By 1982, Chile faced total economic collapse. Free-market capitalism had put all of Chile’s assets in the hands of speculators and financial institutions, who proceeded to run up a massive $14 billion debt. Inflation ran rampant while unemployment climbed to a crushing 30%.
In order to save his country, Pinochet had to do what Allende had done years before: Nationalize major industries and put a firm hand on the economy.
Despite the terrible results of this first experiment, Chile was the beginning—it was the Chicago School’s first major victory in the war to overthrow the New Deal and similar programs around the world. Although their policies didn’t improve life for the vast majority of Chileans, they did funnel wealth to the governmental and corporate elites. During the years of Pinochet’s shock treatment, 45% of Chileans fell into poverty, but the richest 10% of Chileans watched their incomes grow by an average of 83%.
The fast and free flow of money among the elites was like a drug for financial markets worldwide—rather than considering the awful cost of their experiment, or reassessing the free-market model, they immediately began looking for their next fix.
The next major breakthrough for the Chicago School was the Crisis Theory: In simple terms, it meant leveraging a political or economic crisis to win public support, rather than pushing through the neoliberal agenda with brute force. Friedman noticed that people and governments are more receptive to dramatic economic policy changes after a crisis, which allowed an opening for his theories to be adopted.
The Crisis Theory was necessary because, although free-market economics spread quickly and brutally through South America, it had a harder time gaining traction in the US and Britain where democracy was more deeply entrenched, because people weren’t voting for politicians who tried to implement Friedman’s policies.
British prime minister Margaret Thatcher demonstrated how the Crisis Theory could advance Friedman’s policies during the Falklands War of 1982. It was an 11-week struggle between Britain and Argentina for control of the Falkland Islands which gave Britain an outside enemy. The people were swept away by a wave of nationalism and militarism, and they eagerly fell in line behind prime minister Margaret Thatcher. Her approval rating rocketed up from 25% to nearly 60%. Thatcher used her newfound popularity to impose neoliberal economic policies and government repression on a level that she’d told the Chicago School was impossible; for example, using police and government surveillance to squash a coal miners’ strike.
Margaret Thatcher’s efforts in Britain proved that any sort of crisis could get the people to fall in line. Therefore, advocates of the free market reasoned, if internal crises could be leveraged as effectively as Thatcher leveraged the external crisis of the Falklands War, then they had a chance to fulfill their agenda after all.
Several influential economists noted in the mid-80s that hyperinflation was a type of crisis because it had many of the same effects as war: It created mass fear and confusion, displaced many people, and caused widespread loss of life. For the most orthodox of the Chicago School’s followers, this fact meant that hyperinflation wasn’t a problem to solve, but rather an opportunity to seize.
So far the crises that we’ve discussed have all been man-made. However, natural disasters are sometimes even more effective than wars or economic crashes.
The perfect example is December 26, 2004, when a devastating tsunami hit Sri Lanka and almost completely cleared the shoreline. Every hut and fishing boat was swept away in the storm, along with tourist cabanas and bungalows. Approximately 35,000 Sri Lankans died, and almost a million lost their homes—most of whom were small-boat fishers who relied on the sea to live.
This event, which was tragic for the fishers, was a golden opportunity for disaster capitalists. Once the rubble and bodies had been cleared away from the shoreline, they were left with pristine beaches all along the coast, ripe for development. Plus, the free-marketeers could use Sri Lanka’s time of need to make demands and gain concessions in exchange for aid. In short order, the country’s democracy was swept aside and replaced with a forum of ten wealthy Sri Lankan industrialists, who oversaw the “reconstruction.”
In the early 1990s President George H.W. Bush’s Secretary of Defense, Dick Cheney, tried to bring the modern privatization craze to the US military. He decreased the number of active soldiers and increased the military’s reliance on private contractors like Halliburton. When Donald Rumsfeld joined President George W. Bush’s cabinet as Secretary of Defense in 2001, he continued Cheney’s work. He started laying off huge numbers of troops and personnel and hiring outside agencies like Halliburton and Blackwater to take up the slack in order to create a fully outsourced “hollow shell” government. Under this model, the government’s only role would be to hand out contracts to private companies, which would—supposedly—handle tasks more effectively and efficiently than a large government ever could. This was the birth of the modern disaster capitalism complex: a sprawling system whose only purpose was to funnel government money into corporate pockets.
Bush and Rumsfeld got the chance to realize their dreams due to a national tragedy: the terrorist attacks of September 11, 2001. The attack provided a common enemy for the people to rally against, and a justification for anything the government did to fight back.
So began Bush’s infamous “War on Terror.” While it was supposedly an effort to defeat terrorism around the world, in practice, it was a smokescreen to build a privatized police state, both at home in the US and abroad in the Middle East. Large sections of the economy, ranging from disaster reconstruction to war and homeland security, were turned over to private contractors.
The Bush administration’s foreign agenda was even more extreme. The US attacked Iraq in response to 9/11 and subjected the people there to violent military shocks.
Then came the economic shock therapy. The Bush administration thought that they’d finally found their “clean slate” and planned to build their perfect free-market economy from the ground up.
However, they ran in trouble on two fronts. First, they were unable to create an effectively clean slate. The occupying forces met violent resistance at every turn. They responded to violence with further violence of their own, and the entire country spiraled into a war of attrition.
Second, they were unable to build a new, functioning economic system. The CPA—Coalition Provisional Authority, Iraq’s interim government—was so understaffed and had so few resources that it couldn’t even begin building the economy that the Bush administration dreamed of. For example, they had only three people assigned to privatizing state-owned factories; by contrast, East Germany had around 8,000 when it undertook the same task.
Ironically, this failure was due to the CPA’s devotion to Chicago School fundamentals. After all, minimizing government spending is a cornerstone of free-market capitalism, but in this case, it meant that they didn’t have the money or resources to do their jobs. Additionally, the CPA staffers’ hatred of all things governmental meant that what they were trying to do—build a new state from the ground up—went directly against their beliefs.
The ongoing shock treatments around the world culminated in a disturbing realization at the 2007 World Economic Forum.
For many years, people had believed that stability and peace were necessary for steady economic growth. The Forum, however, was puzzled by a global trend that seemed to buck this common knowledge. The world had been rocked by a near-constant series of shocks, beginning with the stock market crash of 2000 and the terrorist attacks on September 11, 2001. Despite that, the global economy was growing at an incredible rate.
The logical conclusion was that the economy no longer relies on stability—quite the opposite, in fact. Corporate profits all over the world are actually increasing in the face of sustained conflict and repeated disasters.
This conclusion correlates directly with the rise of the massive, multipurpose disaster capitalism complex of the 2000s, where massive contracts were granted to private firms in every industry from fuel to construction—and, of course, security and defense.
As we’ve seen, free-market policies always result in a huge transfer of wealth and power from the lower economic classes to the upper ones. That transfer never happens peacefully, and in many cases, it doesn’t happen legally. That’s why free-market crusaders have to shock countries into submission: Their economic reforms can only go through when the people are too exhausted or stunned to fight back.
However, by its very nature, shock eventually wears off. For example, in 2001, Argentina—a former shock therapy laboratory—ousted a series of five presidents in three weeks, all while demanding freedom from the Chicago School’s policies.
Lebanon similarly rejected foreign aid—and the economic shock therapy attached to it—in 2006. Despite being deeply in debt and desperate for funds, Lebanese economists and some political leaders recognized that all of the profit would go to the disaster capitalism complex, while all of the hardship would fall upon their own people. General strikes and protests erupted all over the country in response to the proposed shock therapy, and the economy came to a screeching halt.
However, even as people recover, they face daunting obstacles in reclaiming their countries. Perhaps the biggest problem of all is that they now have to rebuild entire communities from the rubble that economic shock therapy left behind, and they have to do it largely without foreign aid. Nonetheless, there’s cause for hope: communities all over the world are already doing it.
For example, Thailand was hit by a tsunami similar to the one that devastated Sri Lanka. However, unlike Sri Lanka, the Thai people rebuilt their own settlements and fishing communities, often within mere months.
In Thailand—and everywhere else that citizens have bucked the disaster capitalism complex by taking reconstruction into their own hands—people say that they’re not just healing their communities, but themselves as well.
That’s because shock is, in essence, a feeling of powerlessness; people feel like they’re being swept away by forces that they can’t hope to resist. Therefore, rebuilding their own communities is an expression of their personal power and a rejection of that helplessness.
The reconstruction efforts also wholly reject the endless quest for clean slates upon which to build model civilizations. These people aren’t starting from scratch but from the ruins of their old homes. They make do with whatever tools and materials they can salvage, and their only ideologies are community and practicality.
As we’re now seeing, communities can join together to support each other and rebuild, rather than waiting for external aid that comes with ulterior motives. These communities are coming back quickly, efficiently, and—most important of all—durably; the people won’t be taken in again by the false promises of economic shock therapy and disaster capitalism.
The Shock Doctrine by Naomi Klein is a study of the history of economic shock therapy, which is a method of (supposedly) boosting a country’s economy through rapid deregulation, privatization, and severe cuts to government spending.
The Shock Doctrine also studies how economic shock therapy gave rise to what Klein calls the disaster capitalism complex: a privatized system of destruction and reconstruction that funnels billions of dollars into corporate pockets.
In this summary, we’ll discuss:
Briefly, economic shock therapy is a way to quickly improve a country’s economy through rapid privatization, deregulation, and severe cuts in government spending. It imposes strict free-market policies on the country in question as quickly as possible.
Klein shows over and over again throughout The Shock Doctrine that this economic plan doesn’t work as advertised. Instead, economic shock therapy invariably leads to mass unemployment, increased poverty, and widespread starvation, while a few select people become extremely rich.
The first chapter of The Shock Doctrine explains what medical shock therapy is and how it relates to the economic shock therapy that will be discussed throughout the rest of the book.
Shock therapy is traditionally known as a treatment for mental disorders. It was pioneered in the 1940s and 1950s by Dr. Ewen Cameron. In his day, Dr. Cameron was a renowned psychiatrist—for a time, he was even the president of the World Psychiatric Association.
However, Dr. Cameron developed and practiced treatments that we would now consider torture. He frequently used electroconvulsive therapy (ECT): a treatment wherein electric shocks are administered to a patient’s brain, intentionally triggering a seizure. He also gave his patients massive doses of stimulants, depressants, or hallucinogens, and subjected them to isolation and sensory deprivation. In short, he tried to break their minds in any way he could.
Cameron’s ultimate goal was to regress his patients to infancy—what he termed a blank slate. He believed that, once their current thoughts and memories were wiped away, he could easily reprogram his patients with new, healthy thought patterns.
However, while Cameron was very successful at breaking his patients’ minds, he was completely unsuccessful at rebuilding them. He couldn’t get them to accept the new thought patterns that he tried to imprint on their “blank slates.”
On top of that, many of his patients suffered from new and much more severe symptoms—both physical and psychological—than they’d shown before treatment. Medically speaking, Dr. Cameron’s techniques were complete failures because he fundamentally misunderstood what he was doing to his patients; he wasn’t wiping their minds clean, he was just destroying them.
Disaster capitalists—those who take advantage of disasters to push economic reforms that would otherwise fail—also can’t seem to see the difference between destroying and healing.
The American-British invasion of Iraq in 2003 is the perfect example, and one that we’ll discuss in detail later. The Bush administration believed that they could attack with such overwhelming, unimaginable force that the Iraqis would be left all but catatonic. After that, they imagined that it would be an easy matter to tear down what remained of Iraq’s economy and replace it with a free-market democracy. They envisioned Iraq as a perfect model for the rest of the world.
However, instead of a clean slate on which to build their ideal new government, Iraq and its people were left in ruins; they were damaged, angry, and ready to fight back. No matter how many times US forces “shocked” the country, they—like Dr. Cameron—couldn’t wipe it clean. They kept on destroying but were never able to rebuild.
In this chapter, we introduce some of the key players in free-market economics: the Chicago School of Economics and its great hero Milton Friedman. We’ll discuss their retaliation against FDR’s New Deal in the US and similar programs in South America, and their early efforts to replace those programs with their own vision of perfect free-market capitalism—efforts that would, in time, lead to the modern disaster capitalism complex.
Disaster capitalism got its start in the University of Chicago’s Economics Department in the 1950s, under Milton Friedman. He wasn’t the only economist of his day who believed in free trade without government interference, but it was Friedman’s energy and charisma that helped the idea to really take root in his students. After Friedman’s courses, they viewed themselves not as mere economists, but as soldiers fighting a righteous war against harmful government overreach and interference.
Much like Dr. Cameron, Friedman believed that he needed to start with a blank slate. He dreamed of a country that was free from economic regulations, rules, and special interests, where pure capitalism could run its natural course. Also like Cameron, Friedman thought that the only way to reach such a state was through painful, destructive shocks to the country’s economy. He thought that by tearing down the old systems, he’d be able to build a new, healthier economy.
Friedman’s ideas about capitalism bordered on mysticism: He and his students saw the economic laws of supply and demand, inflation, and employment (or unemployment) as sacred and inviolable. He believed that these “natural” economic forces would balance one another perfectly and create the ideal market—there would be exactly the right number of products at the perfect prices, everyone who wanted to work could find a job, and inflation wouldn’t exist.
According to the Chicago School of Economics, any problems that arise must be because the market isn’t really free, and the solution must be to remove all regulations and interference.
In short, Friedman’s version of capitalism was more like religious fundamentalism than science. Furthermore, like religious fundamentalists, his greatest enemies weren’t the fundamentalists of other “religions” like Marxism. Rather, he despised those who sought a mix of capitalism and government intervention, such as social democrats or Keynesians (described below).
John Maynard Keynes was a hugely influential economist in the early 1900s. His ideas were so prominent that, even to this day, there’s a school of economic thought that bears his name.
Keynesian economics is based on increasing demand in the economy by increasing government spending and economic intervention, while at the same time cutting taxes. In simple terms, this school of thought suggests bolstering the economy by giving average people more spending money.
Keynesians favored capitalism in some aspects of the economy but demanded government-controlled education, government ownership of essential services like water, and strict laws to keep private companies in check.
Mixed economic systems like Keynesian economics, which featured heavy government intervention in essential areas, came to prominence in the 1930s through the 1950s. Perhaps the most notable of them was Franklin Delano Roosevelt’s New Deal in the US.
These mixed systems only became more entrenched after World War II, when German fascism had taken root largely due to economic instability following World War I. Therefore, following the Second World War, the world superpowers agreed that markets needed to provide stability and dignity for average people. That agreement led to Social Security in America, national health care in Canada, and many other hallmarks of what one might call “decent” capitalism.
The world seemed to be prospering and things were good for the common folks, which left Friedman and his free-market capitalists with few supporters. However, what was good for the majority was not good for the rich and powerful—executives of major US corporations weren’t happy about having to redistribute their wealth through taxes and increased worker salaries.
Even so, rich executives couldn't simply argue for lower taxes and lower wages—they would have seemed selfish. Instead, they promoted the economic theories of Milton Friedman, who developed a three-part agenda that he believed would return the economy to its natural, healthy state:
(Shortform note: One of the major difficulties in discussing Friedman’s movement is that it has rebranded itself many times, often using terms that seem to have opposite meanings to one another. For example, Friedman called himself liberal—but his followers in the US associate that term with long hair and high taxes, and prefer to call themselves conservative. Furthermore, the ideas that Friedman promoted would be called neoliberal in most of the world, but the American branch of that movement adopted the term neoconservative in the 1990s. For this guide, we’ll use Friedman’s term neoliberal.)
Whatever one calls it, Friedman’s economic strategy was designed to roll back New Deal policies and reset the American economy to how it was before the Great Depression, and then push even further in favor of privatization and corporate profits. However, his ideas were impossible to implement in America at the time because the New Deal’s programs were incredibly popular. Even when Eisenhower—a hard-line Republican—took office in 1953, he didn’t dare to overturn the New Deal for fear of losing re-election.
Since not even Eisenhower could push through the neoliberal agenda in the US, he and the Chicago School started looking abroad for easier targets.
When Eisenhower took office, countries in the Middle East and Latin America were quickly growing and prospering thanks to developmentalism. Developmentalism is an economic theory stating that the best way for developing countries to grow is to establish strong internal industries and raise government revenue by nationalizing certain resources like oil. In other words, industry and the government would support one another, and the entire country’s economy would prosper as a result. Developmentalism also called for high tariffs on imported goods to encourage “buying local.”
Developmentalism, combined with heavy government spending and strong social programs, was having enormous positive impacts on the economy and quality of life in many Third World countries. For example, Argentina had the largest middle class in South America during the Developmentalist period, while Uruguay boasted universal health care and a 95% literacy rate.
However, as we saw in America, the policies that helped the common people were hurting the rich and powerful. Corporate interests and feudal landowners saw that the government was taking “their” land and money and giving it away to the lower classes.
To counter the economic policies that were hurting their profits, corporations enlisted the help of American and British foreign policy groups to warn that developmentalist policies would lead to communism. In short, they wanted to push developing countries into the Us versus Them mindset of the Cold War: Anything that wasn’t pure, unchecked capitalism was communism, and communism was evil.
In the interest of furthering the fight against “communism,” the CIA launched two coups d’etat against Iran and Guatemala—two countries whose economies were much more Keynesian than Stalinist.
In 1953 the CIA ousted Mohammad Mossadegh, an Iranian leader who had brought the nation’s oil company under government control. In doing so, the CIA returned power to Shah Mohammad Reza Pahlavi, who was more willing to cooperate with foreign companies.
Then, in 1954, the CIA overthrew President Jacobo Arbenz Guzman of Guatemala, allowing the United Fruit Company—a massive American corporation with a long history of violence and human rights violations—to operate unimpeded.
Those first coups happened relatively easily. However, developmentalism was much more entrenched in the Southern Cone of South America (Chile, Argentina, Uruguay, and Brazil, which together had some of the most advanced and successful developmentalist economies), and fighting it would take a bit more cunning.
The US studied Brazil and Indonesia—both of which had recently undergone regime changes—as possible models for how to successfully oust the entrenched developmentalist governments of the Southern Cone and replace them with radically capitalist ones.
In 1964, a US-backed junta (a military faction) overthrew the Brazilian government in a relatively peaceful manner. There were no public shows of brutality or mass arrests, and while junta officials did torture some of their political opponents, they did so on a small scale and kept it well-hidden.
The junta imposed a pro-business economic model designed, in large part, by University of Chicago graduates. However, Brazil’s poverty rates skyrocketed under that model, and in 1968—a mere four years later—protesters flooded the streets.
In the face of these mass protests, the military junta became more openly violent. It crushed the people’s remaining freedoms, mass arrests and torture became the order of the day, and the last vestiges of democracy were brutally repressed.
Overall, it was clear evidence that a gentle touch couldn’t keep the people in line.
The 1965 coup in Indonesia proceeded very differently. Then-president Sukarno had pushed pro-poor policies and carefully protected Indonesia’s economy from Western influence, which led to a strong national economy but effectively shut out the global market.
In 1965, the US supplied oppositional Indonesian general, Suharto, with weapons and supplies from the Pentagon, as well as intelligence from the CIA. With that support, Suharto launched a brutal and systematic campaign to wipe out the country’s left-wing.
In a little over a month, somewhere between half a million and a million people had been killed by Suharto’s soldiers and their supporters. Reports from that time talk about streams and small rivers clogged with dead bodies.
Then, a group of economists trained at the University of California at Berkeley drew up the plans for Indonesia’s future. They passed their lessons on to Suharto, who had no prior education in economics or finance. Therefore, they had enormous influence over his ideas about how to run the country. While not quite as fundamentalist as Friedman’s Chicago-trained fanatics, the Berkeley economists were extremely welcoming toward foreign investors who wanted to exploit Indonesia’s resources, which was good enough for America and Britain.
Of the two, Indonesia’s regime change had been far more effective. The suddenness and unthinkable brutality of Suharto’s military coup, along with the cooperation of free-market capitalists to set up the new economic structure, left Indonesia’s people too broken and scared to fight back. Though there wasn’t yet a term for it, Suharto had used the Shock Doctrine to push through his reforms.
Despite the brutal effectiveness of Suharto’s coup in Indonesia, the US decided to try something different in Chile. US officials worked together with the University of Chicago to organize an educational coup, rather than a political one.
The government paid to bring top Chilean students to study at the University of Chicago. At the same time, the University sent professors to Chile to train students and teachers in their fundamentalist style of capitalism. In true University of Chicago style, they worked to create righteous crusaders who would fight back against the “evils” of developmentalism.
Under the University’s tutelage, every aspect of Chile’s social programs was studied and picked apart. Students were taught to scorn attempts to help the poor, and to view Chile’s education and healthcare systems as the ridiculous attempts of a poor country to live beyond its means. Many of those students would go on to do their Ph.D. dissertations about the foolishness of developmentalism in Latin America.
The first part of this plan worked perfectly. Students took what they’d learned from the University of Chicago and went back to Chile to proselytize. However, the next step—using these ideological soldiers to turn the Southern Cone into Friedman’s imagined free-market paradise—wasn’t working. The main economic debate of the Southern Cone was still about the proper next step for developmentalism, not about how to overturn it and implement free-market capitalism. The vaunted Chicago-trained economists were all but ignored.
By the 1970s it seemed that the Chile Project, as it was called, had been an expensive failure for the Chicago School. The Southern Cone continued moving to the left politically and economically, while the ideas of the Chicago School of Economics weren’t even a blip on its radar.
When then-president Richard Nixon heard that Salvador Allende had won the 1970 election in Chile—running on a platform of nationalizing major portions of the economy that were currently being run by corporations—he famously ordered CIA director Helms to “make the economy scream.”
Heeding the call to arms, powerful American corporations—who had large stakes in Chile’s phone service, mining operations, and other industries that would soon be bought up by the government—banded together to squeeze Chile’s economy. They planned to block US loans, stop buying anything from Chile for six months, and do whatever they could to make sure that no American money flowed into the country. They planned to make Allende capitulate by threatening him with total economic collapse.
But for all their efforts, Allende not only kept his office, but his party also gained even more support in the 1973 midterm elections. Clearly, the Chilean people strongly supported Allende’s socialist policies. Even if the corporations successfully ousted Allende, it seemed certain that someone just as progressive would come along to take his place.
In 1972 an explosive exposé revealed documents showing that the International Telephone and Telegraph Company (ITT) had conspired with the CIA and the US State Department to stop Allende from taking power—a plot that clearly failed, as Allende had taken office and still held it at the time of the exposé. Nonetheless, the Democratic-controlled Senate launched an investigation, and in 1973 released a damning report showing that ITT’s corporate interests had had a direct and substantial impact on US foreign policy toward Chile.
However, even supported by the highest powers in the US, the University of Chicago was unable to overthrow developmentalism in Chile. Clearly, the free market capitalists would need more extreme tactics to bring about the regime changes they dreamed of.
In the previous chapter, we discussed the Chicago School’s first forays into establishing neoliberal economies in foreign countries. With the backing of the US government, some of these attempts worked—but their efforts in Chile failed badly.
This chapter discusses the turning point in the battle for Chile when General Pinochet launched a coup and seized the country from President Allende. As we’ll see, Pinochet was much more receptive to the Chicago School’s ideas than Allende, and he was willing to use whatever force was necessary to realize those ideas in Chile. By understanding this history, we’ll see how free-market capitalism and brutal repression go hand in hand.
On September 11, 1973, Chilean general Augusto Pinochet declared war on President Allende. Because Pinochet controlled the military and police, Allende’s forces were wiped out in brutal fashion—24 rockets launched directly into the presidential palace put a swift end to the resistance. The “war” was over by mid-afternoon.
However, the military coup was only the beginning. Pinochet and the other generals knew that their grasp on Chile depended on the people fearing them too much to mount any organized resistance, so over the next days, an estimated 13,500 civilians were imprisoned. Many were tortured, and hundreds were executed.
To ensure that the whole country got the message Pinochet sent one of his most vicious men, General Stark, to the northern provinces. In each city and town that Stark passed through, he and his men would visit the prisons and find high-profile political opponents to publicly execute. His mission came to be called the Caravan of Death, and its message was inescapable: to resist Pinochet was to die.
The new government began running into problems almost immediately. Nixon’s economic war on Chile had taken a toll, and Pinochet—who was by no means an economist—was ill-prepared to help it recover.
While Pinochet handled the military matters, Chile’s Chicago-trained economists quickly published and distributed their 500-page economic bible, which came to be known simply as The Brick. Soon, copies of The Brick were on the desks of those military officers who would be running the new government.
The plan laid out in this lengthy book bore all the hallmarks of Milton Friedman’s teachings. It called for deregulation, privatization, and few-to-no social programs run by the government. The economists assured Pinochet that the market would naturally govern itself, and would find its proper balance shortly after he withdrew government interference.
These were exactly the same ideas that the Chicago School had tried to implement peacefully, only to be soundly rejected. However, this time, anyone who would have resisted was either dead, imprisoned, or terrified into submission. Pinochet’s government gladly adopted The Brick’s policies.
Their extreme free-market experiment was a disaster. Inflation skyrocketed, jobs were lost as the market was flooded with imports, and starvation quickly spread. Even Pinochet himself seemed concerned about how badly his people were suffering.
Naturally, the Chicago-trained fundamentalists believed that the problem wasn’t with their ideas, but with the fact that they weren’t being implemented strictly enough. Rather than roll back the changes, they argued, Pinochet must accelerate them. Seeing that their experiment was wildly unpopular and in danger of collapsing, they called in Milton Friedman himself to save the day.
Friedman met with Pinochet and promised him much the same thing that the Chilean economists had: If he were to quickly and drastically reduce government spending, and remove all obstacles to free trade, Chile’s recovery would be nothing short of miraculous. All the people who had lost their jobs would quickly find new ones in the soon-to-be-burgeoning private sector.
Friedman repeatedly used the phrase “shock treatment.” Much like Dr. Cameron proposed, as discussed in Chapter 1, he was calling for Pinochet to break his country’s economy back down to a perfectly blank slate. By doing so, Friedman promised, inflation and unemployment would be eliminated within months.
Like so many who heard Friedman speak, Pinochet became a convert. He gladly subjected his country to the shock therapy that Friedman prescribed, and the effects were brutal. Chile’s economy shrank by 15% in the first year of these new policies, while unemployment—which had been just 3% under Allende—climbed to 20%. Families were now spending the vast majority of their income just to buy bread, and forgoing “luxuries” like bus fare and milk.
The patient was definitely convulsing. However, contrary to Friedman’s promises, these convulsions didn’t last mere months; they went on for years, with no signs of improvement. Meanwhile, Pinochet’s junta continued to promise that this was the only way to treat the “sickness” of developmentalism that had supposedly ravaged the country.
Pinochet’s government went even further, implementing Friedman’s most extreme policies. They replaced the public school system with charter schools and vouchers, eliminated public health care, and privatized cemeteries, kindergartens, and even the social security program. Chile became a model for free-market economists the world over, who had previously only seen their ideals printed in textbooks.
It’s worth noting that Chile did experience some years of steady economic growth under Pinochet—however, that growth didn’t happen until the mid-80s. That was a decade after Pinochet first tried Friedman’s economic shock therapy, and long after he’d radically changed course.
Chile had faced total economic collapse in 1982. Free-market capitalism had put all of Chile’s assets in the hands of speculators and financial institutions, who’d proceeded to run up a massive $14 billion debt. Once again inflation ran rampant, and unemployment climbed to a crushing 30%.
In order to save his country, Pinochet had to do what Allende had done years before: Nationalize major industries and put a firm hand on the economy. Furthermore, following the shock therapy debacle, nearly all of the Chicago-trained economists lost their government posts, and several were investigated for fraud.
Nonetheless, after Pinochet died in 2006, many publications—including the New York Times and the Washington Post—praised his free-market policies and the economic miracle they’d created. None of those publications seemed to realize that the “miracle” hadn’t happened until he abandoned Friedman’s economic theories.
Despite the terrible repercussions, Chile was the beginning—the Chicago School’s first major victory against developmentalism and Keynesian economics.
The Chilean plan, as laid out in The Brick, would later be implemented in many other South American countries. In every case, it would be pushed through by a combination of government force and corporate wealth, and it would take place during some sort of national crisis. Eventually, every country that had once been a model of developmentalism—Brazil, Chile, Uruguay, and Argentina—would be under the control of a military junta with US backing.
Of these, Argentina’s implementation of Chicago economics may have been the most brutal and horrific. The Argentine generals who ousted Isabel Perón turned to Pinochet for advice on their next steps. They didn’t privatize everything quite as quickly as Pinochet had—for instance, the oil reserves and social security remained under government control, at least at first. Otherwise, though, the methods were much the same, as were the results: runaway inflation, soaring unemployment, starvation, and disease.
However, their methods of keeping order were a bit different. While Pinochet’s public massacres were extremely effective at keeping the population in line, they were a public relations nightmare. Since the entire point of Chicago economics was to trade with wealthy outsiders, it was counterproductive to have such a horrific reputation that other countries refused to trade with you.
Therefore, the Argentine generals settled on disappearances as their preferred means of eliminating opposition. Rather than publicly slaughtering people who spoke out against them, they’d simply kidnap those people. Sometimes they did so in secret, spreading the terrifying knowledge that the state could simply whisk anyone away at any time, with no warning. Other times they arrested people very publicly as a show of force. It’s estimated that some 30,000 Argentine citizens were taken during these years.
While not as dramatic as Pinochet’s methods, they were equally effective. Though everyone knew what was happening, they were too afraid to speak out—indeed, most would pretend that nothing was wrong. Argentines even have a phrase to sum up that combination of knowledge and denial: “We didn’t know what no one could deny.”
Rodolfo Walsh, an investigative journalist who lived in Argentina during this time, had been keeping records of the junta’s many crimes. However, he wrote, the worst part of the regime wasn’t the arrests or the torture, but the economic policies. In those policies, Walsh said, you found not only the motive for these atrocities—that is, funneling more wealth to the wealthy—but also a system that deliberately torments millions of people with crushing poverty.
However, while the juntas didn’t make any secret of the fact that they were implementing sweeping economic changes, they were smart enough to deny that they were using violence to achieve those goals. Instead, when they acknowledged the kidnappings and killings at all, they justified their actions on the grounds that they were fighting against Marxist terrorists funded by—and beholden to—Russia’s KGB. If their tactics were monstrous, well, it was only because their enemy was, too.
Argentina's Admiral Massera, speaking in terms that sound strangely familiar today, said that they were fighting a war for freedom and life itself, against people who wanted to impose tyrannical Communism. He also called these imaginary adversaries nihilists, claiming that their only purpose was to destroy everything—though, he said, they would hide their true intentions behind populism and social justice.
Once again, the CIA played a hand in the misinformation campaign. They worked to recast Chile’s ousted president Allende as a dictator in the making; a man who came to power through democracy, but was working to create a Russian-style police state. They claimed that the left-wing guerrilla fighters in Uruguay and Argentina were so numerous and deadly that the new governments had no choice but to suspend civil liberties and do whatever was necessary to crush them.
All of these claims were either grossly exaggerated or completely made up by the juntas, as later investigations by the US Senate would show. People were kidnapped, tortured, and killed long after any credible threat to the new regimes was over. The so-called War on Terror was actually a war on anyone who opposed the juntas’ free-market fundamentalism.
While the connection between free-market capitalism and brutal, repressive government seems clear from the example of Chile, many people either don’t see that link or choose not to acknowledge it. These chapters go into detail about why free-market capitalism can’t exist without widespread state violence; and, at the same time, why those two things are largely disconnected in people’s minds.
In short, Friedman and his Chicago School economists naturally did all they could to separate their economic theories from the cruel methods used to implement them. In fact, they argued the exact opposite: that personal liberty and free-market capitalism were intrinsically linked, and neither could exist without the other. Meanwhile, outside investigators also failed to clearly show the connection between free trade and state repression, for various reasons.
One influential opponent of the juntas’ tactics and motives was Orlando Letelier. Letelier had been a Chilean economist and diplomat under President Allende, before being arrested and tortured by Pinochet’s regime. In 1976, after his release, he worked in Washington, D.C. as an activist with the progressive Institute for Policy Studies.
Letelier devoted much of his time and energy to exposing the horrific crimes of Pinochet’s junta and fighting back against the CIA’s anti-Allende propaganda. However, one of his main contributions was to soundly reject the idea that free-market economics and horrific political violence were separate, unrelated issues. Rather, he said, state violence and terror were the only ways free-market policies could be implemented—otherwise, people would revolt against the crushing poverty and rampant inequality that the policies caused.
Letelier also claimed that Friedman, as the creator of the economic plan that Pinochet and the other juntas had followed, shared responsibility for their crimes against humanity. He rejected Friedman’s argument that he’d just been offering technical advice, saying that Friedman’s “economic freedom” and the widespread use of violence and repression were two halves of the same whole.
Letelier published a highly controversial article detailing all of the above points. Less than a month later, on September 21, 1976, he was assassinated with a car bomb. The assassin, as the FBI would discover, was a high-ranking member of Pinochet’s secret police who’d gotten into the US with a fake passport and the CIA’s approval.
The Chicago School’s economic theories were based on ideals like natural order and balance, and a belief that the system itself—rather than the government—needed to have absolute control. Chicago economists believed that the market had to be absolutely free of what they called distortions, such as social programs and government regulations.
This emphasis on purity naturally meant that a regime trying to implement these theories couldn’t tolerate the existence of competing ideologies, like developmentalism. Anything that threatened to cause “distortions” in the market had to be wiped out by any means necessary.
This meant that the juntas needed to crush not just an opposing ideology, but the dominant ideology of the Southern Cone. They did so with scientific precision and religious fervor, using a combination of propaganda, terror, and brute force.
Books about socialism and social issues were burned en masse. Leftists from all walks of life, from politicians to students to soup kitchen volunteers, were arrested and tortured or killed. Trade union leaders were some of the juntas’ favorite targets—and attacks on union leaders were often carried out with the approval, and sometimes the direct involvement, of the companies they worked for.
At the same time as all of these attacks and kidnappings, the juntas spread propaganda about the dangers of socialism, Marxism, leftism, or any -ism that opposed their fundamentalist ideals of pure profit. Governments encouraged their citizens to report anyone harboring such “dangerous” ideas, whom they termed foreign extremists or radicalized nationals. Doing so helped cement the idea of “Us versus Them” in the minds of many of their supporters.
The juntas performed all of these horrors in the name of curing the “disease” of socialism. They tried to cast themselves not as violent criminals, but as doctors and healers—much like the Nazis had done before them, the juntas claimed that by killing off “sick” people they were making society as a whole healthier.
Meanwhile, as the juntas’ policies tried to purge socialism from economies, their prisons tried to purge it from individuals. They did so with varied and horrific forms of torture. In theory, the torture was about gaining information, but the real goal was to break their prisoners.
The ultimate test of the prisoners’ conditioning was to get them to betray their closest friends. It often didn’t matter what people or information the victims gave up; the betrayal itself was the goal. Someone who was willing to sell out his closest friends and allies was someone who had given in to pure self-interest.
Those whom the camps successfully broke would adopt the same cutthroat ideology of pure self-interest that fueled the new economies. They would make “deals with the devil,” wherein they allowed other prisoners to suffer worse tortures so that they themselves would be spared. Sometimes they even administered the tortures themselves. Some went on TV to publicly renounce their old ideals and praise the new regimes.
Survivors of the torture camps described a system designed to shock them into compliance, often literally. They were expected to give up the very idea of solidarity, of helping others. For many Latin American leftists, that was the single most cherished value they had.
Naturally, Milton Friedman and his colleagues were all too happy to take credit for the economic “miracles” happening in Chile and elsewhere. However, they denied any connection between their economic theories and the brutal repression happening in those countries—just as Letelier’s controversial article had said they would.
Friedman said that he disagreed strongly with the new totalitarian government of Chile, but nonetheless saw nothing wrong with offering economic advice to Pinochet’s government. He condemned the electric shock treatments happening in prisons, but still applauded the economic shock treatments happening to the countries.
Friedman received the 1976 Nobel Prize in Economics for his theories on the relationship between inflation and unemployment, and how to correct both. He used his Nobel address to make the case that economics was as scientific a field as chemistry or physics, and as such that economists needed to observe the facts impartially. His point was that people should look past the juntas’ horrific methods, and see that the free market worked. He claimed that Chile—the only country bold enough to properly implement his theories—was the proof.
Ironically, even as he touted the importance of impartiality and commitment to the facts, Friedman and his supporters ignored the fact that free-market policies had caused widespread unemployment, starvation, and sickness in the Southern Cone—things that were wholly separate from the juntas’ deliberate abuses of power.
Then, just one year after Friedman got his Nobel Prize in Economics, Amnesty International received the Nobel Peace Prize for its work to expose the human rights abuses in Chile and Argentina.
The Nobel Peace Prize is actually completely unrelated to the Nobel Prize in Economics; the two awards are given by entirely different committees, based in different cities. However, to an outside observer, it looked like one of the world’s most prestigious decision-making bodies had made a clear statement: The economic aspects of these new governments were separate from the torture and repression those governments inflicted. One was worthy of praise (hence Friedman’s award for pioneering free-market capitalism), and the other was worthy of condemnation (hence Amnesty International’s award for exposing the juntas’ actions).
On top of the misleading image given by the two conflicting Nobel Prizes, the connection between state brutality and free-market capitalism was further muddied by the very nature of Amnesty International.
Amnesty’s mission statement said that it was to be totally independent and impartial; not beholden to any country, religion, political party, or economic system. That was an admirable goal on the surface, but it made Amnesty uniquely unqualified to expose the real reasons behind the juntas’ brutality.
Because it couldn’t show favor to one economic system or another, Amnesty’s report on the juntas’ reigns of terror were framed in terms of individual human rights abuses, rather than a coordinated effort to impose radical capitalism. Without that framework, the report showed a horrifying but disjointed jumble of sadistic acts. The extremes that the juntas went to seemed almost nonsensical—easy to condemn, but nearly impossible to understand.
This shortcoming was perhaps most noticeable in the report on Argentina. Amnesty International noted that the actions the Argentine government had taken were completely disproportionate to any threat posed by leftist insurgents, but made no attempt to explain why those actions had actually been taken. Additionally, their report on Argentina only discussed the conflicts between military forces and left-wing radicals—it completely omitted any involvement by the US government, international corporations, and even landowners in Argentina.
In a further illustration of the connection between state violence and the free market, one of the main organizations that funded investigations into human rights violations in the Southern Cone was the Ford Foundation—the same organization that had funded the education of so many University Chicago students in those same countries.
To make matters worse for the Ford Foundation, back in the 60s it was still affiliated with the Ford Motor Company—and the Ford plant in Buenos Aires was one of the country’s most infamous sites of state violence and authoritarianism. The manufacturing site looked like a war zone, with tanks and helicopters swarming the area and a hundred soldiers permanently stationed there. Soldiers prowled the factory, hooding and hauling off anyone who was too active in the workers’ union.
In other words, the Foundation was investigating crimes and human rights violations that would point back to the Foundation itself. Due to that enormous conflict of interests, their investigations led to much the same outcome as Amnesty International’s. In short, Ford determined that the human rights abuses happening in the Southern Cone had to be stopped, but they either couldn’t or wouldn’t acknowledge the political and economic motives behind those abuses.
Each of these violent episodes shows that free-market capitalism can never, and will never be enforced without widespread violence and terror. It enriches a few by taking from many, and will therefore always be wildly unpopular. In order to survive, the free market needs to keep the common people obedient through force and fear.
The main flaw in all of the investigations and reports on the juntas is that they only reported on the kidnappings, tortures, and murders. They all presented the Southern Cone as if it were the site of a grisly murder, and went into great detail about the blood that was spilled and the lives that were destroyed. Based on those reports, one might get the impression that the juntas’ violence was indiscriminate and nonsensical; cruelty for its own sake.
However, it would be much more accurate to compare the Cone to the scene of a violent robbery. The capitalist extremists were taking away everything that people needed to live comfortably and with dignity. When the people refused to hand over their wealth, they “disappeared” or were simply shot dead in the street—and then the juntas took what they wanted anyway. The investigations failed to draw that connection from the free market to state violence, and that was their greatest failure.
As a result of that failure, even though the military dictatorships in those countries have long since lost their power, the ideology of the Chicago School is deeply rooted in the Southern Cone, and indeed the entire world. Friedman’s ideal of the free market—and the violence needed to implement it—keeps cropping up even in the present day; and, even in the present day, people see those two things as completely unrelated.
So far we’ve seen neoliberal economies being forged through violent coups. In this chapter, we’ll examine a different strategy that free-market economists used to advance their agenda: leveraging crises to sway public opinion, rather than making people fall in line with brute force.
The “Crisis Theory” would be instrumental in bringing free-market economics to countries like the US and Britain, where military coups weren’t an option.
Although free-market economics spread quickly and brutally through South America, it had a harder time gaining traction in the US and Britain. In both countries, there was an insurmountable conflict between free-market capitalism and democracy. Because neoliberal policies would hurt the majority of the people, they’d never vote for politicians who tried to implement those policies.
1. Resistance in the US: In 1971, a few years before Pinochet seized power in Chile, President Nixon rebuffed Milton Freidman’s ideas. Though Nixon had once been enthusiastic about Friedman’s capitalist orthodoxy, the US economy was in a slump, and the president knew that trying to implement free-market policies would cause enormous backlash. Instead, Nixon went in the opposite direction by imposing price caps on necessities like oil and rent. Shortly afterward, inflation went down and the economy began to rally.
Friedman was outraged by Nixon’s betrayal, and he insisted that the administration had to stop what it was doing. Friedman flatly denied that there was any connection between the price caps and the sudden recovery of the economy. However, the American people thought differently; they re-elected Nixon in a landslide, and in doing so they unknowingly rejected Friedman’s free-market orthodoxy.
2. Resistance in Britain: In 1981, the economist Friedrich Hayek—who taught at the Chicago School, where he was held up on something of a pedestal—took a trip to Chile to see what the Chicago-trained economists had created. He was so impressed with the free flow of money there that he wrote to his friend Margaret Thatcher, then-prime minister of Britain, and urged her to transform Britain’s economy in a similar way.
Thatcher, however, insisted that such an economic shock program wouldn’t be possible in Britain. Trying to implement free-market policies would practically guarantee that Thatcher (who was already losing popularity) would be soundly defeated in the next election.
Things looked grim for the Chicago School economists’ dreams of a global free market until a seemingly insignificant military conflict changed the course of economics.
The 1982 Falklands War—or the Malvinas War if you’re in Argentina—was an 11-week struggle between Britain and Argentina for control of the Falkland Islands. While the conflict was trivial from a military standpoint, from a political standpoint it was exactly what Thatcher needed to boost her popularity.
Now that Britain had an outside enemy, the people were swept away by a wave of nationalism and militarism. They eagerly fell in line with the prime minister, who praised their patriotism and fighting spirit. The prime minister’s approval rating more than doubled during this time, rocketing from 25% to nearly 60% as the otherwise meaningless conflict went on.
Thatcher used her new popularity to start imposing the policies that she’d told Hayek were impossible. For example, when there was a coal miner strike in 1984, Thatcher framed it as another front of the Falklands War. She said that they’d fought the enemy without, and now they needed to fight the enemy within with the same ferocity and resolve.
Now that the workers had been billed as the enemy, Thatcher was able to bring the full power of the state against them. She used all of the surveillance and counterintelligence tools at her disposal, along with thousands of police officers, to break the miners’ union and end the strike.
By 1985 the union, one of the most powerful in the country, had capitulated. Nearly 1000 miners were fired, and other unions knew that going on strike or fighting for better conditions would risk bringing the state’s wrath down upon them as well.
With two victories under her belt, Thatcher started taking major steps toward a free market economy. Over the next few years, the British government privatized British Telecom, British Airways and British Airport Authority, British Steel, British Gas, and other formerly government-run industries.
Margaret Thatcher’s efforts in Britain had proven that free-market capitalism didn’t necessarily need a dictatorship to whisk people away to torture camps. Rather, a national crisis could make the people fall in line. Now, all that Friedman and his followers had to do was leverage internal crises as effectively as Thatcher had leveraged the external crisis of the Falklands War.
After the internal crisis of the Great Depression, the American left had made major gains by advancing the New Deal and the Keynesian policies it supported. Friedman was now determined that it would be his students, rather than Keynes’s, who would be ready to take advantage of the next crisis.
To that end, Friedman—backed by underwriters from some of the world’s largest corporations—built a collection of right-wing research institutes and produced a 10 part PBS miniseries about the importance of economic freedom, called Free to Choose. In short, he was laying the groundwork to make sure that he’d have broad public support when the next crisis hit.
Despite Thatcher’s efforts in Britain and Friedman’s in the US, it would be Bolivia that provided the true testing ground for Friedman’s new crisis theory.
Bolivia in the mid-80s was at a crossroads that made it the perfect place for this new type of crisis capitalism. On the one hand, it was finally having general elections after two decades under a dictator’s thumb. On the other hand, the country was in so much debt that the interest it owed was greater than its national budget, and inflation was up to a staggering 14,000%.
The election was between Bolivia’s former president Victor Paz Estenssoro, and its former dictator Hugo Banzer. The vote was extremely close, so close that the final decision was left to Bolivia’s congress, but Banzer’s party was certain that he would win. Even before the results were announced, they called in a young economist named Jeffrey Sachs to start planning a solution to Bolivia’s economic crisis.
Sachs was an odd hybrid of Chicago School economist and Keynesian. He favored Friedman-esque economic shock therapy, but he wanted to soften it with some government support for those who would be hit hardest by the free-market policies.
Sachs knew next to nothing of Bolivia’s history and had never worked in development economics before. However, he was the golden boy of Harvard’s economics department at the time, and confident that he knew everything he needed to know in order to turn Bolivia’s crisis around—in a single day, he claimed. To that end, Sachs laid out a plan for Banzer that involved price deregulations, budget cuts, and raising the price of oil by 1000%.
To everyone’s surprise, Congress chose Paz, not Banzer, to take the presidency. Paz had been known to completely change his policies while in office, and to swing left or right as seemed beneficial to him at the time. While he was no radical socialist, he also wasn’t known as a Chicago-style capitalist. However, that was about to change.
It’s not clear exactly what prompted Paz’s sudden, extreme move to the right this time, but there’s some evidence that he’d been promised support from the US in exchange for creating a free-trade economy in his own country.
Paz set out to correct Bolivia’s spiraling economy with policies based on Sachs’s recommendations—but then went far beyond anything that Sachs had proposed. His new plan called to completely eliminate food subsidies, cancel all price controls, and raise the price of oil. On top of that, even though these moves would cause the cost of living to skyrocket, the plan called to freeze all government wages at their current levels. It made severe cuts to government spending and opened Bolivia’s borders to all kinds of cheap imports. It also downsized a lot of state-run companies, the groundwork for full privatization.
President Paz dictated that whatever changes they made—whatever economic shocks they administered—had to be done quickly, suddenly, and all at once so that the country’s unions and the public couldn’t respond. He likened it to a surprise military attack against a dangerous enemy. To fulfill his demands, his team compiled all of their proposed changes into a single document that rivaled “The Brick” in size and scope. The entire plan would have to be accepted or rejected; there was no room for amending it.
Paz didn’t even give his cabinet the chance to reject it. He read the entire document aloud to a shocked room and said that anyone who didn’t like it should resign. With inflation out of control and the vague promise of support from Washington giving them hope, nobody dared to oppose his plan.
The price increases and cuts to spending did indeed end hyperinflation, as promised. Within two years inflation was down from 16,000% to a mere 10%, which is impressive by any measure.
However, alongside this seemingly miraculous recovery was enormous hardship for the poor and working class. Sachs, like Friedman, had sworn that free trade would create jobs for the jobless. That promise wasn’t fulfilled. The unemployment rate, which had been at 20% before Paz took office, climbed to somewhere between 25% and 30%. The state mining company alone had downsized from 28,000 employees to only 6,000, with no new private companies to replace it.
As always happened with economic shock therapy, a small group of wealthy elites became far richer while everyone else became much poorer. Homelessness soared, thousands of families couldn’t get enough food to eat, and even those lucky enough to have jobs lost most of their protections. The number of Bolivians who could claim social security dropped by 61% between 1983 and 1988.
One unforeseen consequence of the shock therapy was a massive expansion of Bolivia’s illegal coca trade. Coca, which is refined to make cocaine, was several times more profitable than any other crop, which naturally led desperate people to seek work on coca farms. A mere two years after Paz dropped his version of The Brick on Bolivia, illicit drug exports were bringing in more money than all of Bolivia’s legal exports put together. It’s estimated that 350,000 people were making a living from the drug trade in some way or another.
Naturally, the people who had voted for Paz were outraged at this betrayal of the nationalist platform that he’d run on. Tens of thousands took to the streets, where they were met with tanks, strict curfews, and harsh restrictions on travel. Riot police attacked workers’ unions, a radio station, and a university, as well as multiple factories. Political gatherings and marches were banned. Effectively, any opposition to the new regime was made illegal, just as it had been under Banzer’s dictatorship.
During this crisis, Sachs returned to Bolivia to advise president Paz and his cabinet. In spite of the mass hardship and suffering, Sachs staunchly opposed reversing or even slowing the changes. Instead, he used his prestige and charisma to shore up policymakers’ resolve as public pressure rose against them.
Outside of Bolivia, however, people didn’t see the hardship and repression that came along with the miraculous economic recovery. As far as the world was concerned, Bolivia had proven that economic shock therapy could be achieved without trampling peoples’ liberties or causing undue hardship.
On top of that, the fact that the man implementing the policies had been elected seemed to clear out the stench of dictatorship and authoritarianism that had clung to the Chicago School’s theories—never mind that Paz had gone completely against what he’d promised the people during his campaign.
In short, Bolivia became a sort of blueprint for a new, more attractive method of economic shock therapy. Rather than oppressive dictators and soldiers in uniform, people saw a democratically elected president and economists in suits working to fix a runaway economy, and apparently succeeding.
As it turned out, there would be plenty of opportunities for economic shock therapists to try the new Bolivian model. Economies all through the Southern Cone were in crisis due to extravagant loans that the juntas had taken out, which made them ripe targets for free-market economists.
John Williamson, a prominent right-wing economist in Washington, D.C., watched Sachs’s work in Bolivia with particular interest. What he saw there was proof that Friedman was not only right about how to rein in hyperinflation, but also that his new crisis theory was correct. The economic crisis in Bolivia had been just as effective for Paz as the Falklands War had been for Thatcher, and much more palatable to the rest of the world than Pinochet’s dictatorship had been.
In fact, in the mid-80s, several influential economists noted that hyperinflation had many of the same effects as a war: It created mass fear and confusion, displaced many people, and caused widespread loss of life. In short, like war, hyperinflation was a crisis—one that seemed to justify using any and all measures to bring it under control.
For the most orthodox of the Chicago School’s followers, this fact meant that hyperinflation wasn’t a problem to solve, but rather an opportunity to seize. As it turned out, there would be many such opportunities in the years to come.
Dictatorships were collapsing all over the world in the 1980s, a period that political scientist Samuel Huntington called the “third wave of democracy.” It was an exciting time for most of the world, and a frightening time for advocates of the free market—it seemed like only a matter of time before developmentalism or similar theories started gaining ground again in the world economy.
However, the democratic governments replacing those dictatorships ran into economic problems almost immediately. The Southern Cone once again provided perfect examples: Bolivia, for instance, had gone from $7.9 billion of external debt to a crushing $45 billion during the junta years. Brazil, the worst case of them all, had gone from $3 billion of debt to over $100 billion in just two decades.
At the time, many argued that the debts were odious (that is, not enforceable) and the lenders shouldn’t try to collect. There were both moral and legal reasons behind that stance. First, it wasn’t fair to demand that newly freed people pay off their oppressors’ deficits; second, many of those loans should never have been given out in the first place, since the lenders knew full well that the money would go toward funding human rights violations.
A recently declassified transcript of a conversation between then-Secretary of State Henry Kissinger and Argentina’s former foreign minister made the second point plainly enough—Kissinger urged Argentina to take out as many loans as possible before its “human rights issues” made the US unable to help any further. In other words, the US administration knew exactly what Argentina planned to do with the money, and was eager to lend it out anyway.
Nonetheless, the US government and major world banks insisted that the new establishments be held responsible for their predecessors’ debts.
Milton Friedman’s crisis theory would prove to be not just accurate, but self-fulfilling. Deregulating the global market created the very crises that the Chicago School needed in order to implement its theories all over the world.
Taking on the juntas’ massive debts would have been hard enough for the newly established governments, but their problems were only just starting. In 1980, US Federal Reserve chairman Paul Volcker drastically increased interest rates. The repercussions of this decision have come to be known, aptly enough, as the Volcker Shock.
Domestically, the spiking interest rates led to a large number of bankruptcies and tripled the number of people who defaulted on their mortgages. However, the worst effects were seen abroad, where already-struggling governments could only keep up with the increased payments by taking even more loans. They didn’t dare to default on those loans, or band together into a debtor’s coalition, for fear of another wave of US-backed junta uprisings. They had no choice but to follow Washington’s rules, and those rules had suddenly become much stricter.
At the same time, other shocks hit the developing world as the prices of many key exports fell dramatically. For example, the price of tin—Bolivia’s largest legal export—fell by 55%, further destroying that country’s economy. Incidentally, that sort of reliance on resource exports was exactly what developmentalist economics had aimed to fix; a goal that US economists decried as a socialist fantasy.
Free market economists even managed to take over the very institutions that were designed to keep the free market in check: the World Bank and the International Monetary Fund (IMF). These two organizations are economic coalitions between numerous countries, and they were intended to prevent economic collapses with generous grants and low-interest loans.
John Maynard Keynes lauded the institutions. He said that the world had finally realized the inherent dangers of a free market, which had led to such horrors as the Nazi regime in Germany and the juntas in the Southern Cone, and he was pleased with the steps that the world powers had taken to prevent those atrocities from happening again.
However, the IMF and the World Bank had a fatal flaw that prevented them from living up to their stated missions: Rather than following United Nations rules of one vote per country, they allocated votes based on the size of each country’s economy. In effect, this rule gave the US veto power over almost the entire coalition. When Reagan and Thatcher, two inveterate neoliberals, took power during the 80s, their combined economic clout was enough to fully harness both organizations for their free-market agenda.
Milton Friedman should have been vehemently opposed to these two institutions—the Bank and the IMF represented exactly the sort of government spending that he despised. It was, therefore, maybe somewhat ironic that so many key positions in both the World Bank and the IMF ended up being filled by Chicago School graduates. Ironic or not, though, the Chicago School quickly and deliberately took hold of the levers of power.
Their takeover became official in 1989 when the economist John Williamson revealed the “Washington Consensus.” It was a set of policies that, he claimed, the Bank and the IMF considered the baseline for a healthy economy. The Washington Consensus was nothing less than Milton Friedman’s policy triad: privatization, spending cuts, and deregulation of trade.
Rather than the promised grants and loans, the IMF started responding to cries for help with economic shock therapy. Any country that came seeking aid had no choice but to accept, along with the financial aid, sweeping changes that privatized their industries and opened their borders to free trade.
Of course, this was all done in the name of economic stability—that was still the IMF’s stated goal, despite the vast profits it was raking in from neoliberal policies. Nonetheless, those policies invariably created, as one of the IMF’s own senior economists would later admit, “economic bedlam.”
In the end, this expertly packaged deal was how Friedman and the Chicago School’s free-market theories not only survived but thrived as democracy spread across the globe. The crisis theory wasn’t so much an economic theory as a psychological one; people who were in shock from a crisis and afraid for their futures were easy to control.
Furthermore, it worked perfectly: When desperate countries came to the World Bank and IMF seeking relief, they were forced to accept brutal economic restructuring along with the aid they so dearly needed.
It’s worth noting that, in many cases, shock therapy actually worked in the short term. Countries were able to quickly rein in inflation and stabilize their currencies. These apparent economic miracles were held up as further proof that privatization and free trade were the only ways to ensure a healthy economy.
However, like every time free trade is imposed on a developing country, cheap imports quickly flooded the markets and forced local factories out of business. Unemployment and poverty soared—Argentina alone saw more than half of its population drop below the poverty line.
Throughout the 90s and 2000s, further crises would help Chicago School economics take hold in many other countries around the world.
As we’ve seen, free-market economies are difficult to create because most people simply don’t want them. This struggle between average people who want stability and peace, and free-market capitalists who want unrestricted trade and immense profits, is the central conflict of the Chicago School’s agenda.
In this chapter, we’ll examine that struggle as it played out in Poland, where the newly-elected Solidarity party was caught between the demands of the people and immense economic pressure from the IMF and the World Bank. We’ll also briefly look at a similar struggle in China, which only ended when the ruling party massacred protestors in Tiananmen Square.
Poland also fell victim to the IMF’s bait-and-switch tactics when the newly-elected Solidarity party had to implement harsh neoliberal policies in exchange for foreign aid—policies that went directly against the worker-centric economy they’d promised to create.
In 1980, Poland was chafing under the control of communist Russia. Tensions came to a head when the Communist Party raised the price of meat. In response, Polish workers formed a powerful union which they called Solidarity.
Led by a charismatic electrician named Lech Walesa, the leaders of Solidarity demanded freedom from the overbearing Communist Party, and the right to instate their own democracy. Furthermore, Solidarity had the numbers to make that happen. The union was over ten million strong—large enough to hold a strike that would bring the entire country to a halt.
In 1989 the Communist Party officially recognized Solidarity. Party leaders agreed to hold special elections, pitting their own party members against the union for control of Poland. Solidarity won in a landslide.
However, like the new democracies in the Southern Cone, Solidarity inherited as many problems as they overthrew: Poland was $40 billion in debt, inflation had risen to 600%, and food was running short. Rather than striving for the worker-centric economy they’d dreamed of, they had the much more immediate concern of avoiding total economic collapse. They needed immediate debt relief and financial aid.
Solidarity turned to the IMF for help, which by this point was firmly controlled by Chicago School economists. Those economists didn’t see a country that had struck a heavy blow against the communist regime that the US so hated—they only saw another place reeling from debt and inflation, caught in the throes of a sudden regime change. In other words, another perfect target for shock therapy.
Meanwhile, the US government congratulated Solidarity on its decisive victory against the Communist party, but still insisted that the Polish people would still have to pay the debts they had inherited from their former oppressors. The US only donated a pittance in aid—$119 million, when the country needed billions.
While Poland was being denied aid on all fronts, Jeffrey Sachs began working as an advisor for Solidarity. After what he’d done in Bolivia—which the rest of the world only knew about through carefully sanitized reports—Poland saw him as nothing short of a messiah.
Sachs’s plan was standard Chicago School neoliberalism: Getting rid of price controls, cutting subsidies, privatizing the state-owned mines, factories, and shipyards, and opening the borders for free trade. It was even more extreme shock therapy than what he’d subjected Bolivia to, but Sachs claimed that making these changes immediately, and all at once, would quickly rein in inflation.
Even more enticing than economic stability, Sachs promised that Poland would quickly become a “normal” European country. That is, it would become a country that the world viewed in the same way that it viewed Germany or France: successful and influential, worthy of attention.
Some members of Solidarity, including Lech Walesa, protested that these measures were the exact opposite of the social-democratic platform they’d run on, and they warned that his proposed shock therapy would only worsen conditions in the country. But others, who were desperate for a solution—any solution—pushed for the party to accept Sachs’s offer. After several months of political paralysis, the party went with Sachs’s proposal. They simply needed the money he was offering, and they needed it immediately.
The Polish prime minister went before the people to announce sweeping changes: the privatization of state-owned industries, a newly formed stock exchange, and a new currency, among others. These changes were to happen immediately, and all at once. In return, Sachs negotiated with the IMF to get Poland some debt relief and $1 billion to stabilize the economy.
Solidarity’s sudden course change was deeply unpopular. Three years after they swept the elections, 60% of Poland’s citizens still opposed the privatization of state industry. Many felt that they’d been betrayed by the party they’d fought so hard to elect.
As had happened over and over in the Southern Cone, the sudden spending cuts and deregulation led to a depression. Unemployment—which had been effectively zero under communism—skyrocketed to 25%, and remained as high as 20% even after the economy started recovering from the sudden changes.
Sachs, addressing the people’s anger, claimed that he and Solidarity had had no choice. He compared himself to a doctor performing emergency heart surgery, unable to worry about the messy scar tissue he’d leave behind. For the first 18 months or so, the Poles gritted their teeth and endured the hardship. Solidarity and Sachs assured them that it was temporary, and the people believed them. However, as the economy and standard of living failed to recover, the people’s anger—and Solidarity’s confusion—grew. How could it be, the party wondered, that this promised miracle cure had made things worse than they’d been under Moscow’s rule?
The people made their displeasure known with nationwide strikes and protests, forcing the government to slow down its privatization plans. At the end of 1993, four years after Solidarity had taken the reins and instituted economic shock therapy, 62% of Poland’s industry was still owned by the state. Once Solidarity scaled back the shock therapy, Poland’s economy began to rebound.
Solidarity was soundly defeated in the 1993 elections by a coalition of left-wing parties—including the communists who had previously run the country. The coalition took 66% of the seats in Congress that year, while Solidarity won only 5%. The people had clearly and firmly rejected shock therapy.
In spite of all of that, Poland is still held up as a shining example of how free-market capitalism can revitalize a struggling country. The economic gains that the Polish people won by protecting their state-controlled industry are somehow credited to the very shock therapy that they fought against. Meanwhile, all of the inconvenient facts surrounding that shock therapy—the protests, Solidarity’s backpedaling on policy, and their resounding defeat in the next election—get swept under the rug.
1980s Poland was a perfect example of what some people called “extraordinary politics”: times of crisis when the normal rules and strategies didn’t apply. The bargain his party struck with Sachs was the exact opposite of what they’d promised the people. However, because it was a time of extraordinary politics, Solidarity was able to flout the normal democratic processes and push through the shock therapy package. The approval of the people wasn’t needed—and, equally importantly, the people were too beaten down, confused, and scared to fight back.
Shortly after, it seemed like a great deal of the world was in periods of extraordinary politics. Around 100 countries experienced dramatic shifts in politics and economics within the span of just a few years.
The Soviet Union was quickly losing its grasp on the eastern part of the world, and many hoped that, now that the world wasn’t locked in a fight between superpowers, countries would be free to explore and find new methods of governance—perhaps the hybrid capitalist/communist model that Walesa dreamed of.
The fundamentalist Chicago School, naturally, scorned such ideas. Francis Fukuyama, a Chicago School follower and senior member of the US State Department, declared that free-market capitalism had won—and, moreover, that communism’s defeat was proof that capitalist theories were right and just.
Much as the World Bank and IMF had hidden Friedman’s shock therapy inside their relief packages, Fukuyama was hiding free-market capitalism inside the wave of democracy sweeping over Europe and Asia. He spoke of people demanding the right to govern themselves and said that such rights went hand in hand with true economic freedom—that is, a free market.
However, while Fukuyama was right that growing numbers of people all over the world believed in democracy, he was wrong that those same people wanted to lose their economic protections and their jobs. Instead, people wanted both self-governance and the ability to choose their own economic models.
One country that swiftly discredited Fukuyama’s theories was China. A key point Fukuyama made, echoing Friedman before him, was that democratic reforms and free-market reforms were intrinsically linked—you couldn’t have one without the other.
However, China was pushing for Chicago-esque deregulation of wages and prices, but fiercely resisting demands for elections and expanded civil rights. Meanwhile, massive crowds of protestors were fighting for democracy, and against the government’s attempts to remove protections and controls.
China’s leader, Deng Xiaoping, was desperate to avoid what had happened in Poland: He didn’t want China’s workers to create their own movement that could threaten the party’s absolute control. He therefore created a “People’s Armed Police,” consisting of about 400,000 members, to patrol the streets and crush any strikes or protests they could find.
Deng began making free-market reforms in 1983. By 1988, it was becoming increasingly clear to the people that Deng’s so-called “reforms” just attempted to enrich a small group of elites at the expense of the rest of the country. He started facing such severe backlash that the government had to roll back some of those changes.
With public opinion swiftly turning against him, Deng called in Milton Friedman himself for help and advice. Friedman spoke to many different audiences in Shanghai and Beijing, spreading the message that capitalism was better than communism. However, despite his fame and charisma, Friedman couldn’t win the people back to Deng’s side. In the months following his visit, the protests only grew larger and more radical.
Tiananmen Square was the site of some of the largest demonstrations. It’s commonly believed that the Tiananmen Square protesters were students fighting for democracy and against communism, but historians are now challenging that story.
For example, Wang Hui, who helped to organize the Tiananmen protests and is now a respected member of China’s so-called “New Left,” wrote his own perspective on the events. In his book China’s New Order, Hui says that it wasn’t only idealistic young students who gathered in the square. There were factory workers, teachers, and even some small-time entrepreneurs there as well. Furthermore, he explains that they weren’t fighting against communism; they were fighting Deng’s reforms and the undemocratic way he’d forced them onto the people.
On May 20, 1989, the Chinese government declared martial law. Two weeks later, on June 3, came the infamous Tiananmen Square massacre; soldiers freely beat and shot protesters, while tanks rolled straight over the crowds.
After that, Deng scoured the country in a Pinochet-like campaign to round up, imprison, and execute his political opponents. Western media covered the horrific events as an example of communist brutality, but Deng made it clear that it was capitalism—not communism—that he was protecting so viciously.
Following the massacre, Deng’s reforms only increased in speed and scope. This economic reshaping of China led directly to how it’s viewed today: a source of cheap labor for much of the world.
In this chapter, we discuss South Africa’s attempts to free itself from the ruling National Party, and how free-market economics destroyed their country in the process. In short, although the people of South Africa technically got the government they wanted, in doing so they unknowingly signed away their hopes of better lives.
South Africa’s struggle for freedom was, if possible, even more dramatic and brutal than many other countries’ fights. However, it ended much the same way, with one important difference: Rather than political repression, the newly freed South Africa found itself the victim of near-total economic repression.
In 1955, South Africa was ruled by the white supremacist National Party. That year, the African National Congress (ANC)—which, despite its name, is a political party rather than a congress—began fighting in earnest against their oppressive rule. The ANC started by sending tens of thousands of volunteers to survey people about what they’d want in a post-apartheid state.
The people’s demands, which included land for the landless, free education, higher wages, and shorter hours, were compiled into the Freedom Charter. One of the Charter’s most radical demands (in the eyes of the rest of the world) was that Africa should have the right to its own wealth, which includes the largest gold deposits in the world. That demand was in the charter because the African people recognized that apartheid wasn’t only about racism, but also about economics; a few men were reaping massive profits from the labor of millions.
The ANC officially adopted the Freedom Charter on June 26, 1955, but it would be decades before it took control of South Africa. While the ANC secretly passed around the Charter and worked to build support for their ideas, the National Party accused them of treason.
In the 1980s a new generation of freedom fighters picked up the Charter. This younger generation was fearless, militant, and ready to do whatever it took to topple the white supremacist state. They marched and protested relentlessly, refusing to back down even when met with tear gas and bullets.
One key player in this struggle was Nelson Mandela. He was a South African revolutionary who was imprisoned in 1962 on charges of treason. He spent 27 years in prison, but never backed down from his beliefs or gave up hope that the country could be free. He was, in many ways, both the face and the heart of the ANC.
In 1990, Mandela wrote a simple two-sentence letter to his supporters outside the prison stating that the ANC was still committed to nationalizing banks, mines, and monopoly industries for the good of the people, and that it always would be. Officially, it was a policy statement from the ANC. However, in reality, it was reassurance that he was still fighting after almost three decades in prison.
On February 11, 1990, just two weeks after sending that letter, Nelson Mandela walked free. People all over South Africa celebrated his release, and there was a wave of renewed certainty that nothing would ever stop their struggle for freedom.
The ANC seemed uniquely suited to create an economic system like Poland’s Solidarity party had dreamed of: one that combined the best of both capitalism and communism. The Freedom Charter already contained most of the tenets of such a system. Furthermore, the ANC—and Nelson Mandela in particular—had enormous support all over the world.
However, perhaps most importantly of all, people recognized that private companies bore a large share of the responsibility for apartheid. Multinational corporations had made enormous profits from that unjust system, and they’d used their considerable wealth and influence to help keep it in place.
Mandela could have used his own fame and the rising anger against those corporations to argue that major sectors of the economy needed to be nationalized, and that it was unjust to saddle a new government with the debts of their former oppressors. There would certainly have been backlash from the US, the European Union, and the International Monetary Fund, but it’s possible that global support for Mandela and the ANC would have won out.
Unfortunately, we’ll never know. In the years between Mandela’s release in 1990 and the ANC’s sweeping election victory in 1994, private interests wrapped South Africa in a web of compromises and laws that kept its new government from exercising any real power.
Mandela met with F.W. de Klerk, the leader of South Africa’s National Party, to determine how South Africa’s post-apartheid government would function. During these talks, de Klerk tried everything he could think of to keep power in white hands—his propositions included breaking up the country into a federation, requiring a certain number of government seats to be held by each ethnic group, and other tactics to avoid simple majority rule. However, with the support of millions of people behind him, Mandela shot down almost all of de Klerk’s proposals.
Unfortunately, the economic negotiations weren’t going as well. While all eyes were on the political struggle between Mandela and de Klerk, the National Party started forcing capitalistic orthodoxy onto the ANC. Hiding behind the Washington Consensus—which said that only free-market capitalism could create a healthy economy—de Klerk’s government handed over key areas of the economy to “experts” from the World Bank, the IMF, and even the National Party itself.
The ANC didn’t see the trap until it was far too late. With their energy focused on winning Parliament, they accepted economic compromises that would make realizing their goals impossible. The people of South Africa didn’t see it either, thinking that the economic deals were mere technical issues, not worth their attention next to the explosive political deals.
A few of the so-called compromises included:
These were just a few of the many rules and regulations binding the new government. South Africa was supposedly free, but big businesses still controlled every area of the people’s lives. The ANC ruled in name only.
Despite the spider web of rules, the ANC still tried to fulfill its promises to the people of the country at first. Over 100,000 homes were built for impoverished South Africans, and millions of citizens were provided with water, phones, and electricity.
However, it wasn’t long before the new government found itself being crushed under debt and international pressure to privatize. They had no choice but to start raising prices, and soon millions of people lost access to their new utilities.
Nationalization and redistribution of resources were similarly impossible. The banks, the mines, and the largest monopolies stayed in the hands of the same four white-owned conglomerates that also owned 80% of Johannesburg’s stock exchange.
By 2005, only 4% of the companies in that stock exchange were controlled or owned by blacks. In 2006, whites still controlled 70% of South Africa’s land, despite being only 10% of the population. Inequality, rather than shrinking under ANC rule, has only gotten worse. Perhaps most tellingly of all, the average life expectancy in South Africa has dropped by 13 years.
At the heart of all these numbers is a single decision that the ANC made. After realizing that it had been tricked, the ANC could have started a second revolution, this time against unfair economic restrictions. Instead, they chose to take what they’d been given and follow the now-dominant Chicago School method of economics. They believed that their only hope to salvage their economy—and their country—was to curry favor with foreign investors.
One thing that Nelson Mandela quickly discovered was that the world had changed since he’d been in prison. In this new, electronic world, corporations could discover and punish any deviation from their rules almost immediately. It was like a shock collar on South Africa, training the ANC in how to follow the rules that they’d unknowingly agreed to.
The first shock came before they even took power, on the day that Mandela was released from prison. The value of the rand, South Africa’s currency, plummeted by 10% as the stock market collapsed and the De Beers diamond company moved its headquarters out of the country.
From then on, any small misstep by Mandela or the ANC resulted in a shock from the market that sent the rand falling again.
The only person in the ANC who seemed to truly understand the game was Mandela’s second-in-command—and shortly thereafter, his successor—Thabo Mbeki. Mbeki had spent many years living in England and studying at the University of Sussex, where he was thoroughly immersed in Thatcher’s neoliberalism. He had a reputation, especially among business leaders and elites, for spreading confidence and cheer even in dire circumstances.
Mbeki eventually convinced Mandela that they needed to spread that kind of confidence to the global market by giving in fully to the Washington Consensus and its free-market economics. As Mbeki put it, the beast had been unleashed and couldn’t be tamed; it could only be fed the endless growth it craved.
Mandela and Mbeki started meeting with Harry Oppenheimer, a former chairman of De Beers, among other massive companies. Though De Beers and Oppenheimer were symbols of the former apartheid rule, he became their guide to the new world of free-market capitalism. He even reviewed, edited, and finally approved the ANC’s new economic program.
Even with their efforts to appease the market, South Africa kept being rocked by painful shocks. Finally, Mbeki determined that what they really needed was to completely break with their past image and goals and rebuild the economy from scratch. In 1996, he unveiled his new plan: A classic Friedman-style shock therapy program that featured increased privatization, decreased government spending, and further deregulation. Just to make sure that the US and Britain got the message, he called himself a “Thatcherite.”
However, it didn’t work. Investors still weren’t biting at the volatile South African market, and all that Mbeki’s shock therapy did was depress the rand even further.
The South African writer Ashwin Desai, who spent time in prison during the struggle for freedom, has noted striking similarities between the behavior of prisoners and the behavior of the ANC. Prisoners who please the wardens will be treated better, so many try their hardest to follow the rules and curry favor with their captors. Desai says that the ANC was doing the same thing, only their captor was the global market.
The ANC outright rejected any measure that might be seen as anti-business. For example, the Truth and Reconciliation Commission—whose purpose was to hear testimony from victims of human rights abuses and grant reparations for their suffering—suggested a one-time, 1% tax on corporations that had profited from apartheid. It was a modest suggestion by any means, but one that Mbeki’s government refused to consider.
To make matters worse, the government is still saddled with the debt burden left over from apartheid, which costs some 30 billion rand in interest each year (about $4.5 billion). That means that any money the government does bring in has to go toward that expense first.
For example, between 1997 and 2004 the ANC sold 18 government-owned farms and raised about $4 billion, half of which went to paying the debt. So, not only was the ANC not living up to the promises of the Freedom Charter, it was doing the exact opposite: selling national land to wealthy investors, and using the money to pay the National Party’s debts.
However, in spite of Nelson Mandela’s own acknowledgment that the national debt was the single greatest obstacle to fulfilling the Freedom Charter, the ANC has refused to default on the loans. While there’s likely a strong case that the debts are odious and don’t need to be paid off, the ANC has been too afraid of further painful market shocks to try.
All of this means that post-apartheid South Africa is languishing under a kind of reverse reparations. The white-owned businesses that profited from apartheid haven’t paid a dime in reparations, while the victims continue to have their own national and personal wealth stripped away to pay their oppressors.
The last straw that got the ANC to abandon even the pretense of redistribution was an unimaginative, yet persuasive argument: Everybody’s doing it. Major banks and governments all over the world were going all-in on deregulation, free trade, and reduced spending. ANC leaders were shuttled to international organizations like the IMF, where they were trained in so-called modern economics. It was an ideological onslaught that the ANC was totally unprepared for, and couldn’t resist.
As for the Freedom Charter, people’s views on it in various parts of the country show its failed promises plainly enough. Rich folks in gated communities and executive boardrooms regard it warmly, as a statement of goodwill and good intentions with no teeth behind it. However, in poor townships, it’s a painful reminder of what they never got.
As we’ve seen, a major part of what’s allowed Chicago School economics to flourish is misinformation. Countries are sold economic shock therapy with false promises, and then the results of those policies are either glossed over or distorted into something that looks favorable. Take a moment now to consider what you’d previously learned about one of the countries we’ve discussed so far.
Think of a country discussed in Chapters 1-10 that you previously had some knowledge of. What that you’ve read so far changed your thoughts about that country’s history or economy? (How is their story different from what you previously believed?)
In this chapter, we examine a major turning point in world economics: the collapse of the Soviet Union. That collapse meant that capitalism was now virtually unopposed on the world stage. This had terrible implications for the people that Chicago School economics was supposedly helping, most notably the people of Russia.
In short, now that capitalism had no competition, there wasn’t any reason to make it look appealing. Instead of following the example of post-World War 2 and providing major aid to Russia, Western nations essentially let the broken country fend for itself.
In 1991, Mikhail Gorbachev was president of the Soviet Union. Despite the fact that the Cold War had just ended, Gorbachev was so likable and had made such remarkable democratic reforms that he was almost universally loved in the West.
A major part of his plan was to create a mixed economy in Russia. It would be based largely on free-market capitalism, but with a strong social safety net and certain industries remaining under government control. His design was closely based on the Scandinavian model, which Gorbachev called a socialist beacon for mankind.
However, when Gorbachev arrived at that year’s G7 conference, the major countries of the world all demanded that Russia undergo a course of economic shock therapy that would be even faster and harsher than Poland’s. They’d offer no foreign aid at all unless Russia consented to that shock program.
Gorbachev knew that the only way to impose such drastic and unpopular changes would be with force. It seemed that other major countries and the media knew it too, though it didn’t seem to bother them—The Economist and the Washington Post both urged Gorbachev to use Chile’s Pinochet as an example for how to rule Russia.
Gorbachev was unwilling to go to those extremes, but Boris Yeltsin—one of his political opponents—had no such reservations. Three painful shocks followed that fateful G7 summit: one political, one economic, and one psychological.
Boris Yeltsin, who by 1991 had abandoned the Communist party and run as an independent, was the current president of Russia. However, his power was overshadowed by Gorbachev, who was president of the entire Soviet Union. Thus, in order to realize his dream of becoming the Russian Pinochet, Yeltsin needed to increase his own power and get Gorbachev out of the way.
His opportunity came in August of 1991, when the deposed Communist party unsuccessfully tried to depose him. A group of party members drove tanks up to the Russian parliament building and threatened to attack the democratically-elected parliament. Yeltsin, along with a large group of Russians determined to protect their new democracy, faced down the tanks from the steps of the Parliament building. Eventually, the tanks turned and drove away without harming anyone.
The event was a huge boost to Yeltsin’s popularity, and he leveraged his newfound clout with a brilliant piece of political maneuvering: He formed an alliance with two other republics in the Union. That new alliance effectively dissolved the Soviet Union, forcing Gorbachev to resign.
Most Russians had never known life without the Soviet Union, and its sudden dissolution came as a huge shock. That was the first of the three shocks that would remake Russia from the ground up.
Boris Yeltsin turned to Jeffrey Sachs, who was riding high on his victories in Bolivia and Poland, for advice and funding. Sachs promised that, in exchange for Russia’s pledge to undergo whatever economic shock therapy the world market prescribed, he could get them somewhere in the neighborhood of $15 billion in aid. However, that promised money never arrived.
As always, the transition to Friedman-esque free-market capitalism couldn’t be done democratically. Therefore, Yeltsin made the bold move of asking Russia’s parliament to grant him one year of emergency powers. He promised that, if he could pass laws unilaterally instead of bringing them to parliament to vote, he could fix the economic crisis and give Russia one of the largest economies in the world.
The emergency powers would effectively make Yeltsin a totalitarian ruler, something that should have been terrifying to Russia’s new democracy. However, he was still popular for his actions during the Communists’ attempted coup, and the country desperately needed foreign aid. Parliament accepted his terms.
With his new powers, Yeltsin immediately put together a team of Russian economists who, though they hadn’t trained at the Chicago School, were such big fans of Milton Friedman that the Russian press started calling them “the Chicago Boys.” Their policies, predictably, were focused on deregulation, privatization, and reducing government spending—classic shock therapy.
In addition to his special emergency powers, President Yeltsin was also enjoying the backing of the US government. A team of “transition experts” took on a variety of projects to aid Russia’s move to full-blown capitalism, including founding a stock exchange and writing up privatization documents. USAID also awarded a contract to Harvard University, which sent teams of lawyers and economists over to observe and help Yeltsin’s progress.
Only a week after Gorbachev resigned as president of the Soviet Union, Yeltsin and his “reformers” began the economic shock therapy, which was the second of the three major shocks to the Russian people. Already exhausted and bewildered from the sudden collapse of the Soviet Union, they couldn’t hope to keep up with the dizzying array of changes being thrown at them—which was exactly the point.
Joseph Stiglitz, who was at the time the chief economist at the World Bank, summed it up neatly. He said that pushing such reforms required a “blitzkrieg” approach immediately after a major transition or upheaval, when the people were still too disoriented to protect their own interests. That, in essence, is the shock doctrine.
Perhaps predictably, Russia’s shock therapy didn’t have the promised results. Yeltsin swore that there would be around six bad months, but by the end of his year of emergency powers, Russia would recover and be a world superpower again. However, a year later, millions of Russians had lost their life savings and a full third of the people had fallen into poverty.
Yeltsin and his economists originally tried to present economic reform and democratic reform as two parts of the same project. Soon, however, it became clear that democracy and free-market capitalism were in direct opposition to each other.
Eventually, the Russians snapped out of their stupor and demanded that Yeltsin stop his harmful policies. In March 1993, the parliament voted to strip Yeltsin of his emergency powers. The president had used up his year and then some, and far from delivering the salvation he promised, people were more poor and desperate than ever.
Yeltsin retaliated by declaring a state of emergency, which restored his unilateral power, and by trying to dissolve Parliament—which would be like a US president trying to get rid of Congress. He didn’t get the votes he needed to pass his mandate, but a narrow majority of the population did say that they approved of his economic reforms, so Yeltsin claimed victory anyway.
Shortly thereafter, the president issued a decree saying that parliament was dissolved and the constitution abolished, effective immediately. A couple of days later, parliament—which Yeltsin did not have the authority to dissolve—retaliated by voting overwhelmingly to impeach him. It was inevitable that the power struggle would turn into armed conflict.
Soon enough, it did. Yeltsin—still backed by US money and material—surrounded the parliament building with armed troops and had the power, heat, and phone lines cut off. Popular support for parliament, and against Yeltsin’s strongman tactics, grew by the day. Many people on both sides were pushing for emergency elections for both the presidency and parliament, letting the people decide who should be in power.
However, around this time, Poland’s Solidarity party suffered a crushing electoral defeat. Yeltsin then knew that he couldn’t risk an election, because he would almost surely lose.
Instead, he gave up even the illusion of being a democratic leader and shifted to full-blown junta tactics. His troops stormed and burned the parliament building, and killed or captured everyone inside.
Shortly thereafter, Russia was under total dictatorial rule and the Russian Chicago Boys were free to make all the Friedman-style laws they wanted, including massive budget cuts, more privatization, and the removal of price caps on basic staples like bread. This was the third and final shock for the Russian people.
Yeltsin’s coup and the intensified shock therapy he forced onto the country were widely cheered in the West, even as violence and human rights violations mounted. However, they had one major problem looming: Yeltsin’s popularity was plummeting. At their lowest point, his approval ratings dipped into single digits.
It was a recipe for a revolution, and if Yeltsin were ousted then whoever replaced him would probably reverse many of the changes that were making Russia so beloved by corporations and investors. He needed a way to win the people back. This time Yeltsin took a page from Thatcher’s book instead of Pinochet’s: he started a war.
In December 1994, Russia went to war against the Republic of Chechnya in an effort to put down its independence movement. Russian troops easily claimed the already abandoned presidential palace in Grozny, the capital of Chechnya, and Yeltsin declared victory. It boosted his popularity, though not as much as his supporters had hoped, and he only narrowly won the next election, largely thanks to massive donations from oligarchs—well beyond the legal limits—and nonstop coverage on oligarch-owned TV stations.
With the threat of removal gone, Yeltsin’s pseudo-Chicago economists moved on to the most controversial (and profitable) part of their plan: They would cheaply sell major national industries to wealthy buyers—oligarchs who plotted with politicians to purchase public assets at a steep discount.
For example, Norilsk Nickel, which at the time produced a fifth of the nickel in the world, was sold for $170 million, and its yearly profits reached $1.5 billion soon after. Yukos, a large oil company, was sold for $309 million, and now brings in more than $3 billion a year.
The biggest slap in the face may have been the fact that these companies were bought using public funds. Yeltsin’s government sold these companies to wealthy Russian oligarchs, who paid for them out of bank accounts created by government officials and funded by public money.
Russia also became a massively profitable market for wealthy outsiders. Many investment banks raced to set up dedicated Russian mutual funds, and The Wall Street Journal teased the possibility of 2,000% returns on investments in just three years.
As seen in many other countries, Russia’s shock therapy caused a huge transfer of wealth to the already wealthy elites, and the common people suffered.
Yeltsin ousted Gorbachev and dissolved the Soviet Union in 1991; by 1998, over 80% of Russian farms were bankrupt and some 70,000 factories had closed. The number of impoverished Russians had gone from around 2 million to 74 million. Alcohol use doubled during the shock therapy years, and hard drug use increased by an estimated 900%. The suicide rate doubled, and the homicide rate quadrupled.
Furthermore, Yeltsin’s Moscow may have been one of the most openly unequal cities in the world. In one area, oligarchs drove luxury cars while guarded by their own private mercenary armies. In another, people had to read by candlelight.
And, naturally, looting a country as large and wealthy as Russia took extreme acts of violence. The Chechen War alone killed an estimated 100,000 people. Policies that enrich the few at the cost of the many can only survive if democracy is repressed.
Even so, no matter how openly Yeltsin flouted democracy, his time as president was portrayed in the West as “transitioning to democracy.” Furthermore, world leaders and major media outlets seemed blind to the fact that these weren’t isolated incidents caused by corrupt governments. They blamed “corruption;” few people ever thought to look beyond politics and into economics.
In this chapter, we see how Sachs’s failure in Russia drastically changed his views on neoliberalism and free-market economics. However, when Sachs abandoned the free market crusade, others were ready and willing to pick up where he left off.
In fact, these new frontrunners of neoliberalism took things farther than Sachs ever had. One of them made a crucial discovery: Free market economists didn’t need to wait for crises to arise naturally. They were perfectly capable of intensifying problems that already existed, or even of inventing crises completely out of thin air.
After Russia succumbed to Yeltsin’s dictatorship, even Jeffrey Sachs realized that the economic shock therapy had failed. He set about trying to secure foreign aid to help the country recover, but he ultimately failed because his fellow economists weren’t interested in helping the US’s former enemy.
However, when Sachs pitched his new plan to the US government and the IMF, they flatly refused to help Russia get back on its feet. That was a devastating blow to Sachs, whose plans heavily relied on foreign aid money—in fact, that money was why Yeltsin had agreed to the economic shock therapy in the first place.
When people later asked what went wrong, Sachs admitted that he’d badly misread the situation back home in the West.
First of all, when Chicago School orthodoxy had first been pushed on the countries in the Southern Cone, it had been a bold new experiment in capitalism. Naturally, those who stood to profit from shock therapy experiments had vested interests in making sure they succeeded. Therefore, they provided aid money that wasn’t charity so much as it was an investment. By making sure the countries’ economies recovered and grew (and by ignoring the staggering human costs), they showed that shock therapy was effective, and thus they made sure that it would be used in other countries.
Secondly, while Sachs saw the end of the Cold War and the Soviet Union’s collapse as another opportunity for shock therapy, many others saw it as a rousing victory for capitalism and democracy. They still viewed Russia as an enemy—even though the conflict was officially over—so they had no interest in helping.
In one sense, simple free-market ideology had held back aid to Russia. Basically, with the Soviet Union gone, capitalism had a monopoly on the world.
While the Soviet Union had been a world superpower, people could—at least theoretically—decide whether they supported capitalism or communism. During times of economic hardship, such as after World War II in Europe or during the Great Depression in America, socialism and communism always grew in popularity; having a government that promised to take care of people’s needs started sounding better than the ruthless individualism of pure capitalism.
Therefore, governments and economists had needed to soften capitalism and make it more appealing. They did this through government-sponsored jobs, social programs to make sure that people could afford to eat, and foreign aid to help countries who were suffering economically.
However, with the Soviet Union gone and Russia struggling, there was no threat to capitalism anymore. Capitalism’s major competitor had gone out of business, so to speak, so capitalists didn’t need to win people over—they had no other system to turn to.
In short, communism’s fall was the realization of the Chicago School’s dream: Pure capitalism, unfettered and unthreatened, holding a monopoly on the world.
The capitalism monopoly was on full display at an economic conference held in Washington, D.C. in January of 1993. The main topic of the day was how to get politicians to pass policies that would be unpopular with their people.
There were several recurring themes throughout the conference:
Jeffrey Sachs was booked to give a speech at the conference, and he used the opportunity to explain how badly people were suffering in Russia. In short, he was trying to appeal to the attendees’ humanity, so that they’d agree to send the aid that Russia needed.
His efforts failed, most likely because he’d misread the situation again. The conference attendees understood perfectly well how devastating an economic crisis was—they were familiar with Friedman’s crisis theory, and many of them had applied it in their own countries. However, where Sachs saw suffering people in need of foreign aid, they only saw a desperate president Yeltsin auctioning off his country’s wealth for a fraction of its value.
It was clear that Jeffrey Sachs had gone as far with Chicago School ideas as he cared to, but another economist, John Williamson, was more than willing to take up the reins.
Building on Friedman’s crisis theory, in which countries only submit to shock therapy when they’re suffering and desperate, Williamson put forward the idea of actively causing crises. Instead of waiting for opportunities, he asked, what if they could make their own?
Not even a month later, in February 1993, Canada was suffering economic disaster—or so the media claimed. The national newspaper warned that a debt crisis was looming. A TV special reported that Canada’s credit would run out within a year or two.
The overall message was that Canada was spending far more money than it could afford to. If this overspending continued, the media claimed, Wall Street would soon lower Canada’s credit rating. If that happened, wealthy investors would take their money somewhere safer.
Canadians were told that the only way to avoid economic disaster was to drastically reduce government spending on things like healthcare and unemployment benefits. The Liberal Party, which was in power at the time, did exactly that—despite having run on a platform of job creation and social programs. It was Canada’s version of the Solidarity party’s bait-and-switch.
Two years after the peak of Canada’s debt hysteria, an investigative reporter named Linda McQuaig exposed the fraud. She showed how the crisis had been invented by a few far-right think tanks, which were funded by some of Canada’s largest corporations and banks.
McQuaig spoke with Vincent Truglia, the analyst in charge of determining Canada’s credit rating, and he told her something unusual: He’d been heavily pressured by Canadian bankers and corporate executives to lie about the country’s financial situation. Canada was the only country, he said, where people wanted him to lower the credit rating instead of raise it.
Eventually, Truglia got so sick of the demands and the politicized numbers coming out of Canada that he personally issued a commentary on it. He promised that Canada’s spending was not excessive. He took aim at the manipulated numbers coming from the think tanks, showing exactly where and how they were misrepresenting Canada’s finances.
However, by the time Canadians learned that there was no debt crisis looming, it was already too late. Politicians had passed the budget cuts and gutted the social safety net. Despite numerous budget surpluses since then, the cuts have yet to be fully reversed.
It seemed that Williamson’s plan to create crises out of nothing worked perfectly. By 1995, political talk in Western democracies was filled with warnings about debt crises and impending economic collapse.
In this chapter, we’ll explore how the Chicago School’s crisis theory paved the way for vast new markets in Asia. However, we’ll also see the first signs that economic shock therapy can fail by going too far—if people suffer too much, too quickly, they might try to overthrow the free market and replace it with a more balanced system. That exact thing happened in Indonesia, where the people rose up to oust their leader after one too many shocks.
In the late 1990s, financial trouble in Thailand quickly spread throughout the region and led to the near-collapse of many Asian economies. Friedman and his followers saw this crisis as an opening that they could use to establish their policies.
These suffering countries had, just a year before, been held up on pedestals as prime examples of how globalization and free trade could produce enormous economic growth. Free market advocates called them the “Asian Tigers,” and they seemed to have a point: The Tigers’ economies were certainly growing at incredible rates.
However, their growth wasn’t due to unrestricted free markets. The Tigers had heavy government involvement in the economy, and strict policies that prevented foreigners from owning land or national firms. If anything, they were evidence that a mixed economy—with elements of both capitalism and socialism—was the key to rapid growth and stability.
The trouble began when an unsubstantiated rumor spread that Thailand didn’t have enough wealth to support its currency. In the newly globalized, electronic market, that alone was enough to trigger an economic disaster. Banks called in loans, which served to pop the quickly inflating housing bubble. Half-finished construction projects were abandoned all over the country, and the economy took a devastating hit.
Mutual fund brokers had previously presented the Asian countries as a single investment package. As a result, the crisis quickly spread beyond Thailand to Indonesia, the Philippines, Malaysia, and South Korea. Those countries had to empty their reserve banks just to sustain their currencies, which caused the unfounded rumor to become a reality: Now they really were going broke.
Decades’ worth of wealth disappeared from Asian stock markets in a single year. Naturally, as the economic situation in Asia worsened, investors were less willing to put money into those countries. Asian nations were caught in a cycle of fear that could only be stopped by a sudden, large influx of money.
However, the message from the financial establishment was clear: do not help Asia. Milton Friedman himself appeared on CNN to insist that the market be allowed to correct itself, as per Chicago School orthodoxy.
In November 1997, at the Asia Pacific Economic Cooperation Summit, US president Bill Clinton made their position clear: The US Treasury wouldn’t be stepping in. The IMF was similarly reluctant—when it finally did respond, it wasn’t with a simple loan, but a list of now-familiar demands that would implement free-market economies in the affected countries.
Those countries who accepted the IMF’s “help” suggested that their problems had started because of how easily money could flow across their borders, so maybe they should put some economic controls back in place. However, the IMF refused to even consider that idea. In other words, the IMF had no interest in what had created the crisis; they just wanted to use that crisis as leverage.
Because ordinary people wouldn’t accept the IMF’s demands, those countries’ governments had to make policy changes through emergency decrees, which left average citizens with no say in the matter. Once again, free-market reforms had trampled over democracy.
The IMF’s “intervention” in Asia produced results almost as devastating as those in Russia. At its worst point, Thailand was losing 2,000 jobs every day. In South Korea, 300,000 workers got fired per month. Indonesia’s unemployment rate climbed from 4 to 12 percent. In all, an estimated 24 million people lost their jobs.
As a result, the middle class shrank dramatically—63.7% of South Koreans identified themselves as middle class in 1996, and only 38.4% did so in 1999. Suicide rates and child prostitution rates increased as desperate families looked for any way out of their crushing poverty.
In spite of the human costs of their policies, the IMF thought that things were going well, economically speaking. It had taken less than a year to implement economic shock therapy programs in Thailand, the Philippines, Indonesia, and South Korea. Now they were ready to reintroduce those countries to the global markets—which, they hoped, would immediately start buying up the newly available currencies, bonds, and stocks.
Instead, the exact opposite happened. Would-be investors reasoned that, if those countries had been in such dire straits that their economies had to be remade from the ground up, then Asia must be in much worse condition than they’d thought. Rather than rushing to take advantage of these new opportunities, investors pulled out even more of their money, further worsening the crisis.
While the people suffered, vulture capitalists were only too happy to pick over the remains. Major Wall Street firms moved in and started cheaply buying shares in major companies like Kia. Samsung, once an industry titan, was divided up and the pieces sold off for a fraction of their former value. Daewoo’s car division, once valued at $6 billion, was sold to General Motors for only $400 million. It was Russia all over again, but this time the local firms were being pushed aside by multinational corporations.
The brutal economic crisis in Asia revealed how badly economic shock therapy could backfire: Not only did citizens of the “Asian Tigers” suffer terribly, but the investors whom the IMF hoped to attract wanted nothing to do with those countries.
The debacle in Asia also showed that if shock therapy went too far, it could spark a backlash to free-market thinking. For example, in Indonesia—where there had been a low-burning public rage ever since Suharto’s 1965 coup—the IMF went one step too far by demanding that Suharto raise the price of gasoline. In response, the people finally rose up and ousted the former general.
While Indonesia had the most dramatic backlash to the IMF’s free-market policies, people all over Asia were enraged at how their lives could be destroyed by the careless whims of hedge funds on the other side of the planet. Unlike in Russia, where the hardship could be spun as a painful but necessary transition from Communism to a free market economy, the Asian crisis was clearly the fault of the global markets. Then, when those same markets sent “help” to the suffering countries, all they did was make matters worse.
While countries across Asia voiced their outrage at the IMF’s callousness, the real revolution came at the World Trade Organization (WTO) talks in 1999. Developing countries across South America banded together to reject further trade concessions with the US and Europe—openly flouting their prior agreements. With neither side willing to back down, the talks eventually collapsed.
While some tried to write off the incident as a bump in the road on the way to global free-market capitalism, the resistance persisted, and it soon became clear that the economic landscape had shifted. The US government’s dreams of a free-trade zone encompassing the entire Asia-Pacific region, and another involving the Americas from Alaska to Chile, had to be abandoned.
One major reason for this shift was that the world was, briefly, in a period of relative calm. The debt shocks had worn off, the transitions to free-market capitalism were done, and there was no major world conflict to pull people’s attention. That left the Chicago School’s abysmal track record—namely, the massive inequality and corruption in every country that adopted free-market policies—at the center of international conversations.
It’s worth noting that capitalism’s monopoly on the world only lasted eight years: It started with the Soviet Union’s collapse in 1991 and ended when the WTO talks broke down in 1999. Now, once again, competing ideologies were rising up to loosen the free market’s global stranglehold.
However, increased opposition wouldn’t stop the free-market capitalists from trying to advance their agenda. Soon, the world would be rocked by larger shocks than ever, and the free market fundamentalists would keep using the disorientation and anxiety of those shocks to continue their deadly work.
So far our study of free-market capitalism has been mostly focused on US efforts abroad. In this chapter, we’ll see how that movement swept the US itself, mostly under the two Bush administrations.
We’ll also circle back to one of our earliest topics: the terrorist attacks of September 11, 2001, and the resulting invasion of Iraq. Specifically, we’ll see how President George W. Bush’s concept of an outsourced, privatized military functioned during that time.
President Bush Sr.’s Secretary of Defense, Dick Cheney, worked on both sides of the free market—government and corporate—to bring the modern privatization craze to the US military. Working first as Secretary of Defense, and later as CEO of the massive multinational corporation Halliburton, he created a military contract so vague that it put an entire overseas operation under private control.
First, Cheney reduced the number of active soldiers and made up for it by greatly increasing the military’s reliance on private contractors like Halliburton. He then asked Brown & Root—Halliburton’s engineering division—to identify jobs being done by US troops that the private sector could take over. Unsurprisingly, the company found many tasks that they claimed they could do more efficiently than the military. This led to a new contract called LOGCAP: the Logistics Civil Augmentation Program.
A small group of companies was asked to apply for a position providing “logistical support” for the military, with minimal details about what that might actually involve. Along with the work came a blank check: Whoever had the contract could bill for any costs they incurred, plus a percentage profit. In the end, Halliburton ended up winning the contract they’d helped to create.
Then, in 1995, Halliburton brought Cheney on as its new CEO. Thanks to that vague contract they’d created together when he was Secretary of Defense, Cheney and Halliburton could expand the definition of “logistical support” until the company was effectively in charge of an entire overseas military operation.
Under Cheney’s leadership, Halliburton almost doubled the amount of money it received from the US government—from $1.2 billion to $2.3 billion—in just five years. Cheney himself was richly rewarded for his work, too. Before taking office as Bush Jr’s vice president, he estimated his net worth at somewhere between $18 million and $82 million, with as much as $30 million of that coming from his Halliburton stock options.
With the Cold War over, defense contractors like Lockheed Martin—which relied on government weapons contracts for income—needed a new strategy. Their new approach was to get involved in work that was traditionally handled by civil servants: everything from sorting mail to monitoring air traffic. Their efforts got a boost in the 2000s, after George W. Bush took office—Bush was absolutely in favor of private contractors handling as much of the country’s work as possible. In 2004, the New York Times reported that Lockheed Martin “[ran] a breathtakingly large part” of the US.
People could see the effects of privatization on a smaller scale in the state of Texas, governed at the time by George W. Bush. His time as governor wasn’t very memorable, but the one thing he was exceptionally good at was selling off pieces of his government to private interests. This was especially true of security-related operations, which made Texas something of a preview for the War on Terror he would begin in the next decade.
Bush's love of privatization was on display during his 2000 presidential campaign as well, when he claimed that hundreds of thousands of federal employees were doing jobs that the private sector could handle more efficiently. He said that, if private contractors could do the job better, then they should get the contracts.
The Bush administration’s privatization craze reached beyond civil matters like mail and air traffic control; they dreamed of a publicly-funded, privately-run military whose operations were handled start-to-finish by outside contractors. That idea was extremely unpopular among top military officials, but the crisis of the 9/11 terrorist attacks gave the administration the leverage it needed to push through the reforms anyway.
In 2001, Donald Rumsfeld joined President Bush Jr’s cabinet as Secretary of Defense. At first, many people were confused why he even wanted the job. After all, he was already past retirement age and had personal wealth estimated at hundreds of millions of dollars.
As it turned out, Rumsfeld didn’t have any interest in being a traditional defense secretary—but he had great interest in bringing the new model of corporatism to the US military. In short, he wanted to finish the work that Cheney had begun a decade earlier.
Rumsfeld envisioned laying off huge numbers of troops and personnel and hiring outside agencies like Halliburton and Blackwater to take up the slack. He then wanted to take the money they saved from these measures and pour it into private research firms, to further cement the US’s military and technological supremacy in the world.
His vision was immensely unpopular at the Pentagon. After just seven months it seemed like the end of his time as Secretary of Defense was already in sight. On September 10, 2001, Rumsfeld made a speech that should have been the nail in his coffin: He called the Pentagon’s bureaucracy a threat to the nation, and declared war on his own workplace. However, the infamous terrorist attacks that took place the next day pulled media coverage away from Rumsfeld’s extraordinary speech, and quite possibly saved his job.
The terrorist attacks that hit the US on September 11, 2001 seemed, at first, to mark a reversal of the last decade’s privatization mania. New York’s police officers, firefighters, and rescue workers were undisputed heroes in the aftermath of the attacks. The Bush administration, which had been so dedicated to privatizing these civil service organizations, now praised their courage and thanked them for their sacrifices. As it turned out, their newfound appreciation for civil servants was just a distraction from their continuing privatization efforts.
The Bush administration was rumored to be working on an economic stimulus package in the vein of the New Deal—using a large amount of government money to bolster the flagging economy. The move had been prompted by the twin threats of a declining economy and the War on Terror; the administration needed to do something dramatic to stave off a recession. However, what emerged wasn’t remotely similar to FDR’s massive public works projects.
Even as President Bush praised civil servants’ patriotism, he and his administration continued their plans to privatize everything they could reach. They were more convinced than ever that only the private sector had the ingenuity and the flexibility to defend against such attacks in the future.
They offered contracts worth hundreds of billions of dollars per year to private interests, with no competition and almost no oversight. These contracts were for services ranging from media and technology to health care and incarceration.
In short, the Bush administration performed classic economic shock therapy. While the country was reeling from an unexpected and horrific attack, the administration put vast amounts of public wealth and resources into private hands.
The 9/11 attack on the World Trade Center gave the Bush administration exactly what it needed to bring free-market capitalism to the United States in full force. It was a crisis that provided a common enemy for the people to rally against, and a justification for anything the government did to fight back.
So began Bush’s infamous “War on Terror.” While it was supposedly an effort to defeat terrorism around the world, in practice, it was a smokescreen to build a privatized police state, both at home in the US and abroad in the Middle East. The specifics changed constantly: the identity of the enemy, the scale of the conflict, and the rules of engagement shifted freely to maximize profit and keep the “war” going endlessly.
Large sections of the economy, ranging from disaster reconstruction to war and homeland security, were turned over to private contractors. To Bush and his underlings, the role of government wasn’t to protect the country; it was to buy protection on the free market.
The Department of Homeland Security (which isn’t an actual arm of the government so much as a middleman between the government and defense contractors) provides the perfect illustration of this. The Department was founded on the supposition that “terrorists” could attack anywhere, any time, with any weapon. That meant that they had to have security in all places, at all times, against every conceivable risk—in other words, there was practically no limit to how much money they could funnel to private companies.
In a February 2007 article, the New York Times noted that contractors seemed to have become an unofficial branch of government—a branch formed without any public debate or formal policy.
One of the most effective ideological tools the administration used during this time was simply promising that none of their decisions were driven by economic ideology. Officials claimed that 9/11 had “changed everything.” Of course, for free-market crusaders and the corporations they worked for, all that had changed was how easily they could implement their agenda.
The men behind the War on Terror conflated what was good for business with what was good for the country, and therefore made decisions based on what would bring their companies the greatest profits. The Bush administration was so tangled up in conflicts of interest that it was sometimes hard to tell where the government ended and the private sector began.
This conflict of interest was perfectly illustrated by Defense Secretary Donald Rumsfeld, who flat-out refused to divest himself of stock in numerous disaster and defense-related companies. In other words, Rumsfeld was profiting handsomely off of the decisions that he himself made as Secretary of Defense.
Another notable figure during this time was James Baker III. He’d worked for the federal government in the past, and was a symbol of a more reserved, less chaotic time. In the years since, he’d made a fortune in the private market.
(Shortform note: James Baker III had served various functions under several US presidents. Most recently before this new appointment he’d been Secretary of State under President George H. W. Bush.)
Bush named Baker a special envoy for Iraq’s debt. Baker’s goal was supposedly to convince other nations to forgive Iraq’s crushing debts, but what he did was exactly the opposite.
One confidential document proved just how deep his conflicts of interest ran. The document was a 65-page business plan from a consortium of companies—including one that Baker was a partner in—promising to use their foreign influence to collect some $27 billion from Iraq for one of Iraq’s main creditors, Kuwait. In exchange for this service, Kuwait would invest $1 billion into Baker’s company, the Carlyle Group.
That was only one of Baker’s many dismal failures as special envoy. While his orders were to clear as much as 95% of Iraq’s foreign debt, all he accomplished in that time was rescheduling some of it. Iraq’s debts were still equal to 99% of its GDP.
Nor were Rumsfeld and Baker the only ones influencing policy for their own benefit. Bush also had a large number of advisers, many of whom were volunteers, but all of whom were profiting from the new disaster capitalism complex.
In short, Bush created a massive complex that was federally funded but privately run, with practically no oversight nor spending limits. It was, quite possibly, the greatest victory for the Chicago School’s crusade to date.
Now that we've discussed how the Bush administration took advantage of the 9/11 attacks to advance their free-market vision in the US, we'll look at what happened next as they tried to implement free-market policies in Iraq. We’ll see the US’s efforts to build a new Iraqi economy from the ground up—and why Bush’s privatized, outsourced model of government meant those efforts were doomed to fail.
Free market proponents claimed that a restructured Iraq would serve as a model for the rest of the Middle East, and inspire those other countries to adopt unrestricted capitalism. In other words, they promised that a brief upheaval in Iraq would directly lead to peace and prosperity across the entire Middle East. That idea was called, appropriately enough, the Model Theory.
The Model Theory was based on the premise that the Middle East was a breeding ground for terrorism, which a few cherry-picked facts seemed to support:
Those who favored the Model Theory refused to consider that the apparent rash of terrorism might be backlash against American and Israeli meddling in those countries, so they offered another explanation: the region’s lack of free-market capitalism and democracy. Therefore, they sought to end terrorism by tearing down the Iraqi government and economy, then rebuilding it according to Chicago School principles.
By the logic of the Model Theory, three objectives were bundled together into one project:
Bush sold the project to Americans with a simple promise that they were bringing freedom to a troubled area. Many mistook this for a promise of free and fair democracy. However, the real objective was the corporate freedom established in so many other countries: the freedom for private companies to harvest as much wealth and as many resources as possible.
The invasion and occupation of Iraq marked a brutal return to the earliest strategies of the free-market vendetta—using shock and awe to wipe out any resistance to fundamentalist capitalism. However, the War on Terror went even farther and faster than any previous efforts. It was as though strategists and economic experts reviewed the available shock tactics and decided to just use them all.
The operation began with sudden, overwhelming military force. In the weeks between March 20 and May 2, the US military bombarded Iraq with over 30,000 bombs—for context, that was 2/3 of the bombs ever made up to that point.
It was massive overkill from a military perspective, but the point wasn’t just to defeat the Iraqi armed forces. The Shock and Awe strategy was designed with spectacle and messaging in mind; it would fire up Americans watching it on the news, and terrify the Iraqis—and any other potential enemies watching the display—into submission.
However, the threat of force was, in many ways, as effective as force itself. A tried-and-true torture technique is to simply show a prisoner the instruments of torture, and let his imagination do all the work. Months before the first bombs were dropped, American media was broadcasting promises that Iraq would experience airstrikes so sudden and destructive that Iraqi soldiers would be either unable or unwilling to even fight back—“showing the instruments,” so to speak.
Once the war started, the citizens of Baghdad were subjected to a large-scale form of sensory deprivation. The ministry of communication was one of the first targets, along with telephone exchanges and transmitters for radio and television—in short, anything that people could use to connect with the outside world. They couldn’t so much as call their relatives to make sure they were still alive. That, combined with the terror of almost constant explosions for months on end, was worse than any battle for many Iraqis.
The targeted destruction of communication was just one example of the psychological operations—psyops—that the US military engaged in during the war. The combination of brute force and psyops left Iraqis in total shock, and too terrified to resist.
Paul Bremer, Bush’s appointee to direct the occupation of Iraq, was only concerned with pushing through free-market reforms as quickly as possible. He did next to nothing for the Iraqi people who were suffering from the invasion and occupation. Even foreign aid money went directly to private, foreign contractors, rather than to the people it was meant to help.
Bremer arrived in a country that was still burning—literally—and ravaged by looters. There was no traffic, no electricity, no oil production, no economic activity of any kind. There weren’t even any police officers patrolling the streets.
Yet, instead of taking any sort of action to repair the damage or soothe the populace, Bremer’s solution was to subject Iraq to the fastest and harshest course of economic shock therapy ever implemented. A mere two weeks after he got to Iraq, he threw open the borders to unregulated trade: no tariffs, no taxes, no inspections.
Meanwhile, a coalition of countries provided some $73 billion for Iraq’s reconstruction. However, Bush and Bremer used that money to write massive contracts for private companies, mostly American ones. In short, tens of billions of dollars—supposedly meant to help the Iraqis recover—were being funneled directly to foreign corporations.
Indeed, the Iraqi people were barely involved in rebuilding their own country. Iraqi firms were still crippled by power outages and infrastructure damage, so they couldn’t even try to get in on the free market’s newest gold rush.
Meanwhile, Bremer and his staff were unsympathetic in the face of soaring unemployment and widespread economic hardship. A high-ranking member of Bremer’s staff was quoted as telling Iraqis that it was their own responsibility to make sure they weren’t overwhelmed by foreign businesses. According to free-market ideology, any business that couldn’t survive—regardless of the unfair circumstances—didn’t deserve to survive.
In spite of the improved and expanded shock tactics, the results in Iraq were disappointing to Model Theorists and free-market economists. Many analyses concluded that the invasion was successful, but the occupation and reconstruction efforts were drawn-out and costly failures.
However, what those analyses fail to realize is that the invasion and occupation were two parts of the same strategy. The plan was to wipe the Iraqi slate clean so that Western nations, spearheaded by the Bush administration, could build their “model” country. If the occupation had failed, then the entire mission had failed.
And the occupation had certainly failed. Rather than winning over Iraqis with cheap foreign goods, Western pop culture, and the vaunted efficiency of private corporations, Bremer and his people encountered violent resistance and religious extremism every step of the way. Western troops answered that resistance with increased force of their own, and the entire country got caught up in a spiral of violence. By July 2006, an estimated 655,000 Iraqis had lost their lives in the “War on Terror.”
Naturally, someone had to be blamed for the failure, and many fingers ended up pointing at the Iraqi people. For example, USA Today published an article by former US Army officer Ralph Peters about the ongoing violence. Peters insisted that the continued resistance not only proved that the Iraqi government was incompetent, but also that Arab people as a whole were completely incapable of progress. Peters’s article was particularly harsh, but many Westerners agreed that the Iraqis were to blame.
Despite the best efforts of Ralph Peters and many others like him, it’s impossible to separate the ever-increasing violence and extremism in Iraq from the foreign presence there. While there certainly had been extremist forces present in the country before the War on Terror, they only had a fraction of the influence that they’d gain in the following years.
Two polls illustrate this quite clearly: One poll, taken in February 2004, had 21% of respondents say that they favored an Islamic state. In another poll, taken just six months later, that number had rocketed up to 70%.
The key mistake that Bush and Bremer had made was, essentially, not taking the Iraqi people into account. After all, the Shock and Awe campaign was supposed to have left the people all but catatonic. Instead, every policy that Bremer enacted there made the people angrier and more violent. As far as the Iraqis were concerned, the new laws were just a modern version of pillaging.
Several key missteps doomed Bush’s and Bremer’s efforts to failure:
However, Bush and Bremer seemed to be either completely blind or completely apathetic to the problems that their anti-Marshall plan was causing. Despite mounting Iraqi anger and violence, they didn’t try to walk back or even slow down these changes—on the contrary, they did everything they could to make the new policies permanent.
First, the administration drafted an interim constitution that officially adopted Bremer’s laws. Once that was in place, the next goal was creating a permanent constitution to prevent future governments from ever undoing the changes that Bremer had made.
Many legal experts were confused by the White House’s obsession with getting Iraq a new constitution, for a couple of reasons. First of all, the country already had a perfectly workable constitution and had far bigger concerns than creating a new one. Second, writing a constitution is an extremely stressful and divisive process even for a healthy nation, let alone one in Iraq’s condition.
They were confused because they misunderstood the Bush administration's concerns, which were economic rather than legal ones. The thought that any Iraqi government could ever undo their idealized free-market utopia was totally unacceptable to them.
In short, the Bush administration had badly miscalculated the long-term effectiveness of Shock and Awe. Far from meekly accepting their fates, the Iraqi people were now finding ever-deeper reserves of anger and willpower to keep fighting back.
In addition to Iraqi resistance, reconstruction efforts ran into another fundamental problem: The free-market techniques of the occupying forces stopped them from effectively building a government, because the free market is inherently incompatible with a government. For in spite of all their problems, Iraqi anger would most likely have subsided if the rebuilding efforts had worked. If Iraqi citizens had soon found themselves sitting in rooms lit by General Electric lights, getting treatment at state-of-the-art Parsons hospitals, and seeing their cities patrolled by DynCorp police, many of them would probably have stopped resisting.
However, Iraq’s interim government, the Coalition Provisional Authority (CPA), was so understaffed and had so few resources that it couldn’t even begin building the economy that Model Theorists dreamed of. For example, they had only three people assigned to privatizing state-owned factories; by contrast, East Germany had around 8,000 when it undertook the same task.
Ironically, this fundamental failure was due to the CPA’s own devotion to Chicago School fundamentals; after all, minimizing government spending is a cornerstone of free-market capitalism. Additionally, the CPA staffers’ hatred of all things “statist'' meant that what they were trying to do—build a new state from the ground up—went directly against their beliefs.
Free market crusaders had been extremely effective at tearing down public institutions in other countries, but now they were proving all but useless at creating those systems in Iraq. The CPA was totally unwilling to oversee, regulate, or even inspect the work that foreign contractors were doing.
In 2007, after three and a half years of mismanagement and outright fraud, all of the major US contractors pulled out of the reconstruction. Their money was gone, and only a small fraction of the work had been done.
In one example of the CPA’s utter failure, the company Parsons had been given $186 million and a goal of building 142 clinics—only 6 were ever finished. In another example, Iraq’s power grid was actually producing less energy in 2007 than it had in 2006.
Michael Wolfe, a political scientist, opined that conservatives can’t govern effectively for the same reason that vegetarians can’t make a great beef bourguignon: If you think that what you’re doing is wrong, then you’re not going to do it well.
Paul Bremer’s new Iraq was the culmination of free-market theory: An almost-nonexistent public sector whose only purpose was to hand out money to Western corporations. Private soldiers protected those few public sector employees; and the soldiers, in turn, were protected by complete legal immunity. So, Iraq did indeed become a model, though perhaps not the one that fans of the Model Theory had hoped for. Instead, it became the perfect model of a hollow, corporate-run government.
To prove the point, a legal case determined that the CPA wasn’t even linked to the US government. The security firm Custer Battles was charged with defrauding the US government and was ordered to pay $10 million in damages. The company responded by asking the judge to overturn the verdict on the grounds that the CPA was not part of the US government, and therefore not subject to US laws.
This time, the judge ruled in Custer Battles’s favor: The company had indeed billed the CPA with fraudulent invoices, but there wasn’t sufficient evidence that those claims had been presented to the US government. Therefore, the judge had no legal standing to order reparations.
The implications of the Custer Battles case were enormous. The Bush administration had protected contractors from liability under Iraqi laws—if contactors weren’t subject to US laws either, then there could be no accountability at all.
Through this lawsuit, the CPA was revealed as the ultimate hollow shell government. It had never been the US’s proxy in Iraq; it was nothing but a pipeline to move billions of dollars to private corporations.
Over time, the CPA simply faded away. The staffers went back to work in the private sector, and by the time the corruption and scandals came to light, there was nobody left to defend the CPA or to take the blame for its failures.
In the last chapters, we discussed how the US brought a new type of privatized, outsourced military and government to Iraq. In this chapter, we’ll see how that occupying force was completely incapable of doing its job—and how, as a result of that fact, the US fell back on the old tactics of the South American juntas.
Those behind the invasion and “reconstruction” of Iraq had been banking on the Iraqis being too shocked to resist. The people of Iraq were supposed to meekly go along as they were dragged into an idealized free-market society. Then one day those Iraqis would come out of their trances, and realize with pleasant surprise that their country was a modern paradise. As we’ve already seen, that wasn’t how events played out.
The first summer of Iraq’s occupation saw people enjoying free speech on a level that would have been impossible under Saddam Hussein’s rule. They gathered every day for rallies and protests, news and opinions traveled freely, and even religious clerics turned to talking about politics during sermons.
However, the Iraqis used their free speech to harshly criticize Bremer, voice their outrage about the country’s soaring unemployment, and demand a voice in governing their own lives. This put the Bush administration in an awkward position, as they’d previously promised to involve Iraqis in decision-making and to hand over power to a new government within months. It was now clear that any such new government would immediately undo all of Bremer’s work and give Iraq back to the Iraqis.
The US solution to this dilemma was to abandon any pretense of democracy. Instead of creating a large assembly from all areas of Iraqi society as previously promised, Bremer instead decided that he’d handpick a small Iraqi Governing Council to run affairs.
Bremer’s next problem was the fact that local elections were cropping up in cities and towns all over Iraq. He ordered that all such elections stop; local leaders were to be chosen by the occupying forces, not by the Iraqi people. In those places where elections had already happened, the newly elected councils were disbanded.
Many people stationed in Iraq during these months say that there’s a clear link between Bremer’s efforts to suppress democracy and the increase in Iraqi resistance. For example, shortly after Bremer appointed his Governing Council, terrorists attacked both the Jordanian mission and the UN’s local headquarters in Baghdad.
It seems likely that even Bremer himself knew that his policies would spark violence. In 2001, long before he took charge of operations in Iraq, Bremer warned US firms that they were at increased risk of terrorist attacks due to rising unemployment and income inequality—results of the same free-market system that had made them rich.
Even so, Iraqis were still expecting the US to organize national elections and peacefully hand over power once to whoever won the majority vote. However, in late 2003, Bremer announced that no general elections were to be held—Iraq’s new government would be appointed, rather than elected.
That was the last straw for many Iraqis. Shia Muslims were particularly outraged—they were the largest ethnic group in the country, and had been almost guaranteed to dominate the new government after decades of brutal repression under Hussein.
The Shia responded to Bremer’s latest announcement with massive protests. High-ranking clerics compared Bremer to Hussein and argued that the US was merely replacing one dictatorship with another. When those peaceful measures failed, many more Shia became convinced that they’d have to fight for the democracy they’d been promised.
Many of the US’s problems in Iraq were due to then-Secretary of Defense Donald Rumsfeld running the military like a CEO trying to whittle down the payroll. After various negotiations and cuts, US generals only got about a third of the troops they’d requested for the Iraq invasion. That pared-down invasion force was able to overthrow Hussein, but it didn’t have a chance of stabilizing the country.
To make matters worse, Bremer’s policies had left the occupying force with an angry, rebellious population and no local police or military to keep the people in check. It was clear that Shock and Awe had failed, and economic shock was failing.
Therefore, to protect their perfect model of capitalism, US forces turned to a more personal type of shock. They began using the same tactics seen in the Southern Cone three decades earlier: kidnapping, imprisonment, and torture. In fact, private security companies operating in Iraq brought in experts from previous shock experiments in other countries.
At the advice of those experts, US forces snatched an estimated 61,500 “terrorists” and “subversives” out of their homes or off of the streets. The prisoners were handed to CIA agents, soldiers, or private contractors for interrogation.
Iraqi death squads and propaganda worked hard to keep the people in line. The bodies of tortured civilians were commonly left on the sides of roads as warnings. The LA Times reported that the Baghdad morgue received a weekly delivery of dozens of bodies, many of whom were still in police handcuffs. Furthermore, a popular program on the US-funded Al Iraqiya network featured prisoners—who had clearly been tortured—confessing to their “crimes.” Those confessions included crimes that lawyers proved had never happened.
When these abuses came to light, many of the prisoners were released without charges or apologies—they were simply pushed out of trucks and told that they’d been arrested by mistake. However, those “mistakes” tended to come out of prison angry about how they’d been treated, and willing to do anything for revenge. That’s why one former prisoner called the prisons breeding grounds for resistance fighters.
The goal of shock therapy has always been to reduce the subject (whether a person, an economy, or an entire country) to a blank slate. People believed that by forcibly stripping away the layers of the psyche, they could reach some core essence, and build an entirely new version of the subject on that core.
However, a colleague of Dr. Cameron—the pioneer of medical shock treatment—observed that there was no core. In his words, “...the layers are all there is.” After blasting through those layers with shock therapy, they weren’t left with clean, programmable patients; all they had were confused and broken people.
Similarly, shock therapists in Iraq sought to strip away all the layers of culture, industry, and self-determination. Their goal was to erase an entire country and find the blank slate underneath it. Instead, they only found piles of rubble and millions of broken people.
The problems got worse, rather than better, after each round of treatment. However, instead of concluding that their premise was flawed, the architects of the Iraq war decided that they’d simply been too soft—in medical terms, the dosage had been too low.
For example, former Deputy Secretary of State Richard Armitage insisted that the Shock and Awe campaign had led to victory too quickly. His analysis was that the Iraqis hadn’t had time to become exhausted by a prolonged war, and so the US was left with an Iraqi people who were neither shocked nor awed.
As late as January 2007, the Bush administration still believed that they were just one good shock treatment away from controlling Iraq. The new theory was that by wiping out resistance leader Moqtada al-Sadr and his forces, they could take control of the country in a single “surge.”
However, by April 2007, Iraq was still falling apart around them. Like with Dr. Cameron’s patients, no amount of shock treatment could cause the reset the US forces hoped for. Instead, the country just became more and more broken.
On the surface, it seemed like every part of the plan to convert Iraq into a perfect capitalist utopia had failed. In addition to the horrors we’ve already discussed, hiring foreign companies and contractors simply hadn’t worked.
However, while those facts might seem like nails in the coffin for Chicago School capitalism, the truth was quite the opposite: What had been a resounding failure for Iraq and its people was an incredible success for the disaster capitalism complex. Every aspect of war and reconstruction had been privatized and outsourced during the Iraq invasion, meaning that corporations were profiting every step of the way. For many wealthy investors, times had never been better.
Therefore, far from giving up on its privatized model of warfare, the Bush administration took steps to make it a permanent part of foreign policy. For example, the State Department founded a new branch, the Office of Reconstruction and Stabilization. The Office pays contractors to create plans for rebuilding countries all around that world that might, for whatever reason, find themselves the next target of a US invasion. It also has prearranged contracts with many different corporations and consultants, so that they’ll be ready to leap into action at a moment’s notice.
(Shortform note: The Office of Reconstruction and Stabilization existed until 2011, several years after The Shock Doctrine was published. In 2011 it was replaced by the Bureau of Conflict and Stabilization Operations.)
The inspector general for Iraq’s reconstruction issued a 2006 report concluding that the disastrous outcomes in Iraq had simply been the result of poor planning. The report called for the creation of a standing army of reconstruction contractors that would function much like the military reserve, and further entrench the disaster capitalism complex. Bush applauded that idea in his 2007 State of the Union address.
In short, rather than a model free-market utopia, Iraq became a model of privatized destruction and reconstruction—and that model became export-ready very quickly. Through the efforts of the Bush administration, the disaster capitalism complex is now ready to open up a new frontier wherever a catastrophe strikes—or wherever it can create a catastrophe.
There’s one type of shock that we haven’t discussed yet: natural disasters. In this chapter, we’ll see how natural disasters can be just as effective as war or market shocks, if not more so.
Much of this section will be focused on Sri Lanka, which was devastated by a tsunami in 2004, which paved the way for privatization and free trade. However, many other Asian countries suffered similar disasters and received similar “help” in the early 1990s and early 2000s.
Sri Lanka is a small country—roughly the size of West Virginia—but several things made it extremely attractive to the frontrunners of global capitalism:
In short, it was a perfect destination for tourism.
However, Sri Lanka’s east coast had long been threatened by ongoing civil war and was too dangerous for tourists. That changed in February 2002, when the two sides of the war signed a ceasefire agreement. The agreement wasn’t true peace, more like an uneasy break in the fighting, but it was enough.
Suddenly, guidebooks started pointing to the Sri Lankan coast as a hot new tourist destination. USAID, the World Bank, and the World Bank’s offshoot company the Asian Development Bank eagerly jumped into the newly peaceful area to start making plans. However, before any of their grand ideas for reconstruction could become reality, Sri Lanka would have to meet a now-familiar list of demands:
The shock therapy plan, which was called Regaining Sri Lanka, was finalized in early 2003 and the World Bank gave its stamp of approval. However, many Sri Lankans—particularly the impoverished fishers displaced by the fighting—resisted this plan for economic shock therapy.
For one thing, they’d just come out of a prolonged civil war, fighting for ideals like “homeland” and “territory.” Now that the fighting had finally paused, the plan called for them to give up what meager properties they had and allow corporate interests to build there. Naturally, the people had no interest in doing so.
For another, this was 2003, and the world’s love affair with global free-market capitalism had taken a severe hit after the Asian economic crisis. Many Sri Lankans predicted that, for most citizens, the sacrifices wouldn’t be worth the economic gains.
Sri Lankans soundly rejected the plan by USAID and the World Bank. First, a wave of strikes and protests swept the country. Then, in April 2004, the people voted in a group of center-left politicians and self-identified Marxists who swore that they’d scrap the entire plan.
That all changed on December 26, 2004, when a devastating tsunami hit Sri Lanka and almost completely cleared the shoreline. Every hut and fishing boat was swept away in the storm, along with tourist cabanas and bungalows. Approximately 35,000 Sri Lankans died, and almost a million lost their homes—most of whom were small-boat fishers who relied on the sea to live.
What was tragic for the fishers was a golden opportunity for the capitalists. Once the rubble and bodies had been cleared away from the shoreline, they were left with pristine beaches all along the coast. Plus, as always, the free-marketeers could use Sri Lanka’s time of need to make demands and gain concessions in exchange for aid. Even the most committed leftists couldn’t turn down IMF and World Bank money, which they desperately needed to rebuild the ravaged country.
Meanwhile, the people who had previously resisted with strikes and protests were busy with more immediate concerns. They had no income, no way to feed their families, and nowhere to live except the camps-turned-shantytowns. Herman Kumara, who was then the head of the National Fisheries Solidarity Movement—an organization representing the small-boat fishers—explained that by the time his constituents recovered from the tsunami, it would be far too late.
(As a side note, the disaster capitalists had practiced for this scenario a few years earlier, in 1998, when Hurricane Mitch devastated several countries in Central America. In the months after the hurricane, Honduras, Nicaragua, and Guatemala all accepted rapid privatization (often selling state-owned industries for a fraction of their worth) in exchange for foreign aid.
However, those countries had experienced the old version of economic shock therapy; the plans for Sri Lanka were even more ambitious. They aimed to give corporations not just investment opportunities, but direct control over the reconstruction.)
President Kumaratunga, pressured by lenders from Washington, determined that the plans for rebuilding couldn’t be handled by elected officials. Instead, she formed the Task Force to Rebuild the Nation, a group of ten of the country’s most powerful banking and industry executives—fully half of whom were involved in the tourism sector.
Not one member of the Task Force represented the fishers or farmers of Sri Lanka. Moreover, there wasn’t a single scientist, environmentalist, or disaster-reconstruction expert among them. Nonetheless, this group would create and implement the plan for Sri Lanka’s reconstruction.
In essence, the country’s democracy—which had firmly rejected the Chicago School’s agenda—had been swept aside and replaced with direct corporatist rule.
The Sri Lankan government moved almost immediately to prove that it was willing to accept the disaster capitalists’ terms. President Chandrika Kumaratunga, who had run on a platform rejecting privatization, described the tsunami as a religious epiphany. She claimed that it had been a sign from nature itself that Sri Lanka wasn’t making proper use of its rich natural resources.
For example, just four days after the tsunami, Kumaratunga’s government pushed through a bill that would clear the way for water privatization. Most of her citizens didn’t even notice it had happened. Meanwhile, the Task Force drafted a complete plan for national reconstruction—a feat they somehow accomplished in only ten days, without ever leaving the capital.
The Task Force promised to rebuild the devastated shoreline better than it was before—however, what their plan really did was make sure that the small-boat fishers didn’t come back to the newly-cleared beaches. The hotels were much more profitable than the local workers, and therefore much more attractive to foreign investors.
Meanwhile, the US supported reconstruction efforts using the same method as in Iraq: namely, massive contracts to its own companies. The only direct aid that the US gave to the fishers was a $1 million grant to improve Sri Lanka’s “temporary” shelters—a clear sign that they weren’t meant to be temporary at all.
Unrest rose among the displaced fishers. Many of them had lived on that land for generations, and were willing to fight for it. A short while later, though the peace treaty was technically still in effect, the tension erupted into violence.
As a result of the renewed fighting, many aid organizations pulled out of Sri Lanka. Other organizations shifted their efforts south, to the safer government-controlled areas. That shift only intensified the now common feeling among northerners that the aid money was being spent unfairly.
In July 2006, the northern faction officially called off the ceasefire. The civil war was back on, and more than 4,000 people died over the next year.
It’s unclear whether disaster capitalism directly sparked the renewed fighting, but one thing is certain: For peace to flourish, it has to be more attractive to the average person than war is. Armies need to feed and house their fighters, so average Sri Lankans may have been better off during the civil war than they were in the Chicago School economy. Therefore, it’s not surprising that Sri Lanka turned back to fighting.
The same pattern repeated itself in Thailand, Indonesia, and the Maldives: deadly storms, desperate people, privatized reconstruction, coastal “buffer zones” that don’t apply to industry, and widespread violence.
The devastating storms allowed displacement and gentrification that would normally happen over the course of years to take place in mere days or weeks. Capitalists didn’t have to fight to get people off their land—nature had taken care of that for them.
When the people tried to come back to their homes, or what was left of their homes, they found that the buffer zones were being enforced by the guns of police officers and private security firms. Countries all over Asia were seeing militarized gentrification—literal class wars.
In Thailand, for example, developers had armed security forces fencing off coastal land less than 24 hours after the tsunami hit. In some places, those guards wouldn’t even let people search their destroyed homes for the bodies of their loved ones.
The Chicago School’s crusade for unfettered free markets invariably creates a permanent underclass that comprises anywhere from 25% to 60% of the population. It’s class warfare, often backed up by actual military or police force.
However, when that model is forced onto a country that’s already devastated by disaster and conflict—such as Sri Lanka—the effects can be even worse. The strictly enforced peace comes with heavy costs, including the possibility of even deadlier wars.
In these chapters, we discuss what Naomi Klein terms disaster apartheid: The unequal treatment that marginalized people receive after a disaster. The chapter begins with a personal anecdote from Naomi Klein about the discrimination she saw in New Orleans after Hurricane Katrina hit. We’ll then move onto a discussion of the prejudice and injustice that Palestinians face in Israel. Finally, we’ll see how both of these topics link back to disaster capitalism.
In September 2005, just a few weeks after the hurricane had hit, Klein was involved in a serious car crash in New Orleans, and an ambulance rushed her to the hospital. She’d seen the terrible conditions at the underfunded, understaffed clinics that had sprung up to help people after the hurricane, and she assumed the ambulance was taking her someplace like that. Instead, she woke up in Ochsner Hospital, a sleek and modern facility where she received immediate, comprehensive care.
The people who worked there, from doctors to security officers, counted themselves lucky that they hadn’t had to deal with the worst damages from Hurricane Katrina. One medical intern thanked God that he hadn’t been on duty when the storm hit—when Klein asked if he’d gone to one of the shelters to help, he replied that it hadn’t occurred to him. Then, when she asked whether he thought Charity Hospital (which treated poor, mostly African-American people) would reopen, the intern replied that he hoped so; they couldn’t treat “those people” at this hospital.
That spa-like hospital, and the people who worked there, were embodiments of disaster apartheid. The intern Klein spoke to hadn’t even considered that he could help the poor, uninsured people of New Orleans—they simply didn’t register as potential patients.
When Katrina hit, the whole world got to see the sharp divide between the patients of Ochsner Hospital and Charity Hospital. Those who had the means simply left town, went to hotels, and started making arrangements with their insurance companies. Meanwhile, the poorest residents of New Orleans were left behind to drown.
It was a shocking revelation for many people. Even those who understood the inequalities that people faced in day-to-day life had thought that major disasters would be exceptions to the rules of capitalism—that the state would step up and help those who’d been hit the hardest. The response to Katrina proved that that was not the case.
FEMA had previously paid private contractors $1 million to make comprehensive plans for just such a storm. However, when the time came for the government to put those plans into effect, the coffers were suddenly empty. The response to Katrina was so weak that aid struggled to even reach the New Orleans Superdome—where some 23,000 people were stranded with no food or water, and where media from all over the world had already been for days.
As in Iraq, the US government proved to be an empty shell that couldn’t—or wouldn’t—fulfill its obligations.
For a few weeks, it seemed that Hurricane Katrina might create a crisis of faith for neoliberalism. People got to see all of the consequences of Chicago School economics condensed into a single place and time, and it had a dramatic effect on some of them. Many influential free marketeers recanted their beliefs in the wake of Katrina, saying that the horrific failures in New Orleans had shown them that free-market capitalism wasn’t the perfect system they’d thought it was.
However, for those in the vanguard of the Chicago School’s crusade—namely the Heritage Foundation, the Bush administration, and Milton Friedman himself—Katrina was merely another chance to push their agenda.
The Heritage Foundation, an influential conservative think tank, drafted a list of proposals for responding to the hurricane and promoting the free market at the same time. These proposals were classic economic shock therapy disguised as hurricane relief. At the top of the list were suspending wage laws, lowering taxes, and relaxing regulations across the affected area. President Bush officially announced those policies within the week.
Within weeks the Gulf Coast was run by a contractor-driven government that closely resembled Iraq’s CPA. Many of the same companies were involved: Halliburton, Blackwater, Parsons, and so on. All told, the Bush administration handed out $3.4 billion in contracts, with no bidding necessary.
The results also resembled those in Iraq—which is to say that work was slow, expensive, and jealously guarded. For example, the company Kenyon had a contract to clear out dead bodies from buildings and streets. Corpses were left out in the sun for days at a time, many of the bodies may have been improperly labeled, and victims of Katrina were being discovered in attics almost a year later.
Another similarity between New Orleans and Iraq was the contractors’ reluctance to hire local people. Instead, the citizens were expected to sit back and watch as company executives got rich from their tax dollars.
All told, the Bush administration increased contractor spending by about $200 billion from 2000 to 2006. To offset this bloated budget, it slashed $40 billion from the budget—which included student loans, food stamps, and Medicaid. In short, Bush’s hollow government fleeced the country’s poorest citizens to fund massive corporate handouts.
Whereas the people of New Orleans suffered from a short-term form of disaster apartheid, Israel has been experiencing it for years; Palestinians are treated as second-class citizens in what used to be their homeland, when they’re allowed in at all. Understandably, there’s a great deal of tension—and violence—between Israel and its neighboring countries. As a result, a large part of Israel’s economy is based on homeland security; the country now profits off of the very attacks that seek to tear it down.
This apartheid began when huge numbers of Palestinians had their property taken away in order to create the country of Israel. Many were forced to leave the country entirely, and settle in the surrounding lands. While there were some token efforts to restore the people’s rights and redress their grievances, Palestinian leaders rejected those deals because they didn’t do nearly enough for the people who were suffering the most.
Due to the ongoing political and economic tensions, Israel has been locked in an endless war with its neighbors and subject to near-constant terrorist attacks—yet, even so, the country’s economy is booming.
This is because Israeli firms were developing a homeland security industry years before the US or Europe recognized that industry’s potential. Demand for security is high in such an unstable political climate, so business is always booming for security contractors. As a result, while many individual people (both Palestinians and Israelis) are suffering from the ongoing violence, the Israeli economy has never been stronger.
Israel provides a prime example of an apparent contradiction in modern economics. For many years, people believed that stability and peace were necessary for steady economic growth. While it was true that individual shocks were opportunities to force open new markets, the common understanding was that ongoing chaos was bad for the global economy.
However, the 2007 World Economic Forum held in Davos, Switzerland, was puzzled by a global trend that seemed to buck this common knowledge. The world had been rocked by a near-constant series of shocks, beginning with the stock market crash after 2000 and the terrorist attacks on September 11, 2001. Despite that, the global economy was growing at an incredible rate.
This discovery is also evident in the so-called “guns-to-caviar index.” This index compares the yearly sales of fighter jets (guns) and executive jets (caviar). For nearly two decades there was an inverse relationship between the two—that is, when sales of one type of jet went up, sales of the other went down. However, since the Iraq invasion of 2003, sales have increased quickly and steadily for both fighter jets and executive jets.
The logical conclusion is that the economy no longer relies on stability—quite the opposite, in fact. Corporate profits all over the world are actually increasing in the face of sustained conflict and repeated disasters.
This changing trend correlates directly with the shift from a narrowly focused military-industrial complex to the massive, multipurpose disaster capitalism complex of the 2000s. With massive contracts going out to private firms in every industry from fuel to construction—and, of course, security and defense—it makes sense that the worse things get, the more the stock market grows.
Many people see the connection between disaster and profit, even if they don’t fully understand the mechanics behind it. This tends to lead to a lot of conspiracy theories; people believe that global elites intentionally cause disasters in order to make money.
The truth, though, is that there’s no need for massive global conspiracies. An economic system that demands growth and rejects regulations will create near-constant disasters without any outside help. It causes wars over resources, economic collapses as market bubbles burst, and natural disasters as people keep burning cheap, dirty fuels.
Furthermore, the companies that profit the most from this system relentlessly pump out propaganda to make sure people believe it’s the only viable option. They push the narrative that the world is a dark and scary place, and the endless string of disasters is a necessary evil because any alternative (socialism, Islamism, or whatever the -ism of the week is) would be worse.
However, the people who spread that propaganda aren’t afraid. The economic system that they thrive on is in no danger from any of these supposed threats. In fact, the only things that scare the disaster capitalism complex are global stability and peace.
The final chapter of The Shock Doctrine is a message of hope. After spending so much time focused on the devastating effects of neoliberalism and disaster capitalism, we’ll end by taking a look at people and communities that are recovering from their brutal shock treatments.
In short, no matter how bad the state of shock is, it’ll wear off eventually. Avoiding similar shocks in the future is a matter of understanding disaster capitalism and rejecting it. Places like Thailand have done exactly that—local communities worked together to rebuild, without any damaging “help” from foreign interests.
As we’ve seen, free-market economics always result in a huge transfer of wealth and power from the lower economic classes to the upper ones. That transfer never happens peacefully, and in many cases, it doesn’t happen legally. That’s why the Shock Doctrine is necessary for the Chicago School and other free-market crusaders: Their economic reforms can only go through when the people are too exhausted or stunned to fight back.
However, by its very nature, shock eventually wears off. In the 2000s, many former economic shock labs—from the Southern Cone to Lebanon to China—started to shake off the effects of their treatments.
For example, in 2001 Argentina ousted a series of five presidents in three weeks, all while demanding freedom from the IMF’s austerity measures. Many other Latin American countries have refused to enter into further deals with the IMF and the World Bank, which frees them from the restrictions imposed by those organizations.
In 2006, millions of Lebanese firmly rejected foreign aid after Israeli attacks. Despite being deeply in debt and desperate for funds, Lebanese economists and some political leaders recognized that all the profit would go to the disaster capitalism complex and all the hardship would fall upon their own people.
Although Lebanon’s prime minister did accept the funds, and the terms that came with them, the citizens were much less cooperative. General strikes and protests erupted all over the country and brought the economy to a screeching halt.
The upheavals around the world are existential threats to free-market ideology. Remember, one of the Chicago School’s central claims is that free-market capitalism and democracy are inseparable elements of freedom; but now, politicians from the US to Venezuela are starting to win elections by opposing neoliberal economics.
Even in the US—where the Bush administration cemented “free enterprise” into the National Security Strategy and backed it up with the threat of the world’s largest military—people are rejecting Chicago School orthodoxy. A 2006 poll by the New York Times and CBS found that 64% of Americans believe that the country should have universal healthcare, and were willing to pay a bit more in taxes to reach that goal.
Unfortunately, those people shaking off the effects of shock now face two major problems. The first is that, although people are starting to buck the disaster capitalism complex and the free-market fundamentalism behind it, there are some ugly aftereffects from the hardship those people faced.
First of all, people want easy solutions to their problems, and the easiest solution is always a scapegoat. Marginalized people of all kinds find themselves on the wrong end of this “solution,” as seen in the anti-immigrant propaganda in the US—claims that illegal immigrants are stealing jobs and burdening the economy have proven very effective at redirecting economic anger and fear.
Second, as we saw in Iraq and Sri Lanka, desperate people often turn to extremism and violence. When combined with the previously mentioned scapegoating, this creates an unstable and dangerous mix that often erupts into violence against marginalized people—the very people who suffer the most under neoliberal economics.
Finally, perhaps the biggest problem of all is that people now have to rebuild their entire countries from the rubble that economic shock therapy left behind, and they have to do it largely without foreign aid. However, despite being such a daunting task, it’s also where we can see the most hope—because communities all over the world are already doing it.
For example, Thailand was hit by a tsunami that was every bit as bad as the one that hit Sri Lanka. However, unlike Sri Lanka, the Thai people rebuilt their own settlements and fishing communities, often within mere months.
Although Thailand’s politicians tried to evict them and develop the newly-cleared beaches, hundreds of people simply marched past the guards and set about the work of cleaning up and rebuilding. The people were ready to risk their lives to keep their land, and they were completely unwilling to wait in camps for a reconstruction plan like the ones in Sri Lanka and elsewhere.
A year after Hurricane Katrina hit, community leaders in New Orleans found inspiration in the rebuilt villages of Thailand. Endesha Juakali, who founded the “survivors’ village” in New Orleans, immediately set to work hiring local contractors and recruiting volunteers to fix the neighborhoods through direct action. Furthermore, like the Thai people reoccupying their own land despite the guards, many residents of New Orleans simply returned to their old homes and refused to leave.
In those two places—along with everywhere else that citizens have bucked the disaster capitalism complex and taken reconstruction into their own hands—people say that they’re not just healing their communities, but themselves as well.
Shock is, in essence, a feeling of powerlessness; people feel themselves swept away by forces they can’t hope to resist, let alone control. Therefore, rebuilding their own communities is an expression of their own power and a rejection of that helplessness.
The reconstruction efforts also wholly reject the endless quest for clean slates upon which to build model civilizations. These people aren’t starting from scratch, but from the ruins of their old homes. They make do with whatever tools and materials they can salvage, and their only ideologies are community and practicality.
It is possible to recover from economic shock and protect against future shocks. As we’re seeing all over the world, it simply requires people to understand the nature of disaster capitalism and reject it. That’s easier said than done—the free market crusade won’t let go of its markets easily—but it can be done.
As we’re now seeing, communities can join together to support each other and rebuild, rather than waiting for external aid that comes with ulterior motives. These communities are coming back quickly, efficiently, and—most important of all—durably; the people won’t be taken in again by the false promises of economic shock therapy and disaster capitalism.
Many of us live in communities that haven’t been devastated by disasters, or disaster capitalism. Even so, there’s always work to be done and improvements to be made—and working together on those improvements helps to keep the sense of community strong.
What’s a volunteer project in or around your own neighborhood that you could help with? (Examples might be rescuing stray animals, helping with handiwork, or just picking up litter.)
How might that project help to make your community more resilient (even just a tiny bit)?