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Global shock therapy

Review by Peter Arkell

The inside account of the corporatist crusade that has driven the globalisation process during the last 30-35 years awaits readers of this book. In 576 fact-filled pages, Naomi Klein exposes the methods by which this offensive, spear-headed by the International Monetary Fund and the World Bank, was carried out.

She describes the strategy of maximum shock, followed up by de-regulation, union-busting and privatisation, in one country after another and how this has speeded up the globalisation process and transformed the politics of the world. The book is a brilliant investigative report on the recent history of the world, an analysis of how the US government and its agencies were able to impose their brutal agenda wherever the conditions allowed.

For all that, The Shock Doctrine fails to place the story in the context of the developing crisis and the contradictions of global capitalism as a system. By 1971, the post-war economic arrangement established at the end of World War II had broken down in a definitive way with the ending of the dollar’s convertibility into gold. Slump and inflation combined to create a new imperative for capitalism. It had to break free of the regulations and restraints imposed as part of the post-war consensus which had produced stability and class peace.

These historic moments in the history of capitalism do not loom large in Klein’s account. Instead, the story is presented as a conspiracy by economists, politicians and dictators, at the subjective level, but without reference to the objective, and largely self-determining and unconscious, movement of the real forces in society. It is only by analysing these forces that it becomes possible to have a balanced view out of which a conscious practice to change things can emerge.

Klein quite rightly emphasises the importance to the ruling classes of developing an ideology for justifying the implementation of the shock doctrine. Yet nowhere does her book envisage the possibility of the masses also developing an ideology with which to confront the corporate offensive, roll it back and establish an alternative society based on not-for-profit production of commodities. To a large extent, workers are essentially passive victims of the conspiracy.

But to return to the narrative, for it is a truly revealing one. The author sees the key to the success of the “shock doctors” as the development, from the 1950s, of a new fundamentalist free-market ideology. The aim was to combat the ideas of a managed mixed economy, where the capitalist state provided many of the basics of society such as education, water, health and other social services and in Britain owned large areas of the economy.

It was at the Chicago School of Economics, with Milton Friedman at its head, where the crucial battle of ideas was fought out. Pure uncontaminated laissez-faire capitalism, where anything that interfered with the free workings of the market and the accumulation of profit was seen as not just wrong but “evil”, was pitted against the Keynesian notion of tempering the excesses of capitalism with state intervention and state investment.

Friedman’s students rose to this task of providing the corporate sector with a set of ideas and solutions which they could implement, when the opportunity arose. “The challenge,” as Klein puts it, “was how to prove that a real-world market could live up to their rapturous imaginings.”  Klein quotes an influential passage from Friedman which he wrote later in 1982: “Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function; to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.”

The author chronicles the events of the military coups in Chile in 1973, in Uruguay in the same year and Argentina in 1976. The “corporate-sponsored terror” unleashed by the “shock doctors”, both economic and military, led to the systematic murder of tens of thousands of people, Klein estimates, and the torture of between 100,000 and 150,000. 

In each of these countries, the “Chicago Boys” were either in place or were invited by the dictators to dismantle and de-regulate the old economies, slash public spending, and sell off the local industries, and to do it fast before the people, particularly the working class in trade unions, could recover. Never far from Klein’s account is the similarity of purpose and language of the torturers, the dictators and the economists, all working to a plan to tear the old society apart, re-engineer it and “create a new breed of model citizens”.

Klein also traces the story of the CIA’s funding of mind-control experiments, particularly those carried out by Dr Ewen Cameron at McGill University in Canada in the 1950s. “Not only did Cameron play a central role in developing contemporary US torture techniques,” Klein writes, “but his experiments also offer a unique insight into the underlying logic of disaster capitalism. Like the free-market economists who are convinced that only a large-scale disaster — a great unmaking — can prepare the ground for their reforms, Cameron believed… he could unmake and erase faulty minds, and then re-build personalities on that ever-elusive clean slate.”

By the late 1970s, the corporations were clamouring for more of the same and with Margaret Thatcher and Ronald Reagan in power in the UK and the USA, they were soon to get it. After 1983, Thatcher (a great admirer of Friedman and a friend of Pinochet, the Chilean dictator) launched an offensive against the unions, particularly the miners. After the defeat of the miners and the printers, she moved quickly to a programme of “limited shock therapy” with the privatisation of British Telecom, British Gas, British Airways, British Steel, BAA and BP. The cream of council housing stock was sold off, and unemployment quickly rose to nearly 4 million.

The lessons of all these events, which brought misery or death to millions, were developed and sharpened by governments, corporations and economists of the Friedman school.  At about this time (the mid-1980s) the IMF and the World Bank, also both heavily colonised by Chicago School economists, made it a condition for any government applying for a loan to re-vamp its economy from top to bottom.

“The principle was simple,” says Klein. Economies in crisis desperately needed aid to stabilise their currencies. “When privatisation and free-trade policies are packaged together with a financial bail-out, countries have little choice….” In the early 1990s, in Argentina, the Menem government fired 700,000 workers and then “sold off the riches of the country so rapidly and so completely that the project far surpassed what had taken place in Chile a decade earlier”. The shock in this case was hyper-inflation and the fear of returning to military dictatorship.

This doctrine, by now tested and refined, was applied in turn to the great defining crises of the 1990s. In Poland, when the Solidarity government was elected in 1989, the national debt was $40bn and inflation was running at 600%. The country was in a perfect position to “accept” the embrace of the shock doctrine, and this was imposed in spite of the fact that all the measures forced onto the economy, from privatisation, the creation of a stock exchange, a convertible currency and huge budget cuts, were in direct opposition to everything that the Solidarity movement stood for.

In China, the shock was the massacre in Tiananmen Square and the subsequent witch-hunt of thousands of opponents of the regime, most of them workers. Maybe 5,000 were killed, hundreds more executed, as the Stalinist Government shut down any democratic debate about the future and cleared the way for the transformation of China into the sweatshop of the world, with poverty for millions and untold riches for the new Chinese billionaires.

Friedman had visited Shanghai in 1988 and met Zhao Ziyang, general secretary of the Communist Party in the course of which he stressed that more, not less, shock therapy was needed. “I emphasised the importance of privatisation and free markets, and of liberalising at one fell stroke,” Klein quotes him as saying. Later he said that he had given the same advice to China as he had earlier to Chile.

Russia, the big prize, was next. The process of re-structuring and democratic reform in the then Soviet Union, including council and national elections and a free press, led by Gorbachev, was effectively sabotaged by the West. It refused meaningful loans or debt cancellation in 1991, which could have been easily granted. These would have cut across the agenda of the major countries and the IMF who were looking for the usual drastic free market “reforms” rather than the slow process of gradual democratisation of a non-capitalist economy.

Yeltsin proved to be the eager instrument of change, and with a population disorientated by the shock of his attack on the Russian Parliament and later by the war in Chechnya,  he unleashed the full market experiment on the population. As Klein puts it: “A clique of nouveaux billionaires… teamed up with Yeltsin's Chicago Boys and stripped the country of nearly everything of value, moving the enormous profits offshore at the rate of £2bn a month.” She adds: “The scandal wasn’t just that Russia’s public riches were auctioned off for a fraction of their worth - it was also that, in true corporatist style, they were purchased with public money.”

Once the oligarchs were in control of the key assets of the state, they invited in the Western corporations. All this, as Klein points out, was described by the media and governments in the West as part of the “transition to democracy”. At one point in the mid-1990s, an incredible 74 million people in Russia were living in poverty, according to the World Bank, and by 1996, a quarter of the entire population were living in poverty described as “desperate”.

“The movement that Milton Friedman launched in the 1950s,” writes Klein, “is best understood as an attempt by multinational capital to recapture the highly profitable lawless frontier that Adam Smith, the intellectual forefather of today’s neo-liberals, so admired. Today’s multinationals see government programmes, public assets and everything that is not for sale as terrain to be conquered and seized — the post office, national parks, schools, social security, disaster relief and anything else that is publicly administered.

“Under Chicago School economics, the state acts as the colonial frontier, which corporate conquistadors pillage with the same ruthless determination and energy as their predecessors showed when they hauled home the gold and silver of the Andes.”

The sacking of Russia was followed, in the late 1990s by the looting of the “Tiger economies” in Asia, Thailand, Indonesia, South Korea, following a currency panic “made possible by the speed and volatility of globalised markets”. Mass unemployment and poverty were the inevitable consequence, and of course, the purchase, at knockdown prices, of the assets by Western corporations.

The author turns to the US itself and examines how the corporations and their friends in government, having amassed huge fortunes from their economic conquests, have, more recently, exploited new sources of growth and a new economy in “homeland security”, war and post-disaster reconstruction.

She quotes Ken Minihan, a former director of the National Security Agency, who later left his job to work in the new security business that he had helped to create. For Minihan, “homeland security is too important to be left to the government”. And she details how the state under George W Bush has largely sold off its traditional functions to the point where private corporations like Lockheed, Halliburton and Blackwater can look forward to war and other disasters such as hurricanes and tsunamis (normally the concern of governments) as profitable opportunities.

This fusion of the interests of the private corporations and the state, the author writes “was the pinnacle of the counter-revolution launched by Friedman. For decades the market had been feeding off the appendages of the state; now it would devour the core”.

Klein asks the question: “What role did the benefits to contractors such as Halliburton and Bechtel and oil companies such as Exxon Mobil play in the Bush team’s enthusiasm for invading and occupying Iraq”. And later in the same chapter entitled “A corporatist State”, she develops this theme of the corporations as determinants of policy in Bush’s government. “In the Bush administration, the war profiteers aren’t just clamouring to get access to government, they are the government. There is no distinction between them.”

Washington’s plan for Iraq was to “shock and terrorise the entire country, deliberately ruin its infrastructure, do nothing while its culture and history are ransacked, then make it all OK again with an unlimited supply of cheap household appliances and imported junk food”. Iraqi industry was closed down, 500,000 state workers were fired and the country was laid waste, reduced to a kind of blank slate, and then re-made in the image of corporate America, with vast profit to the corporations.

The public sector was reduced to a “minimum number of employees, mostly contract workers, living in a Halliburton city state, tasked with signing corporate-friendly laws drafted by KPMG and handing out duffel-bags of cash to Western contractors protected by mercenary soldiers, themselves shielded by full legal immunity. All around them were furious people, increasingly turning to religious fundamentalism… Like Russia’s gangsterism and Bush’s cronyism, contemporary Iraq is a creation of the fifty-year crusade to privatise the world.”

In the final chapter, “Shock wears off”, the author points to the events all round the globe where a strong backlash and resistance to this “savage capitalism” are manifesting themselves, from many countries in South America, parts of Europe, Lebanon, South Africa, Russia and even in the US itself. She points to a transformation.

“In just three years, the IMF’s worldwide lending portfolio had shrunk from $81bn to $11.8bn, with almost all of that going to Turkey,” she writes. “The IMF, a pariah in so many countries, where it has treated crises as profit-making opportunities, is starting to wither away. The World Bank faces an equally grim future”.  Shock resistance is building.

The reader is forced to confront this conspiracy of the neo-liberals to turn large parts of the world into a wasteland, and to ask: how on earth have they got away with it so far and what is the answer? The book offers no real answers. Klein points to examples of co-operatives and to communal renewal and recovery, but in truth she is not able to take the argument further.

To expose the mechanics of the shock doctrine, and how the ideology behind it was developed and why this was so crucial, is the book’s purpose and as a journalistic story this is brilliantly told. But without analysing the nature of capitalism and its inherent contradictions, and without drawing from this analysis, the necessity and possibility of doing something about it, is a weakness that ends up by presenting us with a one-sided and rather subjective account of history.

The Shock Doctrine - the rise of Disaster Capitalism, by Naomi Klein. Published by Allen Lane (Penguin Books). Hardback £25.00 

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Patricia says:

I am in agreement with Naomi Kliens exposure of "Capitalism". You may choose to disagree with her analysis, I don't. Capitalism has been the bane of ordinary citizens lives since its inception. It was always meant to exploit men and women, there fore is not the method of governing we want. I detest capitalism and all its profit before people. I am 64 and lived through the Thatcher years, met many miners fighting for existence to no avail.

You may argue that we need capitalism to create a better world, but if history repeats itself as it always does, the backlash from the citizens of the world will ignite and I for one will back this move all the way and probably promote its inception, perhaps even starting an anti capitalist movement myself. I thank Naomi Klien for her exposure. The weakness you speak of in her book is not a one-sided one, because there is no reason for her to come up with an answer to the worlds ills, that is our job the ordinary citizen of the world.

Too much has been left to private individuals hell bent on destroying what was a great way of looking after the people who cannot look after themselves. At present we in Scotland are seeing our national health service being taken apart needle by needle, Thatchers dream is being carried across the internet. People in America think our health service is a joke, but it still looks after its patients from cradle to grave which taxpayers pay for. The last thing we want in this country are American policies in our health service, where a child can die from lack of treatment for an abcess because the parents couldn't afford treatment.

I find Capitalism an affront to human nature and will fight to my dying breath to oppose it.

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