The Shock Doctrine

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Joseph E. Stiglitz, New York Times, September 30, 2007

There are no accidents in the world as seen by Naomi Klein. The destruction of New Orleans by Hurricane Katrina expelled many poor black residents and allowed most of the city’s public schools to be replaced by privately run charter schools. The torture and killings under Gen. Augusto Pinochet in Chile and during Argentina’s military dictatorship were a way of breaking down resistance to the free market. The instability in Poland and Russia after the collapse of Communism and in Bolivia after the hyperinflation of the 1980s allowed the governments there to foist unpopular economic “shock therapy” on a resistant population. And then there is “Washington’s game plan for Iraq”: “Shock and terrorize the entire country, deliberately ruin its infrastructure, do nothing while its culture and history are ransacked, then make it all O.K. with an unlimited supply of cheap household appliances and imported junk food,” not to mention a strong stock market and private sector.

“The Shock Doctrine” is Klein’s ambitious look at the economic history of the last 50 years and the rise of free-market fundamentalism around the world. “Disaster capitalism,” as she calls it, is a violent system that sometimes requires terror to do its job. Like Pol Pot proclaiming that Cambodia under the Khmer Rouge was in Year Zero, extreme capitalism loves a blank slate, often finding its opening after crises or “shocks.” For example, Klein argues, the Asian crisis of 1997 paved the way for the International Monetary Fund to establish programs in the region and for a sell-off of many state-owned enterprises to Western banks and multinationals. The 2004 tsunami enabled the government of Sri Lanka to force the fishermen off beachfront property so it could be sold to hotel developers. The destruction of 9/11 allowed George W. Bush to launch a war aimed at producing a free-market Iraq.

In an early chapter, Klein compares radical capitalist economic policy to shock therapy administered by psychiatrists. She interviews Gail Kastner, a victim of covert C.I.A. experiments in interrogation techniques that were carried out by the scientist Ewen Cameron in the 1950s. His idea was to use electroshock therapy to break down patients. Once “complete depatterning” had been achieved, the patients could be reprogrammed. But after breaking down his “patients,” Cameron was never able to build them back up again. The connection with a rogue C.I.A. scientist is overdramatic and unconvincing, but for Klein the larger lessons are clear: “Countries are shocked — by wars, terror attacks, coups d’état and natural disasters.” Then “they are shocked again — by corporations and politicians who exploit the fear and disorientation of this first shock to push through economic shock therapy.” People who “dare to resist” are shocked for a third time, “by police, soldiers and prison interrogators.”

In another introductory chapter, Klein offers an account of Milton Friedman — she calls him “the other doctor shock” — and his battle for the hearts and minds of Latin American economists and economies. In the 1950s, as Cameron was conducting his experiments, the Chicago School was developing the ideas that would eclipse the theories of Raul Prebisch, an advocate of what today would be called the third way, and of other economists fashionable in Latin America at the time. She quotes the Chilean economist Orlando Letelier on the “inner harmony” between the terror of the Pinochet regime and its free-market policies. Letelier said that Milton Friedman shared responsibility for the regime’s crimes, rejecting his argument that he was only offering “technical” advice. Letelier was killed in 1976 by a car bomb planted in Washington by Pinochet’s secret police. For Klein, he was another victim of the “Chicago Boys” who wanted to impose free-market capitalism on the region. “In the Southern Cone, where contemporary capitalism was born, the ‘war on terror’ was a war against all obstacles to the new order,” she writes.

One of the world’s most famous antiglobalization activists and the author of the best seller “No Logo: Taking Aim at the Brand Bullies,” Klein provides a rich description of the political machinations required to force unsavory economic policies on resisting countries, and of the human toll. She paints a disturbing portrait of hubris, not only on the part of Friedman but also of those who adopted his doctrines, sometimes to pursue more corporatist objectives. It is striking to be reminded how many of the people involved in the Iraq war were involved earlier in other shameful episodes in United States foreign policy history. She draws a clear line from the torture in Latin America in the 1970s to that at Abu Ghraib and Guantánamo Bay.

Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets. Indeed, the case against these policies is even stronger than the one Klein makes. They were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets — for instance, whenever information is imperfect, which is to say always.

Klein isn’t an economist but a journalist, and she travels the world to find out firsthand what really happened on the ground during the privatization of Iraq, the aftermath of the Asian tsunami, the continuing Polish transition to capitalism and the years after the African National Congress took power in South Africa, when it failed to pursue the redistributionist policies enshrined in the Freedom Charter, its statement of core principles. These chapters are the least exciting parts of the book, but they are also the most convincing. In the case of South Africa, she interviews activists and others, only to find there is no one answer. Busy trying to stave off civil war in the early years after the end of apartheid, the A.N.C. didn’t fully understand how important economic policy was. Afraid of scaring off foreign investors, it took the advice of the I.M.F. and the World Bank and instituted a policy of privatization, spending cutbacks, labor flexibility and so on. This didn’t stop two of South Africa’s own major companies, South African Breweries and Anglo-American, from relocating their global headquarters to London. The average growth rate has been a disappointing 5 percent (much lower than in countries in East Asia, which followed a different route); unemployment for the black majority is 48 percent; and the number of people living on less than $1 a day has doubled to four million from two million since 1994, the year the A.N.C. took over.

Some readers may see Klein’s findings as evidence of a giant conspiracy, a conclusion she explicitly disavows. It’s not the conspiracies that wreck the world but the series of wrong turns, failed policies, and little and big unfairnesses that add up. Still, those decisions are guided by larger mind-sets. Market fundamentalists never really appreciated the institutions required to make an economy function well, let alone the broader social fabric that civilizations require to prosper and flourish. Klein ends on a hopeful note, describing nongovernmental organizations and activists around the world who are trying to make a difference. After 500 pages of “The Shock Doctrine,” it’s clear they have their work cut out for them.

Joseph E. Stiglitz, a university professor at Columbia, was awarded the Nobel in economic science in 2001. His latest book is “Making Globalization Work.”
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