The Shock Doctrine by Naomi Klein

The Shock Doctrine by Naomi Klein reviewed by Prairie Fire

(llco.org)

The Shock Doctrine (2007) by Naomi Klein was a New York Times bestseller that appeared in 2007 at the height of the wave of public anger toward the George W. Bush administration in the United States. It was one of many books that made the rounds amongst outraged liberals in those years. In many ways, reading the book years after its original popularity allows us to absorb its claims without seeing them in the context of the left Democratic Party’s “anybody but Bush” political campaign. The book documents the evolution of what the author terms “disaster capitalism” from the classrooms of the University of Chicago to Pinochet’s stadiums-turned-death camps to the restoration of capitalism in China to the fall of the Soviet bloc to the compromises the African National Congress made in South Africa to the Green Zone in Iraq to the economic reforms enacted during the tsunamis in Asia and hurricane Katrina in New Orleans. Even though the book is, ultimately, First Worldist, it contains important insights that help our understanding of neoliberalism and the new forms that imperialism has taken since the fall of socialism and the fall of the Soviet revisionist bloc. Klein holds that because of the radical, extreme nature of neoliberal economics, policy makers have come to understand that in order to impose such extreme, neoliberal reforms, populations have to be shocked, stunned, de-patterned as victims of electro-shock therapy are. Such is the only way to get populations to go along with reforms that are in opposition to their interests. Shock and awe crisis combined with radical, capitalist reform is the hallmarks of the emerging neoliberal corporate order. So argues Klein.

Intellectual origin of neoliberalism

A forerunner of the Chicago school was the Austrian school. Austrian school economics is represented best by Friedrich Hayek who also had taught in Chicago for a time in the 1950s. The immediate intellectual origin of the neoliberal economics is the University of Chicago, but it really is just a continuation of the Austrian tradition. The University of Chicago school of economics of the 1950s, Milton Friedman and his students, has been mythologized in the media and intellectual imagination. Their radical brand of capitalism appeared when real socialism was reaching its height, with Stalin’s victory in World War 2 and Mao’s victory in China. This was a time, after the Marshal Plan, when European social democracy was seen as the kinder, gentler future of imperialism for Europe, North America, Japan, and Oceania. This was a time when anti-colonial, patriotic nationalist regimes sought to develop their countries with large state sectors and large welfare programs. Among liberals, social democrats, and nationalists, Keynesianism ruled the roost. The economic battle on the world scene was largely between Stalinist and Maoist economics versus Keynesianism and social democracy. It was in this climate that Milton Friedman played the capitalist rebel. Contrary to popular opinion at the time, Friedman echoed Hayek, arguing that free markets were true freedom. Hayek, Friedman’s personal guru, argued that any state intervention in the market, be it Marxist or Keynesianism, was a “road to serfdom.” (pp. 66-67) State involvement in the market inevitably lead to a kind of feudalism that reduced the bulk of humanity to unfree paupers who toil for their state overlords. For Friedman, free markets solve all economic problems. Markets create freedom and abundance — never mind the ugly realities of capitalism in the real world or the problems of sustainability. For the neoliberals, all problems are a result of interference, hindrance of the free market. Contrary to the consensus at the time, they argued that the invisible hand must be freed to solve all problems:

“Friedman dreamed of de-patterning societies, of returning them to a state of pure capitalism, cleansed of all interruptions — government regulations, trade barriers and entrenched interests… Friedman believed that when the economy is highly distorted, the only way to reach that prelapsarian state was to deliberately inflict painful shocks: only ‘bitter medicine’ could clear those distortions and bad patterns.” (p. 60)

The advocacy of unbridled, unregulated, anti-state capitalism had been largely discredited not only in socialist regimes, but in both the post-colonial Third World and in the social-democratic First World ever since the Great Depression. The neoliberals needed an intellectual revolution; they needed to gain credibility by building public opinion for their views among intellectuals. Such pro-corporate views could not be sold to intellectuals or even politicians unless they found an academic advocate. Arguments by corporate robber barons to enrich themselves would fall on deaf ears. The corporations needed a champion who could convincingly argue for a return to unregulated capitalism, a return to a mythological capitalism, a time before the rise of socialism, before the state capitalism of the social democracies, social imperialists, and welfare states. Milton Friedman and his students fit the bill:

“The enormous benefit of having corporate views funneled through academic, or quasi-academic, institutions not only kept the Chicago school flush with donations, but, in short order, spawned the global network of right-wing think tanks that would churn out the counterrevolution’s foot soldiers worldwide.” (p. 68)

A new generation of radical capitalist ideologues and policy makers was born. The new wave posed as the radical, rebel capitalist among the evil, status quo statists. Anti-communism. Anti-social democracy. Reverse the new deal. Privatize everything. These young turks would come to dominate economic thinking in the capitalist world. They would preside over coups, depressions, wars, and other catastrophes over the next few decades. They would preside over whole new wave of imperialist terror against the world. They would preside over and profit from disasters in both the Third and First Worlds.

Disaster as opportunity

Marxists have often seen crisis as an opportunity that can create the conditions for revolution. However, crisis is not only a gift to the revolutionary forces, it can be used as a way to restructure society by others also. Fascists used economic crisis to catapult themselves to power. Now, it was time for the neoliberals:

“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 politically inevitable.” (p. 174)

Crisis situations are ones in which people are willing to experiment with new policies, are willing to accept radical solutions, both left and right, as necessary, even inevitable. Chicago School economists called this “the crisis hypothesis.” Not only did Chicago School economists create the policies to implement in times of crisis, but they participated in the generation of crisis themselves by closely collaborating with the imperialist militaries and their proxy dictatorships, but also by their role advising and working for transnational corporations and in the global financial institutions like the World Bank and IMF. Later, the “crisis hypothesis” would inform the U.S. military policy of “Shock and Awe” that was first advanced in the mid-1990s, but formed the basis of the military and economic strategy used against the people of Iraq in 2003. In the 1996 paper that articulated the concept. The paper states that an invading force should “seize control of the environment and paralyze or so overload an adversary’s perceptions and understanding of events so that the enemy would be incapable of resistance.” (p. 184) Disasters, be they a result of war, economy, or nature, are opportunities, according to the neoliberals. An overwhelming crisis can be used to shove any radical reform on a people incapable of mounting resistance.

Indonesia’s shock, a forerunner for the neoliberal counter-revolution

During World War 2, the old imperialist powers of Europe had annihilated each other. The old empires of Europe — England, France, Germany, and others — were no longer able to hold onto their colonies. European powers were forced out of the Third World. Sometimes they were forced out to as communist-led revolutions swept places like China. They were also forced out of other parts of the Third World as the patriotic bourgeoisie seized power and sought to implement economic reform that favored national development. Mao freed a quarter of the world from the “two mountains” of feudalism and imperialism. Ho Chi Minh sought to do the same in Vietnam. Mossadegh in Iran, Gaddafi in Libya, Nasser in Egypt, Arbenz in Guatemala, Sukarno in Indonesia, and many others across the Third World sought to implement limited reform that would reduce the imperialist hold on their economies. Their reforms pursued developmental strategies that increased the state sector, often at the expense of imperialists and transnational corporations. Washington fought back with economic terrorism, bombings, wars, coups and death squads. In 1954, Mossadegh was overthrown in a CIA-backed coup in Iran. He was replaced by the brutal Shah, a friend of the West. Again, in 1954, the CIA came to the rescue of the United Fruit Company in Guatemala. The CIA disposed of the Arbenz regime that had dared to move toward land reform. This happened over and over, in country after country. Indonesia was to be a battle ground.

Indonesia was one of the first experiments in using shock therapy to restructure an economy, although not along strictly neoliberal lines. Prior to the pro-Western restructuring, Sukarno’s regime in Indonesia was a nationalist one that sought a course independent of both the Western and Soviet imperialists. The regime was one of national development and social democracy that made concessions to poor peoples and their organizations, including the powerful, Maoist-Influenced Indonesian Communist Party (PKI). A high-level CIA directive sought to “liquidate President Sukarno, depending upon the situation and available opportunities.” (p. 81) After several false starts, the CIA’s goal was accomplished by a military coup in October of 1965. The military, led by general Suharto, began a bloody campaign to eliminate the left. Death squads went from door to door, from village to village, torturing and executing anyone suspected of being sympathetic to communism. Educated people, teachers, students, worker and peasant organizers, human rights activists, nationalists, social democrats and communists were murdered by the new regime with the blessing and support of the CIA. Within one month, at least a half million people were killed, “massacred by the hundreds of  thousands,” according to Time magazine.  “Travelers from those areas tell of small rivers and streams that have been literally clogged with bodies; river transportation has at places been impeded.” (p. 82)

Indonesia’s economy was then restructured to serve the West. This restructuring was planned by a group of intellectuals funded by the Ford Foundation. This group was called “the Berkley Mafia” in the press and in intellectual circles. They were Indonesian students who studied at Berkley as part of Ford Foundation funded program. When they returned home, they founded a Western-style economics department at the University of Indonesia’s Faculty of Economics. John Howard, then Director of Ford’s International Training and Research program states, “Ford felt it was training the guys who would be leading the country when Sukarno got out.” (p. 83)

The Berkley Mafia got to work. They recorded lectures on economics for the generals. They personally tutored general Suharto, who was reported to have been attentive, closely taking notes. They filled important positions in the new regime. They became the new economic technocrats. They made Indonesia friendly to foreign capital. “They passed laws allowing foreign companies to own 100 percent of these resources [food, basics, oil and mineral wealth], handed out ‘tax holidays,’ and within two years, Indonesia’s natural wealth — copper, nickel, hardwood, rubber and oil — was being divided up among the largest mining and energy companies in the world.” (pp. 83-84) Even though the Berkley Mafia were less explicitly ideological, even though they were not as anti-state as future neoliberals, the parallels with later neoliberals, such as the “Chicago Boys” in Latin America, would be striking. (p. 84)

“Suharto… had shown that if massive repression was used preemptively, the country would go into a kind of shock and resistance could be wiped out before it even took place. His use of terror was so merciless, so far beyond even the worst expectations, that a people who only weeks earlier had been collectively striving to assert their country’s independence were now sufficiently terrorized that they ceded total control to Suharto and his henchmen. Ralph McGehee, a senior CIA operations manager during the years of the coup, said Indonesia was a ‘model operation… You can trace back all major, bloody events run from Washington to the way Suharto came to power. The success of that meant that it would be repeated, again and again.”’ (p. 85)

It was the Indonesia experience of mass terrorism against the populace that would interest the architects of the neoliberal, orchestrated disasters and counter-revolutions to come.

Latin America, the real beginning

Even though there were forerunners like Indonesia, it was in the southern cone of Latin America that the Chicago school would get its big break. It was in 1953, that Adbion Patterson, director of the U.S. International Cooperation Administration in Chile, the agency later would become part of the infamous USAID, met with Theodore W. Shultz, chairman of the Department of Economic at the University of Chicago. USAID is known as being part of the “carrot” side of the United States’ “carrot and stick” foreign policy. USAID tries to project a more humane face for U.S. imperialism. USAID is known to collaborate with the CIA, death squads, and dictators across the Third World. The neoliberals came to the conclusion that Latin America was in a life-and-death struggle with Marxism. They began a collaboration to recreate the Chicago school in Chile, to create cohorts of capitalist intellectuals to save the continent. Similar to the creation of the Berkley Mafia in Indonesia, they created exchange programs between the Chicago School and universities in Chile. Because of lack of interest at more the prestigious campuses of Chile, they decided to create and finance a whole new school of economics at Chile’s Catholic University, a lesser institution. This was paid for by foundations and U.S. tax dollars. The student ideologues were described as “more Friedmanite than Friedman himself.” “Los Chicago Boys” would become the ideological vanguard of the coming neoliberal revolution that would begin in Chile.  (pp. 72-74)

By 1968, 20 percent of U.S. foreign investment was tied up in Latin America. There were 5,436 U.S. subsidiaries in the region. In previous decades, over a billion dollars was invested in Chile’s mining industries by U.S. corporations. Chileans saw few benefits. Following the typical pattern, value and resources left Chile at an astonishing rate. 7.2 billion in Chilean mining dollars ended up in pockets in the United States. (p. 78) In the early 1970s, Salvador Allende sought to reform the Chilean economy, which was dominated by foreign-owned corporations. Fearing that Allende would set a regional example, the U.S. state and corporations began waging a covert war to destabilize the economy and the Allende regime. When the U.S. State Department, CIA, and corporations failed to muscle Allende to reverse course early on, they began implementing a plan to overthrow him. (pp. 78-80)

“The other 9/11” occurred on September 11, 1973, General Augusto Pinochet launched a coup d’etat. Allende’s civilian defense leagues were no match for Pinochet’s military and police. Pinochet described his coup as a “war.” Allende was killed. The Presidential Palace was in flames. The Allende government was imprisoned. In the days that followed, 13,500 civilians were rounded up. They were sent to the National Stadium, which was turned into a torture center and death camp. Thousands were tortured and killed. 80,000 imprisoned. 200,000 escaped the country for political reasons. (pp. 93-95) Books by Marx, Freud, and Neruda were burned. Chilean society was thrown into disarray.

The Chicago Boys saw their chance. “To us, it was a revolution,” one recalled. The capitalist intellectuals went into action. Pinochet knew nothing about economics, which allowed the Chicago Boys free reign to push through drastic reforms very quickly. As blood flowed in the streets, the Chicago Boys rushed to put together a statement, a program, that advocated privatization, deregulation, and cuts to social spending. With military approval, the Chicago Boys got the right-wing newspaper El Mercurio to print a long document that came to be known as “The Brick.” By noon, on September 12, 1973, government workers had the plan on their desks. The plan heavily resembled Friedman’s Capitalism and Freedom. To implement their radical agenda, they no longer needed to win anyone’s approval except a handful of military men. They could impose their ideas at gunpoint. Several of the Chicago Boys were named advisers to the dictatorship. (pp. 94-96)

A year after the coup, inflation reached 375 percent. This was the highest rate in the world, double that of the rate under Allende. The markets were flooded with cheap imports, putting local manufactures out of business. Unemployment hit record levels as hundreds of thousands lost manufacturing and public-sector jobs. In that first year, domestic industrialists began to resist the Chicago Boys, whose policies were only benefiting foreign importers, financiers and compradors. The National Association of Manufactures declared that the experiment of the Chicago Boys was “one of the greatest failures of our economic history.” (p. 97) Feeling the experiment in jeopardy, Friedman himself arrived. He was treated like a rock star by the dictator-controlled press. Friedman advised that the dictatorship was off to a good start, but to really succeed, Pinochet had to go further. Friedman said “shock treatment is the only medicine.” Friedman promised an economic miracle. Inflation could be ended and unemployment brought under control. All problems could be solved. However, it was necessary to act quickly, gradualism was not an option. More radical solutions were needed. Pinochet, reportedly, liked the ring of “shock treatment.” With a Chicago Boy newly appointed as Pinochet’s economic minister, they went forward with more neoliberal reforms. Public spending was cut by 27 percent in 1975. By 1980, public spending was half of what it was under Allende. Five hundred state-owned companies and banks were privatized. Some were almost given away. More trade barriers were removed. 177,000 industrial jobs were lost in the decade since the coup. The manufacturing sector shrank, returning to pre-World War 2 levels. Seventy five percent of a family’s income went to bread alone. Milk and bus fare were now luxuries for many. Chile’s economy was in ruin. The Chicago Boys and the dictator had taken Chile into a deep recession. (pp. 99-102)

In 1982, the economy got worse. The situation was to bad that Pinochet broke with the Chicago Boys out of necessity. He returned to Allende-type nationalization of major industries. The Chicago Boys were fired from influential government posts. Several came under investigation for profiteering and corruption. What prevented total collapse was that Pinochet never nationalized Codelco, the major copper company that generated 85 percent of Chile’s export revenues. Even in the worst period of neoliberal reform, the regime still had a revenue stream from copper profits. (p. 104) It was only in 1988 that the Chilean economy began to rapidly grow. The growth occurred only after 45 percent of the population had been forced under the poverty line by neoliberal policies. Neoliberals often point to the “Chilean miracle” as an example of the success of their policies. However, the “Chilean miracle” is a myth. The Chilean economy began to bounce back rapidly only after being first destroyed by neoliberal policies. The recovery happened by abandoning neoliberal policies, not because of them. And, even then, the recovery was uneven. In 2007, Chile was one of the most unequal societies in the world. The top ten percent saw their incomes rise 83 percent. Out of 123 countries counted by the United Nations, Chile ranked 116 in terms of inequality. (p. 105) In Chile, the “shock therapy” amounted to the rapid plunder of state assets. There was a massive redistribution of value from the middle and poor classes to the bourgeois classes, especially the compradors and the imperialists. The reality is that what developed was far from the free-market utopia of academics. The vision of Friedman and the Chicago Boys was made possible by a U.S.-sponsored police state that exterminated all opposition. The rapid economic hardships combined with the terror campaign waged by the state were a key part of subduing the Chilean people and expediting the neoliberal reform.

Klein describes the Pinochet dictatorship that streamlined the neoliberal “shock therapy”:

“Corporatism, or ‘corporativism,’ originally referred to Mussolini’s model of a police state run as an alliance of the three major power sources in society — government, businesses and trade unions — all collaborating to guarantee order in the name of nationalism. What Chile pioneered under Pinochet was an evolution of corporatism:  a mutually supporting alliance between a police state and large corporations, joining forces to wage all-out war on the third power sector — the workers — thereby drastically increasing the alliance’s share of the national wealth.” (p. 105)

While not meaning to, Klein has made an important observation. Despite anti-fascist propaganda at the time, in some fascist states, the workers — for example, in Germany — were not always on the receiving end of state violence or economic terrorism. The fascist state in Germany saw itself as above class, not unlike social-democratic regimes have since Lenin’s time. Although the fascist state served corporate and banking interests, it also sought to accommodate the bourgeoisified, German worker. It did this through social-democratic reform and also by redistribution of wealth from conquered peoples to Germans. Thus the state sought to deliver a higher standard of living to Germans, including German workers at the expense of other peoples. Not so in Chile. As a Third World country, fascism doesn’t typically seek an alliance with its own proletarian workers, at least not in the long term. Fascism, as Georg Dimitrov, theorist of Stalin’s Comintern around World War 2, put it, is “the open terroristic dictatorship of the most reactionary, most chauvinistic, and most imperialist elements of finance capital.” However, fascism, in a Third World country like Chile, does not really seek any real alliance with the workers. Fascism does not seek to benefit the workers so much as cannibalize workers in the interests of local compradors and imperialists. Police, military and paramilitary terror facilitates the transfer of value from the poor and workers to compradors: generals, police, state bureaucrats, corrupt officials, middlemen for the imperialists, landed and other oligarchs, etc.  State and extra-state terror facilitate the transfer of value to the imperialists: multi-national corporations, financial institutions, global entities and bureaucracies, imperialist states and populations, etc. Pinochet’s regime subdued the Chilean workers. It did not court them.

The “shock therapy” that occurred in Chile happened elsewhere in Latin America, but with variations. When Pinochet took power in Chile in 1973, Brazil was already under the jackboot of a military junta. In the Brazilian junta, Friedman’s students held key posts. At the height of the junta’s brutality, Friedman traveled to Brazil to declare the neoliberal experiment there “a miracle.” External debt in Brazil would go from 3 billion to 103 billion. In Argentina in 1976, a military junta seized power. The Chicago Boys occupied positions in the military government: secretary of finance, president of the central bank and research director for the Treasury Department of the Finance Ministry, and other lesser posts. Although the neoliberal reform did not go as far there, state-ownership of the oil sector and social security survived, the neoliberal reforms were enough to push the middle classes into the poverty. Argentina’s external debt grew from 7.9 billion to 45 billion after the coup. Uruguay was also ruled by the military with similar results. The external debt doubled.  Arnold Harberger and Larry Sjaastad and their team, along with Chicago graduates from Argentina, Chile, and Brazil were tasked with reforming Uruguay’s tax and commercial policy. Similarly, in Bolivia, the unemployment rate increased dramatically. Real wages were reduced by 60 percent. Per capita income dropped from $845 to $789 two years later. Shanty towns and tent cities multiplied as people lost their land and homes. At the same time, Bolivians eligible for social security dropped by 61 percent. The majorities grew poor. A few grew wealthier. Countries that had previously had enjoyed a higher standard of living through economies with large national sectors and active state intervention were turned into Washington-backed neoliberal experiments accompanied by state and economic terror to pacify the populations. Henry Kissinger, who has been indicted for his role in these murderous regimes, was pleased with the neoliberal shock. Friedman and the Chicago Boys provided the ideological cover. Dictators, CIA, death squads, murderous police and military terrorized populations into submission. The juntas of the region cooperated in hunting down refugees and dissent. Through Operation Condor, the juntas and the U.S. intelligence and military shared information to hunt down, torture and kill opposition and perceived opposition. U.S. military and intelligence provided extensive training, even going so far as to produce torture manuals. Klein points out that Condor foreshadowed the system of secret prisons and “extraordinary rendition” that has developed today. Condor and the murderous suppression of dissent and resistance across the region was packaged as a “war on terror” in its day. (pp. 106-112) (pp. 185-186) (p. 196) Countries were subdued by military terror and economic strangulation under the cover of so-called anti-terrorism.

Eastern Bloc

Similar neoliberal restructurings occurred with the fall of the Soviet Bloc. Although the Soviet Bloc had long ceased to be socialist nor were the regimes there led by communists, the fall of the state-heavy regimes there was helped along and planned by neoliberals. As many of the Eastern European regimes reached a breaking point, those who had originally advocated Western European-style social democracy were either transformed or outmaneuvered by neoliberals. In the case of Poland, Solidarity took power from the Soviet-backed regime. Solidarity transformed itself from a trade union movement into one that advocated neoliberal “solutions.” In Poland, when Solidarity gained power, they now had to come up with the funds to pay the state apparatus, including the police. The IMF originally allowed the Polish economy to fall in the face of a debt crisis. The Unites States made statements that it expected the new regime to make good on its payments. The United States offered very little relief to the crumbling economy. In the face of an economic meltdown due to debt, the Polish regime turned to the Chicago School economists.  Jeffery Sachs dubbed “the Indiana Jones of Economics,” adviser to the Bolivian military regime, now advised the Solidarity regime. The Polish regime adopted what was known as “the Sachs Plan” or “shock therapy.” It was only after the regime adopted the plan that the IMF agreed to provide loans. Poland was strong-armed into accepting the emerging neoliberal consensus. (pp. 221-233) It caused a  depression in Poland. There was a 30 percent reduction in industrial production in the first two years. Unemployment skyrocketed, reacting a quarter of the population in some places. (pp. 241-243) Eventually, there was a backlash in Poland. Solidarity was defeated at the ballot box. (pp. 242-243) Similarly, Gorbachev in the Soviet Union originally advocated Western-style social democracy but was displaced by the more neoliberal-friendly Yeltsin. Like elsewhere, ideological and technical help was provided for the neoliberal transformation of the economy:

“To provide ideological and technical backup for Yeltsin’s Chicago Boys, the U.S. government funded its own transition experts whose jobs ranged from writing privatization decrees, to launching a New York-style stock exchange, to designing a Russian mutual fund market. In the fall of 1992, USAID awarded a $2.1 million contract to the Harvard Institute for International Development, which sent teams of young lawyers and economists to shadow the Gaidar team. In May, 1995, Harvard named Sachs director of the Harvard Institute for International Development, which meant that he played two roles in Russia’s reform period: he began as a freelance adviser to Yeltsin, then moved on to overseeing Harvard’s large Russia outpost, funded by the U.S. government.” (p. 281)

What followed was a massive selling of state assets, especially to foreign corporations and corrupt bureaucrats. The public assets were sold off at rock bottom, undervalued prices.

“Forty percent of an oil company comparable in size to France’s Total was sold for $88 million (Total’s sales in 2006 were $193 billion.). Norilsk Nickel, which produced a fifth of the world’s nickel, was sold for $170 million — even though its profits alone soon reached $1.5 billion annually. The massive oil company Yukos, which controls more oil than Kuwait, was sold for $309 million; it now earns more than $3 billion in revenue a year…” (p. 293)

The average Russian consumed 40 percent less in 1992 than 1991. There was a drop in the standard of living. (p. 283) A massive transfer of wealth occurred. Like in Latin America, the economic masterminds of the process often got a piece of the action, selling influence and profiting off of the plunder of the public sector. Enormous profits were moved offshore at the rate of 2 billion dollars a month. A new oligarchy of new millionaires and billionaires arose from the bureaucrats and their advisers that oversaw the process. (p. 291) So much so that the regimes of the post-Soviet Bloc were often described as kleptocracies. This pattern was repeated again and again in Eastern Europe and ex-Soviet bloc.

China, the restoration of capitalism on overdrive

Deng Xiaoping, one of the main architect of China’s counter-revolution and restoration of capitalism, was a big supporter of moving toward a neoliberal, corporate-based economy. In the 1980s, the Chinese regime invited Friedman to tutor hundreds of top-level civil servants, professors and Party economists in the wonders of the free market. Friedman spoke to audiences in Beijing and Shanghai. Deng sought to open up China’s economy, but also maintain the regime’s monopoly on political power. Klein describes the model in China as something close to Pinochet’s Chile. And this was acceptable to Friedman, for whom political freedom is the same as so-called economic freedom, free markets. In 1983, Deng opened the country up to foreign investment. He reduced protections for workers. He created a new 400,000-person People’s Armed Police charged with quashing all signs of “economic crimes.” Prices soared when prices ceased to be regulated. Job security was eliminated. Unemployment rose. Inequalities increased. Dissent grew. Klein suggests that this was the catalyst for the 1989 protests that were crushed by the Chinese state. But the violent suppression of the protests at Tiananmen threw the country into a shock that allowed Deng Xiaoping to go even further.  (pp. 232-239) Five days after the violence, Deng Xiaoping stated:

“Perhaps this bad thing will enable us to go ahead with reform and the open-door policy at a more steady, better, even a faster pace…” (p. 238)

The crackdown paved the way for reorganizing China’s economy along neoliberal lines. Klein characterizes Deng’s philosophy as “Friedmanism without the freedom.” (p. 293) Klein continues:

“It was this wave of reforms that turned China into the sweatshop of the world, the preferred location for contract factories for virtually every multinational on the planet. No country offered more lucrative conditions than China: low taxes and tariffs, corruptible officials and, most of all, a plentiful low-wage workforce that, for many years, would be unwilling to risk demanding decent salaries or the most basic workplace protections for fear of the most violent reprisals.” (p. 239)

For the Chicago School, China is a success. China is now the sweatshop of the First World, producing cheap goods for the populations of the United States. Along with the imperialists, the new bourgeoisie within the Chinese ruling party benefited:

“For foreign investors and the party, it has been a win-win arrangement. According to a 2006 study, 90 percent of China’s billionaires are the children of Communist Party [sic.] officials. Roughly twenty-nine hundred of these party scions — known as ‘the princelings’ — control $260 billion.” (p. 240)

The conflicts within China’s ruling elite today reflect a conflict between a more globalist, comprador-oriented bourgeoisie and a more patriotic bourgeoisie that seeks to retain China’s independence vis a vis the Western-dominated global market and the neoliberal consensus. Although neither pole within China’s elite is revolutionary, it is the more nationalist wing of the bourgeoisie that resists the extension of Western power in the Middle East and Africa. With the global markets in crisis, the nationalist wing of China’s elites have been able to assert themselves.

U.S. policy makers seek to remake the Middle East using Iraq as a model

The imperialists had similar plans for the Middle East and Islamic world. After the First Gulf War between the United States and Iraq, Saddam Hussein retained power in Iraq. Saddam Hussein’s regime was a Baathist one where the state managed much of the economy. It had a large public sector, nationalized industries, a large welfare state. Even though the regime was not truly socialist, it promoted a socialist rhetoric at time. It also promoted nationalism, even though the regime often compromised with the imperialists. Like most regimes in the Third World, the Iraqi regime was a regime ruled by the national bourgeoisie. The national bourgeoisie in the Third World has a patriotic pole that favors independence and development. The national bourgeoisie also has a comprador pole that favors accommodation with imperialism and maldevelopment. The regime in Iraq veered between these two poles. At times, the regime was mainly comprador. At other times, especially after coming into conflict with the United States, the regime was forced to take on more patriotic policies in opposition to the United States. After the First Gulf War, the Iraqi state was severely weakened, but continued to exert control of much of the national economy. The imperialists plundered and exploited Iraq after the First Gulf War through sanctions and reparations after that war ended in 1991. However, with Saddam still in power, they were unable to completely restructure the economy along neoliberal lines. So, their victory in Iraq was incomplete. The events of September 11 gave the imperialists their excuse. Not only could they finish the job in Iraq, Iraq could also serve as a regional example in the Middle East and Islamic world much as Pinochet’s Chile had in Latin America. To this end, Bush II would wage Gulf War II beginning in 2012, a war and occupation that continues to this day. Policy makers and economists had big plans for the post-Saddam Iraq:

“Since the entire Arab world could not be conquered all at once, a single country needed to serve as the catalyst. The U.S. would invade that country and turn it into, as Thomas Friedman, chief media proselytizer of the theory, put it, ‘a different model in the heart of the Arab-Muslim world,’ one that would set off a series of democratic/neoliberal waves through. Josh Muravchik, an American Enterprise Institute pundit, forecast a ‘tsunami across the Islamic world” in Tehran and Baghdad,’ while the arch-conservative Michael Ledeen, an adviser to the Bush administration, described the goal as ‘a war to remake the world.’” (p. 415)

From the beginning, Gulf War II was not simply about Iraq, but a new Middle East and, ultimately, a new world:

“[T]he architects of the invasion had unleashed ferocious violence because they could not crack open the closed economies of the Middle East by peaceful means, that the level of terror was proportional to what was at stake.” (p. 414)

The stakes were big, not just Iraq, but the world. The future of the world was at stake. The neoliberals saw it as  a war of civilizations, a war between two ways of life. Friedman wrote, “We are not doing nation-building in Iraq. We are doing nation-creating.” (p. 417) The Middle East was to be cleaned of terrorists and radicals. Shortly after declaring the fighting over in Iraq, Georg W. Bush announced plans for the “establishment of a U.S.-Middle East free-trade area within a decade.” (p. 416) A giant free-trade zone was planned. (p. 415) This was seen as a unified project to “bring democracy” to the Middle East, and the world. In reality, the “democracy” and “freedom” that neoliberalism brought was only for corporations and Western contractors.

The war planners and neoliberals ran into a problem: Iraq is not a blank slate. Iraq’s civilization is an ancient and rich one. Its popular culture is fiercely proud and anti-imperialist. It had a deep history of Arab nationalism. In addition, the majority of the adult male population had military training. (p. 417) Whole cultures would have to be uprooted to create a neoliberal-capitalist utopia in the region. In order to create the blank slate, a new type of war was to be waged. Donald Rumsfeld promoted a Pentagon-research paper, Shock and Awe: Achieving Rapid Dominance. (p. 416) The paper prides itself on not merely targeting the enemy military, but “society writ large.” Fear on unprecedented scales is a key component of the theory. (p. 420) Like shock therapy, the goal is “rendering the adversary completely impotent.” (p. 421) A society is completely erased in order to be rebuilt. “Shock and Awe” states:

“In crude terms, Rapid Dominance would seize control of the environment and paralyze or so overload an adversary’s perceptions and underlying understanding of events.” (p. 421)

And:

“With a far larger canvas, that was the invasion and occupation strategy for Iraq. The architects of the war surveyed the global arsenal of shock tactics and decided to go with all of them — blitzkrieg military bombardment supplemented with elaborate psychological operations, followed up with the fastest and most sweeping political and economic shock therapy program attempted anywhere, backed up, if there was any resistance, by rounding up those who resisted and subjugating them to ‘gloves-off’ abuse.” (p. 419)

Iraq was a great experiment in this mass terror for months. The citizens of Baghdad were subject to sensory depravation on a mass scale:

“…real-time manipulation of sense and inputs… literally ‘turning on and off’ the ‘lights’ that enable any potential aggressor to see or appreciate the conditions and events concerning his forces sand ultimately, his society… depriving the enemy, in specific areas, of the ability to communicate, observe.” (pp. 421-423)

Not only did the bombing terrorize the population, it helped erase Iraq’s cultural history:

“The hundreds of looters who smashed ancient ceramics, stripped display cases and pocketed gold and other antiquities, from the National Museum of Iraq pillaged nothing less than records of the first human society,” reported the Los Angeles Times. (p. 425) “Gone are 80 percent of the museum’s 170,000 priceless objects.”  (p. 425)

And:

“The national library, which contained copies of every book and doctoral thesis ever published in Iraq, was a blackened ruin. Thousand-year-old illuminated Korans had disappeared from the Ministry of Religious Affairs, which was left a burned-out shell. ‘Our national heritage is lost,’ pronounced a Baghdad high-school teacher. A local merchant said of the museum, ‘It was the soul of Iraq. If the museum doesn’t recover the looted treasures, I will feel like a part of my own soul has been stolen.’” (p. 425)

Also:

“The Baghdad International Airport was completely trashed by soldiers, who according to Time, smashed furniture and then moved on to the commercial jets on the runway: ‘U.S. soldiers looking for comfortable seats and souvenirs ripped out many of the planes’ fittings, slashed seats, damaged cockpit equipment and popped out every windshield.’ The result was an estimated $100 million worth of damage to Iraq’s national airline — which was one of the first assets to be put on the auction block in an early and contentious partial privatization.” (p. 426)

U.S. troops failed to prevent the looting in most cases. In some cases, troops even joined in. The behavior of U.S. troops mimicked the behavior of the Nazi troops who personally plundered the countries they occupied in World War 2. Despite the danger, it was a bonanza for U.S. troops. Not only could they walk away with Iraq’s wealth in hand, life in the Green Zone was fun and luxurious compared to the surrounding war zone. It was a kind of Disneyland island for the troops and contractors:

“Baghdad’s Green Zone is the starkest example of this world order. It has its own electrical grid, its own phone and sewage systems, its own oil supply and its own state-of-the-art hospital with pristine operating theaters — all protected by five-meter-thick walls. It feels oddly, like a giant fortified Carnival Cruise Ship parked in the middle of a sea of violence and despair, the boiling Red Zone that is Iraq. If you can get on board, there are poolside drinks, bad Hollywood movies and Nautilus machines. If you are not among the chosen, you can get yourself shot by standing too close to the wall.” (pp. 522-523)

The bombing and looting also helped sweep away the old state institutions. Reagan-era bureaucrat and senior economic advisor to Paul Bremer, Peter McPherson was a true Chicago School believer. He did not mind the plunder of the public sector, especially the public education system. The looting of state property did not bother him. He referred to the pillage of the public sector as “shrinkage.” Thus the massive loss of state assets into private pockets was by design, all the better to create a clean slate for nation building. (p. 427) Iraq’s public education system, the best in the region with 89 percent of Iraqis literate, a number higher than much of the United States, was lost within weeks. (p. 428) This was all part of the plan:

“It’s hard to believe — but then again, that was pretty much 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 okay with an unlimited supply of cheap household appliances and imported junk food. In Iraq, this cycle of culture erasing and culture replacing was not theoretical; it all unfolded in a matter of weeks.” (p. 429)

Neoliberals gloated over their new power. Joe Allbraugh, Bush’s ex-FEMA director, remarked that “One well-stocked 7-Eleven could knock out 30 Iraqi stores; a Wal-Mart could take over the country.” (p. 430) Iraq’s large state firms, or what was left of them, were sold off, two thirds of the employees lost their jobs to make the companies attractive to Western capital. (p. 446) Iraq was flooded by foreign goods. Foreigners bought up factories for very little. (p. 445) Just as Pinochet slashed 25 percent of state employees, so did the imperial occupation de-Baathify the Iraqi state and economy. (p. 444) However, it was not smooth sailing for the neoliberal invaders.

“As is now well known, nothing about Bush’s anti-Marshall Plan went as intended. Iraqis did not see the corporate reconstruction as ‘a gift’; most saw it as a modernized form of pillage, and U.S. corporations didn’t wow anyone with their speed and efficiency; instead they have managed to turn the word ‘reconstruction’ into as one Iraqi engineer put it, ‘a joke that nobody laughs at.’” (p. 442)

The people of Iraq saw their standard of living fall dramatically while foreign contractors and corporations cashed in. Sectarian gangs and death squads roamed the streets. Ethnic and religious conflict tore the country apart. The post-Saddam regime was corrupt and not in control of the country. National liberation, Islamist, and sectarian forces all fought for power. As chaos reigned, it was a free-for-all for foreign corporations who plundered and exploited the economy. The chaos of Iraq, according to Klein, was created by the careful and faithful application of Chicago School ideology. (p. 444)

Natural disasters: Sri Lanka and New Orleans

It is not only coups and wars that can provide the chaos and shock necessary to implement neoliberal restructuring of economies. In recent decades, neoliberals have used the trauma and social dislocation caused by natural disasters to implement their economic vision. 2004 and 2005 were great back-to-back years for neoliberals, but terrible years for humanity. The Asian tsunami and hurricane Katrina devastated populations on two sides of the planet. In December 26, 2004, Sri Lanka was hit by a tsunami that claimed the lives of a quarter million people and left 2.5 million homeless throughout the region. (p. 488)  Prior to the disaster, there was a neoliberal plan called Regaining Sri Lanka.

“Like all such shock therapy plans, Regaining Sri Lanka [the World Bank approved plan] demanded many sacrifice  in the name of kick-starting rapid economic growth. Millions of people would have to leave traditional villages to free up the beaches for tourists and the land for resorts and highways.” (p. 497)

It was defeated at the polls by a “center-left” coalition, but after the tsunami, all bets were off. (p. 498) The tsunami accomplished what could not be done through ordinary channels. It cleared the beach; it created a clean slate sought after by neoliberal reformers. No people, no problem.

“When the tsunami came, it did what the fire couldn’t; it cleared the beach completely. Every single fragile structure was washed away — every boat, every fishing hut, as well as every tourist cabana and bungalow. In a community of only 4,000, about 350 were killed, most of them… who make their living from the sea. And yet, underneath the rubble and the carnage was what the tourism industry had been angling for all along — a pristine beach, scrubbed clean of all the messy signs of people working, a vacation Eden. It was the same up and down the coast: once the rubble was cleared away, what was left was… paradise.

When the emergency subsided and fishing families returned to the spots where their homes once stood, they were greeted by police who forbade them to rebuild. ‘New rules,’ they were told — no homes on the beach, and everything had to be at least two hundred meters back from the high-water mark… The beaches were off-limits.” (p. 490)

Armies of NGOs poured in to keep the lid on social discontent as the neoliberals sold off the beaches to the tourist industry. (p. 494) This would not be the first or last time that natural disasters would create the stage for the radical capitalist reformers. Similarly, the Maldives used the tsunami to clear out its poor people. (pp. 504-506) Earlier, in 1988, Central America was hit by Hurricane Mitch. Water and landslides killed over 9,000 people in Honduras, Guatemala and Nicaragua. Whole villages were destroyed. With its population in shock, Honduras used the opportunity to push through privatization laws that sold off its airports, seaports and highways and fast-tracked plans to privatize its telephone company, the national electric company, and parts of its water sector. Protections on land were overturned, making it easier for foreign capitalists to buy and push out local and smaller farmers. Environmental standards were lowered. People were evicted from their homes to make way for foreign-owned mines. Similarly, Guatemala used the opportunity to sell off its phone company and Nicaragua sold off its electric company. The World Bank and International Monetary Fund strong-armed Nicaragua by making 4.4 billion in debt relief tied to the implementation of neoliberal policies. (p. 500) “Destruction carries with it an opportunity for foreign investment,” announced Guatemala’s foreign minister on a trip to the World Economic Forum in Davos in 1999.

Even people in the United States were not immune to natural disasters or the neoliberal ambulance chasers. In August 2005, Hurricane Katrina hit. Parts of New Orleans was flooded. Images of families, usually from the poorer  and Blacker areas, stranded on roofs were broadcast on TV. Black refugees from the disaster were described and treated by the racist authorities as “looters” and criminals. Over 1,800 people died. There was an estimated 81 billion dollars in property damage. Americans witnessed on their TVs a refugee crisis at home. The football stadium, the Superdome, became a giant refugee camp. The disaster was one of the greatest in the history of the United States. In a propaganda move, even Hugo Chavez and Fidel Castro offered help to a hapless United States. The weak state proved itself completely incapable of responding to the disaster.

“There was a brief window of two or three weeks when it seemed that the drowning of New Orleans would provoke a crisis of economic logic that had greatly exacerbated the human disaster with its relentless attack on the public sphere. ‘The storm exposed the consequences of neoliberalism’s lies and mystifications, in a single locale and all at once,’ wrote the political scientist and New Orleans native Adolph Reed Jr. The facts of the exposure are well known — from the levees that failed, to the fact that the city’s idea of disaster preparedness was passing out DVDs telling people that if a hurricane came, they should get out of town.” (p. 516)

In the previous year, the Federal Emergency Management Agency (FEMA) had turned down a request by the State of Louisiana to develop a contingency plan in case of a hurricane.

“Just as the U.S. occupation authority in Iraq turned out to be an empty shell, when Katrina hit, so did the U.S. federal government at home. In fact, it was so thoroughly absent that FEMA could not seem to locate the New Orleans superdome, where twenty-three thousand people were stranded without food or water, despite the fact that the world media had ben there for days.” (p. 517)

Baghdad’s Green Zone was recreated in New Orleans:

“Within weeks, the Gulf Coast became a domestic laboratory for the same kind of government-run-by-contractors that had been pioneered in Iraq. The companies that snatched up the biggest contracts were the familiar Baghdad gang: Halliburton’s KBR unit had a $60 million gig to reconstruct military bases along the coast. Blackwater was hired to protect FEMA employees from looters. Parsons, infamous for its sloppy Iraq work, was brought in for a major bridge project in Mississippi. Flour, Shaw, Bechtel, CH2M Hill — all top contractors in Iraq — were hired by the government to provide mobile homes to evacuees just ten days after the levees broke. Their contracts ended up totaling $3.4 billion, no open bidding required.” (p. 519)

The American population was getting a taste, albeit a small one, of what its government and corporations were dishing out across the Third World. Even populations in the United States, which are generally some of the most advantaged and wealthiest in the world, were hit by neoliberal policies. Attacks on the disadvantaged were being carried out under the name of relief both abroad and in the United States. (p. 522)

In most places, despite attempts to quash resistance, these neoliberal attacks did not go unanswered. Across the Third World, progressive forces mobilized against the imperialists and their agents. They recognized that their interests were fundamentally opposed to the policies being foisted upon them. In Latin America, the dictatorships  were always challenged by an array of forces, including armed guerrillas. Today’s resurgence of the nationalist left in Latin America can be seen as a response to the failure of neoliberalism. The Iraqi population, both Sunni and Shia, responded to defend themselves from the imperialist occupiers. This kind of resistance was not witnessed among people in the United States. Even with the decline of the traditional social-safety net and economic decline, most Americans, even those most victimized by the system, still identify with the system itself. They still correctly see themselves as having more to lose by opposing the system than by supporting it. What Katrina showed is that even in the face of a huge crisis and failed state, that most Americans will still side with their system. Even the small and marginal populist movements within the United States, like Occupy, framed their opposition to neoliberalism mostly within the capitalist-imperialist framework. Rather than rejecting Americanism, capitalism, imperialism and First Worldism, Occupiers framed their demands as a way to save America, as a return to a capitalism uncorrupted by corporations and cronyism, as a return to a happier time, the era of the Democratic Party of FDR. Anti-imperialism is mostly an afterthought, if that, among U.S. populists. Only handfuls framed their dissent as an opposition to capitalism, inequality, and unsustainability as such. Most frame their opposition as an attempt to preserve their First World privilege, not reject it.

911

George W. Bush’s administration represented the continuing privatization of the public sector in the United States. The elimination of and contracting out of state services had been a trend long before the administration of George W. Bush. Both the Republican and Democratic Party since Reagan had supported the downsizing of the public sector. Clinton’s administration, like George Bush’s before him, embraced the corporatization of the public sector. However, it was under the administration of George W. Bush that the downsizing was elevated to a matter of principle. Bush II corporatism went back to his days as governor of Texas. George W. Bush in his prior role as governor of Texas did not distinguish himself in too many ways. According to Klein:

“[T]here was one area in which he excelled: parceling out to private interests the various functions of government he was elected to run — especially security related functions, a preview of the privatized War on Terror he would soon unleash. Under his watch, the number of private prisons in Texas grew from twenty-six to forty-two, prompting The American Prospect magazine to call Bush’s Texas ‘the world capital of the private-prison industry.’” (p. 371)

Similarly, top Bush Jr. appointees were drawn from circles of neoliberal ideologues and the corporate world. Donald Rumsfeld when he was appointed Secretary of Defense under Bush Jr had a personal fortune of over 250 million dollars. He spent decades in top positions of multi-national corporations. He had a personal relationship with Milton Friedman, who he considered a friend and teacher. Rumsfeld saw himself as representing the new economy and new neoliberal state. The neoliberals were on a mission and so was Rumsfeld. He was a man on a mission to reinvent the Pentagon and modern warfare. He would head up a controversial program to cut and slash the public sector within the military. He did not cut the military budget though. Under Bush Jr., it increased significantly. However, he headed up a program to hollow out the military, to contract out as much military work as possible. Bush Jr. said of his defense secretary, “Don’s work in these areas did not often make the headlines. But the reforms that set in motion — that he has set in motion — are historic.” (p. 358) Klein describes the neoliberalization of the state:

“During the 1990s, many companies that had traditionally manufactured their own products and maintained large, stable workforces embraced what became known as the Nike model: don’t own any factories, produce your own products through an intricate web of contractors and subcontractors, and pour your resources into design and marketing. Other companies opted for the alternative, Microsoft model: maintain a tight control center of shareholder/employees who perform the company’s ‘core competency’ and outsource everything else to temps, from running the mailroom to writing code. Some called companies that underwent these radical restructurings ‘hollow corporations’ because they were mostly form, with little tangible content left over.” (p. 359)

She continues:


“Rumsfeld saw the army shedding large numbers of full-time troops in favor of a small core of staffers propped up by cheaper temporary soldiers from the Reserve and National Guard. Meanwhile, contractors from companies such as Blackwater and Halliburton would perform duties ranging from high-risk chauffeuring to prisoner interrogation to catering to health care. And where corporations poured their savings on labor into design and marketing, Rumsfeld would spend his savings from fewer troops and tanks on the latest satellite and nanotechnology from the private sector.” (p. 360)

Milton Friedman had always been disappointed that Ronald Reagan had not chosen Rumsfeld for the Vice Presidency. Like other members of Bush Jr.’s administration, Vice President Dick Cheney was a champion of neoliberal reform:

“Dick Cheney, a protégé of Rumsfeld’s in the Ford administration, has also built a fortune based on the profitable prospect of a grim future, though where Rumsfeld saw a boom in plagues, Cheney was banking on the future of war. As secretary of defense under Bush Sr., Cheney scaled down the number of active troops and dramatically increased reliance on private contractors. He contracted Brown & Root, the engineering division of the Houston-based multinational Halliburton, to identify tasks being performed by U.S. troops that could be taken over by the private sector for a profit. Not surprisingly, Halliburton identified all kinds of jobs that the private sector could perform, and those findings led to a bold new Pentagon contract: the Logistics Civil Augmentation Program, or LOGCAP. The Pentagon was notorious for its multi-billion-dollar contracts with weapons manufactures, but this was something new: not supplying the military with gear but serving as manager for its operations.” (p. 367)

Cheney was very connected to Halliburton. During the Clinton administration, Cheney was head of Halliburton. Under his leadership, Halliburton sought to transform the nature of war along neoliberal lines. Halliburton would provide all the infrastructure of war. The Pentagon need only supply bodies, the troops.

“The result, first on display in the Balkans, was a kind of McMilitary experience in which deploying abroad resembled a heavily armed and perilous package vacation. ‘The first person to greet our soldiers as they arrive in the Balkans and the last to wave goodbye is one of our employees,’ a Halliburton spokesperson explained, making the company’s staff sound more like cruise directors than army logistics coordinators. That was the Halliburton difference: Cheney saw no reason why war shouldn’t be a thriving part of America’s highly profitable service economy — invasion with a simple.

In the Balkans, where Clinton deployed nineteen thousand soldiers, U.S. bases sprang up as mini Halliburton cities: neat, gated suburbs, built and run entirely by the company. And Halliburton was committed to providing the troops with all the comforts of home, including fast-food outlets, supermarkets, movie theaters and high-tech gyms. Some senior officers wondered what the strip-malling of the military would do to troop discipline — but they too were enjoying the perks. ‘Everything with Halliburton was gold-plated,’ one told me. ‘So we weren’t complaining.’” (pp. 368-369)

Cheney’s family was involved in the selling off of the public sector. His wife, Lynne, was earning from stock options from her work as a board member of Lockheed Martin, which in the mid-nineties, began taking over the information technology divisions of the U.S. government, including running its computer systems and data management. (pp. 369-370) The Bush Jr. administration’s selling off of the state would get a new boost with the events of 9/11.

The events of 9/11 was a shock that allowed the Bush jr. administration, and later Obama’s, to streamline the corporatization of society. The population demanded a response, the neoliberals answered. They had long planned the neoliberal reorganization of the world economies. They had long planned for a war against Iraq. Now, they were able to go forward with little opposition at home. The United States had lost its Cold War opponents. Now,  the United States had a new enemy. It was fighting a new, endless, open-ended “War on Terror.” It was this war that would be used to justify neoliberal restructuring in the United States and abroad.

“Although the stated goal was fighting terrorism, the effect was the creation of the disaster capitalism complex — a full-fledged new economy in homeland security, privatized war and disaster reconstruction tasked with nothing less than building and running a privatized security state, both at home and abroad. The economic stimulus of this sweeping initiative proved enough to pick up the slack where globalization and the dot-com booms had left off. Just as the Internet had launched the dot-com bubble, 9/11 launched the disaster capitalism bubble.” (p. 377)

This resulted in a corporate free for all:

“That was the business prospectus that the Bush administration put before corporate America after September 11. The revenue stream was a seemingly bottomless supply of tax dollars to be funneled from the Pentagon ($270 billion a year to private contractors, a $137 billion increase since Bush took office); U.S. intelligence agencies ($42 billion a year to contractors for outsourced intelligence, more than double 1995 levels); and the newest arrival, the Department of Homeland Security. Between September 11, 2001 and 2006, the Department of Homeland Security handed out $130 billion to private contractors — money that was not in the economy before and that is more than the GDP of Chile or the Czech Republic. In 2003, the Bush administration spent $327 billion to private companies — nearly 40 cents of every discretionary dollar.” (p. 380)

Billions of dollars was spent on new security cameras. 4.2 million security cameras were installed in Britain, one per every 14 people; 30 million in the United States. New software and technologies, such as facial recognition were developed and purchased. Snooping boomed: wiretapping, phone logs, financial records, mail, internet, and cameras. New information technology developed. New security systems. Prisons were expanded or adapted to suit the needs of this new war. The most famous is the Guantanamo maximum-security prison. (pp. 382-384) This boom had a special effect on the Mexican border. The border became even further militarized as a result of the war on terror. More security, more cameras, more personnel, more fencing. Today, even drones are used by the United States to monitor unauthorized crossings. More and more jobs in security, prisons, and policing. And the United States turned to Israel, who had already been waging their war on terror for decades. The same technologies used against the Arab populations there were adapted for use by the United States. The United States would copy Israeli’s cutting-edge methods and technologies of oppression. “[B]ig business and big government [are] combining their formidable powers to regulate and control the citizenry.” (p. 388)

Power, not intelligent design

The instability and chaos of today has been good for business, at least some business. This has always been true to some extent within the capitalist system. War profiteering is an ancient enterprise. However, because some disasters have been so big as to threaten the whole system, the capitalists put in place stabilizing institutions. World War 1 was part of a world crisis that opened up the possibility of the Bolshevik revolution and the first sustained wave of proletarian revolution. Similarly, the Maoist revolution in China and the other social revolutions that piggybacked on anti-imperialist struggles occurred in the context of a world system weakened by both the Great Depression and World War 2. Since that time, capitalists and imperialist states sought to create ways to stabilize the system. The growth of the UN and other global institutions after World War 2 was part of this effort. Globalization, the growth of transnational corporations, transnational capital, NGOs, charities, and other intuitions etc. also was thought to help prevent chaos. Stability was seen as profitable for the most part. Not so for the neoliberals:

“For decades, the conventional wisdom was that generalized mayhem was a drain on the global economy. Individual shocks and crises could be harnessed as leverage to force open new markets, of course, but after the initial shock had done its work, relative peace and stability were required for sustained economic growth. That was the accepted explanation for why the nineties had been such prosperous years: with the Cold War over, economies were liberated to concentrate on trade and investment, and as countries became more enmeshed and interdependent, they were far less likely to bomb each other.” (p. 536)

So dramatic has the disaster profiteering been today that conspiracy theories dominate public discourse as never before:

“The recent spate of disasters has translated into such spectacular profits that many people around the world have come to the same conclusion: the rich and powerful must be deliberately causing the catastrophes so that they can exploit them. In July 2006, a national poll of U.S. residents found that more than a third of respondents believed that the government had a hand in the 9/11 attacks or took no action to stop them ‘because they wanted the United States to go to war in the Middle East.’ Similar suspicions dog most of the catastrophes of recent years. In Louisiana in the aftermath of Katrina, the shelters were alive with rumors that the levees hadn’t broken but had been covertly blown up in order ‘to destroy the black part of town and keep the white part dry,’ as the Nation of Islam’s leader Louis Farrakhan, suggested. In Sri Lanka I often heard that the tsunami had been caused by underwater explosions detonated by the United States so that it could send troops into Southeast Asia and take full control over the region’s economies…The truth is at once less sinister and more dangerous. An economic system that requires constant growth, while bucking almost all serious attempts at environmental regulation, generates a steady stream of disasters all on its own, whether military, ecological or financial. The appetite for easy, short-term profits offered by purely speculative investment has turned the stock, currency and real estate markets into crisis-creation machines, as the Asian financial crisis, the Mexican peso crisis and the dot-com collapse all demonstrate. Our common addiction to dirty, nonrenewable energy sources keeps other kinds of emergencies coming: natural disasters (up 430 percent since 1975) and wars waged for control over scarce resources (not just Iraq and Afghanistan but lower-intensity conflicts such as those that rage in Nigeria, Colombia and Sudan), which in turn create terrorist blowback…” (p. 539)

It is true that those with power sometimes consciously create disasters and exploit them, as in the case of Chile or Indonesia. However, the popular idea that there is one over-arching plot is inaccurate and counter-productive. Many conspiracy theories parallel the Christian outlook of so-called “intelligent design.” Christians often will see the patterns in nature, then they conclude that such a natural order must be the work of a creator. In 1802, the theologian William Paley argued that because a watch contains order that is a result of a designer so too nature’s order must be the result of God. Christians, extrapolating on Aristotle, argued that animals and plants were perfectly fit to their environments and each other. Thus, they argued, there must be intelligence behind it all. As early as David Hume, writing in the mid-1700s, intelligent design was challenged. Hume argued that order in nature can be a result of simple processes. This can be seen in snowflake formation or crystal generation. This idea would be confirmed later in biology with the publication On the Origin of Species in 1859. Charles Darwin showed how order could arise in species from simple, natural processes over great periods of time, creating the illusion of intelligent design. The order found in animal and plant kingdoms is a result of natural selection over millions of years.

Just as Christians see patterns in nature, conspiracy theorists see patterns in society and events. Both look for a non-existent single creator, a God or Illuminati, to explain the world or society. Such a view is inaccurate and unscientific. It is no accident that Karl Marx, the founder of revolutionary science, dedicated his major work, Capital, to Charles Darwin. Just as Darwin showed how evolution in nature results form wholly natural laws, so did Marx show how the order and evolution of society can be explained similarly, by material laws. Instead of looking for a master conspiracy or master plotter, revolutionary scientists examine the social forces and systems that produce such events. Even if an Illuminati, a master plotter, did exist, its members’ actions would still be largely determined over the long-term by their position in the power structure, by class, gender, national, etc. interests. In other words, even if there were an Illuminati, explanations that referred to individual plotters would be largely superfluous to scientific explanation of society. In addition, such conspiracy-theory approaches are disempowering. They encourage the masses to look at revolution and social change through a police paradigm instead of a power paradigm. Even if one knew who the make-believe Illuminati were, it is not as though one could go arrest and put them on trial. Instead, such theories mystify power and make the masses powerless victims of an all-powerful plot. By contrast, the power paradigm teaches the masses to apply revolutionary science, to unite the social forces necessary for revolution, to build New Power, to seize power, to create a new mode of production, to redesign all of society in order to reach Leading Light Communism, the end all systematic oppression.

The principal contradiction

The Shock Doctrine is well worth reading. Klein’s book is full of detailed information about neoliberalism and its disasters. It convincingly argues that the neoliberalism has features and implications that differ from other configurations of capitalism. Neoliberal restructuring, whether in the First or Third World, is a kind of radical act that is bound up with disaster and crisis. Klein argues that few have escaped negative consequences of the shift from traditional Keynesian capitalism and social democracy to neoliberalism. Third World and Second World peoples have suffered under terrible radical-capitalist economic policies implemented at bayonet point in places like Indonesia, Chile, in parts of the old Eastern Bloc, China and elsewhere. First World peoples have suffered too, as their social-democratic programs have been ended, as their welfare states have been downsized, as their public sector has been sold off, as their infrastructure deteriorates. If Klein were to name a principal contradiction in the world, it would be the contradiction between neoliberalism versus Keynesianism, the corporatist state versus the social-democratic one. Klein’s politics foreshadow the Occupy movement’s populism and social-democratic reformism. Klein’s outlook corresponds to the politics that views the world as one where corporate elites and their allies rule over the global population, the one percent versus the 99. Whereas it is true that neoliberal policies since the 1990s have, at times, resulted in a fall in the standard of living for populations in the United States, the loss of privilege that neoliberalism inflicts on First World peoples is nothing compared to the pain and death inflicted on Third World peoples. On the whole, whether under traditional Keynesianism or neoliberalism, First World populations receive far more than a fair share of the global social product while Third World populations receive less. The First World standard of living is not even sustainable, to maintain it is incompatible with socialism and communism. The vast majority of humanity is exploited along with future generations and the Earth to maintain the First World standard of living. This is true under neoliberalism and social democracy. Whether corporations are at the head or state bureaucracies, First World populations mostly benefit from the continued existence of capitalism. Third World populations, by contrast, have a more immediate interest in the radical reorganization of society along egalitarian and sustainable lines in order to reach Leading Light Communism, the end of all systematic oppression. Klein’s outlook assumes a unity that simply does not exist between First World and Third World populations against corporations. By adopting such an outlook, her politics does not just misunderstand the balance of forces globally, her politics panders to First World populism, liberalism, social-democratic imperialism. Although she would surely count herself an anti-imperialist in most cases, such politics puts opposition to imperialism on the back burner while stroking populism that seeks to preserve and increase First World privilege, which is based on imperialist exploitation of the Third World. In the United States, it ends up ultimately channeling energy into the Democratic Party, which is the only reformist game in town for social democrats. They end up providing grassroots cover for imperialist war in exchange for domestic reform. This can end up fanning up the flames of fascism and social fascism. Klein also overlooks the possibility that neoliberal restructuring may, as some of its proponents claim, be necessary to maintain First World privilege, that old-style social-democratic imperialism is no longer viable. This is the case in parts of Eastern Europe where standards of living have, in some cases, gone up due to integration into Western imperialism despite neoliberal conditions placed upon their economies. Neoliberal restructuring in the First World may be part of a package that, in the long term, benefits First World peoples even if it subjects them to a loss of privilege. Klein is blind to these possibilities. The reality is that, on the whole, First World peoples, when push comes to shove, will align with their own system be it Keynesian or neoliberal against Third World peoples. Even if neoliberalism ends up reducing the privileges of First World populations, it does not do so to such an extent that they break left toward proletarian internationalism en masse. First World populations have more unity with their own bosses than they do with workers, peasants and lumpen in the Third World. This is one reason that the principal contradiction is the First World versus the Third World. For this reason, the principal form of revolutionary resistance is not networks of social-justice movements and street protests in the First World, but anti-imperialist and Leading Light people’s wars in the Third World. Although Klein’s book is useful in explaining the neoliberal turn amongst imperialists, it falls far short of revolutionary science, of Leading Light Communism.

Source

Klein, Naomi, The Shock Doctrine (Picador,USA:2007)

3 Comments + Add Comment

  • This review complements “Revolution in the Third World; Resistance in the First World.” That article argues that crises can benefit revolutionary forces; this review shows how crises and disasters can benefit the enemy too. The key sentence is “Marxists have often seen crisis as an opportunity that can create the conditions for revolution. However, crisis is not only a gift to the revolutionary forces, it can be used as a way to restructure society by others also.” That’s certainly an insight that I had missed to a large extent. The political exploitation of crises is clearly something that merits close study.

  • Great review. One thing I would like point out is that those people that helped write Pinochet’s economic plans were not real libertarians. Those intellectuals were a classic example of totalitarian fascists disguised as free market-ers. The Austro-libertarian school of thought consist of a very broad plethora of different ideologies, approaches, some which overlap, others which contradict themselves. There are splits within the Autro-libertarian school, on ethical, and socio-economic questions. The real libertarian tradition opposes any kind of state intervention, whether it is capitalist/fascist or communist/socialist. Something which communists would disagree with but at least they are consistent as far as the role of the state goes. In this sense, the “Austros” of the Mutualist persuasion (who actually stem from the theories of Kropotkin), are not much different from other traditional left-anarchists. Prominent Austro-libertarians such as Murray Rothbard were ardent critics of Keynesianism as well as of imperialism. They criticized the classical Wilsonian idealism and imperialism of the US, an action that got him kicked out of “free market” circles of US academia. I think there is an important overlap between us in the left and some of the better tendencies in the Austro libertarian school. And that is that we both oppose Keynesian economics which often get lumped as being influenced by Marxism. An accusation often spewed by Neo-Cons. It’s not.

  • Great !! the review shows how the criminal capitalism and Chicago Economic theoretician would be joined against the mass in Latin America and south Asia .Milton Friedman and his gang were cooperative of several dictatorship same Pinouche in Chili so they should be responsible in human court same dictators.Thank you so much to Naomi that disclose all fact about their criminal economic .I believe the world bank, IMF and international found have a jointly plan to attack public benefits under covver of globalization and new regulation. Marx was write when he said capitalism in final level will be criminal capitalism

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