Of Capital and Compromise

The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein, Metropolitan Books, 2007.

The brilliance of Naomi Klein’s latest work, The Shock Doctrine, lies in its near boundless applicability. Rather than merely offering a coherent narrative to explain the apparent incoherence of the politics of occupied Iraq – her original objective, which itself is no simple task – the framework she has chosen allows for a genuinely unique analysis of the invention of political economies, from Pinochet’s Chile and Suharto’s Indonesia to post-Katrina New Orleans and post-tsunami Sri Lanka. Readers first encountered Klein’s sweeping perspective in the critique of corporate globalization in her 2002 best seller, No Logo: Taking Aim at the Brand Bullies. While No Logo analyzed the politics and economics of the “Seattle” era, The Shock Doctrine presents a sharper and more historical account of our contemporary political economy. Yet, as result of the frameworks employed, the conclusions in The Shock Doctrine are significantly less radical than those in No Logo.

If No Logo described the general logic of a unique moment in capitalist history, The Shock Doctrine is limited to a particularly fundamentalist form of capitalism. To be sure, the term “capitalism,” almost without exception, is prefixed: “radical capitalism”, “deregulated capitalism”, “unfettered capitalism”, “savage capitalism”, “pure capitalism”, “untainted capitalism”, “barbarian capitalism”, and, of course, “disaster capitalism.” Klein argues throughout the book that this fundamentalist form of capitalism has consistently been established alongside the most brutal forms of violence unleashed upon populations. Her objective is to disaggregate the notions of unfettered markets and democratic politics. This necessitates a full-scale attack on the ideology of Milton Friedman and his followers from the University of Chicago Economics Department, who have successfully wed capitalism to freedom.

Klein dissolves this union by investigating the historical development of laissez-faire capitalism, which, she demonstrates in a multitude of instances, has been imposed in the wake of natural or unnatural disasters. Rather than viewing the free market as something that simply emerges organically when people are left alone, she documents scores of examples of countries that had to be shocked into “accepting” unregulated markets. Klein points to various crises that were pounced upon by corporatist coalitions of government and business, whose members knew full well that stunned and devastated populations have no means of self-defence. But she does not set her sights solely upon the original sin that, as Friedman insists, facilitates the adjustment. Beyond the initial shock, an untainted capitalism requires periodic recourse to coercion and force to ensure its continued survival.

All of this forms what Klein dubs the “disaster capitalism complex.” In her vision, crises induce waves of paralysis in devastated populations, which in turn create exciting market opportunities for private players to seize upon the severed pieces of a crumbling state sector. Finally, Klein insists that this is no conspiracy. For disaster capitalism to survive, it must continually hunt for new outlets. This may mean taking the disorientation in the wake of Hurricane Katrina as an opportunity to replace the public school system with privately-owned charter schools, or it may mean taking the shock and confusion of post-tsunami Sri Lanka as an opportunity to replace the local fishing trade, which employed hundreds of thousands of people along the nation’s coastline, with a newly-constructed tourist paradise, complete with multimillion-dollar contracts awarded to foreign construction giants.

Klein’s analysis of Chile explicates the general argument. Unlike the customary rehearsal of events before and after the 1973 coup, Klein offers a remarkably insightful chronicle of the period. Acts of terror perpetuated by Augusto Pinochet’s regime were not, as Amnesty International’s account implies, simply random and brutal human rights abuses, transpiring in some political vacuum. Rather, they were rational policy choices, informed by a Friedmanite analysis that served particular political and economic elites well. For instance, the widespread use of torture (while not notable for obtaining reliable information) is notoriously effective for the execution of unpopular policies, since members of a terrified public are less likely to put up a strong resistance. Klein carefully documents the free-market revolution in Chile, diligently connecting those policies to the slaughter and repression of Chileans who believed in different ones.

One of the most fascinating strands of the section on Chile is the discussion of the relationship between Pinochet and the Chicago School. Friedman himself urged Pinochet to cut government spending drastically and to move towards completely free trade; regarding implementation, Friedman continually stressed the necessity of shock, noting that “gradualism was not feasible” (81). Pinochet obliged, and soon enough his government was teeming with “Chicago Boys” engaging in what free-market crusader The Economist called “an orgy of self mutilation” (82). Of course, the implementation of these policies was not without its challenges. It required the cleansing of all ideological opposition, which meant the murder of tens of thousands and the torture of at least 100,000 citizens. Thus, Klein refuses to characterize violence in the Southern Cone as “dirty wars,” where both the military and the guerrillas were disgraced by an escalating and senseless brutality. Instead, she presents powerful evidence that the birthing of neoliberal capitalism was conceived strategically in both Washington and Chile, with full awareness that it would necessitate terror tactics and brutality, directed not only towards guerrillas, but toward trade unionists and non-violent activists as well.

The book’s penultimate chapter on the Israeli occupation of Palestine highlights the compelling framework of the disaster capitalism complex. While the left is quite thorough in documenting Israel’s criminality, it is not as assiduous in its explanations of Israeli unilateralism and the persistence of the occupation through the Oslo period and beyond. Klein’s exploration of disaster capitalism allows for an unusually powerful, if economistic, analysis of the motivations of Israeli actors. She points to two pivotal factors. First is the massive wave of immigration of “diaspora” Jews to Israel, which had the effect of reducing the country’s dependence on Palestinian labour. Second is the transformation of the Israeli export economy. The collapse of the peace incentive was precipitated by a shift from reliance on the foreign sale of consumer goods and high-tech products to services and products relating to counterterrorism, security, and surveillance. The consequences of this shift suggested that while “shock and awe” can be useful in bringing about market opportunities, profit is best generated in peacetime. As the market shifted towards a high-tech security economy, the motivations for peace on the part of Israel’s elite began to dissolve. With a terror-dependent economy and the growing redundancy of Palestinian labour, the so-called “security fence” and the increasingly costly Israeli occupation began to acquire a new logic.

Klein’s argument is extremely effective in untangling the links between neoliberal ideology, neoliberal policy, and their shocking consequences. By contrast, her attempt to draw a continuous line from the theory of the Chicago School to shock doctrine policies is less successful. This is partly because whenever she discusses the theory, she either lambastes it as pseudoscience or mistakenly equates it with pure ideology. She is less persuasive because Chicago School theory (or for that matter, any version of the neoclassical economic theory drilled into every undergraduate economics major the world over) does not offer any kind of theoretical justification for the shock doctrine.

Friedman himself is quite clear that his ideological advocacy was strictly his avocation, not his vocation (the former referring to popular works like Capitalism and Freedom, the latter to theory published in academic economics journals). “Shock treatment,” which he advocated with passion and determination, was never supported by any of his theoretical works – it was always pure conviction. The set of questions asked by neoclassical economists is notoriously narrow and tends to exclude all political and societal variables. As such, when asked a political question about the pace of economic transition, the honest neoclassical economist will admit that such questions are simply outside of her purview, and the less-than-honest will offer an ideological or willy-nilly response. Friedman’s intercontinental advocacy falls into the first category.

If the shock doctrine is nowhere to be found in any economic theory textbook, then what about Klein’s assertions about the theory of pure and free markets? Here, she claims that Friedman begins his theory with the belief that unfettered markets work perfectly. In fact, this is more of a conclusion. Debates between Friedmanites and Keynesian economists favoring market intervention do not pivot upon disagreements derived from the initial assumptions about the workings of abstract and idealized markets. Rather, the theories are rooted in different assumptions about the expectations of individuals, who in the aggregate, create the market. Friedman assumes individuals have perfectly rational expectations about price and wage setting in the face of inflation (or in his language, individuals will not make the same mistake repeatedly). Consequently, any interventions in the economy will be neutralized by producers adjusting prices and wage-setters adjusting wages.

Keynesians, by contrast, balk at this path to the self-adjusting market. For Friedman’s theoretical market to equilibrate (or, for all commodities and labour thrown on the market to sell), actors must know what prices and wages to set. Keynes undermines this requirement by pointing out that it may be impossible to locate that “market clearing” real wage – the impossibility lies in the fact that every attempt to set the real wage inadvertently modifies all prices, which in turn modifies the real wage. As a result of this interdependence of wages and prices, it is evident that Friedman’s market cannot adjust automatically. A related point made by Keynesians is that market participants do not have the perfect information that is assumed by Friedman (this information is a prerequisite in the theory of free markets, for all buyers and sellers must be equally aware of all the most lucrative opportunities available to buy and sell).

As a result, imperfect knowledge begets imperfect decision making, which demands some kind of management of markets, as they can no longer be expected to spontaneously equilibrate. For Klein to seriously assert that Friedman’s theoretical work drips with ideology, it is not enough to simply repudiate his conclusions. To validate her accusation, she ought to – as Keynes did preemptively – critique Friedman’s underlying theory of expectations and information. Alternately, she could have abandoned the assault on theory altogether, leaving more space for the critique of the destructive effects of neoliberal policy.

The Shock Doctrine obscures the distinction between the graphic purity of textbook markets and, say, the economy imposed on Chile in the 1970s. The mythic textbook markets are far too competitive and far too unprofitable for any self-respecting capitalist to sincerely advocate them (in fact, they are perfectly competitive and leave zero profit). Instead, disaster capitalists would much prefer mix-and-match policies, allowing their monopolies but not allowing unions. In this sense, it was never really a theoretically pure form of capitalism that was imposed the world over; it was simply a form amenable to the major players of the time. Rather than characterizing an economic theory as fundamentalist faith (which in some ways it certainly is), it might have been more effective to demonstrate how the policies of the received shock doctrine are strictly ideological and largely unsubstantiated by any theoretical foundation.

Klein does not explain exactly why markets are imperfect and need regulation, but the kinds of authoritarian capitalist markets she inspects are quite plainly grim experiments. She would prefer – much like her disaster capitalists – a mix-and-match approach. Of course, her mix-and-match vision is vastly different: she takes an explicitly Keynesian position from the outset. Klein repeatedly quotes and alludes to Keynes’s 1933 letter to Franklin Roosevelt, in which he wrote:

You have made yourself the trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out (54).

Clearly, there will be some on the revolutionary left who will interpret Klein’s repetition of this quotation as a direct abandonment. They might not be wrong either, for Klein’s ideological position is fairly clear: “markets need not be fundamentalist” (20). A Keynesian conclusion perfectly fits her chosen framework. If shock therapy is monstrous, readers may wonder whether she supports “gradualism” – the much-touted alternative in debates on transitions to the market – in the hopes of reaching some golden mean. Throughout the book she critiques a savage version of capitalism, but never the welfare state versions. Moreover, Klein does not portray disaster capitalism as a recurrent or inherent feature of capitalism itself; instead, it is but one particularly grisly manifestation of capitalism. Accordingly, her book implies that it is quite logical to struggle against disaster capitalism, but not necessarily against anything larger. For the left to reconstruct the arguments in The Shock Doctrine and render them less amenable to a Keynesian compromise, Klein’s thesis would have to be subverted to demonstrate that the disaster capitalism complex does not merely correlate with some pure and barbaric version of capitalism, but rather that it is an essential facet of capitalism itself, in its normal functioning and most humdrum form.