The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

  In the mid-fifties, that dream was decades away from fulfillment. On the Congress’s second day, the gathering was violently broken up by police, who claimed the delegates were plotting treason.

  For three decades, South Africa’s government, dominated by white Afrikaners and British, banned the ANC and the other political parties that were intent on ending apartheid. Throughout this period of intense repression, the Freedom Charter continued to circulate, passed from hand to hand in the revolutionary underground, its power to inspire hope and resistance undiminished. In the 1980s, it was picked up by a new generation of young militants who emerged in the townships. Fed up with patience and good behavior and braced to do whatever it took to topple white domination, the young radicals stunned their parents with their fearlessness. They took to the streets without illusion, chanting, “Neither bullets nor tear gas will stop us.” They faced massacre after massacre, buried friends, kept singing and kept coming. When the militants were asked what they were fighting against, they answered, “Apartheid” or “Racism”; asked what they were fighting for, many replied “Freedom” and, often, “The Freedom Charter.”

  The charter enshrines the right to work, to decent housing, to freedom of thought, and, most radically, to a share in the wealth of the richest country in Africa, containing, among other treasures, the largest goldfield in the world. “The national wealth of our country, the heritage of South Africans, shall be restored to the people; the mineral wealth beneath the soil, the Banks and monopoly industry shall be transferred to the ownership of the people as a whole; all other industry and trade shall be controlled to assist the well-being of the people,” the charter states.6

  At the time of its drafting, the charter was viewed by some in the liberation movement as positively centrist, by others as unforgivably weak. The Pan-Africanists castigated the ANC for conceding too much to white colonizers (why did South Africa belong to “everyone, black and white?” they asked; the manifesto should have demanded, as the Jamaican black nationalist Marcus Garvey had, “Africa for the Africans.”) The staunch Marxists dismissed the demands as “petty bourgeois”: it wasn’t revolutionary to divide the ownership of the land among all people; Lenin said that private property itself must be abolished.

  What was taken as a given by all factions of the liberation struggle was that apartheid was not only a political system regulating who was allowed to vote and move freely. It was also an economic system that used racism to enforce a highly lucrative arrangement: a small white elite had been able to amass enormous profits from South Africa’s mines, farms and factories because a large black majority was prevented from owning land and forced to provide its labor for far less than it was worth—and was beaten and imprisoned when it dared to rebel. In the mines, whites were paid up to ten times more than blacks, and, as in Latin America, the large industrialists worked closely with the military to have unruly workers disappeared. 7

  What the Freedom Charter asserted was the baseline consensus in the liberation movement that freedom would not come merely when blacks took control of the state but when the wealth of the land that had been illegitimately confiscated was reclaimed and redistributed to the society as a whole. South Africa could no longer be a country with Californian living standards for whites and Congolese living standards for blacks, as the country was described during the apartheid years; freedom meant that it would have to find something in the middle.

  That was what Mandela was confirming with his two-sentence note from prison: he still believed in the bottom line that there would be no freedom without redistribution. With so many other countries now also “in transition,” it was a statement with enormous implications. If Mandela led the ANC to power and nationalized the banks and the mines, the precedent would make it far more difficult for Chicago School economists to dismiss such proposals in other countries as relics of the past and insist that only unfettered free markets and free trade had the ability to redress deep inequalities.

  On February 11, 1990, two weeks after writing that note, Mandela walked out of prison a free man, as close to a living saint as existed anywhere in the world. South Africa’s townships exploded in celebration and renewed conviction that nothing could stop the struggle for liberation. Unlike the movement in Eastern Europe, South Africa’s was not beaten down but a movement on a roll. Mandela, for his part, was suffering from such an epic case of culture shock that he mistook a camera microphone for “some new-fangled weapon developed while I was in prison.”8

  It was definitely a different world from the one he had left twenty-seven years earlier. When Mandela was arrested in 1962, a wave of Third World nationalism was sweeping the African continent; now it was torn apart by war. While he was in prison, socialist revolutions had been ignited and extinguished: Che Guevara had been killed in Bolivia in 1967; Salvador Allende had died in the coup of 1973; Mozambique’s liberation hero and president, Samora Machel, had perished in a mysterious plane crash in 1986. The late eighties and early nineties saw the fall of the Berlin Wall, the repression in Tiananmen Square and the collapse of Communism. Amid all this change there was little time for catching up: immediately on his release, Mandela had a people to lead to freedom while preventing a civil war and an economic collapse—both of which looked like distinct possibilities.

  If there was a third path between Communism and capitalism—a way of democratizing the country and redistributing wealth at the same time—South Africa under the ANC looked uniquely positioned to turn that persistent dream into reality. It wasn’t only the global outpouring of admiration and support for Mandela but also the particular way in which the antiapartheid struggle had taken shape in the preceding years. In the eighties, it had become a truly global mass movement, and outside South Africa, the weapon that activists wielded most effectively was the corporate boycott—both of South African–made products and of international firms that did business with the apartheid state. The goal of the boycott strategy was to put enough of a squeeze on the corporate sector that it would lobby the intransigent South African government to end apartheid. But there was also a moral component to the campaign: many consumers firmly believed that companies that were profiting from white supremacist laws deserved to take a financial hit.

  It was this attitude that gave the ANC a unique opportunity to reject the free-market orthodoxy of the day. Since there was already widespread agreement that corporations shared responsibility for the crimes of apartheid, the stage was set for Mandela to explain why key sectors of South Africa’s economy needed to be nationalized just as the Freedom Charter demanded. He could have used the same argument to explain why the debt accumulated under apartheid was an illegitimate burden to place on any new, popularly elected government. There would have been plenty of outrage from the IMF, the U.S. Treasury and the European Union in the face of such undisciplined behavior, but Mandela was also a living saint—there would have been enormous popular support for it as well.

  We will never know which of these forces would have proved more powerful. In the years that passed between Mandela’s writing his note from prison and the ANC’s 1994 election sweep in which he was elected president, something happened to convince the party hierarchy that it could not use its grassroots prestige to reclaim and redistribute the country’s stolen wealth. So, rather than meeting in the middle between California and the Congo, the ANC adopted policies that exploded both inequality and crime to such a degree that South Africa’s divide is now closer to Beverly Hills and Baghdad. Today, the country stands as a living testament to what happens when economic reform is severed from political transformation. Politically, its people have the right to vote, civil liberties and majority rule. Yet economically, South Africa has surpassed Brazil as the most unequal society in the world.

  I went to South Africa in 2005 to try to understand what had happened in the transition, in those key years between 1990 and 1994, to make Mandela take a route that he had described so unequivocally as “inconceivable.”


  The ANC went into negotiations with the ruling National Party determined to avoid the kind of nightmare that neighboring Mozambique had experienced when the independence movement forced an end to Portuguese colonial rule in 1975. On their way out the door, the Portuguese threw a vindictive temper tantrum, pouring cement down elevator shafts, smashing tractors and stripping the country of all they could carry. To its enormous credit, the ANC did negotiate a relatively peaceful handover. However, it did not manage to prevent South Africa’s apartheid-era rulers from wreaking havoc on their way out the door. Unlike their counterparts in Mozambique, the National Party didn’t pour concrete—their sabotage, equally crippling, was far subtler, and was all in the fine print of those historic negotiations.

  The talks that hashed out the terms of apartheid’s end took place on two parallel tracks that often intersected: one was political, the other economic. Most of the attention, naturally, focused on the high-profile political summits between Nelson Mandela and F. W. de Klerk, leader of the National Party.

  De Klerk’s strategy in these negotiations was to preserve as much power as possible. He tried everything—breaking the country into a federation, guaranteeing veto power for minority parties, reserving a certain percentage of the seats in government structures for each ethnic group—anything to prevent simple majority rule, which he was sure would lead to mass land expropriations and the nationalizing of corporations. As Mandela later put it, “What the National Party was trying to do was to maintain white supremacy with our consent.” De Klerk had guns and money behind him, but his opponent had a movement of millions. Mandela and his chief negotiator, Cyril Ramaphosa, won on almost every count.9

  Running alongside these often explosive summits were the much lower profile economic negotiations, primarily managed on the ANC side by Thabo Mbeki, then a rising star in the party, now South Africa’s president. As the political talks progressed, and it became clear to the National Party that Parliament would soon be firmly in the hands of the ANC, the party of South Africa’s elites began pouring its energy and creativity into the economic negotiations. South Africa’s whites had failed to keep blacks from taking over the government, but when it came to safeguarding the wealth they had amassed under apartheid, they would not give up so easily.

  In these talks, the de Klerk government had a twofold strategy. First, drawing on the ascendant Washington Consensus that there was now only one way to run an economy, it portrayed key sectors of economic decision making—such as trade policy and the central bank—as “technical” or “administrative.” Then it used a wide range of new policy tools—international trade agreements, innovations in constitutional law and structural adjustment programs—to hand control of those power centers to supposedly impartial experts, economists and officials from the IMF, the World Bank, the General Agreement on Tariffs and Trade (GATT) and the National Party—anyone except the liberation fighters from the ANC. It was a strategy of balkanization, not of the country’s geography (as de Klerk had originally attempted) but of its economy.

  This plan was successfully executed under the noses of ANC leaders, who were naturally preoccupied with winning the battle to control Parliament. In the process, the ANC failed to protect itself against a far more insidious strategy—in essence, an elaborate insurance plan against the economic clauses in the Freedom Charter ever becoming law in South Africa. “The people shall govern!” would soon become a reality, but the sphere over which they would govern was shrinking fast.

  While these tense negotiations between adversaries were unfolding, the ANC was also busily preparing within its own ranks for the day when it would take office. Teams of ANC economists and lawyers formed working groups charged with figuring out exactly how to turn the general promises of the Freedom Charter—for housing amentites and health care—into practical policies. The most ambitious of these plans was Make Democracy Work, an economic blueprint for South Africa’s postapartheid future, written while the high-level negotiations were taking place. What the party loyalists didn’t know at the time was that while they were hatching their ambitious plans, the negotiating team was accepting concessions at the bargaining table that would make their implementation a practical impossibility. “It was dead before it was even launched,” the economist Vishnu Padayachee told me of Make Democracy Work. By the time the draft was complete, “there was a new ball game.”

  As one of the few classically trained economists active in the ANC, Padayachee was enlisted to play a leading role in Make Democracy Work (“doing the number-crunching,” as he puts it). Most of the people he worked alongside in those long policy meetings went on to top posts in the ANC government, but Padayachee did not. He has turned down all the offers of government jobs, preferring academic life in Durban, where he teaches, writes and owns the much-loved Ike’s Bookshop, named after Ike Mayet, the first non-white South African bookseller. It was there, surrounded by carefully preserved out-of-print volumes on African history, that we met to discuss the transition.

  Padayachee entered the liberation struggle in the seventies, as an adviser to South Africa’s trade union movement. “We all had the Freedom Charter stuck on the back of our doors in those days,” he recalled. I asked him when he knew its economic promises were not going to be realized. He first suspected it, he said, in late 1993, when he and a colleague from the Make Democracy Work group got a call from the negotiating team who were in the final stages of haggling with the National Party. The call was a request for them to write a position paper on the pros and cons of making South Africa’s central bank an independent entity, run with total autonomy from the elected government—oh, and the negotiators needed it by morning.

  “We were caught completely off guard,” recalled Padayachee, now in his early fifties. He had done his graduate studies at Johns Hopkins University in Baltimore. He knew that at the time, even among free-market economists in the U.S., central bank independence was considered a fringe idea, a pet policy of a handful of Chicago School ideologues who believed that central banks should be run as sovereign republics within states, out of reach of the meddling hands of elected lawmakers.*10 For Padayachee and his colleagues, who strongly believed that monetary policy needed to serve the new government’s “big goals of growth, employment and redistribution,” the ANC’s position was a no-brainer: “There was not going to be an independent central bank in South Africa.”

  Padayachee and a colleague stayed up all night writing a paper that gave the negotiating team the arguments it needed to resist this curveball from the National Party. If the central bank (in South Africa called the Reserve Bank) was run separately from the rest of the government, it could restrict the ANC’s ability to keep the promises in the Freedom Charter. Besides, if the central bank was not accountable to the ANC government, to whom, exactly, would it be accountable? The IMF? The Johannesburg Stock Exchange? Obviously, the National Party was trying to find a backdoor way to hold on to power even after it lost the elections—a strategy that needed to be resisted at all costs. “They were locking in as much as possible,” Padayachee recalled. “That was a clear part of the agenda.”

  Padayachee faxed the paper in the morning and didn’t hear back for weeks. “Then, when we asked what happened, we were told, ‘Well, we gave that one up.’” Not only would the central bank be run as an autonomous entity within the South African state, with its independence enshrined in the new constitution, but it would be headed by the same man who ran it under apartheid, Chris Stals. It wasn’t just the central bank that the ANC had given up: in another major concession, Derek Keyes, the white finance minister under apartheid, would also remain in his post—much as the finance ministers and central bank heads from Argentina’s dictatorship somehow managed to get their jobs back under democracy. The New York Times praised Keyes as “the country’s ranking apostle of low-spending business-friendly government.”11

  Until that point, Padayachee said, “we were still buoyant, because, my God, this was a revolutionary struggle;
at least there’d be something to come out of it.” When he learned that the central bank and the treasury would be run by their old apartheid bosses, it meant “everything would be lost in terms of economic transformation.” When I asked him whether he thought the negotiators realized how much they had lost, after some hesitation, he replied, “Frankly, no.” It was simple horse-trading: “In the negotiations, something had to be given, and our side gave those things—I’ll give you this, you give me that.”

  From Padayachee’s point of view, none of this happened because of some grand betrayal on the part of ANC leaders but simply because they were outmaneuvered on a series of issues that seemed less than crucial at the time—but turned out to hold South Africa’s lasting liberation in the balance.

  What happened in those negotiations is that the ANC found itself caught in a new kind of web, one made of arcane rules and regulations, all designed to confine and constrain the power of elected leaders. As the web descended on the country, only a few people even noticed it was there, but when the new government came to power and tried to move freely, to give its voters the tangible benefits of liberation they expected and thought they had voted for, the strands of the web tightened and the administration discovered that its powers were tightly bound. Patrick Bond, who worked as an economic adviser in Mandela’s office during the first years of ANC rule, recalls that the in-house quip was “Hey, we’ve got the state, where’s the power?” As the new government attempted to make tangible the dreams of the Freedom Charter, it discovered that the power was elsewhere.