The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

  On a tour of the factory complex in a Baghdad suburb, I met Mahmud, a confident twenty-five-year-old with a neat beard. He said that when he and his fellow workers heard about the plans to sell their workplace, six months into the U.S. occupation, they “were shocked. If the private sector buys our company, the first thing they would do is reduce the staff to make more money. And we will be forced into a very hard destiny, because the factory is our only way of living.” Frightened by this prospect, a group of seventeen workers, including Mahmud, went to confront one of the managers in his office. A fight broke out: one worker struck a manager and the manager’s bodyguard fired at the workers, who then turned on him. He spent a month in the hospital. A couple of months later, there was even more violence. The manager and his son were shot and badly injured on their way to work. At the end of our meeting, I asked Mahmud what would happen if the plant was sold despite their objections. “There are two choices,” he said, smiling kindly. “Either we will set the factory on fire and let the flames devour it to the ground, or we will blow ourselves up inside it. But it will not be privatized.” It was an early warning—one of many—that the Bush team had definitely overestimated its ability to shock Iraqis into submission.

  There was another obstacle to Washington’s privatization dreams: the free-market fundamentalism that shaped the structure of the occupation itself. Thanks to their rejections of all things “statist,” the occupation authority running out of the Green Zone was far too understaffed and underresourced to pull off its own ambitious plans—especially in the face of the kind of hard-core resistance expressed by workers like Mahmud. As The Washington Post’s Rajiv Chandrasekaran revealed, the CPA was such a skeletal organization that it had just three people assigned to the enormous task of privatizing Iraq’s state-owned factories. “Don’t bother starting,” the three lonely staffers were counseled by a delegation from East Germany—which, when it sold off its state assets, had assigned eight thousand people to the project.29 In short, the CPA was itself too privatized to privatize Iraq.

  The problem wasn’t just that the CPA was understaffed, it was also that it was staffed by people who lacked the baseline belief in the public sphere that is required for the complex task of reconstructing a state from the ground up. As the political scientist Michael Wolfe puts it, “Conservatives cannot govern well for the same reason that vegetarians cannot prepare a world-class boeuf bourguignon: If you believe that what you are called upon to do is wrong, you are unlikely to do it very well.” He adds, “As a way of governing, conservatism is another name for disaster.”30

  It certainly was in Iraq. Much has been made of the youth and inexperience of the U.S. political appointees in the CPA—the fact that a handful of twentysomething Republicans were given key roles overseeing Iraq’s $13 billion budget.31 While there is no question that the members of the so-called brat pack were alarmingly young, that was not their greatest liability. These were not just any political cronies; they were frontline warriors from America’s counterrevolution against all relics of Keynesianism, many of them linked to the Heritage Foundation, ground zero of Friedmanism since it was launched in 1973. So whether they were twenty-two-year-old Dick Cheney interns or sixtysomething university presidents, they shared a cultural antipathy to government and governing that, while invaluable for the dismantling of social security and the public education system back home, had little use when the job was actually to build up public institutions that had been destroyed.

  In fact, many seemed to believe that the process was unnecessary. James Haveman, in charge of rebuilding Iraq’s health care system, was so ideologically opposed to free, public health care that, in a country where 70 percent of child deaths are caused by treatable illnesses such as diarrhea, and incubators are held together with duct tape, he decided that an overarching priority was to privatize the drug distribution system.32

  The paucity of experienced civil servants in the Green Zone was not an oversight—it was an expression of the fact that the occupation of Iraq was, from the start, a radical experiment in hollow governance. By the time the think-tank lifers arrived in Baghdad, the crucial roles in the reconstruction had already all been outsourced to Halliburton and KPMG. Their job as the public servants was simply to administer the petty cash, which in Iraq took the form of handing shrink-wrapped bricks of hundred-dollar bills to contractors. It was a graphic glimpse into the acceptable role of government in a corporatist state—to act as conveyor belt for getting public money into private hands, a job for which ideological commitment is far more relevant than elaborate field experience.

  That nonstop conveyor belt was part of what was so enraging to Iraqis about the U.S. insistence that they adapt to a strict free market, without state subsidies or trade protections. In one of his many lectures to Iraqi businesspeople, Michael Fleischer explained that “protected businesses never, never become competitive.”33 He appeared to be impervious to the irony that Halliburton, Bechtel, Parsons, KPMG, RTI, Blackwater and all the other U.S. corporations that were in Iraq to take advantage of the reconstruction were part of a vast protectionist racket whereby the U.S. government had created their markets with war, barred their competitors from even entering the race, then paid them to do the work, while guaranteeing them a profit to boot—all at taxpayer expense. The Chicago School crusade, which emerged with the core purpose of dismantling the welfare statism of the New Deal, had finally reached its zenith in this corporate New Deal. It was a simpler, more stripped-down form of privatization—the transfer of bulky assets wasn’t even necessary: just straight-up corporate gorging on state coffers. No investment, no accountability, astronomical profits.

  The double standards were explosive, as was the systematic exclusion of Iraqis from the plan. Having suffered through the sanctions and the invasion, most Iraqis naturally assumed that they had the right to benefit from the reconstruction of their country—not just from the final product but from the jobs created along the way. When tens of thousands of foreign workers poured across Iraq’s borders to take up jobs with foreign contractors, it was seen as an extension of the invasion. Rather than reconstruction, this was destruction in a different guise—the wholesale wiping out of the country’s industry, which had been a powerful source of national pride, one that cut across sectarian lines. Only fifteen thousand Iraqis were hired to work for the U.S.-funded reconstruction during Bremer’s tenure, a staggeringly low figure.34 “When the Iraqi people see all these contracts going to foreigners and these people bring in their own security guards and all their own engineers, and we’re just supposed to watch them, what do you expect?” Nouri Sitto, an Iraqi American, told me when we met in the Green Zone. Sitto had moved back to Baghdad to assist the CPA with the reconstruction, but he was tired of being diplomatic. “The economy is the number-one reason for the terrorism and the lack of security.”

  Much of the violence took direct aim at the foreign-run occupation, its projects and its workers. Some of the attacks clearly came from elements in Iraq, like al Qaeda, that are guided by a strategy of spreading chaos. However, if the reconstruction had been seen as part of a national project from the start, the general Iraqi population might have defended it as an extension of their communities, making the work of provocateurs far more difficult.

  The Bush administration could easily have stipulated that any company receiving U.S. tax dollars had to staff its projects with Iraqis. It could also have contracted for many jobs directly with Iraqi firms. Such simple, common-sense measures did not happen for years because they conflicted with the underlying strategy of turning Iraq into an emerging market economic bubble—and everyone knows that bubbles are not inflated with rules and regulations but by their absence. So, in the name of speed and efficiency, contractors could hire whomever they wished, import from wherever they liked and subcontract to whatever company they wanted.

  If within six months of the invasion, Iraqis had found themselves drinking clean water from Bechtel pipes, their homes illuminated b
y GE lights, their infirm treated in sanitary Parsons-built hospitals, their streets patrolled by competent DynCorp-trained police, many citizens (though not all) would probably have overcome their anger at being excluded from the reconstruction process. But none of this happened, and well before Iraqi resistance forces began systematically targeting reconstruction sites it was clear that applying laissez-faire principles to such a huge government task had been a disaster.

  Freed of all regulations, largely protected from criminal prosecution and on contracts that guaranteed their costs would be covered, plus a profit, many foreign corporations did something entirely predictable: they scammed wildly. Known in Iraq as “the primes,” the big contractors engaged in elaborate subcontracting schemes. They set up offices in the Green Zone, or even Kuwait City and Amman, then subcontracted to Kuwaiti companies, who subcontracted to Saudis, who, when the security situation got too rough, finally subcontracted to Iraqi firms, often from Kurdistan, for a fraction of what the contracts were worth. The Democratic senator Byron Dorgan described this web, using an air-conditioning contract in Baghdad as an example: “The contract goes to a subcontractor, which goes to another subcontractor, and a fourth-level subcontractor. And the payment for air-conditioning turns out to be payments to four contractors, the fourth of which puts a fan in a room. Yes, the American taxpayer paid for an air-conditioner and, after the money goes through four hands like ice cubes travel around the room, there is a fan put in a room in Iraq.”35 More to the point, all this time Iraqis watched their aid money stolen as their country boiled.

  When Bechtel packed up and left Iraq in November 2006, it blamed “the overlay of violence” for its inability to fulfill its projects. But the contractor failure began well before the armed resistance in Iraq built up steam. The first schools that Bechtel reconstructed drew complaints immediately.36 In early April 2004, before Iraq had spiraled into violence, I visited the Baghdad Central Children’s Hospital. It had supposedly been rebuilt by a different U.S. contractor, but there was raw sewage in the hallways, none of the toilets worked and the men trying to fix the mess were so poor that they didn’t have shoes—they were subsubsubcontractors, like the women who sew piecework at their kitchen tables for a Wal-Mart contractor’s contractor’s contractor.

  The mismanagement continued for three and a half years until all the major U.S. reconstruction contractors pulled out of Iraq, their billions spent, the bulk of the work still undone. Parsons was handed $186 million to build 142 health clinics. Only 6 were ever completed. Even the projects held up as reconstruction success stories have been called into question. In April 2007, U.S. inspectors in Iraq looked into eight projects completed by U.S. contractors—including a maternity hospital and a water purification system—and found that “seven were no longer operating as designed,” according to The New York Times. The paper also reported that Iraq’s power grid was producing significantly less electricity in 2007 than it did in 2006.37 As of December 2006, when all the main reconstruction contracts were ending, the Inspector General’s Office was investigating eighty-seven cases of possible fraud relating to U.S. contractors in Iraq.38 Corruption during the occupation was not the result of poor management but of a policy decision: if Iraq was to be the next frontier for Wild West capitalism, it needed to be liberated from laws.”

  Bremer’s CPA would not try to stop the various scams, side deals and shell games because the CPA was itself a shell game. Though it was billed as the U.S. occupation authority, it’s unclear that it held that distinction in anything other than name. This point was forcefully made by a judge in the infamous Custer Battles corruption case.

  Two former employees of the security firm launched a whistle-blower lawsuit against the company, accusing it of cheating on reconstruction-related contracts with the CPA and defrauding the U.S. government of millions of dollars, mostly for work done at the Baghdad International Airport. The case was based on documents produced by the company that clearly showed it was keeping two sets of numbers—one for itself, one for invoicing the CPA. Retired Brigadier General Hugh Tant testified that the company’s performance was “probably the worst I’ve ever seen in my 30 years in the army.” (Among Custer Battles’ many alleged violations, it is said to have appropriated Iraqi-owned forklifts from the airport, repainted them and billed the CPA for the cost of leasing the machines.)39

  In March 2006, a federal jury in Virginia ruled against the company, finding it guilty of fraud, and forced it to pay $10 million in damages. The company then asked the judge to overturn the verdict, with a revealing defense. It claimed that the CPA was not part of the U.S. government, and therefore not subject to its laws, including the False Claims Act. The implications of this defense were enormous: the Bush administration had indemnified U.S. corporations working in Iraq from any liability under Iraqi laws; if the CPA wasn’t subject to U.S. law either, it meant that the contractors weren’t subject to any law at all—U.S. or Iraqi. This time, the judge ruled in the company’s favor: he said there was plenty of evidence that Custer Battles had submitted to the CPA “false and fraudulently inflated invoices,” but he ruled that the plaintiffs had “failed to prove that the claims were presented to the United States.”40 In other words, the U.S. government presence in Iraq during the first year of its economic experiment had been a mirage—there had been no government, just a funnel to get U.S. taxpayer and Iraqi oil dollars to foreign corporations, completely outside the law. In this way, Iraq represented the most extreme expression of the anti-state counterrevolution—a hollow state, where, as the courts finally established, there was no there, there.

  After handing out its billions to contractors, the CPA melted away. Its former staffers returned to the private sector and, when the scandals hit, there was no one left to defend the Green Zone’s dismal record. But in Iraq, the missing billions were keenly felt. “The situation now is much worse and it seems not to be improving despite the huge contracts signed with American companies,” remarked an engineer with the Ministry of Electricity the week after Bechtel announced its departure from Iraq. “It is strange how billions of dollars spent on electricity brought no improvement whatsoever, but in fact worsened the situation.” A taxi driver in Mosul asked, “What reconstruction? Today we are drinking untreated water from a plant built decades ago that was never maintained. The electricity only visits us two hours a day. And now we are going backward. We cook on the firewood we gather from the forests because of the gas shortage.”41

  The catastrophic failure to reconstruct also shared direct responsibility for the most lethal form of blowback—the dangerous rise of religious fundamentalism and sectarian conflict. When the occupation proved unable to provide the most basic services, including security, the mosques and local militias filled the vacuum. The young Shia cleric Moqtada al-Sadr proved particularly adept at exposing the failures of Bremer’s privatized reconstruction by running his own shadow reconstruction in Shia slums from Baghdad to Basra, earning himself a devoted following. Funded through donations to mosques, and perhaps later with help from Iran, the centers dispatched electricians to fix power and phone lines, organized local garbage collection, set up emergency generators, ran blood drives and directed traffic. “I found a vacuum, and no one filled the vacuum,” al-Sadr said in the early days of the occupation, adding, “What I can do, I do.”42 He also took the young men who saw no jobs and no hope in Bremer’s Iraq, dressed them in black and armed them with rusty Kalashnikovs. The result was the Mahdi Army, now one of the most brutal forces in Iraqi’s sectarian battles. These militias are corporatism’s legacy too: if the reconstruction had provided jobs, security and services to Iraqis, al-Sadr would have been deprived of both his mission and many of his newfound followers. As it was, corporate America’s failures laid the groundwork for al-Sadr’s successes.

  Iraq under Bremer was the logical conclusion of Chicago School theory: a public sector reduced to a minimal number of employees, mostly contract workers, living in a Halliburton city state,
tasked with signing corporate-friendly laws drafted by KPMG and handing out duffle bags of cash to Western contractors protected by mercenary soldiers, themselves shielded by full legal immunity. All around them were furious people, increasingly turning to religious fundamentalism because it’s the only source of power in a hollowed-out state. Like Russia’s gangsterism and Bush’s cronyism, contemporary Iraq is a creation of the fifty-year crusade to privatize the world. Rather than being disowned by its creators, it deserves to be seen as the purest incarnation yet of the ideology that gave it birth.

  CHAPTER 18

  FULL CIRCLE

  FROM BLANK SLATE TO SCORCHED EARTH

  Would it not be easier

  In that case for the government

  To dissolve the people

  And elect another?

  —Bertolt Brecht, “The Solution,” 19531

  Iraq is the last great frontier in the Middle East…. In Iraq, 80 percent of the oil wells ever drilled have been discoveries.

  —David Horgan, chief executive of the Irish oil company Petrel, January 20072

  Is it possible that the Bush administration was unaware that its economic program had the potential to spark a violent backlash in Iraq? One person likely to have been aware of possible negative consequences was the man who implemented the policies, Paul Bremer. In November 2001, shortly after he had launched his new counter-terrorism company, Crisis Consulting Practice, Bremer wrote a policy paper for his clients explaining why multinational corporations faced increased risks of terrorist attacks at home and abroad. In the paper, titled “New Risks in International Business,” he told his elite clients that they faced increased dangers because of the economic model that had made them so wealthy. Free trade, he wrote, has led to “the creation of unprecedented wealth,” but it has “immediate negative consequences for many.” It “requires laying off workers. And opening markets to foreign trade puts enormous pressure on traditional retailers and trade monopolies.” All these changes lead to “growing income gaps and social tensions,” which in turn can lead to a range of attacks on U.S. firms, including terrorist attacks.3