The Shock Doctrine: The Rise of Disaster Capitalism
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By unfortunate historical coincidence, the start of the Oslo period coincided precisely with the most painful phase of the Chicago School experiment in Russia. The handshake on the White House lawn was on September 13, 1993; exactly three weeks later, Yeltsin sent in the tanks to set fire to the parliament building, paving the way for his most brutal dose of economic shock.
Over the course of the 1990s, roughly 1 million Jews left the former Soviet Union and moved to Israel. Immigrants who came from the former Soviet Union in this period now make up more than 18 percent of Israel’s total Jewish population.14 It’s hard to overstate the impact of such a large and rapid population transfer to a country as small as Israel. Proportionally, it would be the equivalent of every person in Angola, Cambodia and Peru packing their bags and moving to the United States all at once. In Europe, it would be equivalent to all of Greece moving to France.
When the first wave of Soviet Jews headed for Israel, many were choosing to live in a Jewish state after a lifetime of religious persecution. Following that initial wave, however, the number of Russian immigrants to Israel increased dramatically and in direct relation to the amount of pain being inflicted on the Russian people by their economic shock doctors. These later waves of Soviet immigrants were not idealistic Zionists (many had quite tenuous claims to being Jewish); they were desperate economic refugees. “It is not where we are going that is most important, but from where we are coming,” an emigrant waiting outside the Israeli embassy in Moscow told The Washington Times in 1992. A spokesperson for the Soviet Jewry Zionist Forum confessed of the exodus that “they are not drawn to Israel, they feel expelled from the USSR by the political instability and economic deterioration there.” By far the largest wave came in the wake of Yeltsin’s coup in 1993—just as the peace process was beginning in Israel. After that, an additional 600,000 people moved from former Soviet states to Israel.15
This demographic transformation upended the agreement’s already precarious dynamic. Before the arrival of the Soviet refugees, Israel could not have severed itself for any length of time from the Palestinian populations in Gaza and the West Bank; its economy could no more survive without Palestinian labor than California could run without Mexicans. Roughly 150,000 Palestinians left their homes in Gaza and the West Bank every day and traveled to Israel to clean streets and build roads, while Palestinian farmers and tradespeople filled trucks with goods and sold them in Israel and in other parts of the territories.16 Each side depended on the other economically, and Israel took aggressive measures to prevent the Palestinian territories from developing autonomous trade relationships with Arab states.
Then, just as Oslo came into effect, that deeply interdependent relationship was abruptly severed. Unlike Palestinian workers, whose presence in Israel challenged the Zionist project by making demands on the Israeli state for restitution of stolen land and for equal citizenship rights, the hundreds of thousands of Russians who came to Israel at this juncture had the opposite effect. They bolstered Zionist goals by markedly increasing the ratio of Jews to Arabs, while simultaneously providing a new pool of cheap labor. Suddenly, Tel Aviv had the power to launch a new era in Palestinian relations. On March 30, 1993, Israel began its policy of “closure,” sealing off the border between Israel and the occupied territories, often for days or weeks at a time, preventing Palestinians from getting to their jobs and selling their goods. Closure began as a temporary measure, ostensibly as an emergency response to the threat of terrorism. It quickly became the new status quo, with territories sealed off not just from Israel but from each other, policed through an ever more elaborate and demeaning system of checkpoints.
Nineteen ninety-three had been held up as the dawn of a new hopeful era; instead, it was the year that the occupied territories were transformed from run-down dormitories housing the underclass of the Israeli state into suffocating prisons. In this same period, between 1993 and 2000, the Israeli settlers living in the occupied territories doubled their numbers.17 What had been in many places rough-hewn settler outposts were transformed into lush, fortified suburbs with their own restricted-access roads, clearly designed to be an addition to the Israeli state. During the Oslo years, Israel also continued to claim key water reserves in the West Bank, feeding the settlements and diverting scarce water back to Israel.
The new immigrants played a little-examined part here as well. Many residents of the former Soviet Union who arrived in Israel penniless after seeing their life savings disappear in the shock therapy devaluations were easily lured into the occupied territories, where houses and apartments were far cheaper, and special loans and bonuses were on offer. Some of the most ambitious settlements—such as Ariel in the West Bank, which boasts a university, a hotel and a Texas mini golf course—aggressively recruited in the former Soviet Union, sending scouts and launching Russian-language Web sites. Ariel managed to double its population thanks to this approach, and today it stands as a kind of mini-Moscow, with store signs advertising in both Hebrew and Russian. Half its residents are new immigrants from the former Soviet Union. The Israeli group Peace Now estimates that about twenty-five thousand Israeli citizens living in illegal settlements fall into this category, and it also notes that many Russians made the move “without a clear understanding of where they were going.”18
In Israel, the years after the Oslo Accords delivered on their promise of trading conflict for prosperity in dramatic fashion. In the mid-and late nineties, Israeli companies took the global economy by storm, particularly high-tech firms specializing in telecommunications and Web technology, with Tel Aviv and Haifa becoming Middle Eastern outposts of Silicon Valley. At the peak of the dot-com bubble, 15 percent of Israel’s gross domestic product came from high tech and about half its exports. That made Israel’s economy “the most tech-dependent in the world,” according to BusinessWeek—twice as dependent as the United States.19
Once again, the new arrivals played a decisive role in the boom. Among the hundreds of thousands of Soviets who came to Israel in the nineties were more highly trained scientists than Israel’s top tech institute had graduated in the eighty years of its existence. These were many of the scientists who had kept up the Soviet side of the Cold War—and as one Israeli economist put it, they became “the rocket fuel for [Israel’s] tech industry.” Shlomo Ben-Ami describes the years after the White House handshake as “one of the most breathtaking eras of economic growth and opening up of markets in [Israel’s] history.”20
That opening of markets had promised to benefit both sides in the conflict, but with the exception of a corrupt elite around Arafat, Palestinians were conspicuously absent from the post-Oslo boom. The biggest obstacle was closure, a policy that was never once lifted in the fourteen years since it was first imposed in 1993. According to the Harvard Middle East specialist Sara Roy, when the borders were abruptly sealed in 1993, the effects on Palestinian economic life were catastrophic. “Closure has been the single most damaging feature to the economy during the Oslo period and since, the one measure that has imposed the greatest damage on an already compromised economy,” she said in an interview.
Workers couldn’t work, traders couldn’t sell their goods, farmers couldn’t reach their fields. In 1993 per capita GNP in the occupied territories plummeted close to 30 percent; by the following year, poverty among Palestinians was up 33 percent. By 1996, says Roy, who has extensively documented the economic impact of closure, “66 per cent of the Palestinian labor force was either unemployed or severely under-employed.”21 Far from a “peace of markets,” what Oslo meant for Palestinians was disappearing markets, less work, less freedom—and, crucially, as the settlements expanded, less land. It was this utterly untenable situation that turned the occupied territories into the tinderbox that went up in flames when Ariel Sharon visited the site in Jerusalem called al-Haram al-Sharif by Muslims (by Jews, the Temple Mount) in September 2000, setting off the second intifada.
In Israel and the international press, it is generally argu
ed that the reason the peace process collapsed was that Ehud Barak’s offer at Camp David in July 2000 was the best deal the Palestinians were ever going to get, and Arafat turned his back on Israel’s generosity, thus proving that he was never genuine in the quest for peace. After that experience, and the eruption of the second intifada, Israelis lost faith in negotiation, elected Ariel Sharon and started building what they call the security barrier, and Palestinians call the Apartheid Wall—the network of concrete walls and steel fences that protrudes from the 1967 green-line border, reaching hungrily into Palestinian territory and pulling huge settlement blocks into the Israeli state, as well as 30 percent of the water sources in some areas.22
There is no doubt that Arafat wanted a better deal than the ones produced either at Camp David or Taba in January 2001, but these deals were also not the prizes they have been made out to be. Though consistently presented by Israelis as an offer unparalleled in its generosity, Camp David would have provided almost no redress to Palestinians who had been forced from their homes and land when the Israeli state was created in 1948, and it did not come close to satisfying the minimal rights of Palestinians to self-determination. In 2006, Shlomo Ben-Ami, a lead negotiator for the Israeli government at both Camp David and Taba, broke ranks with the party line and admitted that “Camp David was not the missed opportunity for the Palestinians, and if I were Palestinian I would have rejected Camp David, as well.”23
There were other factors contributing to Tel Aviv’s abandonment of serious negotiations at peace talks post-2001—factors just as powerful as Arafat’s alleged intransigence or Sharon’s personal drive to create a “greater Israel.” One related to the rise of Israel’s tech economy. In the early nineties, Israel’s economic elites wanted peace for prosperity, but the kind of prosperity they then built during the Oslo years ended up relying far less on peace than they had originally assumed. When Israel’s niche in the global economy turned out to be information technologies, it meant that the key to growth was sending software and computer chips to Los Angeles and London, not shipping heavy cargo to Beirut and Damascus. Success in the tech sector did not require Israel to have friendly relationships with its Arab neighbors or to end its occupation of the territories. The rise of the tech economy was only the first phase of Israel’s fateful economic transformation, however. The second came after the dot-com economy crashed in 2000, and Israel’s leading companies needed to find a new niche in the global market.
With the most tech-dependent economy in the world, Israel was hit harder by the dot-com crash than anywhere else. The country went into immediate free fall, and by June 2001, analysts were predicting that roughly three hundred high-tech Israeli firms would go bankrupt, with tens of thousands of layoffs. The Tel Aviv business newspaper Globes declared in a headline that 2002 was the “Worst Year for Israeli Economy Since 1953.”24
The only reason the recession was not even worse, the newspaper observed, was that the Israeli government quickly intervened with a powerful 10.7 percent increase in military spending, partially financed through cutbacks in social services. The government also encouraged the tech industry to branch out from information and communication technologies and into security and surveillance. In this period, the Israeli Defence Forces played a role similar to a business incubator. Young Israeli soldiers experimented with network systems and surveillance devices while they fulfilled their mandatory military service, then turned their findings into business plans when they returned to civilian life. A slew of new start-ups were launched, specializing in everything from “search and nail” data mining, to surveillance cameras, to terrorist profiling.25 When the market for these services and devices exploded in the years after September 11, the Israeli state openly embraced a new national economic vision: the growth provided by the dot-com bubble would be replaced with a homeland security boom. It was the perfect marriage of the Likud Party’s hawkishness and its radical embrace of Chicago School economics, as embodied by Sharon’s finance minister, Benjamin Netanyahu, and Israel’s new central bank chief, Stanley Fischer, chief architect of the IMF’s shock therapy adventures in Russia and Asia.
By 2003, Israel was already making a stunning recovery, and by 2004 the country had seemed to pull off a miracle: after its calamitous crash, it was performing better than almost any Western economy. Much of this growth was due to Israel’s savvy positioning of itself as a kind of shopping mall for homeland security technologies. The timing was perfect. Governments around the world were suddenly desperate for terrorist hunting tools, as well as for human intelligence know-how in the Arab world. Under the leadership of the Likud Party, the Israeli state billed itself as a showroom for the cutting-edge homeland security state, drawing on its decades of experience and expertise fighting Arab and Muslim threats. Israel’s pitch to North America and Europe was straightforward: the War on Terror you are just embarking on is one we have been fighting since our birth. Let our high-tech firms and privatized spy companies show you how it’s done.
Overnight, Israel became, in the words of Forbes magazine, “the go-to country for antiterrorism technologies.”26 Every year since 2002, Israel has played host to at least half a dozen major homeland security conferences for lawmakers, police chiefs, sheriffs and CEOs from around the world, with their size and scope growing annually. As traditional tourism suffered in the face of security fears, this kind of official counterterror tourism emerged to partially fill the gap.
During one such gathering in February 2006, billed as a “behind-the-scenes tour of [Israel’s] struggle against terrorism,” delegates from the FBI, Microsoft and Singapore’s Mass Transit System (among others) traveled to some of Israel’s most popular tourism destinations: the Knesset, the Temple Mount, the Wailing Wall. At each location, the visitors examined and admired the fortress-style security systems to see what they could apply at home. In May 2007, Israel hosted the directors of several large U.S. airports, who attended workshops on the types of aggressive passenger profiling and screening used at Ben Gurion International Airport near Tel Aviv. Steven Grossman, head of aviation at the international airport in Oakland, California, explained that he was there because “the Israelis are legendary for their security.” Some of the events are macabre and theatrical. At the International Homeland Security Conference 2006, for instance, the Israeli military staged an elaborate “simulation of a mass casualty disaster that started in the City of Ness Ziona and concluded in Asaf Harofeh Hospital,” according to the organizers.27
These are not policy conferences, but highly lucrative trade shows designed to demonstrate the prowess of Israeli security firms. As a result, Israel’s exports in counter terrorism–related products and services increased by 15 percent in 2006 and were projected to grow by 20 percent in 2007, totalling $1.2 billion annually. The country’s defense exports in 2006 reached a record $3.4 billion (compared to $1.6 billion in 1992), making Israel the fourth largest arms dealer in the world, larger than the U.K. Israel has more technology stocks listed on the Nasdaq exchange—many of them security related—than any other foreign country, and it has more tech patents registered in the U.S. than China and India combined. Its technology sector, much of it linked to security, now makes up 60 percent of all exports.28
Len Rosen, a prominent Israeli investment banker, told Fortune magazine, “It’s security that matters more than peace.” During Oslo, “people were looking for peace to provide growth. Now they’re looking for security so violence doesn’t curtail growth.”29 He could have gone much further: the business of providing “security”—in Israel and around the world—is directly responsible for much of Israel’s meteoric economic growth in recent years. It is not an exaggeration to say that the War on Terror industry saved Israel’s faltering economy, much as the disaster capitalism complex helped rescue the global stock markets.
Here is a small sample of the industry’s reach:
A call made to the New York Police Department will be recorded and analyzed on technology created by N
ice Systems, an Israeli firm. Nice also monitors communication for the L.A. Police and Time Warner, as well as providing video surveillance cameras to Ronald Reagan National Airport, among dozens of other top clients.30
Images captured in the London tube system are recorded on Verint video surveillance cameras, owned by the Israeli technology giant Comverse. Verint surveillance gear is also used at the U.S. Department of Defense, Washington’s Dulles International Airport, on Capitol Hill and the Montreal Métro. The company has surveillance clients in more than fifty countries and also helps corporate giants like Home Depot and Target keep an eye on their workers.31
Employees of the cities of Los Angeles and Columbus, Ohio, carry electronic “smartcard” IDs made by the Israeli company SuperCom, which boasts the former CIA director James Woolsey as the chair of its advisory board. An unnamed European country has gone with SuperCom for a national ID program; another has commissioned a pilot program for “biometric passports,” both highly controversial initiatives.32
The firewalls in the computer networks of some of the largest electricity companies in the U.S. were built by the Israeli tech giant Check Point, though the corporations have chosen to keep their names secret. According to the company, “89% of Fortune 500 companies use Check Point security solutions.”33
In the run-up to the 2007 Super Bowl, all the workers at the Miami International Airport received training to identify “bad people, not just bad things” using a psychological system called Behavior Pattern Recognition, developed by the Israeli firm New Age Security Solutions. The company’s CEO is the former head of security at Israel’s Ben Gurion Airport. Other airports that have contracted with New Age in recent years to train workers in passenger profiling include Boston, San Francisco, Glasgow, Athens and London Heathrow, as well as many others. Port workers in the conflict-ridden Niger Delta have received New Age training, as have employees at the Netherlands Ministry of Justice, guards for the Statue of Liberty and agents with the New York Police Department’s Counter Terrorism Bureau.34