The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

  * The question of whether more people have been cut off from new services than connected to them is highly contested in South Africa. At least one credible study has found that the cutoffs outnumber the connections: the government says it has connected nine million people to water; the study calculated ten million disconnections.

  * In fact, the ANC’s official economic platform, on which it had been elected, called for “increasing the public sector in strategic areas through, for example, nationalisation.” Then there was the Freedom Charter, which continued to be the party’s manifesto.

  * In fact, this one apartheid-era burden is simultaneously driving the growth of the country’s overall debt and putting billions of rand of public money out of reach every year. A “technical” accounting change in 1989 switched the state pension fund from a “pay as you go” system, in which benefits are paid from contributions made in any given year, to a “fully funded” system, in which the fund has to have on hand enough capital to pay out 70 to 80 percent of its total liabilities at any given time—not a scenario it will ever face. As a result, the fund ballooned from 30 billion rand in 1989 to more than 300 billion rand in 2004—certainly qualifying as a debt shock. What this means for South Africans is that the huge pool of capital administered independently by the pension fund has been cordoned off and placed out of reach for spending on housing, health care or basic services. The pension agreement was actually negotiated on the ANC side by Joe Slovo, the legendary leader of the South African Communist Party, a fact that continues to be a source of great resentment in the country today.

  * In one of the most remarkable bits of sensational reporting, The Washington Post noted, “About 200 demonstrators then surged to Russia’s Defense Ministry, where the nation’s nuclear controls are located and its top generals were meeting”—raising the absurd prospect that the crowd of Russians attempting to defend their democracy might start a nuclear war. “The ministry locked its doors and kept the crowd out without incident,” reported The Post.

  * The two major oligarch-connected banks were Mikhail Khodorkovsky’s Bank Menatep and Vladimir Potanin’s Uneximbank.

  * Unfortunately, the money didn’t go to the Russian people, the true victims of the corrupt privatization process, but back to the U.S. government—the same way that the “whistle-blower” lawsuits against U.S. contractors in Iraq divvy up the settlement between the U.S. government and the American whistle-blower.

  * Not surprisingly, given the defiant criminality of Russia’s ruling class, conspiracy theories swirl around these events. Many Russians believe that Chechens had nothing to do with the apartment bombings and that they were a covert operation designed to turn Putin into Yeltsin’s heir apparent.

  * As John Cassidy noted in a 2005 New Yorker profile, “The fact is that in both Poland and Russia Sachs favored large-scale social engineering over gradual change and institution-building. The disastrous privatization policy is one example. Although most of the privatization took place after Sachs left Russia, at the end of 1994, the original policy framework was put in place in 1992 and 1993, when he was still there.”

  * It must be said that Truglia is a rarity on Wall Street—bond and credit ratings are often influenced by political pressure, and are used to increase the pressure to enact “market reforms.”

  * Though Bruno did not attend the University of Chicago, he studied under and was mentored by the prominent Chicagoan Don Patinkin, quoted earlier comparing Chicago economics to Marxism for its “logical completeness.”

  * The IMF is often portrayed as a puppet of the U.S. Treasury, but rarely have the strings been as clearly visible as during these negotiations. To make sure the interests of U.S. firms were reflected in the final agreements, David Lipton, U.S. Treasury undersecretary for international affairs (and Sachs’s former partner for Poland’s shock therapy program), flew to South Korea and checked into the Seoul Hilton—the hotel where the negotiations between the IMF and the Korean government were taking place. Lipton’s presence was, according to The Washington Post’s Paul Blustein, “a visible manifestation of the influence the United States wields over IMF policy.”

  * For some reason, that highly critical report did not come out until 2003, five years after the crisis. By then, it was a little late to be issuing warnings against crisis opportunism; the IMF was already structurally adjusting Afghanistan and drawing up plans for Iraq.

  * Tamiflu has become highly controversial. In a growing number of reported cases, young people who took the drug became confused, paranoid, delusional and suicidal. Between November 2005 and November 2006, twenty-five deaths around the world were linked to Tamiflu, and in the United States the drug is now issued with a health warning alerting patients to an “increased risk of self-injury and confusion” and urging them to “be closely monitored for signs of unusual behavior.”

  * All the large weapons makers got into the business of running government in this period. Computer Sciences, which provides information technologies to the military, including biometric IDs, won a $644 million contract from the county of San Diego to run all its information technology—one of the largest contracts of its kind ever awarded. The county became dissatisfied with Computer Sciences’ performance and did not renew the contract, only to give it to yet another weapons giant, Northrop Grumman, maker of the B-2 stealth bomber.

  * The lack of competition in awarding contracts has been one of the distinguishing features of the Bush years. A New York Times analysis in February 2007 found that “fewer than half of all ‘contract actions’—new contracts and payments against existing contracts—are now subject to full and open competition. Just 48 percent were competitive in 2005, down from 79 percent in 2001.”

  * The tanker deal became the biggest scandal in recent Pentagon history, ultimately landing a senior Department of Defense official and a Boeing executive in jail. The official had been negotiating for a job at Boeing while the deal was going down. In a subsequent investigation, Rumsfeld was questioned about why he didn’t catch the rotten deal under his watch. He replied that he could not recall the details of his role in a contract that would consume between $17 billion and $30 billion of taxpayer money. “I don’t remember approving it. But I certainly don’t remember not approving it, if you will.” Rumsfeld was slammed for poor management, but his forgetfulness may also have been a casualty of how frequently the secretary of defense recused himself from purchasing discussions in order to avoid the appearance of conflicts with his many defense-related holdings.

  * The free-market wave had bypassed this region for several reasons. The richest countries—Kuwait, Saudi Arabia, the emirates—were so flush with oil cash that they managed to keep out of debt and thus out of the grip of the IMF (84 percent of Saudi Arabia’s economy, for instance, is state controlled). Iraq had a heavy debt, accumulated during the war with Iran, but just as the era of globalization was beginning, the first Gulf War ended and Iraq was locked away under strict sanctions: not only would there be no “free trade,” there would be virtually no legal trade at all.

  † The idea that a failure to join the Washington Consensus could be enough to provoke a foreign invasion may seem far-fetched, but there was a precedent. When NATO bombed Belgrade in 1999, the official reason was Slobodan Milošević’s egregious human rights violations that had horrified the world. But in a little-reported revelation years after the Kosovo war, Strobe Talbott, deputy secretary of state under President Clinton and the lead U.S. negotiator during the war, provided a distinctly less idealistic explanation. “As nations throughout the region sought to reform their economies, mitigate ethnic tensions, and broaden civil society, Belgrade seemed to delight in continually moving in the opposite direction. It is small wonder NATO and Yugoslavia ended up on a collision course. It was Yugoslavia’s resistance to the broader trends of political and economic reform—not the plight of the Kosovar Albanians—that best explains NATO’s war.” The revelation came out in a 2005 book, Collision Course: NATO, Rus
sia, and Kosovo by Talbott’s former communications director, John Norris.

  *The 1991 Gulf War was the first CNN battle, but since the idea of twenty-four-hour live coverage was still young, the military had not by then fully incorporated it into its war planning.

  * The official reason for the wholesale annihilation of Baghdad’s phone system was to sever Saddam’s ability to communicate with his elite commandos. But after the war, U.S. interrogators conducted extensive “interviews” with top Iraqi prisoners and discovered that for years Saddam had been convinced that spies were tracking him through his phone calls and therefore had used a phone only twice in the previous thirteen years. As usual, reliable intelligence wasn’t necessary; there would be plenty of ready money for Bechtel to build a new system.

  * It’s a spin that puts Halliburton’s overcharging of U.S. taxpayers and the Pentagon’s willingness to let it slide in a new light—perhaps the Department of Defense saw the missing millions not as theft but as shrinkage, all part of the campaign to scale back government and beef up business.

  * When Agresto failed miserably at his job of rebuilding Iraq’s university system, leaving the country with the job undone, he revised his early enthusiasm for looting, describing himself as “a neoconservative who’s been mugged by reality.” This and other details come from Rajiv Chandrasekaran’s vivid account of the Green Zone, Imperial Life in the Emerald City.

  * Many of the key players in Iraq’s invasion and occupation were veterans of the original team in Washington that had demanded shock therapy in Russia: Dick Cheney was defense secretary when George Bush Sr. crafted his post-Soviet Russia policy, and Paul Wolfowitz was Cheney’s deputy, while Condoleezza Rice served as Bush Sr.’s chief adviser on Russia’s transition. For all these top players, and dozens of lesser ones, Russia’s experience in the nineties, despite its abysmal results for ordinary people, was often invoked, without irony, as the model for Iraq to emulate in its transition.

  * Some $8.8 billion of this money is often referred to as “Iraq’s missing billions” because it disappeared into U.S.-controlled Iraqi ministries in 2004, virtually without a trace. Bremer defended this lax oversight to a U.S. congressional committee in February 2007, saying: “Our top priority was to get the economy moving again. The first step was to get money into the hands of the Iraqi people as quickly as possible.” When Bremer’s financial adviser, the retired admiral David Oliver, was asked by the committee about the missing billions, he replied, “Yeah, I understand. I’m saying what difference does it make?”

  * Ahmed al-Rahim, an Iraqi American who worked with Creative Associates, explained, “The initial idea was that we would write a curriculum and bring it into Iraq.” As it turned out, Iraqis complained that “something packaged in America was not acceptable, and it was scrapped.”

  * In fact, RTI was driven out of the country after it helped block local Islamic parties from democratically taking power in several cities and towns.

  * This was one of the reasons why “de-Baathification” inspired such rage: while low-level soldiers had all lost their jobs, along with teachers and doctors who had been required to join the party in order to advance professionally, top-level Baathist military officials, well known for their human rights abuses, were being enlisted to bring order to the cities and towns.

  * The catch is that the contractors were operating with little supervision. As the U.S. military’s own investigation into the Abu Ghraib scandal concluded, the government officials in charge of overseeing the interrogators’ performance were not even in Iraq, let alone in Abu Ghraib, making it “very difficult, if not impossible, to effectively administer a contract.” Army General George Fay, author of the report, concluded that the government’s “interrogators, analysts, and leaders were unprepared for the arrival of contract interrogators and had no training to fall back on in the management, control, and discipline of these personnel…. It is apparent that there was no credible exercise of appropriate oversight of contract performance at Abu Ghraib.”

  * Lockheed Martin has gone furthest in this direction. In early 2007, it began “buying companies in the $1,000bn-a-year healthcare market,” according to The Financial Times, and it also snapped up the engineering giant Pacific Architects and Engineers. The wave of acquisitions signified a new era of morbid vertical integration in the disaster capitalism complex: in future conflicts, Lockheed is poised to profit not only from making the weapons and fighter jets but from rebuilding what they destroy, and even from the treating the people injured by its own weapons.

  * Fernando is head of the Movement for Land and Agricultural Reform (MONLAR), a coalition of Sri Lankan NGOs that began calling for “a people’s reconstruction process” shortly after the disaster.

  * No extensive studies have been conducted on New Orleans labor conditions, but the Advancement Project, a grassroots advocacy group in New Orleans, estimates that 60 percent of the immigrant workers in New Orleans have not been paid for at least part of their work.

  * One of the most worrying aspects of this industry is how unabashedly partisan it is. Blackwater, for instance, is closely aligned with the antiabortion movement and other right-wing causes. It donates almost exclusively to the Republican Party, rather than hedging its bets like most big corporations. Halliburton sends 87 percent of its campaign contributions to Republicans, CH2M Hill 70 percent. Is it beyond the realm of the imagination to conceive of a day when political parties will hire these companies to spy on their rivals during an election campaign—or to engage in covert operations too shady even for the CIA?

  * This prejudice is not unique to Poland. In March 2007, London’s mayor, Ken Livingstone, warned of a dangerous “gale of reaction against lesbian and gay rights blowing across eastern Europe.”

  * “Four million workers!” exclaimed a group of U.S. labor writers. “In the US we celebrated the birth of a new global social movement when 60,000 people showed up for the ‘Battle of Seattle’ in 1999.”