Shock Doctrine: Power, Passion, and Neoliberalism

Source: Foreign Policy in Focus

Naomi Klein’s The Shock Doctrine: The Rise of Disaster Capitalism is very impressive indeed. This is, however, not immediately evident, a sense that is confirmed by Joseph Stiglitz’ review of the book. Even before I read it, I was certain that the Nobel laureate would highlight Klein’s attempt to make a connection between the electric shock experiments performed by the notorious McGill University psychologist Ewen Cameron who was on contract with the CIA and the economic shock approach developed by Milton Friedman at the University of Chicago.

And indeed, he does, in the course of writing a typical New York Times Book Review piece that dares not evince too much enthusiasm for a book that comes from left field lest it provoke the ever-alert watchdogs of the right to question one’s credentials. Stiglitz, in fact, suggests that Klein’s analysis might be infected with conspiracy theory with his very first sentence: "[T]here are no accidents in the world as seen by Naomi Klein." The Nobel laureate does have some positive things to say about the book, but he neutralizes this by dropping the line that Klein "is not an academic and must not be judged as one." As for Klein’s central concept of "disaster capitalism," it is mentioned once but otherwise ignored. It all adds up to damning with faint praise.

The New York school of publishing says that you win or lose your audience in the first few pages, but whatever their reason for bringing the Cameron experiments up front and strongly implying a link between the genesis of Cameron’s shock treatment and the Chicago School approach to economic policymaking, it is bad judgment on the part of Klein and her editors. What is transparently intended mainly as a dramatic device risks achieving its opposite. Conspiracy theory buffs will be elated but not the critical, discerning audience the book is aimed at.

Towering Work

Which is a pity since The Shock Doctrine recovers to emerge as a towering work, one that brilliantly follows neoliberalism’s march from marginal theology to universal policy. Klein combines the journalist’s eye for the arresting detail, the analyst’s ability to spot, surface, and dissect deeper trends, and a talent for telling a spell-binding story, to prove once again that a masterful journalist can often illuminate social realities far better than the best-trained economist or political scientist.

With her ability to combine no-stone-left-unturned investigative reporting with in-depth social analysis, Klein is her generation’s David Halberstam, her Shock Doctrine and an earlier book No Logo being on par with The Best and the Brightest and War in a Time of Peace. There is one difference, though: Klein is unashamedly a woman of the left, and this is where her analysis derives both its power and its passion.

The Shock Doctrine traces neoliberalism’s rise to dominance to a program set up in the mid-fifties to enable Chilean students to imbibe the radical free-market doctrine being propagated by Milton Friedman and his associates at the University of Chicago. The U of C’s economics department was then an oasis of radical free-market thinking in a world dominated by Keynesianism in the United States and Europe and "developmentalism" or desarrollismo in Latin America, with their pragmatic compromises between the state and the market, labor and management, trade and development.

Los Chicago Boys

The opportunity for neoliberalism to come in from the cold arrived in the early 70s, when General Augusto Pinochet overthrew the revolutionary government of President Salvador Allende in Chile and invited the "Chicago Boys" that had been waiting in the wings for years to manage the economy. With the population stunned by the coup, the "Chicago Boys" went about the task of swiftly dismantling the Keynesian and developmentalist compromises that underpinned one of Latin America’s most advanced industrial economies.

With a Year Zero mentality akin to the Khmer Rouge, they forced Chile’s overnight transformation into the free-market "paradise" prescribed by Friedman, a believer in seeing crisis as an opportunity for radical restructuring. It was, however, a paradise that could be created only with massive repression-and an even greater dose of repression was necessary to radically liberalize neighboring Argentina, where tens of thousands were murdered and over a hundred thousand were tortured by a murderous military regime that gave a free hand to free-market radicals to restructure the economy.

Some of Klein’s most original insights are found in her chapters on Bolivia, Poland, China, and South Africa. Bolivia, under the tutelage of a younger "Doctor Shock"-Harvard economist Jeffrey Sachs-showed that neoliberal measures could be imposed by a democratically elected government if it was willing to resort to emergency measures, like arresting and isolating labor leaders. Poland, also advised by Sachs, showed how democratic transitions could actually be an opportunity to deliver a system-transforming shock that included eliminating price controls overnight, slashing subsidies, and rapidly privatizing state enterprises to a population that was still dazed by the collapse of communism.

There was no democratic transition in China, but Deng Hsiao Ping and his allies used the Tiananmen Square massacre and its aftermath, when the population was confused and paralyzed, to decisively advance and consolidate the ambitious capitalist reform program they had begun in the late 70s. Neither in Poland nor in China were people who were tired of communism clamoring for the free market, Klein emphatically points out; they were demanding greater popular, democratic control over economic policy.

South Africa

South Africa provided yet another route to neoliberalism. Here there was an element of stealth, with white business interests taking advantage of the African National Congress’ (ANC) overwhelming focus on the politics of achieving black majority rule to preserve their property rights and install a conservative macroeconomic regime. But not everything was that subtle: big capital made clear their intention to leave should socialist policies be introduced, conveying the prospect of economic destabilization.

In these circumstances, the white elite found a valuable ally in chief ANC negotiator and future South African President Thabo Mbeki, who convinced Nelson Mandela that what was needed to stabilize the new regime was "something bold, something shocking that would communicate, in the broad, dramatic strokes the market understood, that the ANC was ready to embrace the neoliberal Washington Consensus."

Margaret Thatcher and Ronald Reagan’s contribution was to show that neoliberal programs antithetical to the interests of the majority could be imposed in a western democracy if one was ruthless enough to exploit certain situations. For Thatcher, the war with Argentina over the Falklands in 1982 was a heaven-sent opportunity to enlist jingoism in the service of a radical program, one of her tactics being to portray the labor unions as the "enemy within." Thatcher’s tactics prefigured those of George W. Bush in the aftermath of 9/11, when he and his crew exploited the hysterical state of the population to declare a "war on terror" that was meant to kick-start a new phase of the neoliberal enterprise that Klein labels "disaster capitalism." But before we go into this, let us pause to assess Klein’s analysis so far.

Great but …

Klein’s account is superb, but it is not without its flaws. For one, Klein has too rosy a view of the Keynesian state that reigned in the United States and Europe and the developmental state that dominated the Southern Cone in the period from late the 1940s to the mid-70s. She writes that owing to developmental regimes, "[T]he Southern Cone began to look more like Europe and North America than the rest of Latin America or other parts of the Third World."

Again, "Developmentalism was so staggeringly successful for a time that the Southern Cone of Latin America became a potent symbol for poor countries around the world: here was proof that with smart, practical policies, aggressively implemented, the class divide between the First and the Third World could actually be closed."

That certainly was not what it felt like at the time. Indeed, if the neoliberals walked in from the wilderness, it was because they were perceived as presenting an alternative, albeit untested, to economic systems in crisis. In the United States, the period of rapid economic growth fuelled partly by the reconstruction of Japan and Europe gave way to a state of stagnation cum inflation that was a symptom of a deeper crisis, the growing gap between enormous productive capacity and limited consumption, leading to erosion of profitability that Marxists have called the crisis of overproduction. In Latin America, the leading critics of the developmental state were found on the left, who charged that the process of industrial import substitution presided over by the state was "agotado," or exhausted, owing to a domestic market limited by a very unequal distribution of income.

In the United States and Britain, the experience of seeing their salaries and savings eroded by double digit inflation made the middle strata receptive to the Friedmanite message. In Chile, they were initially receptive to the left’s critique of the developmental state. But when the left came to power with a socialist project in 1970, the middle classes-fearing the rise of the poor, whom they called rotos, or "lowlifes"-turned on the left with a vengeance, with the middle-class-based Christian Democrats joining the right on an anti-communist platform that shrilly proclaimed a defense of private property, capitalism, and "liberty."

Neoliberal Ascendancy

This leads us to the question of how the neoliberals came to power. This was not simply a matter of the elite using the military or manipulating democracy to impose a neoliberal program on a recalcitrant but stunned population, which is the image that Klein’s account-wittingly or unwittingly-projects. This was not the case even in Klein’s paradigmatic example, Chile. Neoliberalism’s coming to ascendancy there involved the elite and the military acting in concert with a counterrevolutionary middle-class mass base that controlled the streets, with Christian Democratic youth joining their more fascist brethren, Fatherland and Liberty, in intimidating and beating up partisans of the left.

I know, since as a PhD student doing a dissertation on the rise of the counterrevolution, I was nearly beaten up a couple of times by angry anti-Allende middle class youths who insisted I was a Cuban agent sent by Fidel to destroy Chile. Sure, the CIA played a critical role, but it was in support of an already heated counterrevolution with a middle-class base, a process that was reminiscent of Italy and Germany in the post-World War I period.

In other words, in practically every instance, neoliberalism found a middle class that was disenchanted with the Keynesian or developmental state or felt threatened by the left, or both.

The Construction of Hegemony

This is why to counter Stiglitz’s suggestion that she operates with a conspiracy paradigm, Klein’s instrumentalist account must be supplemented with David Harvey’s notion of the "construction of hegemony," a process by which the elite creates a consensus among the subordinate classes in support of a neoliberal project that principally serves its interests. (David Harvey, A Brief History of Neoliberalism [Oxford: Oxford University Press, 2005])

In the case of the UK, it was not so much the jingoistic atmosphere of the Falklands War as the ideological captivation of the middle class by a conservative leader adept at evoking the themes of freedom, the individual, and property that was the tipping point toward neoliberal reform. Thatcher was an expert at promoting what Harvey calls a "seductive possessive individualism" and she "forged consent through the cultivation of a middle class that relished the joys of homeownership, private property, individualism, and the liberation of entrepreneurial opportunities."

The construction of consent was the main avenue to hegemony in the United States, where neoliberals deftly connected their free market program to the agenda of a middle class-based coalition that was propelled by resentment against minorities that were allegedly coddled by liberal democrats and by an inflamed attachment to religious values that were seen as being under attack from the left. "Not for the first time," says Harvey, speaking of the ascendancy of the Republicans under Reagan, "nor, it is feared, for the last time in history has a social group voted against its material, economic, and class interests for cultural, nationalist, and religious reasons."

Even some blue-collar workers were in danger of being co-opted: "Greater freedom and liberty of action in the labor market could be touted as a virtue for capital and labor alike, and here, too, it was not hard to integrate neoliberal values into the ‘common sense’ of the work force."

Neoliberalism, in fact, became so "commonsensical" that even where social democratic parties have come to power, displacing the traditional conservative parties of neoliberalism, as they have in Britain, Chile, and the United States, they have not dared to reassemble the interventionist liberal state and have made it a point to pay homage to the "magic of the market." Indeed, it has not been conservatives but social democrats such as the Blairites in Britain, the Clintonites in the United States, and the Socialist-led Concertacion government in Chile, with their rhetoric about "market-oriented social policies," that have consolidated the neoliberal economic regime.

Crisis of the Keynesian State

The book’s most important contribution is its theory of "disaster capitalism." But to fully appreciate Klein’s insight, it is important to go back to the roots of the crisis of the Keynesian state and the developmental state in the 1970s that she glosses over. This crisis, which paved the way for the neoliberal ascendancy, had its origins in what economists have called the crisis of overaccumulation or overproduction.

The golden period of postwar growth globally that skirted major crises for nearly 25 years was due to the massive creation of effective demand via rising wages for labor in the North, the reconstruction of Europe and Japan, and the import-substituting industrialization in Latin America and other parts of the South. This dynamic period came to a close in the mid-70s, with stagnation setting in, owing to global productive capacity outrunning global demand, which was constrained by continuing deep inequalities in income distribution.

According to the calculations of Angus Maddison, the premier expert on historical statistical trends, the annual rate of growth of global gross domestic product (GDP) fell from 4.9% in what is now regarded as the golden age of the post-World War II Bretton Woods system, 1950-73, to 3% in 1973-89, a drop of 39%.

These figures reflected the wrenching combination of stagnation and inflation in the North, the crisis of import substitution industrialization in the South, and erosion of profit margins all around. For global capital, neoliberal policies, which included redistribution of income toward the top via tax cuts for the rich, deregulation, and an assault on organized labor, were one escape route from the crisis of overproduction. Another was corporate-driven globalization, which opened up markets in the developing world and moved capital from high-wage to low-wage areas.


A third was what Robert Brenner and others have called "financialization," or the channeling of investment toward financial speculation, where much greater returns were to be derived than in industry, where profits were largely stagnant.

Feverish speculation triggered the proliferation of novel sophisticated speculative instruments like derivatives that escaped monitoring and regulation. Finance capital also forced the elimination of capital controls, the result being the rapid globalization of speculative capital to take advantage of differentials in interest and foreign exchange rates in different capital markets.

These volatile movements, the result of capital’s liberation from the fetters of the post-war Bretton Woods financial system, were one source of instability. What was fundamentally problematic with speculative finance, however, was that it boiled down to an effort to squeeze more "value" out of already created value instead of creating new value since the latter option was precluded by the problem of overproduction in the real economy. But the divergence between momentary financial indicators like stock prices and real values can only proceed to a point before reality bites back and enforces a "correction," like the recent collapse of stocks tied up in myriad Byzantine ways to overvalued subprime mortgages. Corrections or crises have become more frequent in the neoliberal era, with one Brookings study counting about 100 over the last 30 years.

At any rate, neoliberal policies, globalization, and financialization, while restoring and strengthening elite power by redistributing income from the bottom to the top, have not been effective in reinvigorating global capital accumulation. Its actual record, Harvey points out, "turns out to be nothing short of dismal." Aggregate annual global growth rates came to 1.4% in the 1980s and 1.1% in the 1990s, compared to 3.5% in the 1960s and 2.4% in the 1970s.

Disaster Capitalism

It is this fundamental failure of finance-driven capitalism to reignite vigorous capital accumulation that allows us to fully appreciate Klein’s theory of disaster capitalism and David Harvey’s closely related notion of "accumulation by dispossession." Both may be seen as the latest desperate effort of an increasingly sputtering capitalist machine’s effort to surmount the persistent and deepening crisis of overproduction.

In the last few years, stagnation or weak growth has marked most areas of the world economy, with the exception of China and India. U.S. growth has been higher than that of sclerotic Europe, but it has been largely illusory, being largely the result of middle-class spending fuelled by massive credit from China and East Asia. China has to lend to the United States to keep up demand for its cheap-labor based export-industrial sector, but the expansion of its production has itself contributed mightily to the overcapacity, overproduction, and shrinking profitability plaguing the whole global system. Even the International Monetary Fund (IMF) has recognized that the world is skating on thin ice, which could break should American consumers rein in their debt-driven spending, as they now seem to be doing.

In its efforts to surmount the crisis, capitalism has increasingly supplemented, if not supplanted, accumulation through production with accumulation through dispossession, or the expropriation of already created wealth or sources of wealth akin to the process of primitive accumulation that marked early capitalism in the 14th to the 17th centuries. Accumulation by dispossession involves an acceleration of the privatization and commodification of the commons, which includes not only land but also the environment and knowledge. Millions of peasants and indigenous peoples are displaced from the soil as private property supplants common property or communal regimes, often with the active support of institutions like the World Bank and the Asian Development Bank. Seeds, the end-result of eons of interaction between nature and human communities, are now privatized through mechanisms such as the Trade Related Intellectual Property Rights Agreement (TRIPs), which has also dampened technological development in the South owing to fear of infringing on the patents of northern corporations.

Contracting Out the War on Terror

A key mechanism for accumulation by dispossession is the accelerated privatization of hitherto public or state assets, which is what disaster capitalism is all about. Disaster capitalism is the Bush administration’s central contribution to neoliberalism. Its key feature is the parceling out to the private sector of the "core" functions of security, defense, and infrastructure that Adam Smith himself thought had to be left to the state. Through the "war on terror," Klein writes, the Bush administration brought about:

"The creation of the disaster capitalism complex-a full-fledged new economy in homeland security, privatized war, and disaster reconstruction tasked with nothing less than building and running a privatized security state, both at home and abroad. The economic stimulus of this sweeping initiative proved enough to pick up the slack where globalization and the dot-com booms had left off. Just as the Internet launched the dot-com bubble, 9/11 launched the disaster capitalism bubble … It was the pinnacle of the counter-revolution launched by Friedman. For decades, the market had been feeding off the appendages of the state; now it would devour the core."

In the disaster capitalism paradigm, the state serves as the engine of capital accumulation-that is, it raises capital via taxes, and then transfers it to private contractors that take over its core functions, from defense to incarceration to the provision of infrastructure. Security provision becomes the new growth industry, incorporating but going beyond the old military-industrial complex. Disaster, either of the natural kind like Katrina or the socially-created kind like Iraq, is seen as opportunity in several ways. It creates demand for a commodity, that is, for security or reconstruction. By taking advantage of natural disasters, it provides the opportunity to alter the physical landscape and "add value" to it, by sweeping away "value-deprived" poor communities and converting the land to upscale commercial or residential real estate, as in post-Katrina New Orleans.

Finally, as in Iraq, war becomes the instrument to erase the old interventionist state and create from scratch the ideal neoliberal government whose key function is to delegate its own functions to private contractors, like the engineering firm Bechtel or the notorious private security firm Blackwater. "In Iraq," Klein writes, "there was not a single governmental function that was considered so ‘core’ that it could not be handed to a contractor, preferably one who provided the Republican Party with financial contributions or Christian footsoldiers during elections campaigns. The usual Bush motto governed all aspects of the foreign forces’ involvement in Iraq : if a task could be performed by a private entity, it must be."

The problem, of course, is that disaster capitalism is so brazenly anti-people that even dressed up in the rhetoric of freedom, entrepreneurship, and efficiency, it cannot win over people in the way early neoliberal ideology was able to captivate the middle classes in the era of Reagan and Thatcher. Reading Klein’s chilling account, one wonders how Paul Bremer, the head of the Coalition Provisional Authority, could not have realized that the decrees he made which had the effect of making Iraqi youth a surplus population in a society where the state functioned mainly to enrich foreign contractors would turn them into insurgents. Disaster capitalism and accumulation by dispossession represent a capitalist order that no longer seeks ideological hegemony but seeks to impose itself through pure force. This is not sustainable.

Klein’s last chapter, which looks at the vast and varied global movement that has risen against what French thinkers call "savage capitalism" shows that, as Gramsci noted, nothing can remain hegemonic for long without legitimacy. People have become both more hopeful and more savvy: they will not be easily subjected to another neoliberal shock.

Klein Past versus Klein Present

So here’s the inevitable question: which is the better book, No Logo or The Shock Doctrine? This is not an easy choice, but I would land on the side of No Logo.

Let me explain. The critical edge, analytical sharpness, and passion of No Logo are to be found in The Shock Doctrine as well. But there is something different about the writing. In a review I did for Yes! in 2001, I wrote: "No Logo is compelling, but it’s not an easy read. Reading Klein is like serving alongside a skilled commander who relentlessly probes the enemy’s many defenses to locate the principal point of vulnerability. And just when the reader thinks Klein has identified the key to the defense, she reveals that this is only one episode in unraveling the dynamics of contemporary capitalism. This is deconstructive writing at its best, the product of a first-rate, restless mind that is not satisfied with drawing a solitary insight or two from her material."

Reading The Shock Doctrine is a different experience. You don’t need to work. You’re like a tourist being guided on a well-lit path where there are few surprises.

I much prefer the discourse of No Logo, and I certainly do not relish being subjected at the very beginning to a literary shock treatment that has no other purpose but to prod me to read further. That flaw-and the change in style-I prefer to attribute not so much to the Toronto-based Klein but to the New York School of publishing, which, like Hollywood, much prefers an in-your-face approach to a more allusive, more indirect, less predictable, but ultimately more enlightening discourse.

Foreign Policy In Focus columnist Walden Bello is currently a Distinguished Visiting Professor at St. Mary’s University in Halifax, Canada. Bello is also a senior analyst at the Bangkok-based institute Focus on the Global South and professor of sociology at the University of the Philippines at Diliman. He is the author of Walden Bello Introduces Ho Chi Minh (London: Verso, 2007), Dilemmas of Domination (New York: Metropolitan Books, 2005), and Deglobalization (London: Zed, 2002).