Review. The Shock Doctrine, Naomi Klein, 558 pp. Penguin Books (softcover).

A “bible for anti-capitalist activists” which argues that “capitalism goes hand in hand with dictatorship and brutality,” writes the conservative think tank The Cato Institute. But also “hopelessly flawed at virtually every level”—particularly in its criticisms of the great Milton Friedman.

It is revealing that this so-called “briefing paper” on Naomi Klein’s The Shock Doctrine is filled with myriad pre-packaged talking points defending Friedman’s views on the importance of democracy and human rights but entirely ignores the reams of sources and citations chronicling the rise of what Klein terms the ‘disaster-capitalism’ complex, the real center of the book. But we'll get to which facts are not under dispute momentarily.

Despite the constant harping in the brief, it is quite evident that the accuracy of Friedman’s portrayal in the book is a red herring, and the protection of his reputation utterly irrelevant to Klein’s actual thesis: that operating under the guise of the neutral promotion of benignly beneficent free market economics, powerful interest groups have leveraged economic, political and ecological crises to wage what has amounted to class warfare across the world. And that's only the beginning, as the result of this process has been an outright corporatist slow motion coup d'état. Not just a revolving door between the private sector and government, but as Klein puts it, an 'archway', a blurring of the very boundaries between public and private sector through the total outsourcing of the functions that define a nation-state and the swapping of board members and civil servants :

"By the time the Bush team took office, the privatization mania of the 80s and 90s had successfully sold off or outsourced the large, publicly owned companies in several sectors, from water and electricity to highway management and garbage collection. After these limbs of the state had been lopped off, what was left was 'the core'--the functions so intrinsic to the concept of governing that the idea of handing them to private corporations challenged what it meant to be a nation-state: the military, police, fire departments, prisons, border control, covert intelligence, disease control, the public school system and administering of government bureaucracies. The earlier stages of the privatization wave had been so profitable, however, that many of the companies that had devoured the appendages of the state were greedily eyeing the essential functions as the next source of instant riches."

To give but one example of this process: Rumsfeld's unpopularity with the military had little to do with his strategic decisions and everything to do with his self-declared 'war' against the pentagon bureaucracy, whose non-essential functions he intended to privatize, from medical care and field kitchens to housing and administration. More than this: the intelligence gathering of the new Counterintelligence Field Activity (CIFA) agency is not only independent of the CIA, but done almost entirely by the private sector, which gets over two-thirds of the agency's budget. The War on Terror has created a remarkable business opportunity for corporations who can finally integrate themselves seamlessly into the very core of the government: security, police, and warfare. Max Weber defined sovereignty as the monopoly on the legitimate use of coercion. The use of public money to create a privatized security industry without clear separation from the state it has practically consumed more than undermines democracy: it threatens to replace it. The ideology that made this transition possible, Klein maintains, is Friedman's.

Instead of taking on this narrative directly, the institute deflects these charges, for example by taking special offense at the in passing, entirely non-essential assertion that the Chicago School was ‘dogmatic’ and closed-minded in its approach. Not so, writes our briefing author: how could they be dogmatic when Milton Friedman himself listed ‘tolerance for diversity’ as one of the reasons for the Chicago School’s success? Case closed! Klein's troubling account can be safely ignored.

Can't it?

The Shock Doctrine is most emphatically not a conspiracy theory book nor does it place Friedman at the heart of some shadowy cabal. At worst it depicts Friedman as worryingly insouciant of the human rights abuses of the countries he may have economically advised, and the Chicago School as often plain wrong in their prescriptions: privatization, liberalization, free trade, capital mobility. How much responsibility can really be placed at the School's feet?

When Allende's government fell, that same day Chicago School-educated economists were printing a lengthy document nicknamed 'the Brick' on right-wing (and, it turned out later, CIA-funded) newspaper El Mercurio's printing presses. It was a detailed economic plan distributed to the Pinochet junta which outlined the removal of price controls, the privatization of state-owned companies, massive reductions in social spending, the removal of tariffs and trade barriers, and the introduction of new forms of speculative finance. It plunged millions in poverty and enriched a tiny minority. Industrial production in Chile plummeted. It was not until the 1980s, a decade later, that the economy began to recover--when the Junta reversed economic course. This didn't prevent Friedmanites from claiming responsibility for the belated half-recovery. Chile remains one of the most economically stratified countries in the world, a dubious honour it certainly did not have before the Junta.

The same policies, backed by the same people, with the same results were pursued across the southern hemisphere. And then in the west: England under Thatcher, the U.S. under Reagan, even Canada's own brief flirtation with the 'deficit crisis' of the 90s. More geopolitically grave was the gelding of Russia's economy under the neoliberal mismanagement of Jeffrey Sachs and the extreme neoliberalism introduced by the Provisional Authority in Iraq. But we'll get to that.

We should stop here and point out something important.

These criticisms are not to suggest that, say, privatization is always the wrong thing to do. Or to advocate the closing of borders, raising of tariffs and subsidization of all industry, no matter how grossly inefficient. The constant fallacy of these counter-critics, like the Cato Institute above, is to view the original criticisms through ideological lenses: Klein’s attacks on market liberalization in the Southern Cone clearly indicates she believes in protectionism! Her readers are anti-capitalist!

Yet as John Ralston Saul correctly notes in his witty polemical dictionary The Doubter's Companion, to treat all criticism as tantamount to outright rejection leaves absolutely no room for reasonable re-evaluation. But this is a necessary consequence of treating economic theories as expression of some natural truth on par with particle physics. In ideological times, Saul writes, "deliberation is mocked as weakness. Consideration is rushed through, if possible eliminated. The effect is to reduce the intelligence of the citizenry to received wisdom, unconscious or secretive procedures and mechanistic actions." The narrow economic doctrines that inform the Chicago School and the Washington Consensus certainly follow this discursive pattern.

Consider, however: what if reality is messy and complex? What if reality doesn’t care a whit about beliefs or ideologies? What if privatization and liberalization is correct in some contexts—and protectionism and nationalization good in others? And that it is not always obvious what is the right thing to do? In other words we must be prepared to entertain the possibility that despite the scientific, natural-law pretensions of economic theory and the ‘logical completeness’ of mathematical models, there is no single universally applicable set of policies which guarantee prosperity and growth.

So when Klein (and Joseph Stiglitz, former chief economist of the World Bank and outspoken critique of ‘market fundamentalism’—see his Globalization and its Discontents—and many more) critiques the Washington Consensus or the structural adjustment policies appended as IMF loan conditions it is most definitely not tantamount to an outright endorsement of some equal, opposite foolishness like planned economies.

Sometimes markets work. Sometimes they don’t. We need a balanced, measured approach, not Panglossian ideology to the effect that whatever is a market outcome is a good one (or a bad one). This is hardly a straw-man characterization, either: all it takes is one quick read of the publications of the Fraser Institute or Thomas Friedman's nauseating The Lexus and the Olive Tree to see that this is barely a caricature.

Someone should tell the fine folks over at the Cato Institute that what Klein actually does in the 500-odd pages of The Shock Doctrine is expose not only an array of market failures, but the spectacular growth of a corruption-ridden industry that has sprung up around these failures, of which the post-911 security complex is but the most recent and most profound. And there’s nothing free about these markets either: ironically, the main source of revenue for this complex is public funds in the form of no-bid 'cost-plus' contracts that guarantee a profit.

What Klein is saying is that the implementation of ostensibly libertarian free-market policies ineluctably leads to a corporatist state—in the political science sense of the term, thank you—as a result of certain inevitable human realities. The lust for power, the desire to protect one’s own kin and tribe and relations, the eventual, inevitable confluence of political and economic influence, the use of military force to protect vested interests. But an abstracted mathematical model of an economic system cannot predict this outcome, because it cannot quantify the relevant variables and integrate them. This is over and above the simple reality that the predicted optimal outcomes rely on impossible preconditions: ‘perfect information’ for one. Writes Stiglitz, in Globalization and its Discontents,

"behind free market ideology there is a model, often attributed to Adam Smith, which argues that market forces--the profit motive--drive the economy to efficient outcomes as if by an invisible hand. One of the great achievements of modern economics is to show the sense in which, and the conditions under which Smith's conclusion is correct. It turns out that these conditions are highly restrictive. Indeed, more recent advances in economic theory ... have shown that whenever information is imperfect and markets incomplete, which is to say always and especially in developing countries, then the invisible hand works most imperfectly."

(And furthermore, what of the (non-)mobility of labor—in a time when capital can fly nearly anywhere?)

The cookie-cutter economic policies adopted by the IMF and World Bank and adopted by Washington refused to admit the limitations of their models and sought to apply them uniformly across a great diversity of cases. As this turned out to be very profitable for well-placed western corporations and powers, who could plunder the public sector and strip the resources of a developing country in the wake of these disastrous economic prescriptions, there was little incentive to revise or examine the economic theory involved.

So while Friedman’s name pops up dozens and dozens of times in the briefing report, Iraq, for example, is mentioned only in connection with him—namely, that the examples of corruption adduced are only proof that Friedman’s policies had not been taken far enough. After all, a ‘no-bid’ contract is the exact opposite of a market, isn’t it? Meanwhile, economic activity in the country operates in a legal no-man’s-land, practically everything the Iraqi state owned has been sold off at a fraction of its actual worth and the government was left to wither away, its functions contracted out to security, engineering and consulting firms functioning (or dys-functioning) without oversight. This amounts to nothing less than outright war profiteering and we should be afraid that this is only the beginning. Who owns the vaccines that prevent the spread of flu and anthrax? Corporations with high-level U.S. officials as board members who stand to profit in the billion? Perish the thought.

Clearly, something went wrong with the implementation of Friedman's prescriptions, since our pristine models had these policies giving us optimal outcomes. Reality is stubborn and needs some further bludgeoning. No, the truth is messier: it so happens that very often, in real life, unfettered libertarianism (and especially market libertarianism) often enables abuses of power: gorging at the public trough, systematic corruption, profiteering. Should it come as any surprise that an initially marginal economic theory should, over the course of forty years, be ideologically championed by—and seemingly only by—a world superpower? It permits. It justifies—much as another ideology justified once for another, now disappeared, superpower. It is useful. In all the wrong ways.

But where is the totally free market? Well, we see now its refutation before our eyes: in the deregulation that permitted the current mortgage crisis to occur and the government bailouts which will stave off total collapse—certainly not for the first or last time, either. The bailouts of the 1980s are precisely what created a misplaced faith in the ability of the market to self-regulate by mitigating the worst crises before they grew out of all control. Deregulation followed. (See: Enron).

The ‘invisible hand’ is indeed rather unobservable in the development of several key technologies we take for granted. The internet was created with public funds and because of this it was more than simply useful: it changed our lives. It was—and remains, for now—an entirely open platform and architecture. No corporation would have developed the technology under these conditions. The underlying framework would have been closed and proprietary, a terrible impediment to, wait for it, growth. Some things—not all, no one is being an ideologue here—some things are just better off in the public domain. The custodian of that domain is the government: because the government is us. Or should be. We are not ‘clients’ of the government’s services. We comprise it.

We frankly shouldn’t care if there is some kind of abstract, Lockean argument that an AIDS vaccine ‘belongs’ to a pharmaceutical company merely because they developed it. They have rights on our watch only because we, as a society, decided not only on a specific intellectual property regime but to allow large corporations to operate in the first place. And the IP regime is in place to encourage innovation, not to protect the Divine Right of Ownership no matter the consequences. There is nothing inevitable, universal or natural about the notion of intellectual property, nothing making it sacrosanct.

The open architecture of the internet encouraged innovation. The closed system of AOL did not. This is a case where even if some large corporation had developed TCP/IP and copyrighted it, closing the internet except to those willing to pay royalties in some ‘walled garden’ of TV-like content—we can all agree we’d be better off if it was in fact non-proprietary and open. So yes: appropriate and perhaps even compensate. Once again, let me emphasize that there is no divine right of ownership that supersedes the public good and the public interest. In other words: get those generic AIDS drugs out already.

Laissez-faire market advocates often acquiesce to this view and argue that treating ownership—and economic freedom—as valuable in fact leads to the public good anyway. That interference in the market creates unhealthy 'distortions' that impede economic growth. The common slogan, once upon a time, was that “what’s good for General Motors is good for America.” Central to what Klein attempts to show in the Shock Doctrine is that this is not necessarily the case. This is precisely what our briefing report does not even attempt to refute.

Not necessarily the case: attend closely to the modal properties of the statement, because once again, no one is saying that it is never the case that the market outcome is good. Sometimes it is. But certainly not always. The extreme liberalization of the kind promulgated by the IMF and World Bank as loan conditions behaves as if it were, implementing the exact same set of policies across a wide swath of cases and contexts. In several countries, the result turns out similar: increased social stratification, the destruction of emerging middle classes together with the enrichment and of a wealthy minority. The world is more unequal now than it was ten years ago, and the pace is accelerating. The wealthiest 1% of the world's population own 40% of its resources. The top 10% receive 54% of global income. The bottom 40% receive only 5%. The U.N. identifies "globalization, deregulation and liberalization" as the key factors contributing to the growth of worldwide inequality.

The Cato Institutes' report refuses to deal with any of the statistics Klein uses to bolster her case here, preferring to spin some damage-control for the sake of the late Friedman’s reputation. But we should give a shit about that. What is at stake is far more significant—namely, the lives, dignity and well-being of a good chunk of the planet’s population. Here the briefing report is mute—save for token reliance on its own internal ‘economic freedom’ index is a desperate effort to disprove its irrelevant and erroneous misreading of Klein project.

The Shock Doctrine lays out a wide array of facts which are simply not under any dispute at this point, not even by the Cato Institute who maintain the book is flawed 'at every level'. No one denies the inequality figures quoted above. No denies that, through the CIA, several democratically elected leftist governments in Latin America were overthrown in favor of brutal right-wing dictatorships. This was anemically justified as necessary for the 'fight against Soviet communism'. Recently declassified documents however demonstrate that the real threat wasn't Moscow, but democratic socialism: "the imitative spread of similar phenomena elsewhere would in turn significantly affect the world balance and our own position in it," wrote Kissinger in 1970, referencing the "successful election" of Allende in Chile. Who neither was a dictator nor took marching orders from the Soviets, despite his avowed Marxist sympathies.

Indeed, declassified KGB files maintain that Allende's "fundamental error was his unwillingness to use force against his opponents. Without establishing complete control over all the machinery of the State, his hold on power could not be secure." A single case worker was given paltry funds to 'work' the country, in stark contrast to the millions of dollars coming in from the American government and sundry corporate interests, particularly International Telephone and Telegraph. Nixon authorized the spending of ten million dollars before Allende's election to influence the outcome and then funded, through the CIA, strike movements after Allende handily won the election.

Nor were Allende's policies an unmitigated success, either. Inflation took hold quickly and while the poverty rate shrank, the economy reeled from the hasty and sweeping changes (and a global decline in copper prices, Chile's main export). The worst was yet to come, though, for when the democratically-elected regime was ousted in a coup and General Pinochet took over the economic situation went from precarious, but promising, to outright disastrous. Who was advising Pinochet? Economists from the Chicago School who had 'the Brick' printed, as I noted above, the same breed that came to dominate the IMF, World Bank and Washington.

The results are depressing and came to be repeated across the world. Nowhere was it more thorough and disastrous than in Iraq.

Paul Bremer, appointed to govern Iraq for the U.S., enacted policies that worsened the Iraqi economic situation in the immediate aftermath of the war, paving the way for the insurgency. Much has been made of his lack of qualifications for such an important role. But of course, that he could have been appointed at all to govern Iraq merely is a symptom of the underlying problem: who needs experience or a firm historical knowledge of a country when one has some measure of technocratic expertise and the right connections? That Iraq had a people with a millennial history and culture is irrelevant to the economic program, which supersedes mere arbitrary climes and times. Astute readers should note this is an essential Marxist doctrine: that the material basis of society is paramount, the rest 'superstructure' which can be ignored.

Iraq, writes Klein, was treated like an IPO and the so-called 'mistakes' made are really in perfect agreement with orthodox neoliberal doctrine, guaranteeing easy profits for the American corporations involved in the privatized post-invasion reconstruction and security state. Over two hundred state-owned Iraqi firms were announced as to be privatized in the first month of Bremer's rule, which made everything from "cement to paper to cooking oil," providing stable employment for tens of thousands.

Next came a sweeping reform of economic policies: the corporate tax rate from "roughly 45 percent to a flat 15 percent ... another [edict] allowed foreign companies to own 100 percent of Iraqi assets ... even better, investors could take 100 percent of the profits they made in Iraq out of the country; they would not be required to reinvest and they would not be taxed." The contracts signed with American corporations were locked in for forty years with option to renew. The idea was to create an inviting environment for economic growth: these policies were practically a corporate wish list. Unsurprisingly, what happened was not growth and prosperity but plunder and, in response, carnage. The billions earmarked for Iraq reconstruction were squandered by the companies given the contracts, who often did not complete the work and rarely met standards. Just where did Iraq's missing billions go?

Nor did the coalition employ Iraqis; "none of the money went to Iraqi factories so they could re-open," notes Klein, and no local jobs were created when came the time to build hospitals and schools. Foreign workers were brought in by companies such as Bechtel, Halliburton and Parsons.

The problem was, as Klein argues, that the occupation authority was a 'hollow government', outsourced almost entirely: Bremer's staff was fifteen hundred, while Halliburton had fifty thousand workers. "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." This vision turned out to be a very profitable one--so much so that we ought to be worried that the model may be tried out here. Public funds straight into private hands, the government merely a funnel to land cash into corporate hands, ostensibly because the private sector is 'more efficient' at providing services. As Klein writes,

"While Bremer might have signed the laws, it was private accountants who designed and managed the economy ... think tanks were paid to think (Britain's Adam Smith institute was contracted to help privatize Iraq's companies). Private security firms and defense contractors trained Iraq's new army and police (DynCorp, Vinnell and the Carlyle Group's USIS, among others). And education companies drafted the post-Saddam curriculum and printed the new textbooks."

Naturally, the Provisional Authority was

"far too understaffed to monitor all the contractors, and besides, the Bush administration saw oversight as a non-core function to be outsourced ... even the job of building 'local democracy' was privatized, given to the North Carolina-based Research Triangle Institute in a contract worth up to $466 million, though it's not at all clear what qualified RTI to bring democracy to a Muslim country."

As billions poured into the coffers of American (and some other token coalition countries) corporations, Iraqi factories received nothing. For want of a few generators and repairs, local cement factories could have provided material for the reconstruction effort and put thousands at work. Instead, the corporations involved imported their cement at up to ten times the cost. In fact, "one of Bremer's economic edicts specifically prohibited Iraq's central bank from offering financing to state-owned enterprises." Compounding the economic problems, private Iraqi enterprises were forced into bankruptcy, unable to compete with the rapacious foreign enterprises now running the country: "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." Klein's multiple stories of such fraud are enough to gain some sympathy for al-Sadr.

The failure of the Iraqi reconstruction effort, and the continued insurgency in the country, is now recognized: we've won the war but lost the peace. The interpretation of these events has however been typically colonialist, namely, that despite our best intentions, the backwards Arab culture is simply not ready to receive our splendid gift of democracy and free enterprise. We tried nobly, and failed, not from lack of goodwill.

And yet: one of Bremer's first acts was to fire a half-million Iraqi state workers, a typical neoliberal public sector purge witnessed everywhere the IMF and World Bank went. Where were they supposed to go? Work at the GAP or Apple store bound to open any minute now in Baghdad? And what effect would opening Iraqi borders to unrestricted foreign imports do to the local, mostly secular business class? What about letting foreign corporations own 100 percent of local assets and then leave the country without having to reinvest any of the money at all? Or the privatization of state factories, resulting in mass lay-offs? Far from creating a democratic free-market utopia in the Middle East, a model for the region to follow, the unmitigated disaster of these policies led directly to the near civil war and now endless, costly occupation.

Couldn't the money squandered on 'reconstruction' been used to support slightly inefficient state-owned enterprises, providing security and jobs in a country fraught with ethnic tension? This was an ideological impossibility: Bremer is on record discussing his antipathy for Iraq's 'Stalinist economy'. In fact, Iraq's industrial economy was one of the best in the region, a source of national, secular pride, and its systematic dismantling destroyed any hope for a peaceful post-invasion. And any hope for real democracy was crushed when it became apparent that these measures were deeply unpopular. As in Russia, Chile and Poland, democracy was undermined in the name of free-market ideology when the latter was threatened by public discontent. Bremer simply cancelled elections and ignored the Governing Council. Eventually the first Iraqi government was appointed--not elected.

We could go into far more startling detail here. But for that one should read the book itself, an infuriating and revelatory read. Klein hopes that her uncovering of the 'shock process'--the manipulation or outright creation of crises to radically reshape a country's economy--will serve to inoculate democracies against it. Otherwise we face a rather bleak future. The pressures to adopt the 'hollow government' approach will only become stronger in the next few years. The looming, if not arrived, energy crisis, the rapid price increase of basic necessities and the changes in global climate all conspire to push further into poverty those of us precariously placed. The rest will scramble to afford safety in privatized 'green zones', walled off from the hungry, huddled and forgotten masses. These policies are recipe for war. And this has been acknowledged as quite profitable. It is just a matter of time.

The book does have some flaws. Klein spends 450 pages despairing us and scant few outlining the weak points enabling resistance. Her breathless hyperbole and constantly loaded language suffocate the clarity of her argument, urging us into a paroxysm of rage along with her instead of a clear-minded critical assessment of the legacy of the past few decades. It is all too easy to find oneself all too sympathetic to the strong-armed leftists of the past and present, blemishes removed and errors absolved in the face of the worse enemy. But equally dangerous is to demonize and hence reject the entire market process, a foolish thing to do.

But the future, and how to prevent it, will have to be the topic of another post. And another book.

iopha