Monday, November 05, 2007

The Shock Doctrine. A Book Review

Naomi Klein's The Shock Doctrine. The Rise of Disaster Capitalism is a book worth reading. Indeed, it is an important book. And a well-researched book, a book filled with facts and anecdotes and evidence. For all those reasons it is also a demanding book for the reader, but it is worth the effort.

Klein's thesis looks initially very simple: She argues that disasters are the new frontier for capitalists, the next emerging market in which to make a killing. Just consider Blackwater, Haliburton and other similar firms, now the main arm of the U.S. government in disaster management. When things go badly wrong, who do you turn to? The traditional answer was that your community would help you and that your government would be there for you. But why let such a lucrative market as disasters stay in the public domain? The market is a dreamy one for capitalists: desperate people will pay almost anything to get relief.

So why has this lucrative market not been tapped earlier? Klein doesn't address this directly but the reason for its current flourishing is that the U.S. government and the International Monetary Fund both love privatizing, and these international organizations give the disaster industry a helping hand, wads of money and permanent access to the highest levels of governmental decision-making in the so-called free world. As Klein puts it in the book, the old saw about "the revolving door" between the government regulators and the industries they regulate (which refers to the practice of the regulators often coming from the industry they are supposed to regulate and/or being later hired by the very same industry) has now become "an archway": a permanently open communication between the government and the private firms. Indeed, in some very obvious ways the "military-industrial complex" has become more openly "industrial", and the ideas of outsourcing the most central government tasks to private firms is now commonplace. We now have private soldiers (in Iraq only, so far), private police and private firefighters, all of course protecting those who pay their fees and not who just happen to pay taxes.

I mentioned that Klein's thesis only looks simple. This is because her book doesn't only address the straightforward case of disaster capitalism as described above, but also presents a much wider and even more worrisome form of the same in terms of the triple shocks of first some natural or human-made disaster, then a conservative economic takeover and then (or simultaneously) the enforcement of all this by the shock of a police state, including torture. She applies this triple-shock model to countries ranging from Chile and Argentina in the 1970s via Russia in the 1990s to Iraq today.

The basic story she tells is a simple one. First some natural catastrophe strikes a country, or its political system collapses or its currency is rumored to be in trouble or a powerful country invades it. The initial reaction of the country's inhabitants is shock, numbness and a great desire to get rid of the immediate problem. This, according to the economists among the disaster capitalists, is the time to strike with conservative economic reforms, because the bitter pill can be forced down more easily in such a situation. People are desperate. If the reforms cause opposition the third shock can be administered: imprisonment and torture of the opposition, a few carefully staged open executions, mutilated bodies left in ditches.

Klein over-applies her theory. For example, the Falklands War was not the kind of shock that is needed to make the United Kingdom into a country of people numb with shock, ready to accept Mrs. Thatcher's conservative reforms. But the theory is interesting, especially in its focus on the economic part of the story, and the role of the conservative economic models as the new right-wing religion. These models have been adopted by the International Monetary Fund and by the current U.S. government. That they are theoretical models, based on several assumptions not likely to be satisfied in reality is ignored. Their treatment among the adherents is as religious truths or scientific truths, and anyone refusing to marvel over the models is viewed as misguided or even perhaps evil.

The book's strength for me is in bringing this to the forefront of the discussion, in making sense of the "military-industrial" complex and in pointing out that millions of people may have died or suffered because of unproven demand-and-supply graphs once drawn on blackboards at the University of Chicago and similar places.

And what are these religious models? Their basic message is to privatize everything, to remove all price and wage controls, to let the market have a ball and to cut back on all social spending. Then open all doors for international capital to flow into the country (and of course to flow out of the country, every bit as easily), and, presto, you will see a booming economy created overnight!

It is true that lots of people will suffer horribly at first. The elderly, for example. Think about the Russian miracle: Klein tells us how Jeffrey Sachs was sent over to administer the bitter medicine of free-market capitalism to the Russians. The outcome was a market in which the prices of basic food items were no longer subsidized and pensions were not allowed to rise. What do you think this did to the elderly who were trying to live on their meager pensions and now could no longer afford bread?

Then there were all those suicides in Russia, all that drinking, all that violence. But now Russia has quite a few billionaires! See what you can do when you work hard and the markets reward you? It's true that the average life expectancy of Russians has dropped and that they no longer dare to have many children, but there are areas of Moscow which look like Hollywood? People have private body guards! You can buy anything in Moscow if you have the money!

Yes, I'm foaming at the mouth about Russia, because the story of what took place there and the story of the refusal of the West to help the country are sad ones and mostly a result of pure human arrogance, greed and stupidity. The Russians took Sachs' advice to privatize all their main industries, enormously lucrative ones. They were auctioned off to a few well-connected individuals at prices so low that it's hard not to feel the prices meant as another spit in the faces of Russian people. For example,

Forty percent of an oil company the size to France's Total was sold for $88 million. (Total's sales in 2006 were $193 billion.) Norilsk Nickel, which produced a fifth of the world's nickel, was sold for $170 million - even though its profits alone soon reached $1.5 billion annually. The massive oil company Yukos, which controls more oil than Kuwait, was sold for $309 million; it now earns more than $3 billion in revenue a year. Fifty-one percent of the oil giant Sidanko went for $130 million; just two years later that stake would be valued on the international market at $2.8 billion. A huge weapons factory sold for $3 million, the price of a vacation home in Aspen.

And how were these purchases financed? Essentially through a scam which made the taxpayers pay for them.

There is no other way of describing what took place in Russia than as a crime. Scavengers ripping apart the dead body of the Soviet Union.

Now, the free-market priests of the West didn't exactly condone this "Maffia capitalism" that the Russian markets produced. But they believed that all this would ultimately end up benefiting the Russian people, through that old stand-by of conservative economic thought: The trickle-down phenomenon.

Indeed, all the Chicago School reforms in countries ranging from Chile to China have as their real justification the assertion that opening up the markets to all and sundry and removing most all consumer and worker protections will ultimately benefit the ordinary people, even if only after a painful adjustment period. Is this what the wider type of disaster capitalism has achieved?

The proof of this pudding is in the eating, and here I wish that Klein had given us more evidence. She tantalizingly hints that the countries which were the victims of the triple-shock treatment now have a larger underclass, and that the outcome of the conservative market reforms is always to create a small and exceedingly wealthy elite while pushing more and more people below the poverty line. This certainly seems to be happening in some of the countries she described, but following the cause-and-effect networks is made harder by the fact that many of the early objects of the economic shock-and-awe later changed their policies and retreated from the extreme privatization path. I would love to learn more about the long-run effects of the free-market shock treatments. Do they kill off the middle classes? I suspect they do.

Klein's book has enough material for several book reviews. I have not touched on the parts of the book which most readers probably find the best part: Her discussion of the Iraq debacle and the incredible corruption, greed and incompetence the U.S. government's contractors there have demonstrated. Neither have I mentioned the New Orleans debacle, the Baghdad on our own shores. I learned a lot from those chapters even though I have followed the media as carefully as I could, and much of what I have learned is depressing.

Still, the book ends with a chapter of hope, by pointing out that the shock therapy stops working once people are in on the plot, that one can get used to being shocked in these way and actually come out of the experience less willing to be numbed again in the future.

And what did I not like about the book? I believe that Klein stretches her thesis too far. Not everything in the world necessarily falls under one simple explanation. She also has the tendency of a true advocate to paint her own people in flattering tones and the adversaries as ugly as she can. She is not alone in this, of course. Almost every political book I have read does the same, from both sides of the aisle. That's what sells, I guess. But it is annoying, because reality is always fuzzy and complicated and we should have the courage to argue that something matters and is relevant even if its role is not quite so overpowering or its explanatory power so simple as we would like.