Birth Pangs

excerpted from the book

The Shock Doctrine

The Rise of Disaster Capitalism

by Naomi Klein

Picador, 2007, paperback

Niccolo Machiavelli, The Prince,1513

For injuries ought to be done all at one time, so that, being tasted less, they offend less.

Milton Friedman in a letter to General Augusto Pinochet, April 21, 1975

If this shock approach were adopted, I believe that it should be announced publicly in great detail, to take effect at a very close date. The more fully the public is informed, the more will its reactions facilitate the adjustment.

Killing and locking up the government was not enough for Chile's new junta government, however. The generals knew that their hold on power depended on Chileans being truly terrified, as the people had been in Indonesia. In the days that followed, roughly 13,500 civilians were arrested, loaded onto trucks and imprisoned, according to a declassified CIA report. Thousands ended up in the two main football stadiums in Santiago, the Chile Stadium and the huge National Stadium. Inside the National Stadium, death replaced football as the public spectacle. Soldiers prowled the bleachers with hooded collaborators who pointed out "subversives"; the ones who were selected were hauled off to locker rooms and skyboxes transformed into makeshift torture chambers. Hundreds were executed. Lifeless bodies started showing up on the side of major highways or floating in murky urban canals.

... Even though Pinochet's baffle was one-sided, its effects were as real as any civil war or foreign invasion: in all, more than 3,200 people were disappeared or executed, at least 80,000 were imprisoned, and 200,000 fled the country for political reasons.

For the first year and a half, Pinochet faithfully followed the Chicago rules: he privatized some, though not all, state-owned companies (including several banks); he allowed cutting-edge new forms of speculative finance; he flung open the borders to foreign imports, tearing down the barriers that had long protected Chilean manufacturers; and he cut government spending by 10 percent-except the military, which received a significant increase. He also eliminated price controls -a radical move in a country that had been regulating the cost of necessities such as bread and cooking oil for decades.

The Chicago Boys had confidently assured Pinochet that if he suddenly withdrew government involvement from these areas all at once, the "natural" laws of economics would rediscover their equilibrium, and inflation-which they viewed as a kind of economic fever indicating the presence of unhealthy organisms in the market would magically go down. They were mistaken. In 1974, inflation reached 375 percent-the highest rate in the world and almost twice the top level under Allende. The cost of basics such as bread went through the roof. At the same time, Chileans were being thrown out of work because Pinochet's experiment with "free trade" was flooding the country with cheap imports. Local businesses were closing, unable to compete, unemployment hit record levels and hunger became rampant. The Chicago School's first laboratory was a debacle.

Sergio de Castro and the other Chicago Boys argued (in true Chicago fashion) that the problem didn't lie with their theory but with the fact that it wasn't being applied with sufficient strictness. The economy had failed to correct itself and return to harmonious balance because there were still "distortions" left over from nearly half a century of government interference. For the experiment to work, Pinochet had to strip these distortions away-more cuts, more privatization, more speed.

... Pinochet and de Castro got to work stripping away the welfare state to arrive at their pure capitalist utopia. In 1975, they cut public spending by 27 percent in one blow-and they kept cutting until, by 1980, it was half of what it had been under Allende. Health and education took the heaviest hits. Even The Economist, a free-market cheerleader, called it "an orgy of self-mutilation .1128 De Castro privatized almost five hundred state-owned companies and banks, practically giving many of them away, since the point was to get them as quickly as possible into their rightful place in the economic order. He took no pity on local companies and removed even more trade barriers; the result was the loss of 177,000 industrial jobs between 1973 and 1983.° By the mid-eighties, manufacturing as a percentage of the economy dropped to levels last seen during the Second World War.

Pinochet held power for seventeen years, and during that time he changed political direction several times. The country's period of steady growth that is held up as proof of its miraculous success did not begin until the mid-eighties-a full decade after the Chicago Boys implemented shock therapy and well after Pinochet was forced to make a radical course correction. That's because in 1982, despite its strict adherence to Chicago doctrine, Chile's economy crashed: its debt exploded, it faced hyperinflation once again and unemployment hit 30 percent-ten times higher than it was under Allende. The main cause was that the piranhas, the Enron-style financial houses that the Chicago Boys had freed from all regulation, had bought up the country's assets on borrowed money and run up an enormous debt of $14 billion.

The situation was so unstable that Pinochet was forced to do exactly what Allende had done: he nationalized many of these companies. 48 In the face of the debacle, almost all the Chicago Boys lost their influential government posts, including Sergio de Castro. Several other Chicago graduates held prominent posts with the piranhas and came under investigation for fraud, stripping away the carefully cultivated facade of scientific neutrality so central to the Chicago Boy identity.

The only thing that protected Chile from complete economic collapse in the early eighties was that Pinochet had never privatized Codelco, the state copper mine company nationalized by Allende. That one company generated 85 percent of Chile's export revenues, which meant that when the financial bubble burst, the state still had a steady source of funds.

It's clear that Chile never was the laboratory of "pure" free markets that its cheerleaders claimed. Instead, it was a country where a small elite leapt from wealthy to super-rich in extremely short order-a highly profitable formula bankrolled by debt and heavily subsidized (then bailed out) with public funds. When the hype and salesmanship behind the miracle are stripped away, Chile under Pinochet and the Chicago Boys was not a capitalist state featuring a liberated market but a corporatist one. Corporatism, or "corporativism," originally referred to Mussolini's model of a police state run as an alliance of the three major power sources in society-government, businesses and trade unions-all collaborating to guarantee order in the name of nationalism. What Chile pioneered under Pinochet was an evolution of corporatism: a mutually supporting alliance between a police state and large corporations, joining forces to wage all-out war on the third power sector-the workers-thereby drastically increasing the alliance's share of the national wealth.

That war-what many Chileans understandably see as a war of the rich against the poor and middle class-is the real story of Chile's economic "miracle." By 1988, when the economy had stabilized and was growing rapidly, 45 percent of the population had fallen below the poverty line. The richest 10 percent of Chileans, however, had seen their incomes increase by 83 percent .5' Even in 2007, Chile remained one of the most unequal societies in the world-out of 123 countries in which the United Nations tracks inequality, Chile ranked 116th, making it the 8th most unequal country on the list.

If that track record qualifies Chile as a miracle for Chicago school economists, perhaps shock treatment was never really about jolting the economy into health. Perhaps it was meant to do exactly what it did -hoover wealth up to the top and shock much of the middle class out of existence.

... Chile under Chicago School rule was offering a glimpse of the future of the global economy, a pattern that would repeat again and again, from Russia to South Africa to Argentina: an urban bubble of frenetic speculation and dubious accounting fueling superprofits and frantic consumerism, ringed by the ghostly factories and rotting infrastructure of a development past; roughly half the population excluded from the economy altogether; out-of-control corruption and cronyism; decimation of nationally owned small and medium-sized businesses; a huge transfer of wealth from public to private hands,

Next to join the experiment was Argentina in 1976, when a junta seized power from Isabel Perón. That meant that Argentina, Chile, Uruguay and Brazil-the countries that had been showcases of developmentalism-were now all run by U.S.-backed military governments and were living laboratories of Chicago School economics.

... Martinez de Hoz s first act as minister of the economy was to ban strikes and allow employers to fire workers at will. He lifted price controls, sending the cost of food soaring. He was also determined to make Argentina once again a hospitable place for foreign multinationals. He lifted restrictions on foreign ownership and in the first few tears sold off hundreds of state companies." These measures earned him powerful fans in Washington. Declassified documents show William Rogers, assistant secretary of state for Latin America, telling his boss, Henry Kissinger, shortly after the coup that "Martinez de Hoz is a good man. We have been in close consultations throughout." Kissinger was so impressed that he arranged to have a high-profile meeting with Martinez de Hoz when he visited Washington "as a symbolic gesture." He also offered to make a couple of calls to help along Argentina's economic efforts: "I will call David Rockefeller," Kissinger told the junta's foreign minister, a reference to the president of Chase Manhattan Bank. "And I will call his brother, the Vice- President [of the United States, Nelson Rockefeller]."

... Once again, the human impact was unmistakable: within a year, wages lost 40 percent of their value, factories closed, poverty spiraled. Before the junta took power, Argentina had fewer people living in poverty than France or the U.S.-just 9 percent-and an unemployment rate of only 4.2 percent. Now the country began to display signs of the underdevelopment thought to have been left behind. Poor neighborhoods were without water, and preventable diseases ran rampant.

By the mid-seventies, disappearances had become the primary enforcement tool of the Chicago School juntas throughout the Southern one-an none embraced the practice more zealously than the generals occupying Argentina's presidential palace. By the end of their reign, an estimated thirty thousand people had been disappeared.

The exact number of people who went through the Southern Cone's torture machinery is impossible to calculate, but it is probably somewhere between 100,000 and 150,000, tens of thousands of them killed.

In 1976, Orlando Letelier was back in Washington, D.C., no longer as an ambassador but as an activist with a progressive think tank, the Institute for Policy Studies. Haunted by thoughts of the colleagues and friends still facing torture in junta camps, Letelier used his newly recovered freedom to expose Pinochet's crimes and to defend Allende's record against the CIA propaganda machine.

Letelier went so far as to write that Milton Friedman, as "the intellectual architect and unofficial adviser for the team of economists now running the Chilean economy," shared responsibility for Pinochet's crimes. He dismissed Friedman's defense that lobbying for shock treatment was merely offering "technical" advice. The 'establishment of a free 'private economy' and the control of inflation a la Friedman," Letelier argued, could not be done peacefully. "The economic plan has had to be enforced, and in the Chilean context that / could be done only by the killing of thousands, the establishment of concentration camps all over the country, the jailing of more than 100,000 persons in three years .... Regression for the majorities and 'economic freedom' for small privileged groups are in Chile two sides of the same coin." There was, he wrote, "an inner harmony" between the "free market" and unlimited terror.

Letelier's controversial article was published at the end of August 1976. Less than a month later, on September 21, the forty-four-year-old economist was driving to work in downtown Washington, D.C. As he passed through the heart of the embassy district, a remote-controlled bomb planted under the driver's seat exploded, sending the car flying and blowing off both his legs. With his severed foot abandoned on the pavement, Letelier was rushed to George Washington Hospital; he was dead on arrival.

In the years prior to the coup in Argentina, the rise of left-wing militancy had affected foreign companies both economically and 'personally; between 1972 and 1976, five executives from the auto company Fiat were assassinated. The fortunes of such companies changed dramatically when the junta took power and implemented Chicago School policies; now they could flood the local market with imports, pay lower wages, lay workers off at will and send their profits home unhindered by regulations.

Several multinationals effusively expressed their gratitude. On the first new year under military rule in Argentina, Ford Motor Company took out a celebratory newspaper advertisement openly aligning itself with the regime: "1976: Once again, Argentina finds its way. 1977: New Year of faith and hope for all Argentines of goodwill. Ford Motor of Argentina and its people commit themselves to the struggle to bring about the great destiny of the Fatherland." Foreign corporations did more than thank the juntas for their fine work; some were active participants in the terror campaigns. In Brazil, several multinationals banded together and financed their own privatized torture squads. In mid-1969, just as the junta entered its most brutal phase, an extralegal police force was launched called Operation Bandeirantes, known as OBAN. Staffed with military officers, OBAN was funded, according to Brazil: Never Again, "by contributions from various multinational corporations, including Ford and General Motors." Because it was outside official military and police structures, OBAN enjoyed "flexibility and impunity with regard to interrogation methods," the report states, and quickly gained a reputation for unparalleled sadism.

It was in Argentina, however, that the involvement of Ford's local subsidiary with the terror apparatus was most overt. The company supplied cars to the military, and the green Ford Falcon sedan was the vehicle used for thousands of kidnappings and disappearances. The Argentine psychologist and playwright Eduardo Pavlovsky described the car as "the symbolic expression of terror. A death-mobile."

While Ford supplied the junta with cars, the junta provided Ford with a service of its own-ridding the assembly lines of troublesome trade unionists. Before the coup, Ford had been forced to make significant concessions to its workers: one hour off for lunch instead of twenty minutes, and 1 percent of the sale of each car to go to social service programs. All that changed abruptly on the day of the coup, when the counterrevolution began. The Ford factory in suburban Buenos Aires was turned into an armed camp; in the weeks that followed, it was swarming with military vehicles, including tanks and helicopters buzzing overhead. Workers have testified to the presence of a battalion of one hundred soldiers permanently stationed at the factory. "It looked like we were at war in Ford. And it was all directed at us, the workers," recalled Pedro Troiani, one of the union delegates.

Soldiers prowled the facility, grabbing and hooding the most active union members, helpfully pointed out by the factory foreman. Troiani was among those pulled off the assembly line. He recalled that "before detaining me, they walked me around the factory, they did it right out in the open so that the people would see: Ford used this to eliminate unionism in the factory." Most startling was what happened next: rather than being rushed off to a nearby prison, Troiani and others say soldiers took them to a detention facility that had been set up inside the factory gates. In their place of work, where they had been negotiating contracts just days before, workers were beaten, kicked and, in two cases, electroshocked. They were then taken to outside prisons where the torture continued for weeks and, in some cases, months. According to the workers' lawyers, at least twenty-five Ford union reps were kidnapped in this period, half of them detained on the company grounds in a facility that human rights groups in Argentina are lobbying to have placed on an official list of former clandestine detention facilities.

In 2002, federal prosecutors filed a criminal complaint against Ford Argentina on behalf of Troiani and fourteen other workers, alleging that the company is legally responsible for the repression that took place on its property. "Ford [Argentina] and its executives colluded in the kidnapping of its own workers, and I think they should be held responsible for that," says Troiani. Mercedes-Benz (a subsidiary of DaimlerChrysler) is facing a similar investigation stemming from allegations that the company collaborated with the military during the 1970s to purge one of its plants of union leaders, allegedly giving names and addresses of sixteen workers who were later disappeared, fourteen of them permanently.

According to the Latin American historian Karen Robert, by the end of the dictatorship, "virtually all the shop-floor delegates had been disappeared from the country's biggest firms ... such as Mercedes Benz, Chrysler and Fiat Concord . Both Ford and Mercedes-Benz deny that their executives played any role in the repression. The cases are ongoing.

Sergio de Castro, Pinochet's Chicago Boy economics minister who oversaw the implementation of shock treatment, said he could never have done it without Pinochet's iron fist backing him up. "Public opinion was very much against [us], so we needed a strong personality to maintain the policy. It was our luck that President Pinochet understood and had the character to withstand criticism." He has also observed that an "authoritarian government" is best suited to safeguarding economic freedom because of its "impersonal" use of power.

As is the case with most state terror, the targeted killings served a dual purpose. First, they removed real obstacles to the project-the people most likely to fight back. Second, the fact that everyone witnessed the "troublemakers" being disappeared sent an unmistakable warning to those who might be thinking of resisting, thereby eliminating future obstacles.

And it worked. "We were confused and anguished, docile and waiting to take orders.. . people regressed; they became more dependent and fearful," recalled the Chilean psychiatrist Marco Antonio de la Parra. They were, in other words, in shock. So when economic shocks sent prices soaring and wages dropping, the streets in Chile, Argentina and Uruguay remained clear and calm. There were no food riots, no general strikes. Families coped by quietly skipping meals, feeding their babies mate, a traditional tea that suppresses hunger, and waking up before dawn to walk for hours to work, saving on bus fare.

[Milton] Friedman likened his role in Chile to that of a physician who offered "technical medical advice to the Chilean Government to help end a medical plague" - the "plague of inflation." Arnold Harberger, head of the Latin American program at the University of Chicago, went even further. In a lecture delivered to young economists in Argentina, long, after the dictatorship had ended, he said that good economists are themselves the treatment - they serve "as antibodies to combat anti-economic ideas and policies." The Argentine, junta's foreign minister, César Augusto Guzzetti, said that "when the social body of the country has been contaminated by a disease that corrodes its entrails, it forms antibodies. These antibodies cannot be considered in the same way as the microbes. As the government controls and destroys the guerrilla, the action of the antibody will disappear, as is already happening. It is only a natural reaction to a sick body."

This language is, of course, the same intellectual construct that allowed the Nazis to argue that by killing "diseased" members of society they were healing the "national body."

An estimated five hundred babies were born inside Argentina's torture centers, and these infants were immediately enlisted in the plan to reengineer society and create a new breed of model citizens. After a brief nursing period, hundreds of babies were sold or given to couples, most of them directly linked to the dictatorship. The children were raised according to the values of capitalism and Christianity deemed "normal" and healthy by the junta and never told of their heritage, according to the human rights group the Grandmothers of the Plaza de Mayo that has painstakingly tracked down dozens of these children. The babies' parents, considered too diseased to be salvageable, were almost always killed in the camps. The baby thefts were not individual excesses but part of an organized state operation. In one court case, an official 1977 Department of the Interior document was submitted as evidence; it was titled "Instructions on procedures to follow with underage children of political or union leaders when their parents are detained or disappeared .

One of the most graphic connections between the political killings and the free-market revolution was not discovered until four years after the Argentine dictatorship had ended. In 1987, a film crew was shooting in the basement of the Galerias PacIfico, one of Buenos Aires' plushest downtown malls, and to their horror they stumbled on an abandoned torture center. It turned out that during the dictatorship, the First Army Corps hid some of its disappeared in the bowels of the mall; the dungeon walls still bore the desperate markings made by its long-dead prisoners: names, dates, pleas for help.

Today, Galerias Pacifico is the crown jewel of Buenos Aires' shopping district, evidence of its arrival as a globalized consumer capital. Vaulted ceilings and lushly painted frescoes frame the vast array of brand-name stores, from Christian Dior to Ralph Lauren to Nike, unaffordable to the vast majority of the country's inhabitants but a bargain for the foreigners who flock to the city to take advantage of its depressed currency.

For Argentines who know their history, the mall stands as a chilling reminder that just as an older form of capitalist conquest was built on the mass graves of the country's indigenous peoples, the Chicago School Project in Latin America was quite literally built on the secret torture camps where thousands of people who believed in a different country disappeared.

Donald Rumsfeld, U.S. defense secretary, May 2002

Milton [Friedman] is the embodiment of the truth that ideas have consequences."

Eduardo Gateano, 1990, about Uruguay

People were in prison so that prices could be free.

Anthony Lewis, New York Times columnist, 1975

If the pure Chicago economic theory can be carried out in Chile only at the price of repression, should its authors feel some responsibility?

Students at the University of Chicago were so disturbed to learn of their professors' collaboration with the junta that they called for an academic investigation. Some academics backed them up, including the Austrian economist Gerhard Tintner, who fled European fascism and came to the U.S. in the 1930s. Tintner compared Chile under Pinochet to Germany under the Nazis and drew parallels between Friedman's support for Pinochet and the technocrats who collaborated with the Third Reich. (Friedman, in turn, accused his critics of "Nazism.").

Milton Friedman wrote in Newsweek

Despite my sharp disagreement with the authoritarian political system of Chile, I do not regard it as evil for an economist to render technical economic advice to the Chilean Government.

Milton Friedman about Chile under the brutal Pinochet dictatorship

The really important thing about the Chilean business is that free markets did work their way in bringing about a free society.

from the human rights report Brasil: Nuncci Mais

Since the economic policy [in Brazil] was extremely unpopular among the most numerous sectors of the population, it had to be implemented by force.

Claudia Acufia, an Argentine journalist and educator

[The Argentine junta's] human rights violations were so outrageous, so incredible, that stopping them of course became the priority. But while we were able to destroy the secret torture centers, what we couldn't destroy was the economic program that the military started and continues to this day.

In a way, what happened in the Southern Cone of Latin America in the seventies is that it was treated as a murder scene when it was, in fact, the site of an extraordinarily violent armed robbery.

[Torture], a tool of the crudest kind of coercion, it crops up with great predictability whenever a local despot or a foreign occupier lacks the consent needed to rule: Marcos in the Philippines, the shah in Iran, Saddam in Iraq, the French in Algeria, the Israelis in the occupied territories, the U.S. in Iraq and Afghanistan.

The widespread abuse of prisoners is a virtually foolproof indication that politicians are trying to impose a system - whether political, religious or economic - that is rejected by large numbers of the people they are ruling.

Just as there is no kind, gentle way to occupy people against their determined will, there is no peaceful way to take away from millions of citizens what they need to live with dignity - which is what the Chicago Boys were determined to do. Robbery, whether of land or a way of life, requires force or at least its credible threat; it's why thieves carry guns, and often use them. Torture is sickening, but it is often a highly rational way to achieve a specific goal; indeed, it may be the only way to achieve those goals. Which raises the deeper question, one that so many were incapable of asking at the time in Latin America. Is neoliberalism an inherently violent ideology, and is there something about its goals that demands this cycle of brutal political cleansing, followed by human rights cleanup operations?

Sergio Tomasella, a tobacco farmer and member of Argentina's Agrarian Leagues, at the Argentina Tribunal against impunity, May 1990

Foreign monopolies impose crops on us, they impose chemicals that pollute our earth, impose technology and ideology. All this through the oligarchy which owns the land and controls the politics. But we must remember-the oligarchy is also controlled, by the very same monopolies, the very same Ford Motors, Monsanto, Philip Morris. It's the structure we have to change.

These days, we are once again living in an era of corporatist massacres, with countries suffering tremendous military violence alongside organized attempts to remake them into model "free market" economies; disappearances and torture are back with a vengeance. And once again the goals of building free markets, and the need for such brutality, are treated as entirely unrelated.

The Shock Doctrine

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