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
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,
... 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
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
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
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
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
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
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
[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
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