In the 1950s a set of radical free market doctrines was developed by Milton Friedman at the University of Chicago. He advocated three fundamental reforms to create an efficient, truly liberal economy: the near-complete privatisation of state assets, economic liberalisation and the reduction of government spending to an absolute minimum.
As Friedman acknowledged, there was a catch: the reforms would inflict such short-term economic pain through job losses, reduced welfare support and rising prices that they would be rejected by any electorate. But Friedman saw a way round this. When a society goes through a period of social, political or economic upheaval the confusion disorients the population. Old thinking loses its relevance and a window of opportunity is presented where radical change may be introduced with little resistance. Friedman taught his ‘Chicago boys’, as his economic followers came to be known, to be ready to take advantage of crises when they arose.
The first such opportunity came in 1973 when General Pinochet took power from leftist Chilean President Allende in a CIA-backed military coup. A team of Chicago School economists orchestrated Pinochet’s economic reform. After 15 years, the richest ten percent of Chileans had seen an 83 percent increase in their incomes, while 45 percent of people had fallen below the poverty line. Contrary to conventional thinking, the economic reforms were not independent to the violent repression used by Pinochet. Rather, the two were intimately linked. Had the Chilean people not been terrorised by widespread torture and executions, they simply would not have tolerated the economic shock treatment.
Since Chile, countries around the world have experienced similarly drastic economic reform, all forced through in the wake of a crisis. In the 1970s, Argentina, Brazil and Uruguay became further Chicago School laboratories as US-backed military juntas repressed opposition to economic reform.
In the 1980s Chicago School graduates occupied many key posts at the International Monetary Fund and World Bank. As Friedman’s economic ideology took root these institutions became a mechanism for administering economic shock treatment. Obligatory ‘structural adjustments’ - privatisation, deregulation and reduced government spending - were demanded in return for economic assistance, often in the form of emergency loans.
Poland, Russia, Thailand, the Philippines, Indonesia and South Korea all saw periods of economic crisis followed by forced economic reform as they sought assistance from the global financial institutions. In each case economic hardship followed for large sections of the population as wealth accumulated in the hands of a minority.
Since the turn of the millennium economic shock treatment has taken a new form: ‘disaster capitalism’. Disasters have been piggy-backed on to prise open new markets. For example, when the Asian tsunami razed entire beachside villages an assertive tourist industry, boosted by foreign pressure for economic liberalisation, used the opportunity to erect hotels in their place, oblivious to the claims of local people to remain on their land.
In a twist on the theme the period following 9/11 saw numerous functions of the US Department of Homeland Security privatised by a Bush administration hooked on the free market ideal. From data collection and surveillance to rendition and interrogation, foreign companies were awarded contracts, creating a perverse incentive for a powerful business community to perpetuate a climate of fear. Similarly, in post-invasion Iraq private industries rapidly sprang up around defence, war-fighting and reconstruction as valuable contracts went to companies eager to stake a claim in sectors previously off-limits to private investors.
Free markets do not simply go hand in hand with free elections, as the dominant discourse assumes. Rather, Klein’s narrative argues that the increasingly liberal trajectory of economics over the last half century is largely due to the calculated exploitation of crises by a small but highly influential group of economic ideologues. The effects have been devastating for millions around the globe. If the wider democratic interest is not to be held hostage to narrow economic interests, governments and their people must become resistant to the shock treatment: they must become ‘shock-proof’.
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