Features » November 9, 2007

The New Road to Serfdom

Over the course of 500 pages in The Shock Doctrine, Naomi Klein documents the moments of chaos and disruption that allow a small coterie of experts to swoop in and administer what’s invariably called “bitter medicine,” “painful reforms” or “shock therapy”

By Christopher Hayes

First come the bombs, then come the neoliberal economists

In the early ’80s, as Margaret Thatcher attempted to hack away at England’s substantial public sector, she found a frustrating degree of public resistance. The closer she got to the bone, the more the patient wriggled and withdrew. Thatcher doggedly persisted, yet her pace wasn’t fast enough for right-wing Austrian economist Friedrich von Hayek, her idol and ideological mentor. You see, in 1981, Hayek had traveled to Gen. Augusto Pinochet’s Chile, where, under the barbed restraints of dictatorship and with the guidance of University of Chicago-trained economists, Pinochet had gouged out nearly every vestige of the public sector, privatizing everything from utilities to the Chilean state pension program. Hayek returned gushing, and wrote Thatcher, urging her to follow Chile’s aggressive model more faithfully.

In her reply, Thatcher explained tersely that “in Britain, with our democratic institutions and the need for a higher degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution. At times, the process may seem painfully slow.”

The Hayek/Thatcher exchange is one of many revealing historical nuggets unearthed in The Shock Doctrine: The Rise of Disaster Capitalism, Naomi Klein’s ambitious history of neoliberalism. Hayek isn’t the star of The Shock Doctrine—that dubious honor goes to his protegé and fellow Nobel Laureate Milton Friedman. But Klein’s totemic, capacious and brilliant alternate history of the last three decades of global political economy can best be understood as a latter-day response to Hayek’s classic right-wing manifesto, The Road to Serfdom.

Written in exile, while Europe burned, The Road to Serfdom’s simple but powerful thesis was that the encroachment of the state into economic affairs inevitably leads to an encroachment in all spheres. For Hayek and his intellectual descendants—from Friedman (Milton) to Friedman (Thomas)—political freedom and economic freedom were inseparable and mutually reinforcing. And over the last 30 years, the adherents of the Friedman/Hayek School have pointed to two coincidental trends in global political economy to back this grand claim: First, the fall of command-and-control economies and the dismantling of welfare states. The second, the rise of democratic governance. With cunning aplomb, neoliberal writers and historians have packaged these two distinct phenomena together as one single story of progress and development. Look: Freedom’s on the march!

Klein resurrects Hayek’s argument and inverts it, showing how time and again, the “economic freedom” envisioned by Hayek and his ilk has been imposed at the expense of political freedom, often, Klein writes, “midwifed by the most brutal forms of coercion.” From Chile to Iraq, majorities empowered to choose their own government don’t start clamoring for flat taxes, privatized post offices and an end to controls on foreign capital. Instead, they often form unions or call for increased social spending. The Shock Doctrine is an encyclopedic catalog of the tactics that governments, corporations and economists have used to impose— usually over popular opposition—what Klein calls the “policy trinity” of the Chicago-School program: “the elimination of the public sphere, total liberation for corporations and skeletal social spending.”

Over the course of 500 pages, Klein documents the moments of chaos and disruption that allow a small coterie of experts to swoop in and administer what’s invariably called “bitter medicine,” “painful reforms” or “shock therapy.” “Only crisis,” she quotes Milton Friedman as once observing, “actual or perceived, produces real change.” While Klein calls this the “shock doctrine,” I prefer a phrase she quotes from former World Bank Chief Economist Joseph Stiglitz, who called those who imposed free-market “shock therapy” on Russia in the early ’90s “market Bolsheviks.” Like Lenin, these economic policy-makers saw opportunity in crisis, and were skeptical, even contemptuous of democratic pieties. They were convinced that only an enlightened vanguard would be able to take the painful, sometimes bloody steps necessary to bring about revolution. The most extreme of them also shared with Lenin the impulse to start anew, to wipe out history, to work off a blank slate. They held the perverse belief that a proposal’s ideological purity is directly proportional to the pain and disruption it causes.

Klein’s history begins in Chile in 1973 and ends in Sri Lanka after the 2005 tsunami. Some of the material—like the grisly details of the ’70s South American dictatorships’ dirty wars on unionists, dissidents and leftists—will be familiar to lefty readers. But even on familiar terrain, Klein has a remarkable eye for the revealing detail or the telling quote. She points out that during Argentina’s military dictatorship in the late ’70s and early ’80s, the Galerias Pacifico mall, “the crown jewel of Buenos Aires’ shopping district,” contained a basement torture center where detainees had scratched pleas for help into the wall. “For Argentines who know their history,” she writes, “the mall stands as a chilling reminder that … the Chicago School Project was quite literally built on the secret torture camps where thousands of people who believed in a different country disappeared.”

If the “shock doctrine” was born amid violence and repression in South America, and then developed less openly repressive means of influence—such as through the International Monetary Fund’s structural adjustment programs in developing countries—Klein argues it has now reached a kind of final frontier. Having snatched the low hanging fruit, it has in its sights the Middle East’s oil-dominated state economies and the developed world’s last remaining un-privatized functions: fighting wars and providing security.

In Iraq, the dangers of these two projects have come together and been made most horribly manifest. Paul Bremer, the former U.S. administrator to Iraq, issued orders immediately privatizing the state’s factories, dismissing the state bureaucracy (including, but not limited to the Army) and imposing a flat tax, all while putting down spontaneous expressions of democracy and protest that had broken out across the newly “liberated” country.

Meanwhile, as mercenaries ran roughshod, the privatization of war produced perverse incentives for the corporations that benefited from the chaos. Amid the increasing chaos, a gutted public sector struggled to implement its vision for a new Iraq through layers of subcontractors. (Klein notes that in Germany, after reunification, a staff of 8,000 government workers oversaw the privatization of the state’s vast holdings. In Iraq, that number was three.) “In short,” she writes, “the [Coalition Provisional Authority] was itself too privatized to privatize Iraq.”

The sole achievement of the U.S. occupation thus far has been the transfer of billions of dollars of public money into the private coffers of those companies that managed to get their hands on lucrative government contracts. This, to Klein’s mind, is the whole raison d’etre behind the “corporatist state.”

But Iraq is complicated. Klein gives a persuasive account of why the insurgency emerged when it did. However, no single interpretative framework seems up to the task of fully ordering and untangling the various combustible worldviews now fighting it out in Iraq.

This raises the central flaw in The Shock Doctrine: The structure of her argument requires her to whittle down some events in order to make them fit, in the process shedding their multifaceted and culturally specific influences and rationales. This tendency is exacerbated by the book’s title and the animating metaphor introduced in the opening chapter. In it, Klein describes a series of horrifying CIA-funded experiments undertaken by a sadistic Canadian doctor in the ’50s. Subjects were shocked, against their will, into states of highly suggestible infantilism, and the results were enshrined in the CIA’s so-called “Kubark” manual, which Klein alleges has become a handbook for American interrogators during the war on terror. The chapter is chilling. But once the book moves into documenting the full spectrum of anti-democratic strategies employed by neoliberalism’s proponents, the potency of the metaphor dissipates. “Shock” describes everything from the actual shock of electric volts used against disappeared leftists in Chile and Argentina to the metaphorical shock of the transition from communism in Russia and Eastern Europe. Even the fairly routine political capital Thatcher accrued in the wake of England’s victory in the Falklands War is a shock.

The problem is, the more Klein’s concept of “shock” accounts for, the less it explains. In South Africa, for example, Klein interviews African National Congress (ANC) leaders to find out how their once socialist, anti-apartheid movement later became a neoliberal government. She finds that, basically, they got hustled. During initial negotiations over the transfer of power, business interests and international financial institutions extracted seemingly innocuous and technical concessions that constitutionally restricted the ANC government from following through on its popular, social democratic promises. That’s a revealing anecdote of the anti-democratic sophistication of the vanguard of global capital, but it’s a long way from torture chambers and electric volts.

If The Shock Doctrine overreaches at times, its central contention is spot on. The force and permanence of a book like this can change outlooks and systems. Just ask the generations of thinkers who’ve been influenced by The Road to Serfdom. That book may be massively over-simplified and tendentious, but Hayek’s strong arguments—along with the repeated bloodshed and tyranny of so many communist governments around the world—helped force the anti-democratic left and its sympathizers to take a hard look in the mirror. At a certain point, it became impossible to continue to excuse purges, starvation and gulags as some kind of unfortunate distortion of their true vision.

My hope is that Klein’s book can do the same for the many partisans of Friedman-style economic policy, who have convinced themselves that their utopian vision is beautiful even if its implementers have been ugly. Klein has dragged out the bodies and plastered the self-incriminating memos for all to see. If her argument can become as prominent in the next 50 years as Hayek’s was over the previous half century, the world will be a better place.

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• Reader Comments

  I have lately been thinking that the “free marketeers” are every bit as bereft of reality as their communist nemeses ever were and in exactly the same way: the theoretical structures of both equally ignore the impact of the same all important aspect of human nature—greed.

  The communists never appreciated the need for greed (how self-interest motivates efficiency and innovation).

  The free marketeers never understand the need to rein in greed with an adequate system of checks and balances (which hasn’t occurred naturally—that is without state intervention—since the beginning of industrialization).  The belief that the oldest story of mankind—who’s going to eat whose lunch—can give way to some blind (market) mechanism is something psychologists (and rationale economists) might describe as “magical thinking”.

  (Uniquely) in America we have a deep seated, long running problem with this literally mindless ideology.  It is an ideology which on an operational basis reduces all solutions to: don’t do anything about the problem (“government isn’t the solution; government is the problem”).  Hopefully, we are now in a period in which America can permanently shed this literally missing-marbles ideology. 

  Milton Freidman wrote that crisis is the only opportunity to change.  By early 2007 (before the recent slight increase in the minimum wage), 25% of American workers were earning less than the minimum wage of 1968 (I wonder if Americans of 1968 would have seen that as a crisis if somehow they could have foreseen it).  Using a realistic poverty measure, 25% of Americans could also be found living below the real poverty line (not the official—three times the price of the lowest possible food budget—poverty line) in 2007—up from 15% in 1968.

  But, Americans must “find out” about the crisis first.  The number one way to alert them could be for progressives to construct a realistic poverty line (a “Plan B” poverty line—the formula found in the 2002 book Raise the Floor sounds perfect) and to begin to refer to the realistic line in all their writings and attempt to get the media to follow suit (at least as an arguable alternative).  Once Americans wake up to find out that poverty is approaching doubling since the LBJ began the war on poverty (even as average income doubled) a new national conversation will be on.

  Then it may be time to note that in 1972 the top 1% of earners took in only 7.6% of overall income; by 2001 it was 17.6%, by 2005 22.5% and to wonder when it will reach 27.6%—that sounds like a crisis…

  ...for which there is a very simple solution: legally mandated, sector-wide collective bargaining (or some equivalent like the French system where all firms work under conditions agreed to by unionized firms)—the perfect, permanent checks and balances solution to the super bean counter management used all over the better paid OECD world.

  Posted by ddrew2u on Nov 10, 2007 at 4:15 PM

  I should have finished up above—given the topic concerned the whole world—by saying that once American opinion finally accepts the idea that the free market is only the (truly remarkable) OS (operating system) and that the industrial default program has always been the “race to the bottom” since the beginning of the industrial age—without heavy legislative intervention (most importantly via fairly balancing the labor market as well as via transfers)—then, the issue will be pretty much resolved world-wide (there being nobody significant left espousing out-of-control market forces).

  Posted by ddrew2u on Nov 10, 2007 at 7:42 PM

  The New Road to Serfdom.

  Same as The Old Road to Serfdom.

  The old road to serfdom was inspired by Marx-Engels Socialism, and grew to hold sway over a substantial portion of the globe, it’s peoples, and it’s resources, all in a period of about a century and a half.  Then, in it’s various manifestations, it collapsed from corruption and inefficiency, rapidly in the Soviet Union, and more slowly as capitalist principles were embraced in China and India.  The only remnants of the original Marxist serfdom are Cuba and NorK, two of the poorest, most benighted, corrupt, and inefficient countries on earth. 

  Interestingly, Chavez in Venezuela is trying to revive Socialism, financed by his windfall (and temporary) oil profits.  Russia is trying to revive the toxic totalitarian aspects of the Soviet Union without the toxic Socialist label, also with windfall (and temporary) oil profits.

  Meanwhile, back in the real world, von Hayek’s free market followers are faring somewhat better:

  *  Chile hit an economic peak about 1910, based on commodity (nitrates) economic strength, but commodities are a poor basis for long-term growth and stability.  The Chilean economy fared poorly thereafter, and by the late 1960s was suffering 35% inflation rates, with accompaying economic and social disruptions.  In 1970, Allende, with the help of his KGB and Cuban Socialist advisors, nationalized the agricultural sector (shades of the Ukraine catastrophe of the 1920s) and later the copper industry.  Injecting lots of money into the economy, Allende caused wages to rise and inflation to rise even faster, hitting 120% annual rates.  (Inflation is theft.)  Pinochet stabilized Chile, and von Hayek’s free-market principles were applied.  Chile is now the only country in Latin America that is rated as “Free” by heritage.org, and it has the strongest economy in Latin America. 

  *  After the collapse of the Soviet Union, all the countries of Eastern Europe eagerly embraced Western freedoms, none more so than Estonia.  At the age of 32, Mart Laar became the Prime Minister of Estonia.  He claims that the only thing he knew about economics was what he read in Friedrich von Hayek and Milton Freeman.  Laar must have been a fast study, because Estonia is now the fastest growing, most properous country in Eastern Europe.

  *  Ireland was the economic pits as recently as 1975 (contemporary with Chile’s Allende).  Embracing free-market principles, Ireland has enjoyed steady growth and prosperity, and is now rated as one of the most prosperous nations of Western Europe.

  In a variety of circumstances, freedom, as characterized by von Hayek’s teachings, has led to personal freedom and economic growth and stability.  In a variety of circumstances, Socialism has led to stagnation, corruption, inefficiency, death, and destruction. 

  Klein resurrects Hayek’s argument and inverts it, showing how time and again, the “economic freedom” envisioned by Hayek and his ilk has been imposed at the expense of political freedom, often, Klein writes, “midwifed by the most brutal forms of coercion.”  And then cites Chile as an example.

  But that is dishonest.  Under Allende, the KGB, and their Cuban advisors, there were plenty of “the most brutal forms of coercion”.  Pinochet’s reforms were benign in comparison, and led directly to, not only “political freedom”, but to economic and individual freedom as well, as demonstrated by Chile’s current prosperity and freedoms.

  So, I doubt if Klein’s book will rank with Marx’s Communist Manifesto or with von Hayek’s The Road to Serfdom in geopolitical impact, for good or evil.  If Klein and Hayes are lucky, The Shock Doctrine: The Rise of Disaster Capitalism will be about as influential as a comic book on the high side, or the New York Times on the low side.

  Posted by scorp on Nov 10, 2007 at 10:03 PM

  When I read anything using the word “ilk” a red flag goes up. “Ilking”” a group goes hand in glove with tagging words like “never” and “always.”

  What makes it reasonable to label markets in totalitarian fashion and weld them to liberal/conservative, good/bad, or any other simplistic categorization?

  re: The inseparability of political freedom and economic freedom—
  Would the author care to give an example of a nation where there is one without the other? Is it not a matter of degree with each of these?

  re: greed —
  It seems to me this is a universal and timeless human characteristic — also by degrees.

  Economics and political views are neither innately moral or immoral and are seldom pure. Rather than an ON/OFF switch they run on a rheostat.

  The free market to my knowledge has never truly been applied by any country. It is similar, however, to gravity — ultimately unavoidable. Supply and demand (availability and desirability) will eventually determine the market and the price of anything.

  We do not have and have never had a free market economy in my lifetime. There have been regulations and limitations in effect, both good and bad, temporary and long-term.

  Think of child labor laws, safety regulations, speed limits (Nixon’s 55 mph). Today lax import inspections have given us cheaper prices along with poisoned pet food and toys and questionable prescriptions. The push for competitive advantage has made billionaires and an evaporating middle class.

  Greed (self gain) within limits creates jobs and uncheck destroys them. Regulation is not either/or, but which and how much.

  Economic theory is only as moral or immoral as the individuals applying it.

  Posted by whattheheck on Nov 12, 2007 at 2:46 PM

  Since Adam Smith’s “perfect competition world” of small entrepreneurs and skilled artisans was replaced by the industrial world the simple (if catastrophic) problem for (100 times more productive) interchangeable workers has been the RACE TO THE BOTTOM.  The simple solution now practiced all over the better paying world is SECTOR-WIDE labor agreements (or some equivalent).

  This is not ideology.  This is merely mechanical.  It is that simple.

  Posted by ddrew2u on Nov 13, 2007 at 2:59 PM

• extended discussion >>>Continued...

  Discussions with more than 5 comments are continued on our special discussion page to encourage continuity and ease of use. There are currently 9 posts.

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