A Very Capitalist Disaster: Naomi Klein’s Take on the Neoliberal Saga

Mar 08

Naomi Klein’s The Shock Doctrine: the Rise of Disaster Capitalism
is very impressive indeed. This is, however, not immediately evident, a
sense that is confirmed by Joseph Stiglitz’ review of the book. Even
before I read it, I was certain that the Nobel laureate would highlight
Klein’s attempt to make a connection between the electric shock
experiments performed by the notorious McGill University psychologist
Ewen Cameron who was on contract with the CIA and the economic shock
approach developed by Milton Friedman at the University of Chicago.

And indeed, he does, in the course of writing a typical New York Times Book Review[1]
piece that dares not evince too much enthusiasm for a book that comes
from left field lest it provoke the ever-alert watchdogs of the right
to question one’s credentials.
Stiglitz, in fact, suggests that Klein’s analysis might be infected
with conspiracy theory with his very first sentence: “[T]here are no
accidents in the world as seen by Naomi Klein.” The Nobel laureate does
have some positive things to say about the book, but he neutralizes
this by dropping the line that Klein “is not an academic and must not
be judged as one.” As for Klein’s central concept of “disaster
capitalism,” it is mentioned once but otherwise ignored. It all adds up
to damning with faint praise.

The New York school of publishing says that you win or
lose your audience in the first few pages, but whatever their reason
for bringing the Cameron experiments up front and strongly implying a
link between the genesis of Cameron’s shock treatment and the Chicago
School approach to economic policymaking, it is bad judgment on the
part of Klein and her editors. What is transparently intended mainly as
a dramatic device risks achieving its opposite. Conspiracy theory buffs
will be elated but not the critical, discerning audience the book is
aimed at.

Towering Work

Which is a pity since, despite this initial fumble, The Shock Doctrine
recovers to emerge as a towering work, one that brilliantly follows
neoliberalism’s march from marginal theology to universal policy. Klein
combines the journalist’s eye for the arresting detail, the analyst’s
ability to spot, surface, and dissect deeper trends, and a talent for
telling a spell-binding story to prove once again that a masterful
journalist can often illuminate social realities far better than the
best-trained economist or political scientist.
With her ability to combine no-stones-left-unturned investigative
reporting with in-depth social analysis, Klein is her generation’s
David Halberstam, her Shock Doctrine and an earlier book No Logo being on par with The Best and the Brightest and War in a Time of Peace.
There is one difference, though: Klein is unashamedly a woman of the
left, and this is where her analysis derives both its power and its
passion.

The Shock Doctrine traces
neoliberalism’s rise to dominance to a program set up in the
mid-fifties to enable Chilean students to imbibe the radical
free-market doctrine being propagated by Milton Friedman and his
associates at the University of Chicago, then an oasis of radical
free-market thinking in a world dominated by Keynesianism in the United
States and Europe and “developmentalism” or desarrollismo
in Latin America, with their pragmatic compromises between the state
and the market, labor and management, trade and development.

Los Chicago Boys

The opportunity for neoliberalism to come in from the
cold arrived in the early seventies, when General Augusto Pinochet
overthrew the revolutionary government of President Salvador Allende in
Chile and invited the “Chicago Boys” that had been waiting in the wings
for years to manage the economy. With the population stunned by the
coup, the “Chicago Boys” went about the task of swiftly dismantling the
Keynesian and developmentalist compromises that underpinned one of
Latin America’s most advanced industrial economies.
With a Year Zero mentality akin to the Khmer Rouge, they forced Chile’s
overnight transformation into the free-market “paradise” prescribed by
Friedman, a believer in seeing crisis as an opportunity for radical
restructuring. It was, however, a paradise that could be created only
with massive repression—and an even greater dose of repression was
necessary to radically liberalize neighboring Argentina, where tens of
thousands were murdered and over a hundred thousand were tortured by a
murderous military regime that gave a free hand to free-market radicals
to restructure the economy.

Some of Klein’s most original insights are found in her
chapters on Bolivia, Poland, China, and South Africa. Bolivia, under
the tutelage of a younger “Doctor Shock”—Harvard economist Jeffrey
Sachs—showed that neoliberal measures could be imposed by a
democratically elected government if it was willing to resort to
emergency measures, like arresting and isolating labor leaders. Poland,
also advised by Sachs, showed how democratic transitions could actually
be an opportunity to deliver a system-transforming shock that included
eliminating price controls overnight, slashing subsidies, and rapidly
privatizing state enterprises to a population that was still dazed by
the collapse of communism.

There was no democratic transition in China, but Deng
Hsiao Ping and his allies used the Tiananmen Square massacre and its
aftermath, when the population was confused and paralyzed, to
decisively advance and consolidate the ambitious capitalist reform
program they had begun in the late seventies. Neither in Poland nor in
China were people who were tired of communism clamoring for the free
market, Klein emphatically points out; they were demanding greater
popular, democratic control over economic policy.

South Africa

South Africa provided yet another route to
neoliberalism. Here there was an element of stealth, with white
business interests taking advantage of the African National Congress’
(ANC) overwhelming focus on the politics of achieving Black majority
rule to preserve their property rights and install a conservative
macroeconomic regime. But not everything was that subtle: big capital
made clear their intention to leave should socialist policies be
introduced, conveying the prospect of economic destabilization.

In these circumstances, the white elite found a
valuable ally in chief ANC negotiator and future South African
President Thabo Mbeki, who convinced Nelson Mandela that what was
needed to stabilize the new regime was “something bold, something
shocking that would communicate, in the broad, dramatic strokes the
market understood, that the ANC was ready to embrace the neoliberal
Washington Consensus.”

Margaret Thatcher and Ronald Reagan’s contribution was
to show that neoliberal programs antithetical to the interests of the
majority could be imposed in a western democracy if one was ruthless
enough to exploit certain situations. For Thatcher, the war with
Argentina over the Falklands in 1982 was a heaven-sent opportunity to
enlist jingoism in the service of a radical program, one of her tactics
being to portray the labor unions as the “enemy within.” Thatcher’s
tactics prefigured those of George W. Bush in the aftermath of 9/11,
when he and his crew exploited the hysterical state of the population
to declare a “war on terror” that was meant to kick-start a new phase
of the neoliberal enterprise that Klein labels “disaster capitalism.”
But before we go into this, let us pause to assess Klein’s analysis so
far.

Great but…

Klein’s account is superb, but it is not without its
flaws. For one, Klein has too rosy a view of the Keynesian state that
reigned in the United States and Europe and the developmental state
that dominated the Southern Cone in the period from late nineteen
forties to the mid-seventies. She writes that owing to developmental
regimes, “[T]he Southern Cone began to look more like Europe and North
America than the rest of Latin America or other parts of the Third
World.”

Again, “Developmentalism was so staggeringly successful
for a time that the Southern Cone of Latin America became a potent
symbol for poor countries around the world: here was proof that with
smart, practical policies, aggressively implemented, the class divide
between the First and the Third World could actually be closed.”

That certainly was not what it felt like at the time.
Indeed, if the neoliberals walked in from the wilderness, it was
because they were perceived as presenting an alternative, albeit
untested, to economic systems in crisis. In the United States, the
period of rapid economic growth fuelled partly by the reconstruction of
Japan and Europe gave way to a state of stagnation cum inflation that
was a symptom of a deeper crisis, the growing gap between enormous
productive capacity and limited consumption, leading to erosion of
profitability that Marxists have called the crisis of overproduction.
In Latin America, the leading critics of the developmental state were
found on the left, who charged that the process of industrial import
substitution presided over by the state was “agotado,” or exhausted,
owing to a domestic market limited by a very unequal distribution of
income.

In the United States and Britain, the experience of
seeing their salaries and savings eroded by double digit inflation made
the middle strata receptive to the Friedmanite message. In Chile, they
were initially receptive to the left’s critique of the developmental
state. But when the left came to power with a socialist project in
1970, the middle classes—fearing the rise of the poor, whom they called
rotos, or “lowlifes”— turned on the left with a
vengeance, with the middle-class-based Christian Democrats joining the
right on an anti-communist platform that shrilly proclaimed a defense
of private property, capitalism, and “liberty.”

Neoliberal Ascendancy

This leads us to the question of how the neoliberals
came to power. This was not simply a matter of the elite using the
military or manipulating democracy to impose a neoliberal program on a
recalcitrant but stunned population, which is the image that Klein’s
account—wittingly or unwittingly—projects. This was not the case even
in Klein’s paradigmatic example, Chile. Neoliberalism’s coming to
ascendancy there involved the elite and the military acting in concert
with a counterrevolutionary middle-class mass base that controlled the
streets, with Christian Democratic youth joining their more fascist
brethren, Fatherland and Liberty, in intimidating and beating up
partisans of the left.

I know, since as a PhD student doing a dissertation on
the rise of the counterrevolution, I was nearly beaten up a couple of
times by angry anti-Allende middle class youths who insisted I was a
Cuban agent sent to destroy Chile by Fidel. Sure, the CIA played a
critical role, but it was in support of an already heated
counterrevolution with a middle-class base, a process that was
reminiscent of Italy and Germany in the post-World War I period.

In other words, in practically every instance,
neoliberalism found a middle class that was disenchanted with the
Keynesian or developmental state or felt threatened by the left, or
both.

The Construction of Hegemony

This is why to counter Stiglitz’ suggestion that she
operates with a conspiracy paradigm, Klein’s instrumentalist account
must be supplemented with David Harvey’s notion of the “construction of
hegemony,” a process by which the elite creates a consensus among the
subordinate classes in support of a neoliberal project that principally
serves its interests. (David Harvey, A Brief History of Neoliberalism
[Oxford: Oxford University Press, 2005])
In the case of the UK, it was not so much the jingoistic atmosphere of
the Falklands War as the ideological captivation of the middle class by
a conservative leader adept at evoking the themes of freedom, the
individual, and property that was the tipping point towards neoliberal
reform. Thatcher was an expert at promoting what Harvey calls a
“seductive possessive individualism” and she “forged consent through
the cultivation of a middle class that relished the joys of
homeownership, private property, individualism, and the liberation of
entrepreneurial opportunities.”

The construction of consent was the main avenue to
hegemony in the United States, where neoliberals deftly connected their
free market program to the agenda of a middle class-based coalition
that was propelled by resentment against minorities that were allegedly
coddled by liberal democrats and by an inflamed attachment to religious
values that were seen as being under attack from the left. “Not for the
first time,” says Harvey, speaking of the ascendancy of the Republicans
under Reagan, “nor, it is feared, for the last time in history has a
social group voted against its material, economic, and class interests
for cultural, nationalist, and religious reasons.”

Even some blue-collar workers were in danger of being
coopted: “Greater freedom and liberty of action in the labor market
could be touted as a virtue for capital and labor alike, and here, too,
it was not hard to integrate neo-liberal values into the ‘common sense’
of the work force.”

Neoliberalism, in fact, became so “commonsensical” that
even where social democratic parties have come to power, displacing the
traditional conservative parties of neoliberalism, as they have in
Britain, Chile, and the United States, they have not dared to
reassemble the interventionist liberal state and have made it a point
to pay homage to the “magic of the market.” Indeed, it has not been
conservatives but social democrats such as the Blairites in Britain,
the Clintonites in the United States, and the Socialist-led
Concertacion government in Chile, with their rhetoric about
“market-oriented social policies,” that have consolidated the
neoliberal economic regime.

Crisis of the Keynesian State

The book’s most important contribution is its theory of
“disaster capitalism.” But to fully appreciate Klein’s insight, it is
important to go back to the roots of the crisis of the Keynesian state
and the developmental state in the 1970’s that she glosses over. This
crisis, which paved the way for the neoliberal ascendancy, had its
origins in what economists have called the crisis of overaccumulation
or overproduction.

The golden period of postwar growth globally that
skirted major crises for nearly 25 years was due to the massive
creation of effective demand via rising wages for labor in the North,
the reconstruction of Europe and Japan, and the import-substituting
industrialization in Latin America and other parts of the South. This
dynamic period came to a close in the mid-seventies, with stagnation
setting in, owing to global productive capacity outrunning global
demand, which was constrained by continuing deep inequalities in income
distribution.

According to the calculations of Angus Maddison, the
premier expert on historical statistical trends, the annual rate of
growth of global gross domestic product (GDP) fell from 4.9% in what is
now regarded as the golden age of the post-World War II Bretton Woods
system, 1950-73, to 3% in 1973-89, a drop of 39%.

These figures reflected the wrenching combination of
stagnation and inflation in the North, the crisis of import
substitution industrialization in the South, and erosion of profit
margins all around. For global capital, neoliberal policies, which
included redistribution of income towards the top via tax cuts for the
rich, deregulation, and an assault on organized labor, were one escape
route from the crisis of overproduction. Another was corporate-driven
globalization, which opened up markets in the developing world and
moved capital from high-wage to low-wage areas.

Financialization

A third was what Robert Brenner and others have called
“financialization,” or the channeling of investment towards financial
speculation, where much greater returns were to be derived than in
industry, where profits were largely stagnant.

Feverish speculation triggered the proliferation of
novel sophisticated speculative instruments like derivatives that
escaped monitoring and regulation. Finance capital also forced the
elimination of capital controls, the result being the rapid
globalization of speculative capital to take advantage of differentials
in interest and foreign exchange rates in different capital markets.

These volatile movements, the result of capital’s
liberation from the fetters of the post-war Bretton Woods financial
system, was one source of instability. What was fundamentally
problematic with speculative finance, however, was that it boiled down
to an effort to squeeze more “value” out of already created value
instead of creating new value since the latter option was precluded by
the problem of overproduction in the real economy. But the divergence
between momentary financial indicators like stock prices and real
values can only proceed to a point before reality bites back and
enforces a “correction,” like the recent collapse of stocks tied up in
myriad Byzantine ways to overvalued subprime mortgages. Corrections or
crises have become more frequent in the neoliberal era, with one
Brookings study counting about 100 over the last 30 years.

At any rate, neoliberal policies, globalization, and
financialization, while restoring and strengthening elite power by
redistributing income from the bottom to the top, have not been
effective in reinvigorating global capital accumulation. Its actual
record, Harvey points out, “turns out to be nothing short of dismal.”
Aggregate annual global growth rates came to 1.4% in the 1980s and 1.1%
in the 1990s, compared to 3.5% in the 1960s and 2.4% in the 1970s.

Disaster Capitalism

It is this fundamental failure of finance-driven
capitalism to reignite vigorous capital accumulation that allows us to
fully appreciate Klein’s theory of disaster capitalism and David
Harvey’s closely related notion of “accumulation by dispossession.”
Both may be seen as the latest desperate effort of an increasingly
sputtering capitalist machine’s effort to surmount the persistent and
deepening crisis of overproduction.

In the last few years, stagnation or weak growth has
marked most areas of the world economy, with the exception of China and
India. U.S. growth has been higher than that of sclerotic Europe, but
it has been largely illusory, being largely the result of middle-class
spending fuelled by massive credit from China and East Asia. China has
to lend to the United States to keep up demand for its cheap-labor
based export-industrial sector, but the expansion of its production has
itself contributed mightily to the overcapacity, overproduction, and
shrinking profitability plaguing the whole global system. Even the
International Monetary Fund (IMF) has recognized that the world is
skating on thin ice, which could break should American consumers rein
in their debt-driven spending, as they now seem to be doing.

In its efforts to surmount the crisis, capitalism has
increasingly supplemented, if not supplanted accumulation through
production with accumulation through dispossession, or the
expropriation of already created wealth or sources of wealth akin to
the process of primitive accumulation that marked early capitalism in
the 14th to the 17th centuries. Accumulation by dispossession involves
an acceleration of the privatization and commodification of the
commons, which includes not only land but also the environment and
knowledge. Millions of peasants and indigenous peoples are displaced
from the soil as private property supplants common property or communal
regimes, often with the active support of institutions like the World
Bank and the Asian Development Bank. Seeds, the end-result of eons of
interaction between nature and human communities, are now privatized
through mechanisms such as the Trade Related Intellectual Property
Rights Agreement (TRIPs), which has also dampened technological
development in the South owing to fear of infringing on the patents of
northern corporations.

Contracting Out the War on Terror

A key mechanism for accumulation by dispossession is
the accelerated privatization of hitherto public or state assets, which
is what disaster capitalism is all about. Disaster capitalism is the
Bush administration’s central contribution to neoliberalism. Its key
feature is the parceling out to the private sector of the “core”
functions of security, defense, and infrastructure that Adam Smith
himself thought had to be left to the state. Through the “war on
terror,” Klein writes, the Bush administration brought about:


The creation of the disaster
capitalism complex—a full-fledged new economy in homeland security,
privatized war and disaster reconstruction tasked with nothing less
than building and running a privatized security state, both at home and
abroad. The economic stimulus of this sweeping initiative proved enough
to pick up the slack where globalization and the dot-com booms had left
off. Just as the Internet launched the dot-com bubble, 9/11 launched
the disaster capitalism bubble…It was the pinnacle of the
counter-revolution launched by Friedman. For decades, the market had
been feeding off the appendages of the state; now it would devour the
core.

In the disaster capitalism paradigm, the state serves
as the engine of capital
accumulation — that is, it raises capital via taxes, then transfers it
to private contractors that take over its core functions, from defense
to incarceration to the provision of infrastructure. Security provision
becomes the new growth industry, incorporating but going beyond the old
military-industrial complex. Disaster, either of the natural kind like
Katrina or the socially created kind like Iraq, is seen as opportunity
in several ways. It creates demand for a commodity, that is, for
security or reconstruction. By taking advantage of natural disasters,
it provides the opportunity to alter the physical landscape and “add
value” to it, by sweeping away “value-deprived” poor communities and
converting the land to upscale commercial or residential real estate,
as in post-Katrina New Orleans.

Finally, as in Iraq, war becomes the instrument to
erase the old interventionist state and create from scratch the ideal
neoliberal government whose key function is to delegate its own
functions to private contractors, like the engineering firm Bechtel or
the notorious private security firm Blackwater. “In Iraq,” Klein
writes, “there was not a single governmental function that was
considered so “core” that it could not be handed to a contractor,
preferably one who provided the Republican Party with financial
contributions or Christian footsoldiers during elections campaigns. The
usual Bush motto governed all aspects of the foreign forces’
involvement in Iraq: if a task could be performed by a private entity,
it must be.”

The problem, of course, is that disaster capitalism is
so brazenly anti-people that even dressed up in the rhetoric of
freedom, entrepreneurship, and efficiency, it cannot win over people in
the way early neoliberal ideology was able to captivate the middle
classes in the era of Reagan and Thatcher. Reading Klein’s chilling
account, one wonders how Paul Bremer, the head of the Coalition
Provisional Authority, could not have realized that the decrees he made
which had the effect of making Iraqi youth a surplus population in a
society where the state functioned mainly to enrich foreign contractors
would turn them into insurgents. Disaster capitalism and accumulation
by dispossession represent a capitalist order that no longer seeks
ideological hegemony but seeks to impose itself through pure force.
This is not sustainable.

Klein’s last chapter, which looks at the vast and
varied global movement that has risen against what French thinkers call
“savage capitalism” shows that, as Gramsci noted, nothing can remain
hegemonic for long without legitimacy. People have become both more
hopeful and more savvy: they will not be easily subjected to another
neoliberal shock.

Klein Past versus Klein Present

So here’s the inevitable question: which is the better book, No Logo or The Shock Doctrine? This is not an easy choice, but I would land on the side of No Logo.

Let me explain. The critical edge, analytical sharpness, and passion of No Logo are to be found in The Shock Doctrine
as well. But there is something different about the writing. In a
review I did for Yes! in 2001, I wrote: “No Logo is compelling, but
it’s not an easy read. Reading Klein is like serving alongside a
skilled commander who relentlessly probes the enemy’s many defenses to
locate the principal point of vulnerability. And just when the reader
thinks Klein has identified the key to the defense, she reveals that
this is only one episode in unraveling the dynamics of contemporary
capitalism. This is deconstructive writing at its best, the product of
a first-rate, restless mind that is not satisfied with drawing a
solitary insight or two from her material.”

Reading The Shock Doctrine is a
different experience. You don’t need to work. You’re like a tourist
being guided on a well-lit path where there are few surprises.

I much prefer the discourse of No Logo,
and I certainly do not relish being subjected at the very beginning to
a literary shock treatment that has no other purpose but to prod me to
read further. That flaw—and the change in style—I prefer to attribute
not so much to the Toronto-based Klein but to the New York School of
publishing, which, like Hollywood, much prefers an in-your-face
approach to a more allusive, more indirect, less predictable but
ultimately more enlightening discourse.

Notes

[1] See: http://www.nytimes.com/2007/09/30/books/review/Stiglitz-t.html

 

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