The Privatization of Public Services
Privatization is the only hope for renewal of once proud cities, writes John Chapman. In his 1944 book entitled Bureaucracy, Mises distinguished between "bureaucratic management" and "profit management." He explained that neither incentives nor exploitation of useful information are optimal under bureaucratic management, and by definition there could be no rational calculation via profit and loss. Hence, coordination of resources will never be optimally efficient. That is to say, it is in the very nature of government management (bureaucracy) that it will be inefficient, and prone to corruption.
Conversely, after privatization, operations and cost efficiencies improve because once incentives are in place and aligned, and people are empowered and incited (by the lure of profit) to utilize "particular knowledge" of markets, methods, competitive conditions, et al., performance improves. FULL ARTICLE
Comments (43)
Unfortunately, in today's world, Privitization of vital public services invites plunder, not effeciency.
Witness Private Equity Firms, purchasing companies, gutting them of employees and vital components for an improved cost facade and quickly reselling them at a handsome profit.
Witness the 'rebuilding' of New Orleans, which our witless president proclaimed would be a priority. Private firms like Haliburton came in with 'guest workers' kept in detention camp conditions in converted semi-trailer dorms disabeling local/regional businesses from the process. No transparency, no accountability.....just a quick profit and they are gone.
Privitizing wars via burgeoning corporations like Blackwater....no accountability whatsoever, much less than than the military.
Published: February 21, 2008 9:20 AM
Aren't those all instances of outsourcing? I'm not sure why anyone expects the government to be a discerning client... it doesn't even spend its own money.
Published: February 21, 2008 9:42 AM
The business model of Private Equity firms which such concentrations of capital has proliferated, is not considered outsourcing, it's really gutting a company to fit a superficial accounting model for a quick profit and ultimately destructive outcome for the company the the economies that depend on it.
I haven't read a great deal of Mises, but I'm trying to discern from these debates how his philosophy applies TODAY. From what I can tell, much of his theory application appears antiquated and does not address the vastly complex global reality and unrealistically adheres to the notion Free Market automatically regulates. Maybe that would be true if accounting standards were much different to include 'true cost' economics.....what is the real cost basis for contaminating a river....
From everything I've read, the whole foundation of Economics and accounting needs to be re evaluated into something more of a 'real cost economics'. I am also disturbed that 'growth' is an obscessive mantra in economics.
After all, growth for it's own sake is the ethos of the cancer cell.
Published: February 21, 2008 11:15 AM
Maybe because we do not have a free market? That'd be one obvious reason, you know, why most of what Mises says seems 'antiquated'. If you think Austrian economics promotes 'growth for its own sake' you have not understood it, at all. That said, if you find Mises cumbersome, I'd recommend reading Rothbard instead. As it is, I'm really not sure what it is you're reading into Mises...
Published: February 21, 2008 11:31 AM
Chapman needs to be careful with his words. He seems to equate privitization with free markets. They are not the same.
Three examples:
1, Great Britain "privatized" their railways by having the politicans select their cronies that would run them, but still did not allow competiton. The result was there was no improvement, and even decay
2. On the same lines, the "robber barons" obtained monopolies from politicians, then increased prices, because there was no competiton.
3. Cable companies are given monopolies where they can charge virtually any price they want because competion is nil.
All three of these are "privitization", but not free markets. It makes no differnence if a private firm or a govt official runs a service if there is no free markets. The result will be ineffenciency. The statist and socialist will then use this "privitization" as proof free markets do not work.
Summary: Privitization and free markets are not the same.
Footnote: To the person who seems to want to imply free markets depend on growth for growth's sake, should be reminded that growth and progress are a result of free markets, not a cause nor goal.
Published: February 21, 2008 12:28 PM
I am not absolutely sure that the examples support the conclusions. The advantages that Indianapolis gained were not so much from privatization as from well-regulated competition.
Let's say that we subcontracted the city's insurance and legal departments out to the lowest bidder. Would the new departments be motivated to exceed expectations, or to simply meet expectations at a very low cost?
It seems that a well-run privatization program could save money, but a poorly run privatization program could cost much more than it could ever save.
The State of Florida, for example, started a massive privatization program when Governor Bush took office. About the best that can be said of it is that the gross mismanagement and corruption cost very few lives. Certainly, the government programs that were displaced were much less expensive than the private firms on the payroll now.
Published: February 21, 2008 1:03 PM
Thank you for suggestion to read Rothbard, I have those intentions.
I understand that Mises does not promote growth for it's own sake but that is the obscession with Free Market and to that end, given the vastly different world from the 40's etc, there appears no recognition of the consequences of unfettered enourmous concentrations of capital without regard to destruction of environment and the power to subjugate populations.
Yes, Privitization and Free Market are not the same.
Capitolism and Democracy are not the same either. Never before has concentrated capital had such devastating power.
I have been reading this site off an on for months and don't see where these issues are bridged.
Published: February 21, 2008 1:18 PM
Ping - I'd love to hear how reason has changed since the 1940s since we're now in a completely different world and all. Cheers.
Published: February 21, 2008 1:32 PM
Ping: “Witness Private Equity Firms, purchasing companies, gutting them of employees and vital components for an improved cost facade and quickly reselling them at a handsome profit.”
First, you need to get your definitions right: plunder is theft and is illegal, today. Private equity firms buy failing public companies. Why are they failing? Because they were poorly managed. What you call “gutting” a company of employees could be nothing more than reducing costs in order to make the company profitable. Clearly, when the volume of business declines, that business needs fewer employees. As you notice, PE firms then resell the company. Why would anyone buy a company that was “gutted” of vital employees and components? If things vital to the success of the company are gone, the company is worthless. The PE firm must be leaving something of value in the company or it wouldn’t sell. PE firms are nothing but recyclers of failed public companies, such as Chrysler.
The rebuilding of New Orleans is a poor example of outsourcing because it was a disaster situation. FEMA has the mandate to throw as much money at disasters as it possibly can and no one wants accountability in disasters because it slows down the process. During disasters, the media criticize FEMA for not spending enough fast enough. After the disaster, the media criticizes FEMA for wasting money. Besides, with New Orleans and Blackwater, you dredge up the exceptions and portray them as the rule. Cities like Indianapolis are more in line with the rule of privatization.
Ping: “From what I can tell, much of his theory application appears antiquated and does not address the vastly complex global reality and unrealistically adheres to the notion Free Market automatically regulates.”
That could be true, or it could be that you picture reality as being far more complex than it is. Your debate may be one over views of reality rather than economics. By the way, claiming that the real world is more complex is just another dodge to escape serious analysis. Besides, how do you know that free market regulation is unrealistic? It seems you have made up your mind before hearing the opposing argument.
Ping: “.....what is the real cost basis for contaminating a river....”
The only way to know is to privatize ownership of the river. With government ownership, as the situation exists today, such costs are just one bureaucrat’s wild guess against another’s.
Ping: I am also disturbed that 'growth' is an obscessive mantra in economics.
After all, growth for it's own sake is the ethos of the cancer cell.”
Economics is obsesses with growth because people like to maintain their standards of living. If you can find a way to stop the population from growing, then economists might quit fixating on growth. But with a growing population, the economy must grow in step with the population increase or else income falls, people become poorer in general and the number of people living in poverty increases. Growth for its own sake is the ethos of every living things, too. Or maybe we should legislate that people can’t grow taller than four feet.
Published: February 21, 2008 1:45 PM
Ping: "Never before has concentrated capital had such devastating power."
You probably won't see that addressed here because it doesn't exist. You have obviously been well-schooled in socialist propaganda. The only response you find here is that the socialist description of reality is a fictional horror story that they have cooked up to frighten the ignorant masses.
On the other hand, if you had some examples of concentrated capital having such devastating power, that would be interesting to discuss.
Published: February 21, 2008 1:48 PM
This problem of bureaucratic waste in a capitalistic environment is relative just like prices are relative in the market. Who, which one of you, claims to have absolute knowledge?
What we are aspiring towards is a free market which will, of course, be capitalistic since capital is the most limiting factor in the real world economy. It is an aspiration: a process that is part of the ever-advancing civilization.
What is natural and critical is having a foundation of economic principles. The most basic of all these principles is the property right/human right. As property rights are defined and refined the errors and inefficiencies associated with bureaucracy will fade away.
And the economy does not need some outside force directing it towards less bureaucracy since the forces of equilibrium move the economy in that direction in a free market environment.
It is the corrupting hand of the ego-driven interventionists that interferes with the powerful forces of equilibrium.
Published: February 21, 2008 2:22 PM
"there appears no recognition of the consequences of unfettered enourmous concentrations of capital without regard to destruction of environment and the power to subjugate populations"
Examples, please.
Published: February 21, 2008 3:32 PM
"there appears no recognition of the consequences of unfettered enourmous concentrations of capital without regard to destruction of environment and the power to subjugate populations"
Examples, please.
Published: February 21, 2008 3:32 PM
In Britain the railways are not private - "Network Rail" (which owns the track and so) is 100% government owned.
Their are "franchise companies" that run servives - but they are totally controlled by government agencies (it is a farce).
There was a period when there was a private company called "Railtrack" that owned the track and stations (they were sold to Railtrack by the government of John Major) - but it under intense government regulation and was not even allowed to run trains (no I am not making that bit up).
It was taken over by the Labour party government some years ago.
As for the article:
Yes private ownership is confused with a free market.
As is privitization and "contracting out".
If the government is still the customer (i.e. it pays the bills - via taxation) this can not really be considered privitization.
Although contracting out is better than nothing.
As long as the web of regulations is removed.
Lastly one should be careful to measure government spending and taxation as a percentage of income (not just income tax - all taxes).
Measuring them "per capita" (the practice of most establishment sources) is normally a mistake (there are some rare case when measuring things per head of population without consideration of income, is the correct thing to do).
The need to judge government taxation and spending in relation to income was pointed out more than two hundred years ago.
Edmund Burke responded to the claim that Ireland was less highly taxed than England by showing that in relation to the income of the people living there Ireland was more highly taxed than England.
Published: February 21, 2008 3:58 PM
After falsly being accused of embracing socialism supported by uninformed comments like 'the only way to establish the cost basis for contaminating a river is to priviatize it' and plunder is theft only if it is illegal........ isn't it Mises who rails against legalized monetary plunder??
As a successful business owner and manager for over 40 years, I am well familiar with the prinicples of proper capitalistic business. I am also a consumer of considerable financial reading, I don't need to have offensive labels thrown at me for politely attempting discourse.
Seems that there are those among you who have rabidly embraced cliches and have lost the ability to dialogue. I likely won't post here again.
Published: February 21, 2008 5:16 PM
I hope the author will take the time to send this article to the Akron Beacon Journal. It would be best for the people of Akron to have access to this information prior to the next election.
Published: February 21, 2008 5:17 PM
The incentive of the free market is:
"Do your job, do it efficiently, or be gone!"
The incentive of government run, regulated or controlled market is:
"Do your job well enough so not to grab the attention of anyone, or be transferred!"
This is the message of Mises, and it holds forever.
Published: February 21, 2008 5:19 PM
Ping, what is this unfettered economy you speak of? Most world economies are more regulated than ever, regardless of whether they involve the private sector in their schemes or not (usually via outsourcing; the 'deregulated' banking sector is a good example.) I know it is fashionable for some liberals and even libertarians to speak of the 'unfettered market' (either in defence of or opposition to it), but that only shows how clueless they are.
Published: February 21, 2008 5:32 PM
I thought it was fairly common knowledge that unfettered concentration of capital can have ugly consequences. Following is an example article. The practices of the IMF in compelling poor nations to enact disasterous policies and purchases only benefitting organization members ( example Argentina) in order to recieve loans is another example. It is legalized plunder.
China is experiencing an ecological disaster from unfettered development, something like 70% of rivers and water supply is now contaminated.... what is the true cost basis of exposing millions of people to dangerous levels of toxins...
If Mises motto is 'do your job effeciently or be gone'...it is very ambiguious given the complexity of real world.
Globalization and Democracy: Some Basics
by Michael Parenti
The goal of the transnational corporation is to become truly transnational, poised above the sovereign power of any particular nation, while being served by the sovereign powers of all nations. Cyril Siewert, chief financial officer of Colgate Palmolive Company, could have been speaking for all transnationals when he remarked, “The United States doesn’t have an automatic call on our [corporation’s] resources. There is no mindset that puts this country first.”[i]
With international “free trade” agreements such as NAFTA, GATT, and FTAA, the giant transnationals have been elevated above the sovereign powers of nation states. These agreements endow anonymous international trade committees with the authority to prevent, overrule, or dilute any laws of any nation deemed to burden the investment and market prerogatives of transnational corporations. These trade committees–of which the World Trade Organization (WTO) is a prime example—set up panels composed of “trade specialists” who act as judges over economic issues, placing themselves above the rule and popular control of any nation, thereby insuring the supremacy of international finance capital. This process, called globalization, is treated as an inevitable natural “growth” development beneficial to all. It is in fact a global coup d’état by the giant business interests of the world.
Elected by no one and drawn from the corporate world, these panelists meet in secret and often have investment stakes in the very issues they adjudicate, being bound by no conflict-of-interest provisions. Not one of GATT’s five hundred pages of rules and restrictions are directed against private corporations; all are against governments. Signatory governments must lower tariffs, end farm subsidies, treat foreign companies the same as domestic ones, honor all corporate patent claims, and obey the rulings of a permanent elite bureaucracy, the WTO. Should a country refuse to change its laws when a WTO panel so dictates, the WTO can impose fines or international trade sanctions, depriving the resistant country of needed markets and materials.[ii]
Acting as the supreme global adjudicator, the WTO has ruled against laws deemed “barriers to free trade.” It has forced Japan to accept greater pesticide residues in imported food. It has kept Guatemala from outlawing deceptive advertising of baby food. It has eliminated the ban in various countries on asbestos, and on fuel-economy and emission standards for motor vehicles. And it has ruled against marine-life protection laws and the ban on endangered-species products. The European Union’s prohibition on the importation of hormone-ridden U.S. beef had overwhelming popular support throughout Europe, but a three-member WTO panel decided the ban was an illegal restraint on trade. The decision on beef put in jeopardy a host of other food import regulations based on health concerns. The WTO overturned a portion of the U.S. Clean Air Act banning certain additives in gasoline because it interfered with imports from foreign refineries. And the WTO overturned that portion of the U.S. Endangered Species Act forbidding the import of shrimp caught with nets that failed to protect sea turtles.[iii]
Free trade is not fair trade; it benefits strong nations at the expense of weaker ones, and rich interests at the expense of the rest of us. Globalization means turning the clock back on many twentieth-century reforms: no freedom to boycott products, no prohibitions against child labor, no guaranteed living wage or benefits, no public services that might conceivably compete with private services, no health and safety protections that might cut into corporate profits.[iv]
GATT and subsequent free trade agreements allow multinationals to impose monopoly property rights on indigenous and communal agriculture. In this way agribusiness can better penetrate locally self-sufficient communities and monopolize their resources. Ralph Nader gives the example of the neem tree, whose extracts contain natural pesticidal and medicinal properties. Cultivated for centuries in India, the tree attracted the attention of various pharmaceutical companies, who filed monopoly patents, causing mass protests by Indian farmers. As dictated by the WTO, the pharmaceuticals now have exclusive control over the marketing of neem tree products, a ruling that is being reluctantly enforced in India. Tens of thousands of erstwhile independent farmers must now work for the powerful pharmaceuticals on profit-gorging terms set by the companies.
A trade agreement between India and the United States, the Knowledge Initiative on Agriculture (KIA), backed by Monsanto and other transnational corporate giants, allows for the grab of India’s seed sector by Monsanto, its trade sector by Archer Daniels Midland and Cargill, and its retail sector by Wal-Mart. (Wal-Mart announced plans to open 500 stores in India, starting in August 2007.) This amounts to a war against India’s independent farmers and small businesses, and a threat to India’s food security. Farmers are organizing to protect themselves against this economic invasion by maintaining traditional seed-banks and setting up systems of communal agrarian support. One farmer says, “We do not buy seeds from the market because we suspect they may be contaminated with genetically engineered or terminator seeds.”[v]
In a similar vein, the WTO ruled that the U.S. corporation RiceTec has the patent rights to all the many varieties of basmati rice, grown for centuries by India’s farmers. It also ruled that a Japanese corporation had exclusive rights in the world to grow and produce curry powder. As these instances demonstrate, what is called “free trade” amounts to international corporate monopoly control. Such developments caused Malaysian prime minister Mahathir Mohamad to observe:
We now have a situation where theft of genetic resources by western biotech TNCs [transnational corporations] enables them to make huge profits by producing patented genetic mutations of these same materials. What depths have we sunk to in the global marketplace when nature’s gifts to the poor may not be protected but their modifications by the rich become exclusive property?
If the current behavior of the rich countries is anything to go by, globalization simply means the breaking down of the borders of countries so that those with the capital and the goods will be free to dominate the markets.[vi]
Under free-trade agreements like General Agreements on Trade and Services (GATS) and Free Trade Area of the Americas (FTAA), all public services are put at risk. A public service can be charged with causing “lost market opportunities” for business, or creating an unfair subsidy. To offer one instance: the single-payer automobile insurance program proposed by the province of Ontario, Canada, was declared “unfair competition.” Ontario could have its public auto insurance only if it paid U.S. insurance companies what they estimated would be their present and future losses in Ontario auto insurance sales, a prohibitive cost for the province. Thus the citizens of Ontario were not allowed to exercise their democratic sovereign right to institute an alternative not-for-profit auto insurance system. In another case, United Postal Service charged the Canadian Post Office for “lost market opportunities,” which means that under free trade accords, the Canadian Post Office would have to compensate UPS for all the business that UPS thinks it would have had if there were no public postal service. The Canadian postal workers union has challenged the case in court, arguing that the agreement violates the Canadian Constitution.
Under NAFTA, the U.S.-based Ethyl Corporation sued the Canadian government for $250 million in “lost business opportunities” and “interference with trade” because Canada banned MMT, an Ethyl-produced gasoline additive considered carcinogenic by Canadian officials. Fearing they would lose the case, Canadian officials caved in, agreeing to lift the ban on MMT, pay Ethyl $10 million compensation, and issue a public statement calling MMT “safe,” even though they had scientific findings showing otherwise. California also banned the unhealthy additive; this time a Canadian based Ethyl company sued California under NAFTA for placing an unfair burden on free trade.[vii]
International free trade agreements like GATT and NAFTA have hastened the corporate acquisition of local markets, squeezing out smaller businesses and worker collectives. Under NAFTA better-paying U.S. jobs were lost as firms closed shop and contracted out to the cheaper Mexican labor market. At the same time thousands of Mexican small companies were forced out of business. Mexico was flooded with cheap, high-tech, mass produced corn and dairy products from giant U.S. agribusiness firms (themselves heavily subsidized by the U.S. government), driving small Mexican farmers and distributors into bankruptcy, displacing large numbers of poor peasants. The lately arrived U.S. companies in Mexico have offered extremely low-paying jobs, and unsafe work conditions. Generally free trade has brought a dramatic increase in poverty south of the border.[viii]
We North Americans are told that to remain competitive in the new era of globalization, we will have to increase our output while reducing our labor and production costs, in other words, work harder for less. This in fact is happening as the work-week has lengthened by as much as twenty percent (from forty hours to forty-six and even forty-eight hours) and real wages have flattened or declined during the reign of George W. Bush. Less is being spent on social services, and we are enduring more wage concessions, more restructuring, deregulation, and privatization. Only with such “adjustments,” one hears, can we hope to cope with the impersonal forces of globalization that are sweeping us along.
Published: February 21, 2008 7:21 PM
Odd source to quote since you're not a socialist, but nevertheless...
If you're expecting much of a rebuttal of Parenti, though, don't hold your breath. I doubt anyone here would disagree overly much with him, assuming he got his facts right, given that most libertarians oppose the associations and agreements he mentioned, as well as IP... of course, one thing socialists like Parenti do like doing is dressing up state-business alliances as 'capitalist' or 'free market'. To each their own, but this doesn't help his case.
Published: February 21, 2008 8:23 PM
Ping, I think that the real problem is that many of the organizations you mention as collections of capital operate with tacit or active protection from prosecution or redress of wrongs, provided by their cronies in the government(s) or in the lobbying organizations to the government. Maybe one of the more frequent posters could comment on whether the IMF is viewed as a "free market" entity or not?
I think that almost everyone here would advocate the elimination, in all of the organizations you mention, of special privilege given by the State to these businesses (or other "accumulations of capital"). It appears to me that what you most object to is the ability of special interests to manipulate a powerful government to their own ends. The root problem is that there is so much government power to manipulate.
My opinion - the answer isn't more government. It is far less government with far less scope.
One other point I would like to mention about plunder - What is it called when I am forced to pay more for a service than a fair market price, or am compelled to pay high taxes to benefit the employees of a city/government? That sounds like active plunder to me. And that is what is the accepted norm in most of our governments now.
Published: February 22, 2008 12:17 AM
"I thought it was fairly common knowledge that unfettered concentration of capital can have ugly consequences. Following is an example article. The practices of the IMF.."
Whether intentionally or unintentionally, you have perpetrated a nice sleigh of hand. You have equated the IMF with free markets, then attack the IMF as if it represented free markets. A similar ploy is to equate free markets with corporations, then attack corporations. I am sure this was just an oversight.
. The IMF is a global collectivist organization, staffed by international bureaucrats, and funded by tax money. You have given a good demonstration of how govt's use the power of tax as an "unfettered concentration of capital", but you have yet to indentify how free markets results in "unfettered" concentration of capital. So from your example, it is governments, not free markets that have the "unfettered" concentration of capital, and the ugly consequences that result.
Perhaps you could make your point more clear by defining "unfettered". I am sure you will agree that undefined terms can lead to misunderstandings.
"As a successful business owner and manager for over 40 years, I am well familiar with the prinicples of proper capitalistic business"
Would like to know what you consider the "principles of 'proper' capitalistic business". This is another undefined term that can lead to misunderstanding.
Published: February 22, 2008 8:31 AM
Ping: “I thought it was fairly common knowledge that unfettered concentration of capital can have ugly consequences.”
I’m still not sure of what you mean by “unfettered concentration of capital,” but based on your post, it seems you mean large corporations, especially multinational corps or MNC’s. You clearly have a good grasp of microeconomics from running a business, but you don’t seem to be aware that your macroeconomics is pure socialism. Modern socialism defines capitalism as that part of the world economy made up of MNC’s, and capitalism by definition is evil. They consider small companies to be part of a competitive economy, which is pure and good in their minds. Bigness is evil by definition, too, but to add a veneer of rationality to their argument, they exaggerate the power of MNC’s. MNC’s have no more power than small businesses in a truly capitalist economy; they get their extra power in non-capitalist economies by bribing politicians.
If you judge MNC’s by their actions, you’ll find that some are good and some bad and most are mixed. From an Austrian perspective, MNC’s are acting in an evil manner when they use government agencies to achieve their goals, such as when ADM gets Congress to subsidize ethanol production. Of course, you’ll find some Austrians who consider the corporate structure to be evil, just as socialists do, not because they’re big, but because they are a creation of the government.
As for international governmental organizations like the IMF and WTO, you won’t find much defense of them on this web site. Most are anarchists, and the rest of us are what they call minarchists, which means we want limited government. We would definitely agree that the IMF and WTO should be abolished.
Personally, I’m ambivalent about NAFTA and similar treaties. I don’t think they’re necessary. We should eliminate all barriers to imports unilaterally because that would be best for the US. If other countries want to commit economic suicide by protecting local businesses, that’s their right. But such treaties are tiny steps in the right direction.
However, the examples provided in the article are not examples of free trade, for the most part. They’re examples of large corporations bribing governments to give them an advantage in the marketplace, and every Austrian opposes that.
Keep in mind that every politician claims to have pure motives for every piece of legislation he proposes. So obviously NAFTA’s purpose was to “promote free trade.” But in reality, most legislation like NAFTA gets written by congressmen who are bought by large corporations and who write the legislation to promote the interests of their major contributors. Just because they claim it’s for free trade doesn’t mean it is and shouldn’t be used as an argument against free trade.
Is the answer to the evil collaboration between MNC’s and government more governmental control over the economy, as socialists recommend? That doesn’t seem to make sense. Is the cure to heroin addiction more heroin? Rather, as most Austrians would recommend, remove the power of government to control the economy and MNC’s would have no reason to bribe politicians. In an earlier post, you mentioned Standard Oil and Nigeria. The solution there would be real property rights and a smaller, less corrupt government that understood its proper role is to protect property rights. Then Standard Oil would be forced to deal with the owners of the land they are trying to pollute instead of corrupt government officials they can easily bribe.
True capitalism, not the distorted monster that socialists call capitalism, is the rule of law, free markets, and limited government. More capitalism is the answer to the problems that MNC’s and corrupt governments cause.
Published: February 22, 2008 9:05 AM
I'll likely follow up with a more compele response to requests for more definition.
Yes, the IMF was another example of the corruptive nature of concentrated capital which typically has no moral perameters, as an entity it is simply out for return on investment.
I am not socialist in nature. Having worked very hard in my business, to be competative, to offer a good product, to be fair to employees, to sucessfully strategize and so forth, I must also enjoy the returns.
Another example of unfettered capitalism, I refer to our Health Care Industry, largely controlled by the pharmaceutical industry. The FDA is now more or less their extension as is the USDA for the Beef industry. I don't know how Americans still think this 'regulatory' agencies function for the public good. They basically create an illusion of product safety.
'Disaster Capitalism' is a virulent new form of unfettered capitalism:
Naomi Klein | "The Shock Doctrine" •
The Shock Doctrine
By Stephen Lendman
t r u t h o u t | Book Review
Thursday 20 September 2007
Naomi Klein is an award-winning Canadian journalist, author, documentary filmmaker and activist. She writes a regular column for The Nation magazine and London Guardian that's syndicated internationally by The New York Times Syndicate, that gives people worldwide access to her work but not its own readers at home.
In 2004, she and her husband and co-producer Avi Lewis released their first feature documentary - "The Take." It covered the explosion of activism in the wake of Argentina's 2001 economic crisis. People responded with neighborhood assemblies, barter clubs, mass movements of the unemployed and workers taking over bankrupt companies and reopening them under their own management.
Klein is also the author of three books. Her first was "No Logo - Taking Aim at the Brand Bullies" (2000), that analyzes the destructive forces of globalization. Next came "Fences and Windows - Dispatches from the Front Lines of the Globalization Debate" (2002), covering the global revolt against corporate power.
Her newest book is "The Shock Doctrine: The Rise of Disaster Capitalism", that explodes the myth of "free market" democracy. It shows how neoliberal, Washington consensus fundamentalism dominates the world with America its lead exponent exploiting security threats, terror attacks, economic meltdowns, competing ideologies, tectonic political or economic shifts and natural disasters to impose its will everywhere. Wars are waged, social services cut and freedom sacrificed when people are too distracted, cowed or bludgeoned to object. Klein describes a worldwide process of social and economic engineering she calls "disaster capitalism" with torture along for the ride to reinforce the message - no "New World Order" alternatives are tolerated.
"Free market" triumphalism is everywhere - from Canada to Brazil, China to Bulgaria, Russia to South Africa, Vietnam to Iraq. In all cases, the results are the same: People are sacrificed for profits and Margaret Thatcher's dictum applies - "there is no alternative."
"The Shock Doctrine" is a powerful tour de force, four years of on-the-ground research in the making and well worth the wait. In an age of corporatism partnered with corrupted political elites, it's must reading by an author now firmly established as a major intellectual figure on the left and champion of social justice. Naomi Klein is all that and more. Even for those familiar with her topics, the book is stunning, revealing, unforgetable and essential to know. This review will cover a healthy sample of what's in store for readers in the full, exquisitely written text. It's in seven parts with a concluding section. Each will be discussed below starting with a brief introduction.
Introduction - Blank Is Beautiful: Three Decades of Erasing and Remaking the World (into Hell)
New Orleans, post-Katrina, is a metaphor for an American-style "New World Order" with unfettered capitalism unleashed in its most savage form. Klein quotes Republican Congressman Richard Baker telling lobbyists, "We finally cleaned up public housing in New Orleans. We couldn't do it but God did." And New Orleans developer Joseph Canizaro added, "I think we have a clean sheet to start again (and take advantage of) big opportunities." Their scheme is erasing communities and replacing them with upscale condos and other high-profit projects on choice city real estate at the expense of poor Mother Nature forced out and government not allowed back.
Enter the "grand guru" of freewheeling capitalism, then age 93 and in failing health. This was conservative/libertarian economist Milton Friedman's moment he first articulated in his 1962 book "Capitalism and Freedom." His thesis: "only a crisis - actual or perceived - produces real change. When a crisis occurs, the actions that are taken depend on the ideas that are lying around....our basic function (is) to develop alternatives to existing policies [ones Friedman rejects, and have them ready to roll out when] the impossible becomes politically inevitable." Klein calls crises "democracy-free zones," and Friedman's thesis "the shock doctrine." For New Orleans, it means "permanent reforms" like destroying public housing and issuing vouchers for privatized schools in lieu of rebuilding public ones with government reconstruction funds.
For Friedman, government's sole function is "to protect our freedom both from (outside) enemies....and from our fellow-citizens." It's to "preserve law and order (as well as) enforce private contracts, (and) foster competitive markets." In his view, anything else in public hands is socialism that for "free market" fundamentalists like Friedman is blasphemy.
Until 1973, Friedman's radical doctrine stayed in his classroom, but all that changed on an earlier September 11. Following General Augusto Pinochet's bloody ascent to power, he had a real life laboratory as advisor to the new Chilean dictator. His prescription came to be known as the "Chicago School" revolution of rapid-fire economic transformation he called "shock treatment," now known as "shock therapy." It's an economic version of "destroy(ing) the village (and country) to save it" from the Vietnam era and nearly as harsh.
Millions know its lessons, but Friedman's not their hero. It's central tenets are structurally adjusted mass-privatizations, government deregulation, unrestricted free market access for foreign corporations, and deep cuts in social spending with repressive laws, harsh crackdowns and torture along for the ride to reinforce the core tenet Reaganites call "trickle down" and Brits call "Thatcherism."
Its recipients call it hell, and Klein explains why - in Chile, Argentina, Uruguay, Bolivia, Brazil, China, Russia, the Falklands, Poland, South Africa, Sri Lanka, New Orleans, Israel, and coming to a neocon-occupied homeland neighborhood near you. It's "disaster capitalism" unleashed, and business is booming. Klein cites insiders saying opportunities are on a par with a thriving "emerging market.... "the deals are even better than the dot-com days, and 'the security bubble' picked up the slack when those earlier bubbles popped."
Reaganomics adherents are today's neoconservatives with the "full force of the US military machine (serving their unfettered) corporate agenda" of greed writ large. Its holy policy trinity is: "elimination of the public sphere, total liberation for corporations and skeletal social spending (if any at all)." But instead of lifting all boats as promised, it's mirror opposite. It creates a powerful ruling corporatist class partnered with corrupted political elites - "with hazy and ever-shifting lines between the two groups." Russia got billionaire "oligarchs," China "the princelings," Chile "the piranhas," and America the Bush-Cheney "Pioneers."
Everywhere, the scheme is the same: huge public wealth transfers to private hands, exploding public debt most often, "an ever-widening chasm between the dazzling rich and disposable poor, and an aggressive nationalism (like George Bush's permanent "war on terrorism" and the world) that justifies bottomless spending on security." "Inside the bubble" is paradise. Outside, however, is hell with "aggressive surveillance, mass incarceration, shrinking civil liberties," a declining standard of living and repression and torture reinforcing the message to non-believers.
Klein calls the harshness "a metaphor of the shock doctrine's underlying logic." When applied, it induces a state of "deep disorientation," and shock to force targets "to make concessions against their will." The "shock doctrine" works the same way on a mass scale, and the 9/11 experience proved it. It exploded the "familiar world" and created a period of disorientation and regression the Bush administration jumped on abroad and at home. As Klein put it: "Suddenly we found ourselves living in a kind of Year Zero (with) everything we knew of the world before (now) dismissed as 'pre-9/11' thinking." We became a "blank slate, a clean sheet of paper," and the administration did what was impossible before. It's how the "shock doctrine" works: "the original disaster (terror attack, war, hurricane, market meltdown) puts the entire population into a state of collective shock" enabling policy manipulators to move in for the kill to remake the world in their image and get it done before the shock wears off.
Part 1 - Two Doctor Shocks - Torture and Chicago School Fundamentalism
Following a crisis shock, another quickly follows. The corporate piranhas exploit disorientation with economic "shock therapy" along with "police, soldiers and prison interrogators" with torture their method of choice "to build a model country (by) erasing people and then trying to remake them from scratch."
Klein reviews the history of CIA's interest in torture as a way to control the human mind. It began with the Montreal doctor they funded to perform "bizarre experiments on his psychiatric patients (by) keeping them asleep and in isolation for weeks, then administering huge doses of electroshock (plus) experimental (psychedelic LSD and hallucinogen PCP angel dust) drug cocktails."
The experiments were performed at McGill University's Allan Memorial Institute by Dr. Ewen Cameron, even though they clearly violated all standards of medical ethics using human guinea pigs without their permission, with permanent damage their reward. Cameron believed by blasting the human brain with an array of shocks, he could "unmake and erase faulty minds, then rebuild (on a blank slate) new personalities" cleansed of their previous nature. It was voodoo science, and it failed. His patients were his victims, but CIA gained a wealth of knowledge it now employs with no pangs of conscience or regard for ethics.
Klein traces CIA's interest in mind manipulation to a 1951 trinational meeting of intelligence agencies and academics in Montreal when concern was that Communists could brainwash POWs to control them. That was when the spy agency engaged Canadian researchers to learn how, and one of them was Dr. Donald Hebb, director of psychology at McGill, who was working on the problem. Intelligence agencies were impressed enough with his work to fund classified sensory-deprivation experiments on volunteer McGill students.
They proved intensive isolation interferes with clear thinking enough to make people more receptive to suggestion. They were also "formidable interrogation techniques" amounting to torture that Hebb knew violated medical ethics. He later characterized Cameron's work as "criminally stupid," but CIA got what it wanted - a way to interrogate "resistant sources" in a "new age of precise, refined torture, not the gory, inexact" kind from the Spanish Inquisition or what Nazis and other tyrants often practiced. Cameron's experiments with human guinea pigs built on Hebb's earlier work, laying the foundation for CIA's "two-stage psychological torture method" of sensory deprivation followed by sensory overload. University of Wisconsin historian Alfred McCoy in his book, "A Question of Torture", on CIA interrogation, called it "the first real revolution in the cruel science of pain in more than three centuries."
Pre-9/11, these techniques were freely used covertly as any form of abuse or torture violates the Geneva, UN, and other statutes prohibiting these practices as well as the US Army's own Uniform Code of Military Justice barring "cruelty" and "oppression" of prisoners. No longer, as "On September 11, 2001, that longtime insistence on plausible deniability went out the window" as well as any claim this nation respects the law and rights of free people everywhere. What once was done sub rosa or by proxy is now condoned and authorized at the highest levels of government on the fraudulent claim of national security to hide the real aim of social control.
Klein notes torture is still technically banned in the US, but only when pain is the "equivalent in intensity to (what accompanies) serious physical injury, such as organ failure." Simply put, anything goes, but it's not put that way. In Iraq, it was thought "shock and awe" would be so stunning Iraqis "would go into a kind of suspended animation." A second makeover Chicago School fundamentalism shock could then be imposed on a blank post-invasion slate, and bingo, mission accomplished. Klein notes "there was no blank slate, only rubble and shattered, angry people" who were blasted with more shocks when they resisted. Like Cameron and his experiments, "Iraq's shock doctors can destroy, but they can't seem to rebuild," and the same is true wherever these shock doctors show up.
Milton Friedman and the Search for a Laissez-Faire Factory
The epicenter of shock ideology is the University of Chicago Economics Department. It came out of the 1950s "in the thrall" (of a) man on a mission to fundamentally revolutionize his profession," and on that score Milton Friedman succeeded mightily. Friedman, now gone, believed, markets work efficiently and best unfettered of rules, regulations, onerous taxes, trade barriers, entrenched interests and human interference. Whereas Cameron believed electroshocks could restore natural health, Friedman favored economic shock as extreme and destructive to nations as Cameron and CIA's methods are to human minds.
Friedman taught this voodoo science and believed to the end, all contrary evidence aside, it was perfect and worked. Chicago School fundamentalism developed at a post-war time in the 1950s when leftist ideas supporting worker rights were gaining ground. Where they "promised (workers) freedom from bosses, citizens from dictatorship (and) countries from colonialism," Friedman promised "individual freedom" to choose that appealed to owners of capital who embraced him and his thinking.
It stood in stark contrast to what became known as "developmentalism" or "Third World nationalism" in the post-war developing world. Economists in it favored an "inward-oriented industrialization" strategy to break the cycle of poverty and grow. Like Keynesians and social democrats, they showed it worked in Latin America's Southern Cone with leaders like Juan Peron "put(ting) their ideas into practice with a vengeance (by) pouring public money into infrastructure projects, (providing) local businesses generous subsidies, and keeping out foreign imports with....high tariffs." It brought prosperity to the South and "dark days" for Friedman, his acolytes, and freewheeling capitalists losing out to social progress.
It sprung corporate America to action by funding a legion of think tank and Chicago School foot soldiers to change the message and fortunes of their businesses. Friedman was their ideological leader preaching public wealth should be in private hands, rules and regulations out the window, accumulation of profits unrestrained, and social welfare programs curtailed or abolished. In short - deregulate, privatize and get government out of the business of everything besides providing security and enforcing contracts. He also believed taxes were onerous and once said he was "in favor of cutting (them) under any circumstances and for any excuse, for any reason, whenever it's possible...."
He also said corporations should be exempt from federal taxes claiming what they pay ends up in consumer prices that, in fact, is pure nonsense as every marketing MBA (like this writer) learns straightaway. The fundamental law of pricing is to charge what the market will bear, no more or less. In other words, get all you can but no more than buyers will pay. Soon enough they'd pay plenty in the developing world.
In 1953, the US declared war against "developmentalism" with CIA's first ever coup against Mohammed Mossadegh in Iran. Another followed the next year in Guatemala, and in both instances democratically elected leaders were ousted because corporate interests opposed them. It was only the beginning, and Friedman and his "Chicago Boys" soon had a real time laboratory to prove their "capitalist utopia" worked.
Salvador Allende's Popular Unity government electoral victory in 1970 was the opportunity. Three years later he was out, giving Friedman the chance he wanted. Klein related the results in what she called "the first Chicago School state" with others to follow. They're all the same with "an unstoppable hurricane of mutually reinforcing destruction and reconstruction, erasure and creation" following the crisis. Next is unfettered economic shock therapy with torture and disappearances awaiting resisters and anyone guilty of bad thinking. Friedman's brave new world was beginning to roll. Its devastation is everywhere including at home.
Part 2 - The First Test - The Bloody Birth of the Counterrevolution
Counterrevolution began 34 years ago in Chile on another September 11 that should have been unimaginable and had to seem surreal. There were tanks in the streets and fighter jets attacking government buildings in a scene all too real and deadly. It played out in Santiago and around Chile and was just the beginning of a long nightmare. It brought General Augusto Pinochet to power (with plenty of CIA help) who called his action "a war," not a coup, and to reinforce his message he made it seem like one. Blood in the streets, the presidential palace in flames, and President Salvador Allende dead-ended the most vibrant democracy in the Americas. It was a cakewalk with "the junta's grand battle over by mid-afternoon."
A state of siege was imposed followed by mass arrests, killings and torture in a climate of fear that enveloped the country. Allende supporters were targeted in Chile's "Caravan of Death." Chileans paid dearly, but the Chicago Boys had their moment of triumph, and they were ready. Rolling off the press was their detailed economic manual for the new government called "The Brick." It was a 500-page Chicago School shock therapy wish list. It was "the first Chicago School state," its first "global counterrevolution" victory, and "a genesis of terror" in a brave new world for Chileans.
The economic playbook was right from Milton Friedman's "Capitalism and Freedom" that's long on free market triumphalism and void on its effects on real people. It was pure Friedman featuring mass privatizations, deregulation and deep social spending cuts flavored generously with corporate-friendly tax cuts, trade unionist crackdowns, savage repression for non-believers, and an end to Chile's social democratic state Friedman condemned.
Pinochet bought it along with a team of Chicago School alumni called "technos." They embarked on a free market binge with disastrous results. In the first year, inflation hit 375 percent, thousands of Chileans lost jobs, the country was flooded with cheap imports, local businesses closed and hunger grew along with public and small business discontent in this free market "paradise." In desperation, "it was time to call in the big guns" with Milton Friedman coming to Santiago to reinforce his message that for things to improve they first had to get worse. It was classic shock treatment and Chicago School baloney with Friedman preaching patience and promising an "economic miracle" if his prescription was followed.
Pinochet agreed, and slash and burn followed with visions of paradise at the end of the rainbow. It was pure untested fantasy, and the results showed it. After one year of hardened shock therapy, Chile's economy contracted 15 percent, unemployment rocketed to 20 percent, and contrary to Friedman's rosy scenario it lasted for years with no social safety net help for desperate Chileans.
Klein notes Chile today is still cited as a model that free market "Friedmanism" works in spite of the clear evidence it doesn't. Growth did resume a decade later, but only after conditions worsened. It forced Pinochet to reinstate Allende policies like renationalizing privatized companies but not his social democratic agenda. Chileans were left with the shambles. When the economy stabilized and rapid growth resumed in the late 80s, poverty was 45 percent, but the richest 10 percent saw their incomes rise by 83 percent. Even today, Klein notes, Chile remains one of the most unequal societies in the world. It's shock therapy miracle shifted "wealth to the top and shock(ed) much of the middle class out of existence."
It's the way it works everywhere and a glimpse of the future: "an urban bubble of frenetic speculation and dubious accounting fueling super-profits and frantic consumerism, ringed by ghostly factories and rotting infrastructure of a development past; roughly half the population (excluded); out-of-control corruption and cronyism; (decimated) nationally owned small and medium-sized businesses; (mass) transfer of (public) wealth (and resources) to private hands (accompanied by) a huge (shift) of private debts into public hands." Inside the Chilean bubble was paradise. Outside was "The Great Depression." Bubble-benefitters reacted with "junkie logic: Where is the next fix?"
It was first across the border in other Latin American Southern Cone countries where the "counterrevolution spread (and) people vanish(ed)." Argentina, Brazil and Uruguay were targeted with similar results as in Chile under juntas replacing democrats. Chicago School fundamentalism was on a roll, and woe to the non-believers. Nations that were developmentalism models became wastelands with decades of worker gains lost almost overnight. Factories closed, wages fell, unemployment soared, poverty grew severe, dissenters disappeared, and ordinary people suffered to prove what pin-stripped academics knew after Chile went sour. Instead, it was on to the next target.
In them all, the slate was cleansed and terror unleashed, unrestrained by national borders. Former Allende economist and diplomat turned activist Marcos Orlando Letelier became a victim in September, 1976. While living in Washington, he condemned Chile's "economic freedom" for the privileged and paid with his life. Pinochet's DINA secret police killed him and his American colleague, Ronni Moffit, by remote-detonating a bomb planted under his driver's seat. An FBI investigation learned the assassins entered the country under false passports with full CIA knowledge and complicity.
The purging included cleansing wrong ideas and thinkers like legendary left wing Chilean folk singer, Victor Jara. He was seized and taken to Chile's notorious National (killing and torture) Stadium to be reeducated. Soldiers broke his hands so he couldn't play the guitar. Then they shot him 44 times "to make sure he couldn't inspire from....the grave." One culture was being erased and replaced by another. As in Nazi Germany, books were burned, newspapers and magazines shuttered, universities occupied and strikes and political meetings banned. Trade unionists were specially targeted as threats to the new economic order. It's leaders were rounded up, movement members viciously attacked, and "battalions" targeted workers in factories. They were arrested, imprisoned, tortured, and disappeared in a sweeping reign of terror designed to crush opposition and wrong-thinking.
In Argentina, Ford Motor Company's local subsidiary was complicit. It helped soldiers and secret police rid unionists from its factories and supplied vehicles as well. Green Ford Falcon sedans became the feared symbol of terror an Argentine playwright called "death-mobiles." Many thousands kidnapped and disappeared rode off in these cars, never to return.
Farmers involved in land reform struggles also were targeted along with anyone with "a vision of society built on values other than pure profit." It affected community worker activists, many church-connected, who wanted social services like health care, public housing and education the state was erasing through shock therapy and mass repression. Klein noted while "policies attempted to excise collectivism from the culture, inside....prisons (the practice was to) excise it from the mind and spirit." The sickness was democratic socialism, the cure pain and suffering. Wrong-thinkers were taught the hard way, and many paid with their lives. Chicago School fundamentalism is harsh medicine. Its grand guru, Milton Friedman, was unrepentant. He called it "freedom" and took his mathematical model miracle to the grave amidst a hail of undeserved eulogies.
In his memoirs before he died, his "blatant revisionism" on Chile was shameful and disturbing. He falsely claimed Pinochet only asked for help in 1975 when, in fact, the Chicago Boys worked with the military before the 1973 coup, and their policies were implemented on Pinochet's first day in power. Friedman also claimed the junta's repressive years didn't undo Chilean democracy. In his view, it opened up "more room for individual initiative and for a private sphere of life (offering a greater) chance of a return to a democratic society." It was classic convoluted Chicago School thinking. It made him famous courtesy of corporate triumphalism, generous funding and an utter disdain for human rights and dignity.
Friedman also used his 1976 Nobel lecture to argue economics was as scientifically accurate and objective as other sciences. He failed to mention its dark side - devastating poverty, unemployment, shuttered factories and mass human misery and deaths in the first nation adopting his ideology on its victimized people. Now it's everywhere and savagely enforced in an age of corporate dominance, wars for profit and neglect of human needs to fund them. That's Friedman's real legacy from the barrel of a gun and called "freedom."
Part 3 - Surviving Democracy
Chicago School dogma became known as Thatcherism in Britain, but its prime minister wasn't an early adherent. Margaret Thatcher thought Chilean shock therapy wasn't possible in a democracy like the UK because voters wouldn't buy it. Three years into her first term, her approval rating was lower than George Bush's. She was in danger of not being reelected and didn't dare risk imposing bitter economic medicine that would sink her chances. That is, until destiny intervened on April 2, 1982 when Argentina invaded the British-held Falkland Islands off its coast that was unimportant to either country except for the political hay to gain from war.
Thatcher jumped at the chance to regain her footing and "went into Churchillian battle mode," even though Argentina's president, General Leopoldo Galtieri, wasn't Adolph Hitler. But defending the British Empire was almost as good, and it paid off. Thatcher's political future was at stake. She revived it, more than doubled her approval rating and henceforth was known as the "Iron Lady" that for her was high praise, and she made the most of it.
She launched a "corporatist revolution" based on Chicago School economics she thought impossible earlier. She parlayed her new popularity to a victory against striking coal miners in 1984 with tactics like unleashing 8000 "truncheon-wielding" riot police in a single confrontation. Before the strike ended, thousands of workers were injured, but Thatcher stood firm with a clear message to other unionists. Take what you're offered or get the same medicine.
She didn't stop there, and what followed was a radical economic agenda in a wave of state enterprise privatizations including British Telecom, British Gas, British Airways, British Steel and others in what Klein called "the first mass privatization auction in a Western democracy." It proved Chicago School fundamentalism didn't need repressive dictatorships to advance as long as "Iron Ladies" like Thatcher were around to match the best of them, short of all out tanks in the streets shock therapy, that is. Her eleven and a half years in power proved it, and Britain hasn't been the same since with Labor as committed now as the Tories.
Bolivia was soon targeted as well, but in 1985 was part a democratic wave sweeping the world. It was an election year with two familiar figures facing off for the presidency - former dictator Hugo Banzar and former elected president, Victor Paz Estenssoro. It was close and Banzar thought he won so before final returns were in he named 30 year old Harvard economist Jeffrey Sachs to help develop an anti-inflation economic plan for the country.
Sachs was part Keynsian but larger part Chicago School adherent that made for a bad combination. He bought its orthodoxy in softer form by supporting debt relief and generous aid along with the shock therapy he advised Banzar to adopt as the only solution to hyperinflation.
As it turned out, Banzar lost and Paz won, and while no socialist, he was no Chicago School adherent either, or so voters thought. Four days into his term, he charged his emergency economic team to radically restructure the economy using shock therapy with a twist. It was much harsher than Sachs proposed with the entire state-centered structure Paz erected decades earlier dismantled in the first 100 days before the public could react. In its place, food subsidies were ended, price controls lifted, wages frozen, oil prices hiked 300 percent, deep government spending cuts imposed, unrestricted imports allowed, and state-owned companies downsized as a first step to privatizing them. It cost hundreds of thousands of full-time jobs, pensions and safety net protections. Friedman continued to roll.
The results were predictable. The minimum wage never regained its value, and two years later real wages were down 40 percent and average per capita income dropped from $845 in 1985 to $789 in 1987. As in other shock therapy countries, a small elite got richer while the great majority of Bolivians lost out with campesinos faring worst. In 1987, they earned on average $140 a year, or less than one-fifth the nation's declining average income.
Bolivian misery gave Sachs star status for the country's "Miracle." It launched his new career and brought him to Argentina, Peru, Brazil, Ecuador, Venezuela and Russia later on plus a best-selling book and three-part PBS "success story" series. The only problem was it wasn't true. President Paz had no mandate for shock therapy, and many workers were predictably furious at his betrayal. They went on strike and Paz's response made Margaret Thatcher's earlier action against striking coal miners seem tame by comparison. Tanks rolled in the streets, and riot police raided union halls, a university and factories. Hundreds of arrests followed, including the top 200 union leaders, and oppositional politics was banned. The siege lasted three months during the decisive shock therapy period with more repression and Chicago School medicine later.
It showed shock therapy needs harsh authoritarian rule backing with Bolivia's pin-stripped politicians, economists and bureaucrats administering it, not uniformed soldiers as in Chile. Paz's democratic victory was illusory like others when leaders renege on promises and sacrifice them on the alter of Chicago School orthodoxy.
Argentina was another "textbook case." In the post-Falklands War period, it was burdened with billions in odious debt Washington insisted be serviced and paid. It was far more onerous after the (Paul) "Volker Shock" when the US Federal Reserve Chairman hiked interest rates up to 21 percent in the early-mid 1980s to fight inflation, so he said. It was painful in the US and disastrous for developing countries turning their debt burdens into crises. New loans were needed to pay off old ones, and the debt spiral was born afflicting nations then and still today. That was the whole idea, or at least one of them.
Argentina, Brazil and other countries had another option they didn't take - defaulting on debt so great it was unrepayable. As Klein put it: "Understandably (new democracies were) unwilling to go to war with Washington (and the international lending agencies it controls so they) had little choice but to play by Washington's rules (and) in the early eighties (they) got a great deal stricter....It was the dawn of the era of 'structural adjustment' - otherwise known as the dictatorship of debt."
In the 1980s, Chicago School economists colonized the IMF and World Bank to advance their corporatist crusade. Economist John Williamson named it "the Washington Consensus" that stuck ever since. It consisted of core economic policies both institutions consider essential for economic health according to their orthodoxy. We know them well: all "state enterprises ....privatized (and) barriers impeding entry of foreign firms....abolished." There was more that together was classic Friedman dogma: privatization, deregulation, unrestricted free trade (never called fair), and deep cuts in government spending except for security.
Indebted developing countries learned shock doctrine 101 the hard way. Getting aid meant accepting Washington Consensus rules - the whole package. So to save their countries, they had to "sell (them) off." Klein calls Argentina the "model student" in the 1990s under leaders like Carlos Menem. Appointing Domingo Cavallo economy minister signaled he bought the corporatist package. But as Klein points out: "Argentina was not unique (and by 1999) Chicago School alumni included more than twenty-five government ministers and more than a dozen central bank presidents from Israel to Costa Rica."
Shock therapy was on a role that in Argentina turned into a textbook case of therapeutically induced disaster. What Time magazine in 1992 called "Menem's Miracle" became Menem's Mirage when the economy collapsed in 2001, and Argentina did the unthinkable with Menem gone and a new president in power. It defaulted on an $805 million debt to the World Bank. It should have ended the neoliberal experiment, but instead it spread. Economic crises fueled it, and when old ones ebbed "even more cataclysmic ones appear(ed): tsunamis, hurricanes, wars and terrorist attacks. Disaster capitalism was taking shape" with shock therapy its tool of choice.
Part 4 - Lost in Transition: Slamming the Door on History
Before the Berlin Wall fell, Lech Walesa became a labor hero in Poland and the West by defying the Moscow-controlled government and getting away with it. Solidarnosc (Solidarity) spread from its Gdansk roots to the country's mines, shipyards and factories and within a year had 10 million members. They won the right to bargain but wanted more. They aspired to take over the state and institute their own alternative economic and political program. It's radical centerpiece was to transform huge state-run companies into worker-run cooperatives so Solidarity members could be empowered in their own "socialized enterprise."
Walesa objected, lost the debate, and he feared what then happened. The Jaruzelski government declared martial law, sent tanks to the streets and rounded up thousands of Solidarity members. By the late 80s, the crackdown subsided, the economy was in free fall, workers again struck and Mikhail Gorbachev's reformist government was in power in Moscow. Solidarity was legalized, a Citizens' Committee Solidarity wing was formed, its members stood in snap elections and won effective control of the government capturing 260 parliamentary seats.
It should have been the best of times, but with the economy in trouble, Poland needed aid including debt relief. With Chicago School alumni running IMF, none was offered except under Washington Consensus rules, take it or leave it. Enter Jeffrey Sach, the shock doc, with an even harsher plan than imposed on Bolivia. It included an immediate end to price controls, slashing subsidies, and privatizing mines, shipyards and factories. It short, it ran directly counter to Solidarity's aim for worker-run industry.
Sachs promised Solidarity Poland could become like France or Germany under his plan. By swallowing shock therapy medicine first, taking the pain, the patient would end up cured and healthy - if he was right. After debate, the verdict was in and the treatment bought with predictable results. Sachs promised "momentary dislocations" but delivered a full-blown depression. Industrial production plummeted 30 percent after two years of "reforms." Unemployment skyrocketed, and in 1993 hit 25 percent in some areas. It's still chronic today with recent World Bank figures pegging it at around 20 percent, the highest in the European Union. For young people, it's even worse with 40 percent of workers under 24 unemployed.
Most alarming is the number of people in poverty. From a 15 percent level in 1989, it rose to a startling 59 percent in 2003. Incredibly, the country, like Chile, is still cited as a free market reform model. It's pure myth, angry Poles know it, but reports in the West ignore them as they do shocked victims everywhere.
They didn't ignore "the shock of Tiananmen Square," but didn't report it accurately either. In the early 1980s, Deng Xiaoping was transforming his country economically while keeping rigid political control including iron-fisted repression when needed. Democracy was nowhere in sight nor is it now. While many of Deng's reforms were successful and popular, others in the late 80s weren't, and it provoked deep anger in the cities by people most affected. Price controls were lifted, corruption and nepotism was rampant, freedom minimal, job security eliminated, unemployment soared, and deep inequalities grew between "winners and losers in the new China."
It came to a head with mass protests in 1989 in Tiananmen Square that Western reports characterized as a clash between old-guard Communist authoritarians and idealistic students wanting western-style democracy. It was pure propaganda. The protests were massive and threatened the government, but democracy wasn't the issue. It was popular discontent from wrenching economic change raising prices, lowering wages, and causing "a crisis of layoffs and unemployment." Protesters weren't against economic reform. They were against the Chicago School version of it, but their efforts were costly.
Deng declared martial law May 20, tanks rolled in the square, indiscriminate shooting took place, and when it ended thousands were dead, many more thousands injured, and still more thousands hunted down, arrested, jailed, some tortured, and hundreds likely executed. Shock therapy rolled in China as in Chile - through the barrel of a gun and raw state terror. Following the crackdown, China opened to foreign investment, joined the WTO, and turned the country into the world's largest low wage sweatshop for Wal-Mart's "Always Low Prices."
For foreign investors and party apparatchiks, it was a win-win arrangement with Klein citing a 2006 study showing 90 percent of China's billionaires to be Communist Party officials. About 2900 "party scions" (called "the princelings") control $260 billion, and Klein notes the "stark similarity between (China's authoritarian rule) and Chicago School capitalism - a shared willingness to disappear opponents, blank the slate of all resistance and begin anew" using shock and fear to transform countries into free market paradises for the privileged.
The Tragedy of South Africa's "Democracy Born in Chains"
Klein quotes Nelson Mandela in January, 1990 (two weeks before he was freed) in a note to his supporters from prison saying: "The nationalisation of the mines, banks and monopoly industries is the policy of the ANC (and changing) our views....is inconceivable. Black economic empowerment is a goal we fully support and encourage, but in our situation state control of certain sectors of the economy is unavoidable." That belief became ANC policy in 1955 in its Freedom Charter. The liberation struggle wasn't just about a political system but an economic one as well. White workers in mines earned 10 times more than blacks, and large industrialists worked with the military to enforce order and disappear dissenters.
Once apartheid ended, a new way was possible, and Mandela seemed poised to lead it. The ANC had "a unique opportunity to reject the free market orthodoxy of the day" and choose a "third path between Communism and capitalism." ANC candidates swept the 1994 elections and Mandela became president at a time South Africa surpassed Brazil as the most unequal society in the world. Negotiations were held with the ruling National Party, and a peaceful handover was achieved but not without "prevent(ing) South Africa's apartheid-era rulers from wreaking havoc on their way out the door."
Negotiations took place on two parallel tracks - political and economic. Mandela and his chief negotiator, Cyril Ramaphosa, "won on almost every count" politically. But along side it, economic negotiations were held with the country's current president, Thabo Mbeki, in charge with the outcome in the end far different. With ANC leaders preoccupied with controlling Parliament, the former white supremacist government and industrialists were determined to safeguard their wealth, and they succeeded by assuring Washington Consensus policies would be instituted when political power changed hands.
ANC economists and lawyers were outfoxed or outgunned by the opposition, IMF, World Bank, GATT and power of big capital against inexperienced politicians and technocrats who ended up losers. Black officials controlled the government, but discovered the real power was elsewhere. As Klein put it: "The bottom line was that South Africa was free but simultaneously captured." The leadership mistakenly thought once firmly in power they could undo earlier made transition compromises.
They couldn't or didn't for the same reasons other developing countries accept free market rules. Adopt them or be punished by the market as Mandela learned when he was freed. The South African stock market collapsed in panic, and the country's currency (the rand) dropped by 10 percent. He acknowledged the problem later on saying it's "impossible for countries....to decide economic policy without regard to the likely response of these markets." It's too bad he didn't know how Hugo Chavez managed after 1999 (oil aside). He achieved what Mandela reneged on, and Venezuela's economy is booming. Had he and ANC officials stood their ground early on, South Africa (with its mineral riches) might have done the same thing - had a growth economy in a socially democratic state and a model for its neighbors.
They didn't, black South Africans lost out, Mandela's legacy is tainted, and a key factor was current president Thabo Mbeki. He spent years studying in exile in England during the apartheid years during which time "he was breathing in the fumes of Thatcherism." He became the ANC's free market tutor, believed in market fundamentalism, and its prescription was "growth and more growth." It meant neoliberal shock therapy with the full Friedman package Mbeki supported. He later professed: "Just call me a Thatcherite," and Mandela told journalist John Pilger the same thing in retirement saying: "....you can call it Thatcherite but, for this country, privatization is the fundamental policy."
After over a decade of that agenda (1994 - 06), Klein highlighted the toll showing conditions today much worse than under apartheid, and ANC's leadership responsible:
the number of people living on less than $1 a day doubled from two to four million;
the unemployment rate more than doubled to 48 percent from 1991 - 2002;
only 5000 of 35 million black South Africans earn over $60,000 a year;
the ANC government build 1.8 million homes while two million South Africans lost theirs;
nearly one million South Africans were evicted from farms in the first decade of democracy; as a result, the shack dweller population grew by 50 percent, and in 2006, 25 percent of South Africans lived in them with no running water or electricity. And there's more:
the HIV/AIDS infection rate is about 20 percent, and the Mbeki government shamefully denied the severity of the crisis and did little to alleviate it; it's been a major reason why average life expectancy in the country declined by 13 years since 1990;
40 percent of schools have no electricity;
25 percent of people have no access to clean water and most who do can't afford the cost; and
60 percent of people have inadequate sanitation, and 40 percent no telephones.
"Freedom" for these people and all black South Africans came at a high price, and no efforts are being made to ameliorate it. Political empowerment was traded for economic apartheid under Chicago School fundamentalist rules. Klein observed: "Never before had a government-in-waiting been so seduced by the international community." If China, Vietnam and even Russia saw "the neoliberal light," Mandela was told, how could South Africa resist it. The ANC leadership might have (and Mandela had the credentials to lead them) had they examined the wreckage around the world in Friedman-seduced countries. Instead, they took the easy way out and surrendered.
Russia Chooses "the Pinochet Option"
The man who ignited political and social change in Russia wasn't around long enough to lead it. Mikhail Gorbachev became head of the Soviet Union's Communist Party in March, 1985, believing the economy stalled and needed change. His solution became glasnost (liberalizing opening up) and perestroika (reconstruction), and Soviet Russia would never be the same again. By the early 1990s the press was freed, the constitutional court was independent, and elections were held for Russia's parliament, local councils, president and vice-president. In addition, Gorbachev favored a Scandinavian-style social democracy combining free market capitalism with strong social safety net protections. He hoped to build "a socialist beacon for all mankind." He never got the chance.
While still in office at the 1991 G7 meeting in London, his fellow heads of state delivered a free market message Chicago School-style. Later, the IMF, World Bank and other international lending agencies reinforced it - Soviet-era debts must be honored and aid depended on adopting strict shock therapy rules. The Soviet Union soon dissolved, Gorbachev was out, Boris Yeltsin became Russia's president, and Chicago School fundamentalism was adopted as needed "reform." Klein calls what happened next "one of the greatest crimes committed against a democracy (in peacetime) in modern history."
Yeltsin assembled a team of Chicago School ideologues to remake the economy. Jeffrey Sachs showed up, too, with other US-funded transition experts to help write privatization decrees, launch a New York-style stock exchange, and craft a total radical economic makeover for a country long used to central planning. Only one thing stood in the way - democracy, and a parliament able to vote down what Yeltsin's team designed. A clash of wills drew closer in the spring of 1993 when parliament's budget diverged from IMF demands for strict austerity. Yeltsin reacted with the "Pinochet option." He issued decree 1400 dissolving parliament and abolishing the constitution. Two days later, parliament voted 636 - 2 to impeach him, and battle lines were drawn.
Yeltsin sent troops to surround parliament and cut off power, heat and phone lines. The army backed him and he pressed on. He then proceeded to dissolve all city and regional councils in the country. Then, on October 4, 1993, he ordered the army to storm the parliament, set it ablaze and "defend Russia's new capitalist economy from the grave threat of democracy." The assault took about 500 lives, wounded nearly 1000 others with the enthusiastic support from the West in headlines like the Washington Post proclaiming "Victory Seen for Democracy" in Russia. Some democracy.
Yeltsin now had unchecked dictatorial power, the West had its man in Moscow, and shock therapy had an open field to inflict wreckage on Russia's people who didn't know what him them as it unfolded. A corporatist state replaced a communist one, and its apparatchiks were winners along with a handful of western mutual fund managers who made "dizzying returns investing in newly privatized Russian companies." In addition, "a clique of nouveaux billionaires" (17 in all called "the oligarchs") were empowered to strip mine the country of its wealth and ship profits offshore at the rate of $2 billion a month.
As a result, Yeltsin's popularity plunged, so he did what all desperate leaders do to hold power with the next election to worry about: He began a war in 1994 in the breakaway Chechen republic killing 100,000 civilians by the late 90s. Elections were held in 1996, and Yeltsin won by overcoming his low approval ratings with huge oligarch-funding and near-total control of television coverage. He then quietly handed power to Vladimir Putin on December 31, 1999, without an election, but with the stipulation he was exempt from criminal prosecution. His legacy was devastating with Klein noting "never have so many lost so much in so short a time." When Russia's 1998 financial crisis hit:
80 percent of Russia's farmers were bankrupt;
around 70,000 states factories had closed;
an "epidemic" of unemployment raged;
before shock therapy in 1989, two million Russians lived in poverty on less than $4 a day; by the mid-90s, the World Bank estimated 74 million were impoverished and by 1996 conditions for 25 percent (almost 37 million) Russians were "desperate" and the country's underclass remained permanent;
Russians drink twice as much now as before; painkilling and hard drug use increased 900 percent, and HIV/AIDS threatens to become epidemic with a 20-fold jump in infections since 1995; suicides are also rising, and violent crime increased more than fourfold; and
Russia's population is declining by 700,000 a year with capitalism having already having killed off 10 percent of it as one more example of free market-inflicted disaster. That's the brave new world disease spreading everywhere with another scorched-earth stop below. Friedman called it "freedom."
The Looting of Asia
In the summer of 1997, economic crisis hit Asia from no apparent cause beyond rumors the Thai bhat was in trouble, and Thailand didn't have enough dollars to back it. Hot money in became an electronic stampede out with "Asian Contagion" unleashed and heading for Indonesia, South Korea and other so-called Asian Tiger countries that were fast-growth miracles until they crashed together with the plight of one affecting the others. It then got worse and spread to Latin America and Russia with US markets also affected briefly in 1997 and then again with a severe jolt in the summer of 1998.
The 1997 Asian panic was crippling with $600 billion in stock market wealth taking decades to build wiped out in a year. Klein notes "a classic fear cycle" ignited the crisis that might have been contained by the same type "quick, decisive loan" rescue package offered Mexico in 1994 in their so-called Tequila Crisis. It would have been a strong signal to markets the US Treasury and international lending agencies wouldn't let the Asian Tigers fail. No help came, and the message instead was: "Don't help Asia." Why? Because "Asia's catastrophe was an opportunity (for predatory western corporations and vulture investors) in disguise."
Asian Tigers grew by protecting their markets and barring foreign companies from ownership of land or national firms. They also restricted imports from the West and Japan and instead built up their own domestic markets. Western predators wanted unfettered entry to the region with the right to scoop up the best Asian companies but needed a way to do it. Now they had it from an event Klein calls "the fall of a second Berlin Wall," as important to western capital as the first one.
Enter the IMF with crisis-struck Asian countries too sick to resist it. They needed help, and the lending agency had plenty to offer on similar terms as to previous crisis recipients. With economies in trouble and empty treasuries, the Tigers got no choice. First, they had to remove all "trade and investment protectionism and activist state intervention that were the key ingredients of the Asian miracle." IMF also demanded big spending cuts, "flexible" workforces (meaning mass layoffs and constrained wages and benefits), privatized basic services, and the rest of the package they demand for loans.
The regional toll was devastating with the International Labor Organization estimating 24 million lost jobs along with "what was so remarkable about the region's 'miracle' in the first place: its large and growing middle class." In addition, 20 million people fell into the "planned misery" of poverty, reversing an earlier trend reducing it. Women and children suffered most with families selling daughters to human sex traffickers to survive as child prostitution had a new growth market.
So did Wall Street as IMF structural adjustments put "pretty much everything in Asia....up for sale" in the affected countries. The more markets panicked, the lower asking prices became, and the more pressured hurting companies were to sell out for what they could get or face bankruptcy. It was a bonanza for buyers, and major deals went through in a great fire sale at bargain prices. Asia became hugely transformed with hundreds of local brands replaced by western transnational ones. The New York Times called it "the world's biggest going-out-of-business sale." It also became an early glimpse of post-9/11 disaster capitalism - a way for corporate predators to exploit crises in what's become common practice in the age of "terror" creating opportunities galore and big profits for well-connected firms.
Klein notes the Asian crisis never ended as desperation took root after 24 million people lost jobs in two years. No nation handles that, and the fallout can be unpredictable. It led to a rise in religious extremism in Indonesia and Thailand and "the explosive growth in the child sex trade." Unemployment is still high and layoffs continue with new foreign owners demanding higher profits with jobs disappearing to provide them.
Eventually things settle down but never to where they once were. Throwing people overboard, displacing small farmers and business owners and crushing unions means those affected stay that way. "They end up in slums, now home to one billion people (and rising); they end up in brothels or in cargo ship containers. They are the disinherited (or what) German poet Rainer Maria Rilke (called) 'ones to whom neither the past nor the future belongs.'" They're the human wreckage left behind by countries swallowing Chicago School economic medicine. Its promised miracle is people-poison but not for vulture investors thriving on it. Disaster capitalism is on a roll, and its growth market potential is unlimited and guaranteed to continue unless mass public outrage stops it as one day it will.
Part 5 - The Rise of the Disaster Capitalism Complex - Shock Therapy in the USA
Richard Nixon knew before the rest of us that Donald Rumsfeld is "a ruthless little bastard." He also has a knack for making enemies even inside the Pentagon he ran as Defense Secretary. He planned to "reinvent warfare for the twenty-first century (making it) more psychological than physical, more spectacle than struggle, and far more profitable" than ever before. Talk aside, he wanted to revolutionize the military by running it like the corporate world, and that meant using methods like outsourcing and branding. His idea was for fewer full-time troops, more as-needed ones from the Reserves and National Guard, and a lot of backup help from private contractors like Blackwater USA for security and Halliburton for a range of functions unrelated to soldiering. He wanted less staff and more tax dollars diverted to private companies. The Pentagon brass wasn't pleased, but Rumsfeld was boss and Dick Cheney backed him.
Klein calls them both "proto-disaster capitalists" who practice "the central tenet of the Bush regime (that) the job of government is not to govern but to subcontract." The privatization mania was kick-started in the Reagan era, but Bill Clinton bought it as well. Now the feeling is anything government can do, private business can do better so let them. That means fire departments, prisons, public schools, public health, data management, border control and even parts of the military. As Klein explained: "crisis-exploiting methods....honed over the previous three decades would be used to (privatize) the infrastructure of disaster creation and....response. Friedman's crisis theory was going postmodern (to create a) privatized police state" by auctioning it off.
"Then came 9/11, and the idea of hollowing out government seemed opposite of what a frightened public wanted - a strong central government to protect them. Bush promised it in speeches, but "his inner circle had no intention of converting to Keynesianism." September 11 security failures only reinforced their belief that private firms could handle the challenge better than government, and that meant transferring hundreds of billions of public dollars to corporate pockets. The Bush administration exploited shock and fear "to push through its radical vision of a hollow government in which everything from war fighting to disaster response was a for-profit venture."
Mass disorientation post-9/11 provided the opportunity, and the "war on terror" became a "bold evolution of shock therapy....built to be private from the start" to capitalize on it. It came in two stages. First, policing, surveillance, detention and war-making powers of the executive were dramatically increased though nothing in the Constitution permits it. Then, the whole package, including occupation and "reconstruction," was outsourced to well-connected private firms that responded with generous campaign funds to keep the mutually reinforcing daisy chain humming. Using the ploy of fighting "terrorism," the homeland disaster capitalism complex emerged as a full-blown new economy and what Klein calls "a virtual fourth branch of government."
The Bush administration's idea of government, with security as one function, wasn't to provide it but to buy it at cost-plus market prices with lots of latitude for the plus. Just as the internet launched the dot-com bubble, from 9/11 emerged the disaster capitalism one, and it was off to the races "in an ad hoc....chaotic fashion."
Fighting "terrorism" is big business, and one of the first opportunities was the market for surveillance cameras with 30 million of them installed in the US, billions of hours of footage, analytic software to scan it, digital image enhancement to help it, and information management and data mining technology to handle all data government collects on everyone and everything. September 11 unlocked the potential, a huge new growth market was created, and protection from terror became more important than big brother watching. In six short years, an industry that barely existed is now much larger than Hollywood or the music business, and its potential looks limitless.
Klein calls it "an unprecedented convergence of unchecked police powers and unchecked capitalism, a merger of the shopping mall and the secret prison" in a frightening brave new world most people barely understand or know exists. It generates enormous wealth that creates a powerful incentive for its winners to sell fear for more of it and partnering with government makes it easy, especially the kind in power now.
Capitalism Becomes Corporatism in a Corporatist State
Proto-disaster capitalism defines the Bush administration as crises, wars and other disasters "conflate with what's good for Lockheed, Halliburton, Carlyle and (Rumsfeld's old company) Gilead" Sciences. Cataclysm is a growth business that in the current climate involved "some of the seediest and most blatant corruption scandals in recent history," war-profiteering in the hundreds of billions, and a "whirling revolving door between government and business" taken to a new level. The limitless homeland security and war-profiteering markets are so alluring, hundreds of administration officials can't wait to cash in like earlier ones did. Klein names some noted ones like Richard Pearle, James Baker, Henry Kissinger, Paul Bremer, George Shultz, John Ashcroft, Tom Ridge, Rudi Giuliani, Richard Clarke, James Woolsey, Joe Allbaugh, and Michael Brown who wrote an infamous memo to a fellow FEMA staffer asking: "Can I quit now?"
That's the whole idea in a get rich quick environment - get an impressive government title, stay in office long enough in a department handing out big contracts, collect insider information with market value, then quit and cash in. Klein calls public service now "little more than a reconnaissance mission for future work in the disaster capitalism complex." She also quotes Danielle Brian, executive director of the Project on Government Oversight (a nonprofit watchdog group) saying: "It's impossible to tell where the government ends and Lockeed begins." She also believes that corporatist economic goals and right to limitless profit seeking lie at the heart of the most committed neocons who talk a good game but value great wealth their top priority. They partnered permanent war and homeland security with the disaster capitalism complex to get it, and it's hard indeed telling where one ends and the other begins. But it's centerpiece project is Iraq, and its headquarters is in Baghdad's heavily fortified Green Zone.
Part 6 - Iraq, Full Circle - Over shock - Erasing A Country
Perhaps no country provides a greater untapped opportunity for unfettered capitalism than Iraq. It represents the planet's last remaining low-hanging oil resources fruit with potentially more of it than Saudi Arabia according to some oil analysts. It's also strategically located in the heart of the oil-rich Middle East (with two-thirds of proved reserves) Klein calls the "crusade's....final frontier." Iraq's potential alone is so enormous it made war the way to crack open its market potential because peaceful methods hadn't worked. Its conquest would then serve as "a different model in the heart of the Arab-Muslim world" that could become a catalyst to opening the whole region.
The potential is a giant free-trade zone, the illusion of newly created democracies, and the freedom for unfettered capitalism "to feed off freshly privatized states." Klein explained this as "the model theory," Iraq as the model, with the idea not being nation-building but nation-creating. But what of the nation already there that's known as the "cradle of civilization." It would have to be erased, and Chicago School fundamentalism would create a new one in its place in its own image with a blank slate to work from.
Bush administration war planners considered the full array of possible shocks and went with them all - blitzkrieg "shock and awe," elaborate psyops, use of fear as a weapon, repressive occupation, mass detention and torture, and "the fastest and most sweeping political and economic shock therapy program attempted anywhere....From the start, the invasion was (Washington's message) to the world....in the language of fireballs, deafening explosions and city-shattering quakes." It said dare challenge US authority, and you're next. Shock and awe planners designed its strategy to deter "the public will of the adversary to resist (to render) the adversary completely impotent" from the effects of sensory deprivation and overload inducing disorientation and regression.
In March, 2003, Baghdad got it on a massive scale. The ministry of communication and four telephone exchanges was blitzed and set ablaze cutting off millions of phones and preventing people from learning if their family and friends were alive. Television and radio transmitters were also destroyed along with the electrical grid plungi
Published: February 22, 2008 9:17 AM
Wow, Naomi Klein? And you expect us to take this seriously? So far, Ping, all you've offered are examples of state-business alliances, or the state taking on a superficially 'private' visage (not to mention Klein's questionable reporting and utter ignorance of economics.) Again, what has any of this to do with Austrian economics? Please, read Mises or Rothbard, then comment on these topics. As it is, you are knocking down strawmen.
If 'unfettered capitalism' to you is corporatism or neo-mercantilism, then ummm, don't expect many here to be in favour of it.
Published: February 22, 2008 9:25 AM
Wow...I only made it through about a third of that book review before becoming sick to my stomach. What a horrible misrepresentation of free market principles.
This is one of the most difficult challenges faced by Austrians...dispelling the myth that partnerships between governments and businesses in some way constitute a "free market". As Inquisitor said, you're not likely to find any defense of such cahooting on this site.
Published: February 22, 2008 10:01 AM
"Another example of unfettered capitalism, I refer to our Health Care Industry, largely controlled by the pharmaceutical industry."
Another sleight of hand. Here you are equating the medical industry with free markets, then attack the medical industry as if it were free markets.
There is no industry more regulated and more controlled in America than the medical medical industry, yet you want to give this as an example of free markets. Along with the IMF, you have again referred to a industry governed, not by free market forces, but the concepts of collectivism. The "ugly consequences" are a result of an industry that has abandoned free market concepts from dictating the supply of doctors and nursed, to determining what is taught in medical schools, to determining the price of goods and services. We are witnessing the result of a century of decay from a once free market industry to today's collectivist system So far you are batting two for fwo in demonstrating how abandoning free markets in favor of "fettered" (what ever that means) markets has ugly consequences.
As a side note, you might ask yourself how the pharmaceutical industry controls the medical industry. It is through regulatory agencies that inhibit competition from the supply of doctors and nurses, to dictating what is taught in medical schools. The medical industry is controlled by regulatory agencies, and the regulatory agencies are controlled by the industry it is suppose to be regulating. Solution: Eliminate regulatory agencies and return to free markets.
"I'll likely follow up with a more compele response to requests for more definition"
Is this a definite "maybe"? Vague and undefined terms have no place in debating economic systems, would you not agree? Without properly defining what you mean, how do you know, or how will you persuade others. Rhetoric is not logic, is it? Continuing with the same undefined terms, knowing full well you have been asked leads one to believe you cannot define these terms. Is this the case?
Published: February 22, 2008 12:09 PM
I thought I smelled a Naomi Kline argument there. She always brings to mind the old quote:
"It is no crime to be ignorant of economics, but it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."
Published: February 22, 2008 12:17 PM
Ping, It's customary to summarize the main points of an article and post a link to the full article. It makes reading the blog a lot easier. Thanks!
Published: February 22, 2008 12:18 PM
Review of Shock Doctrine: "In an age of corporatism partnered with corrupted political elites..."
That says it all. Klein isn't writing about capitalism or free markets, but about corrupt politicians living off corporate bribes.
Published: February 22, 2008 12:35 PM
Ping, Klein is clearly a socialist. You agree with her. Why do you think you're not a socialist? Maybe you don't understand modern socialism?
Published: February 22, 2008 12:43 PM
Ping: "Another example of unfettered capitalism, I refer to our Health Care Industry, largely controlled by the pharmaceutical industry."
Pharma takes in just about 5% of healthcare spending. The largest chunk, hospitals, makes up 40%.
Published: February 22, 2008 3:42 PM
Okay, here is what I don’t understand. How does Mises address safety nets for responsible citizens who are not spongers, elderly and children, who from no fault of their own, are in dire need?
Since the monopolistic health care industry, largely controlled by the pharmaceutical industry (unfettered capitalism) has made getting sick or injured astronomically expensive and for profit insurance companies are allowed to disallow your claims or drop you if you are not profitable…..how would Mises correct this situation?
Being interested in economics, I have read this site a great deal, watched many of the posted videos, but this is not clear. I am left with the impression, as brilliant as they are, Mises theories were crafted prior to the development of the enormous stealth power and complexity of the multinational corporate structure. Example, as President Eisenhower sternly warned, the government was vulnerable to being taken over by the military-industrial complex and there is ample evidence of that reality now.
I am fascinated Mises and Rothbard portrait of the Federal Reserve and central bank cartel, which one could argue is ‘unfettered capitalism’. In my opinion, the relationship between the Federal Reserve and the government sadly exemplifies the current role of our government. Government has really become an extension, a facilitator of powerful special interests, making the unethical and undemocratic legal; indeed government and corporate executive office are now merely revolving door. Is today’s rogue’s gallery of corporate CEO’s any less likely to plunder your livelihood than government? Seems to me, when the heat is on, they pathetically divert attention to the excesses of the Medicare Program, which they themselves are raiding, as a way to get costs in line and reduce taxes. And they are glad to have taxpayer money to socialize the losses while privatizing the profits. What exactly is ‘Free Market’ in this environment and is this capitalism worthy of free reign?
So when ‘Free Market’ is simplistically bandied about as the end all solution to this contemporary horrific mess, it leaves a great deal unexplained. Especially when one considerers this ‘Free Market’ is what the giant multinationals are engineering, example pushing for the North American Union (along with all the other Trade Agreements) and monopolistic conditions, currently overriding state legislatures and national sovereignty in the process. So, the suggestion that government simply stays out of business’s way (if it were a functional democratic government, not a handmaiden of special interests and dysfunctional mess) and the market would automatically correct the imbalances is sadly not applicable to the current business structures. The current multinational corporate agenda will trample on individual liberty in a heartbeat if there is a profit to be made.
If we had stayed on the Gold Standard, there wouldn’t be the wild excesses and accompanying destruction to environment and expansionistic wars. But we are now in ‘hyperspace’ with the SIV’s CDO’s and the alphabet of egregious behemoth financial structures, largely due to disbanded regulation as lobbied by Greenspan, no one has a clue how to unwind that.
Terms like Socialism and Capitalism and ‘isms’ begin to loose their meaning in all this, these term can have so many different meanings to different people. I don’t know what Liberal or Conservative means. What exactly are Conservatives conserving? Am I a despised Liberal because I wouldn’t mind paying taxes to help some segments of society if used properly and I am concerned about environmental contamination? I don’t relate to this.
I think these are a sampling of the issues in the public mind and if the Mises site wishes to communicate to a greater audience, these topics could be better defined.
Published: February 23, 2008 10:49 AM
The problem is that most so-called 'solutions' to the issues we face simply put more power in government's hands, instead of rectifying the situation in which government has too much power and certain corporations (by no means the only rent-seekers; labour unions and various other lobbies count too) have simply found it to be profitable to exploit this. Rather than putting healthcare under the government's total control, it would be best to attack the actual problem. I'm not one for strategy, so you'd best ask other libertarians on this, but the single most pernicious element of the current system is the banking sector. Removing various legal monopolies is also a step in the right direction. I understand your point of view that safety nets might be needed given the current system, and hence why I think it's best to start with the banking and warfare sectors of the economy first.
BTW, you need to define what you mean by 'unfettered capitalism'. What you've so far connoted has nothing to do with free market, which is a well-defined term, unline 'unfettered capitalism'. Austrian economics has the virtue of defining its terms explicitly.
Published: February 23, 2008 11:42 AM
Unlike*
Published: February 23, 2008 11:48 AM
Inquisitor,
Are you suggesting the alternative to putting health care in the governments hands is dismantling monopolies involving an enormous infrastructure?
Again, I don’t see where the government is such a distinctly different entity in purpose than giant multi national corporations at this point. The revolving door of players is much the same in either arena; they just wear different hats from time to time. The Treasury Department has been largely staffed with Goldman Sachs execs (no wonder they have beat the market by shorting their now nearly worthless MBS securities that they structured and sold like crazy to pension funds, municipalities etc). The pharmaceutical industry dictates to the FDA (what little of it is left), our national energy policy is crafted in secret by industry, the interests of Defense Contractors dictates international policy and strategy.
I consider our government little more than a Trade Show.
I have searched the Mises site for the definition of Free Market and don’t see the exact definition.
I would consider Factory Farms an example of ‘unfettered capitalism’. It involves confining large numbers of animals unnaturally. To counter infectious diseases generated by unnatural conditions, they routinely receive antibiotics and hormones to generate rapid growth. This rampant use of pharmaceuticals results in a contaminated product and all the concentrated waste (including excreted pharmaceuticals) has ruined ground and surface water in many rural communities. It has lowered the cost of meat only because the ‘true cost basis’ of collateral damage to the environment, private property (those sharing rivers and streams, with such operations) and public health has not been factored in.
Perhaps the guiding principle in ‘unfettered’ is where a collateral damage cost is not factored in to determine the TRUE RETURN. While establishing a measure for collateral damage would be a greatly imperfect estimation, the alternative is SOCIALIZING the damages as is the current model. The profits of an enterprise are skimmed off leaving society to deal with the costs of damage.
On this site environmentalism seems to be defined as whether or not one buys into Global Warming. I think most people have much more immediate concerns about the environment. I live in an area where we may not have a clean water supply in another 5-10 years and yet a mining company (which uses a great deal of water) is being licensed and other big water users are being developed. Why should our community be converted to reconstituted sewer water for drinking and hygiene so these enterprises can flourish?
This would be another example.
Regards.
Published: February 23, 2008 1:22 PM
Any comments on this article discussing government as facilitator of monopolistic corporate agenda?
The North American Union and the Larger Plan
By Dennis L. Cuddy, Ph.D.
In order to bring about a North American Union (NAU), the public first has to be conditioned to think of themselves as North Americans. In that regard, Thomas Donohue (president and CEO of the U.S. Chamber of Commerce) on June 16, 2006 remarked that "for CEOs, North America is already a single market, and business decisions are no longer made with a Mexico strategy---or a Canada strategy---but, rather, with a North American strategy....I think it's pretty clear now that it no longer makes sense to talk about U.S. competitiveness and Mexican competitiveness---or, for that matter, about the competitiveness of Canada. We are all in this together---we, as North Americans."
Also relevant to this process is the publication of NORTH AMERICAN INTEGRATION MONITOR since 2002 by the Center for Strategic and International Studies (CSIS). Very soon, CSIS also will publish (and has agreed to send me) their final document on their "North American Future 2025 Project." The Project has "an emphasis on regional integration," and the year 2025 A.D. was selected "on the basis of the data presently available on overall global projections." Seven closed-door roundtable sessions have been looking at the methodology of global and North American projections, as well as labor mobility, energy, the environment, security, competitiveness, and border infrastructure and logistics.
Zbigniew Brzezinski has been a CSIS counselor, and at Mikhail Gorbachev's first State of the World Forum in 1995, Brzezinski revealed: "We cannot leap into world government through one quick step....The precondition for eventual and genuine globalization is progressive regionalization because b