The Shock Doctrine summary

The idea that a new order can rise from the ashes of a crumbled civilization is by no means new. What is new, however, is the practice of intentionally wrecking the economies of unwilling societies in order to completely restructure them.

Taking their inspiration from shock therapy, one powerful group of economists – led by Milton Friedman and his colleagues at the Chicago School of Economics – established and used economic shock therapy to enact painful reforms.

It’s often simply not enough to economically shock an unwilling constituency into submission during the process of market reform. In order to squash the inevitable public rage towards the unemployment and insecurity that come with austerity and market liberalization, governments must take more drastic measures – like repressing democratic rights in order to push through unpopular economic reforms.

For example, the implementation of an interim government following the 2003 Iraq invasion was a well-executed repression of democratic rights.

With all major economic policy changes there are winners and losers. During the process of economic restructuring, the biggest losers by far are most of the citizens of countries which undergo economic shock therapy.

The immediate removal of price controls, the opening of national markets to privatization and the removal of trade restrictions have drastic effects for the average person. As an example, consider Pinochet’s Chile, which saw its unemployment rate hit 20 percent during the implementation of their first economic reforms – a national record. That figure jumped to 30 percent in 1982 following another round of economic reforms, with the economy on the whole shrinking by 15 percent.

Although economic shock treatment does not take aim at political dissidents, the general unpopularity of its reforms means that governments are motivated to crush any material or ideological opposition.

The removal of political dissidents prevents the obstruction of economic reform. During periods of unpopular reform, especially in those countries with a strong history of national protectionism and worker solidarity, reform regimes face many obstacles and threats.

To ensure that the public was sufficiently softened for the purposes of instituting reform, trade liberalization in the 1970s in countries such as Argentina was characterized by the twin terrors of economic shock therapy and immense brutality.

As you know, economic shock therapy was supposed to shock citizens out of their old way of thinking and get them to accept free-market reform.

Although the International Monetary Fund and other Western financial institutions claim to ensure the world’s financial stability, their actions regarding Asia and Eastern Europe in the 1980s tell a more sinister tale.

That is, instead of helping struggling nations, the Western financial institutions stood by while their economies collapsed.

The close relationship between big business and government is nothing new. However, the reconstruction of Iraq was an unprecedented opportunity for businesses who wanted access to government dollars.

Indeed, the Bush administration wanted to run government using the hollow shell model for corporate organization. In this model, there's a central organization that writes some of the checks and carries out “core competencies” while everything else is outsourced.

The key message in this book:

Policy decisions and revolution are not nearly as straightforward as they may seem. Whether they are the juntas in South America, the radical privatization in Southeast Asia, or the the restructuring of Iraq, major changes to government and economic policy are shaped not only by the demands of the people, but also the demands of corporations looking to find a way into new markets.