The Shock Doctrine: Lost in Transition: Slamming the Door on History - Part 4
Politics / Global Financial System Sep 30, 2007 - 02:03 AMBy: Stephen_Lendman
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% after two years of "reforms." Unemployment skyrocketed, and in 1993 hit 25% in some areas. It's still chronic today with recent World Bank figures pegging it at around 20%, the highest in the European Union. For young people, it's even worse with 40% of workers under 24 unemployed.
Most alarming is the number of people in poverty. From a 15% level in 1989, it rose to a startling 59% 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% 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%. 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 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% 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%, and in 2006, 25% of South Africans lived in them with no running water or electricity. And there's more:
-- the HIV/AIDS infection rate is about 20%, 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% of schools have no electricity;
-- 25% of people have no access to clean water and most who do can't afford the cost; and
-- 60% of people have inadequate sanitation, and 40% 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% 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% (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%, 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% 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 desparation 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.
Reviewing Naomi Klein's "The Shock Doctrine: The Rise of Disaster Capitalism" - Introduction ,
Part 1 - Two Doctor Shocks - Torture and Chicago School Fundamentalism
Part 2 - Chile The First Test - The Bloody Birth of the Counterrevolution
Part 3 -
The Shock Doctrine: Surviving Democracy
By Stephen Lendman
Stephen Lendman lives in Chicago and can be reached in Chicago at lendmanstephen@sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and listen to The Steve Lendman News and Information Hour on TheMicroEffect.com Saturdays at noon US central time.
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