Monday, February 4, 2008

Connection between State-Sponsored Terror, Corporate Greed and Economic “Shock Therapy”

By Time for change

The relationship between state-sponsored terror, corporate greed and economic “shock therapy” represents perhaps the most fundamental evil of our times. I believe that it goes a very long way towards explaining why so much of the world’s population is impoverished today. It is no accident. Third World nations have to a very large extent been kept down by external human forces who seek to profit from the labors of the poor.
Naomi Klein, in “The Shock Doctrine – The Rise of Disaster Capitalism”, thoroughly explores this issue in a manner that clarifies it like nothing else I’ve ever read.

Her book begins with Chile in the 1970s, where U.S. complicity in the overthrow of the democratically elected president of Chile, Salvador Allende, had as perhaps its main goal the putting into practice of Milton Friedman’s economic theories, developed at the University of Chicago. These theories, when put into practice in several countries over more than three decades, have served primarily to increase the wealth and power of the wealthy, at the expense of everyone else. They represent the shock doctrine and disaster capitalism referred to in the title of Klein’s book.

It is essential that these phenomena be understood by enough people in order to enable successful efforts to be taken against them. Otherwise massive human catastrophes will continue to accumulate to the point where world civilization as we know it will be wiped out.

The rise of the Pinochet torture regime in Chile

The Nixon administration hated the idea of Salvador Allende being in power in Chile. Whether that was for ideological reasons or because he represented a roadblock to U.S. corporate interests is not entirely clear. Perhaps there is no real distinction between those two motivations. Anyhow, William Blum, in his article, “A Concise History of US Global Interventions, 1945 to the Present”, explains what the Nixon administration did about their problem:

Salvador Allende was the worst possible scenario for the Washington power elite… (Allende) respected the constitution and became increasingly popular. After sabotaging Allende’s electoral endeavor in 1964, and failing to do so in 1970 despite their best efforts, the CIA and the rest of the American foreign policy machine left no stone unturned in their attempt to destabilize the Allende government… undermining the economy and building up military hostility.

Consequently, the U.S. government collaborated with the Chilean military to overthrow Allende and install Augusto Pinochet. Naomi Klein explains what happened next:

The generals knew that their hold on power depended on Chileans being truly terrified…The trail of blood left behind over those four days came to be known as the Caravan of Death. In short order the entire country had gotten the message: resistance is deadly… In all, more than 3,200 people were disappeared or executed, at least 80,000 were imprisoned, and 200,000 fled the country.

The use of economic shock therapy in Chile following the 1973 coup

Milton Friedman’s disciples, who are known as “The Chicago Boys”, after the University of Chicago where they learned their economic theories, had been working hand in glove with Pinochet for some time before the actual coup took place. So they were plenty ready to put their theories into place as soon as Pinochet came to power. Klein describes how that worked out:

In 1974, inflation reached 375 %. The cost of basics such as bread went through the roof. At the same time, Chileans were being thrown out of work because Pinochet’s experiment with “free trade” was flooding the country with cheap imports… Unemployment hit record levels and hunger became rampant… Chicago boys argued that the problem didn’t lie with their theory but with the fact that it wasn’t being applied with sufficient strictness.

So Friedman flew to Chile to visit Pinochet himself, and he advocated even harsher measures. Eventually he convinced Pinochet to fully institute his “reforms”:

Friedman advised Pinochet to impose a rapid-fire transformation of the economy – tax cuts, free trade, privatized services, cuts to social spending and deregulation… It was the most extreme capitalist make-over ever attempted anywhere, and it became known as a “Chicago School” revolution… Friedman predicted that the speed, suddenness and scope of the economic shifts would provoke psychological reactions in the public that “facilitate the adjustment”. He coined a phrase for this painful tactic: economic “shock treatment.”

This caused even more severe distress for the Chilean people. But eventually, 15 years after he came to power, the economy “stabilized”.

The so-called Chilean economic “miracle”

It is of course important to those who profit from Chicago School economics to make people believe that they work. Hence the so-called Chilean economic “miracle”. Klein thoroughly debunks that argument:

Three decades later, Chile is still held up by free-market enthusiasts as proof that Friedmanism works. When Pinochet died in December 2006, The New York Times praised him for “transforming a bankrupt economy into the most prosperous in Latin America”.

Pinochet held power for 17 years. The country’s period of steady growth that is held up as proof of its miraculous success did not begin until the mid-eighties – a full decade after the Chicago Boys instituted shock therapy…

In 1982, despite strict adherence to Chicago doctrine, Chile’s economy crashed… The situation was so unstable that Pinochet was forced to do what Allende had done…

It’s clear that Chile never was the laboratory of pure free markets that its cheerleaders claimed. Instead it was a country where a small elite leapt from wealthy to super rich in short order… bankrolled by debt and heavily subsidized (then bailed out) with public funds. Chile under Pinochet and the Chicago Boys was not a capitalist state featuring a liberated market but a corporatist one… What Chile pioneered under Pinochet was an evolution of corporatism: a mutually supporting alliance between a police state and large corporations… to wage all out war … on the workers. That war – what many Chileans understandably see as a war of the rich against the poor and middle class – is the real story of Chile’s economic “miracle”.

By 1988, when the economy had stabilized and was growing rapidly, 45% of the population had fallen below the poverty line. The richest 10% of Chileans, however, had seen their incomes increase by 83%. Even in 2007, Chile ranked as one of the most unequal societies in the world…

The spread of economic shock therapy to other Latin American countries

Since the experiment in Freidman’s economics worked out so well in Chile, some other Latin American dictatorships decided to give it a try. Klein describes this process:

The Chicago School counterrevolution quickly spread. Brazil was already under the control of a U.S. supported junta… Friedman traveled to Brazil in 1973, at the height of that regime’s brutality, and declared the economic experiment a “miracle”. In Uruguay the military had staged a coup in 1973 and the following year decided to go the Chicago route…. The effect on Uruguay’s previously egalitarian society was immediate: real wages decreased by 28% and hordes of scavengers appeared on the streets… Next to join the experiment was Argentina in 1976, when a junta seized power from Isabel Peron. That meant that Argentina, Chile, Uruguay and Brazil – the countries that had been showcases of developmentalism – were now all run by U.S. backed military governments and were living laboratories of Chicago School economics.

U.S. complicity in the rise of dictatorships in Latin America

The above noted article by William Blum describes how the United States intervened in twelve different South and Central American countries during the Cold War including Guatemala, Costa Rica, British Guyana, Ecuador, Uruguay, Brazil, Peru, Chile, Bolivia, Honduras, Nicaragua, and El Salvador. The main purpose of these interventions was to facilitate changes to regimes that were friendlier to the United States (and in almost all cases less friendly to the indigenous populations of those countries.) For this purpose, we developed the School of the Americas, which was used to train native personnel in the techniques and ideology of insurgency and counter-insurgency.

This article on reasons to shut down the School of the Americas (SOA) provides a good description of what was involved, and can be summarized as follows:

It describes numerous atrocities committed by graduates of SOA, which are consistent with the SOA curriculum. While SOA torture manuals have been withdrawn and SOA has changed its name, the content of the torture manuals has not been repudiated, and some of the worst abusers continue to be honored as guest instructors for U.S. courses.

School of the Americas training is oriented to support the military and political status quo in each country, which places the U.S. in opposition to any who seek free speech to discuss problems, alternative means to solve problems, or democratic means to change governments. More specifically, the enemy is identified as the poor, those who assist the poor, such as church workers, educators, and unions, and certain ideologies such as “socialism” or “liberation theology”. All of this just to make sure that Communists or “leftists” don’t get a foothold in any of these countries.

Here are some specific examples of U.S. intervention in Latin America, as described by Blum:

President Joao Goulart was guilty of the usual crimes. He took an independent stand in foreign policy, resuming relations with socialist countries… His administration passed a law limiting the amount of profits multinationals could transmit outside of the country… He promoted economic and social reforms… In 1964 he was overthrown in a military coup which had covert American involvement and indispensable support. The official Washington line was: Yes, it’s unfortunate, but still, the country has been saved from Communism. For the next 15 years, all the features of military dictatorship which Latin Americans have come to know and love were instituted… peasants’ homes were burned down… disappearances, death squads, a remarkable degree and depravity of torture…. Brazil became one of the United States’ most reliable allies in Latin America.

The 1960s was the era of perhaps the… least violent Robin Hood like urban guerillas the world has ever seen…. A team of American experts arrived to supply the police with all the arms… etc. they needed; to train them in assassination… to teach methods of torture … It was all out war against the Tupamaros

John Perkins, in “The Secret History of the American Empire - Economic Hit Men, Jackals, and the Truth”, talks about the destruction of vast areas of Ecuador’s rain forests, the transformation of rivers into cesspools, and the disappearance of several animal species in Ecuador as the result of a $1.3 billion oil pipeline constructed there. He notes that for every $100 of oil taken from the Amazon forests, $75 goes to the oil companies, $18 goes to pay off the debt, and only $3 goes to the people who need the money the most. Since 1968, the nation’s debt grew from a quarter billion dollars to $16 billion, poverty level grew from 50% to 70%, and under- or unemployment grew from 15% to 70%.

There was a brief interlude, however. In 1979 Ecuador elected its first President, after a long line of dictators. Jaime Roldos came to the Ecuadorian presidency promising to put his peoples’ interests above the interests of the oil companies, and he did in fact stand up against the oil companies. In May, 1981, shortly after warning foreign interests that they would be asked to leave his country if their plans didn’t benefit his people, he died in a helicopter crash, widely believed in Latin America to be the work of the CIA. Roldos was replaced by a man who was compliant with U.S. wishes, and it was all downhill for Ecuador from there.

In 2003, Perkins came back to Ecuador to try to prevent a war that he held himself partially responsible for provoking. This would be a war fought against indigenous Ecuadorians against the Ecuadorian Army assisted by U.S. Special Forces advisors, on behalf of oil companies who accused an indigenous community of taking its workers hostage, as an excuse for war. Lawyers who represented the indigenous community in an effort to get the oil companies off their land had recently died in a plane crash.

Operation Condor
Operation Condor was a conspiracy between several Latin American dictatorships, whereby they provided mutual assistance to each other to help themselves maintain power. Patrice McSherry describes the background and basic methods for the operation:

In the 1960s and 1970s, populist, nationalist, and socialist movements emerged throughout the class-stratified nations of Latin America, challenging the entrenched privileges of local oligarchies as well as U.S. political and economic interests. In this context, U.S. national security strategists and their Latin American counterparts began to regard large sectors of these societies as potentially or actually subversive…. During these years, militaries in country after country ousted civilian governments in a series of coups… and installed repressive regimes….

Condor was a covert intelligence and operations system that enabled the Latin American military states to hunt down, seize, and execute political opponents across borders. Refugees fleeing military coups and repression in their own countries were "disappeared" in combined transnational operations. The militaries defied international law and traditions of political sanctuary to carry out their ferocious anticommunist crusade…

Security forces in Latin America classified and targeted persons on the basis of their political ideas rather than illegal acts. The regimes hunted down dissidents and leftists, union and peasant leaders, priests and nuns, intellectuals, students and teachers – not only guerrillas.

And McSherry describes the evidence for U.S. complicity in the operation:

Recently declassified documents add weight to the thesis that U.S. forces secretly aided and facilitated Condor operations. The U.S. government considered the Latin American militaries to be allies in the Cold War, worked closely with their intelligence organizations, and promoted coordinated action and modernization of their capabilities. As shown here, U.S. executive agencies at least condoned, and sometimes actively assisted, some Condor "countersubversive" operations.

The relationship between state-sponsored terror and economic shock therapy

A major theme of Klein’s book is that economic shock therapy is very unpopular with the vast majority of a country’s population. The reason for that is quite straight forward: It does great damage to the vast majority of people, while providing huge profits for a small proportion of the country’s population, as well as for enterprising foreigners who take advantage of the situation.

Orlando Letelier was a former Chilean ambassador to the United States under Allende. He explained in a letter to The Nation why the violent terror of the Pinochet regime and its economic policies were necessarily very closely related. Klein describes that letter.

He pointed out that “this particularly convenient concept of a social system, in which ‘economic freedom’ and political terror coexist without touching each other, allows these financial spokesmen to support their concept of ‘freedom’… Letelier went so far as to write that Milton Friedman, as “the intellectual architect and unofficial adviser for the team of economists now running the Chilean economy,” shared responsibility for Pinochet’s crimes… The “establishment of a free ‘private economy’ and the control of inflation a la Friedman,” Letelier argued, could not be done peacefully. “The economic plan has had to be enforced, and in the Chilean context that could be done only by the killing of thousands, the establishment of concentration camps all over the country, the jailing of more than 100,000 persons in three years… Regression for the majorities and ‘economic freedom’ for small privileged groups are in Chile two sides of the same coin.” There was, he wrote, “an inner harmony” between the “free market” and unlimited terror.

Less than a month later, Pinochet received some confirmation of those assertions. On September 21, 1976, he died from an explosion of a remote controlled bomb in his car in Washington, D.C. Investigation pinned the assassination on a senior member of Pinochet’s secret police, who was later convicted of the crime in a U.S. federal court. The assassins had been admitted to the U.S. on false passports with the knowledge of the CIA.

The initiation of economic shock therapy without the use of violence or terror

Though the use of violence and terror is a very useful way to get a population to accept economic shock therapy, it isn’t necessarily the first choice of method. For one thing, it cast suspicion on Friedman’s economic theories: If economic shock therapy is always accompanied by violence and terror, what does that say about its legitimacy as an economic policy? Also, the use of violence and terror pose certain risks. And, they give the regime a bad name. When word got out about the tactics of the Pinochet regime it developed a very bad reputation in many quarters, and it had to put up with a great deal of criticism and ostracism. So it is often or usually better to utilize nonviolent ways for achieving economic oppression.

John Perkins, in “Confessions of an Economic Hit Man”, explains how the system often works, from the perspective of an insider who formerly did the dirty work that he describes in his book. Perkins explains that economic hit men (EHM) are paid by U.S. corporations to develop economic projections for major development projects in third world countries. Their projections are supposed to predict substantial economic growth and thereby justify huge loans from international lending institutions. The money from the loan then is immediately funneled into U.S. oil, engineering or construction companies (which is a precondition of the loan) to develop their projects.

The problem is that the projects often or usually benefit only the country’s wealthy and powerful elite, who are represented by the very government that arranged the loan. If all works out well for the involved corporations, the country is unable to repay the debt, which forces them to be perpetually indebted and consequently ensures their loyalty to the United States. That enforced loyalty ensures that the country’s government will perform favors for us, such as allowing our corporations access to their natural resources, allowing the construction of U.S. military bases on their soil, and the casting of crucial U.N. votes in our favor.

Thus, the huge debts incurred under the system cause great harm to the vast majority of a country’s population, not only because of increased taxes and severe cuts in health care, education and other social services, but also because the projects themselves usually deplete a country’s resources and pollute its environment, often displacing large segments of the population in the process.

If the EHMs are unsuccessful in their efforts to convince a government to play ball, then what Perkins calls jackals are sent in to assassinate or overthrow the uncooperative government officials in question, as was done for example in Iran in 1953, in Guatemala in 1954, in Chile in 1973, or in Indonesia in 1965. If that doesn’t work either, then we send in our military, as we did in Panama in 1989 or in Iraq in 1991 and 2003.

Naomi Klein explains that to a very large extent today, the International Monetary Fund (IMF) and the World Bank, which are both very much under the control of the United States, are instruments which facilitate this process. They loan money to impoverished nations that are desperate for it, imposing conditions on those nations which work to keep the great majority of its inhabitants impoverished indefinitely. The process is something akin to loan sharking or indentured servitude.

The relationship between right wing “free market” ideology and corporate greed

Milton Friedman is usually thought of as an academic professional. Presumably his economic theories are politically neutral and based on economic science rather than politics. He even received a Nobel Prize for his work in economics. But is it realistic to think of Friedman’s theories as academically motivated, well intentioned, and politically neutral? Or is it more realistic to think of him as the head of a vast right wing think tank that has served to the great advantage of the wealthy and powerful while producing human catastrophe for millions of people?

After explaining how the so-called “economic miracle” of Pinochet’s Chile was nothing more than a vast giveaway to the rich, at the expense of the vast majority of Chileans, Naomi Klein asks the following question:

If that track record qualifies Chile as a miracle for Chicago School economics, perhaps shock treatment was really never about jolting the economy into health. Perhaps it was meant to do exactly what it did – hoover wealth up to the top and shock much of the middle class out of existence.

And later in her book, after describing how something similar happened in Russia, she asks:

This points to a nagging and important question about free-market ideologues: Are they “true believers”, driven by ideology and faith that free markets will cure underdevelopment, as is often asserted (and as they claim), or do the ideas and theories frequently serve as an elaborate rationale to allow people to act on unfettered greed while still invoking an altruistic motive? ….

And she describes the dangerous consequences of failing to make the connection between Friedman’s radical theories and the torture regimes that put them into action:

The Chicago Boys’ first adventure in the seventies should have served as a warning to humanity: theirs are dangerous ideas. By failing to hold the ideology accountable for the crimes committed in its first laboratory, this subculture of unrepentant ideologues was given immunity, freed to scour the world for its next conquest. These days, we are once again living in an era of corporatist massacres., with countries suffering tremendous military violence alongside organized attempts to remake them into model “free market” economies; disappearances and torture are back with a vengeance. And once again the goals of building free markets, and the need for such brutality, are treated as entirely unrelated.

Portents for the future

The above paragraph by Klein clearly refers to George W. Bush’s invasion and occupation of Iraq. Either Bush decided that the non-violent method of accomplishing his economic goals was not feasible, or else he didn’t want to take the trouble to pursue that method.

Antonia Juhasz, in “The Bush Agenda – Invading the World, One Economy at a Time”, explains the purpose of the invasion and occupation of Iraq as being mainly an economic one. The Foreign Investment Order, issued by the first administrator of the Coalition Provisional Authority, L. Paul Bremer, provided the legal framework for the invasion of U.S. corporations into Iraq. It provided for the privatization of Iraq’s state-owned enterprises, foreign ownership of Iraqi businesses, tax-free remittance of all profits, immunity of foreign businesses from Iraqi courts, and much else. As with everything else about the U.S. occupation, these provisions did great damage to the Iraqi people, for the benefit of U.S. corporations. Juhasz describes the effects of privatization of Iraqi industries:

In Bremer’s own words, “Restructuring inefficient state enterprises requires laying off workers.”… Even those workers who still had jobs in Iraq at the time only received… about half of what they made before the war. At the same time, prices skyrocketed.

And with respect to the lack of any constraints on foreign corporations:

U.S. corporations are therefore invited to enter the Iraqi economy, exploit a nation at its most vulnerable point, with no obligation to reinvest in the country at a time when rebuilding Iraq is professed to be the Bush administration’s most vital assignment. U.S. corporations have reaped staggering revenues from their Iraqi operations…

Naomi Klein sums up what Friedman type economic ideology has set in motion:

Chile under Chicago School rule was offering a glimpse of the future of the global economy, a pattern that would repeat again and again (all of which Klein describes in her book) … an urban bubble of frenetic speculation and dubious accounting fueling super-profits and rampant consumerism… roughly half the population excluded from the economy altogether; out-of-control corruption and cronyism; decimation of nationally owned small and medium sized businesses; a huge transfer of wealth from public to private hands, followed by a huge transfer of private debts to public hands. In Chile, if you were outside the wealth bubble the miracle looked like the Great Depression, but inside its airtight cocoon the profits flowed so free and fast that the easy wealth made possible by shock therapy-style “reforms” have been the crack cocaine of financial markets ever since. And that is why the financial world did not respond to the obvious contradictions of the Chile experiment by reassessing the basic assumptions of laissez-faire. Instead it reacted with the junkie’s logic: Where is the next fix?

The people of the United States and the people of the world need to understand this and make it clear to their governments that this type of voodoo economics in no longer acceptable.

Post in full with author's permission.

Originally posted at


Anonymous said...

In America we need a shock troop of warriors like Colomibia's FARC. If I was only younger I would start my training with them and bring the revolution home. Asshole Bush has labeled them terrorists so they must be worth their salt! If we do nothing we will all perish soon when the really big crash comes and the stock market crumbles.

Anonymous said...

annonymous, you've got the right f&@$ing idea.