The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

  It was in 1997, when Rumsfeld was named chairman of the board of the biotech firm Gilead Sciences, that he would firmly establish himself as a proto disaster capitalist. The company had registered the patent for Tamiflu, a treatment for many kinds of influenza and the preferred drug for avian flu.* If there was ever an outbreak of the highly contagious virus (or the threat of one), governments would be forced to buy billions of dollars’ worth of the treatment from Gilead Sciences.

  The patenting of drugs and vaccines to treat public health emergencies remains a controversial subject. The U.S. has been epidemic-free for several decades, but when the polio outbreak was at its peak in the mid-fifties, the ethics of disease profiteering were hotly debated. With close to sixty thousand known cases of polio, and parents terrified that their children were going to contract the crippling, often fatal, disease, the search for a cure was frantic. When Jonas Salk, a scientist at the University of Pittsburgh, found it and developed the first polio vaccine in 1952, he did not patent the lifesaving treatment. “There is no patent,” Salk told the broadcaster Edward R. Murrow: “Could you patent the sun?”17

  It’s safe to say that if you could patent the sun, Donald Rumsfeld would have long since put in an application with the U.S. Patent and Trademark Office. His former company Gilead Sciences, which also owns the patents on four AIDS treatments, spends a great deal of energy trying to block the distribution of cheaper generic versions of its lifesaving drugs in the developing world. It has been targeted for these activities by public health activists in the U.S., who point out that some of Gilead’s key medicines were developed on grants funded by taxpayers.18 Gilead, for its part, sees epidemics as a growth market, and it has an aggressive marketing campaign to encourage businesses and individuals to stockpile Tamiflu, just in case. Before he reentered government, Rumsfeld was so convinced that he was on to a hot new industry that he helped found several private investment funds specializing in biotechnology and pharmaceuticals.19 These companies are banking on an apocalyptic future of rampant disease, one in which governments are forced to buy, at top dollar, whatever lifesaving products the private sector has under patent.

  Dick Cheney, a protégé of Rumsfeld’s in the Ford administration, has also built a fortune based on the profitable prospect of a grim future, though where Rumsfeld saw a boom market in plagues, Cheney was banking on a future of war. As secretary of defense under Bush Sr., Cheney scaled down the number of active troops and dramatically increased reliance on private contractors. He contracted Brown & Root, the engineering division of the Houston-based multinational Halliburton, to identify tasks being performed by U.S. troops that could be taken over by the private sector for a profit. Not surprisingly, Halliburton identified all kinds of jobs that the private sector could perform, and those findings led to a bold new Pentagon contract: the Logistics Civil Augmentation Program, or LOGCAP. The Pentagon was notorious for its multi-billion-dollar contracts with weapons manufacturers, but this was something new: not supplying the military with gear but serving as manager for its operations.20

  A select group of companies was invited to apply to provide unlimited “logistical support” for U.S. military missions, an extremely vague work description. Furthermore, no dollar value was attached to the contract: the winning company was simply assured that whatever it did for the military, it would have its costs covered by the Pentagon, plus a guaranteed profit—what is known as a “cost plus” contract. These were the final days of the Bush Sr. administration, and the company that won the contract in 1992 was none other than Halliburton. As the Los Angeles Times’s T. Christian Miller noted, Halliburton “beat out thirty-six other bidders to win a five-year contract—not surprising perhaps, given that it was the company that drew up the plans.”

  In 1995, with Clinton in the White House, Halliburton recruited Cheney as its new boss. While the Halliburton division Brown & Root had a long history as a U.S. military contractor, under Cheney’s leadership Halliburton’s role was to expand so dramatically that it would transform the nature of modern war. Thanks to the loosely worded contract that Halliburton and Cheney had crafted when he was at the Pentagon, the company was able to stretch and expand the meaning of the term “logistical support” until Halliburton was responsible for creating the entire infrastructure of a U.S. military operation overseas. All that was required of the army was to provide the soldiers and the weapons—they were, in a way, content providers, while Halliburton ran the show.

  The result, first on display in the Balkans, was a kind of McMilitary experience in which deploying abroad resembled a heavily armed and perilous package vacation. “The first person to greet our soldiers as they arrive in the Balkans and the last one to wave goodbye is one of our employees,” a Halliburton spokesperson explained, making the company’s staff sound more like cruise directors than army logistics coordinators.21 That was the Halliburton difference: Cheney saw no reason why war shouldn’t be a thriving part of America’s highly profitable service economy—invasion with a smile.

  In the Balkans, where Clinton deployed nineteen thousand soldiers, U.S. bases sprang up as mini Halliburton cities: neat, gated suburbs, built and run entirely by the company. And Halliburton was committed to providing the troops with all the comforts of home, including fast-food outlets, supermarkets, movie theaters and high-tech gyms.22 Some senior officers wondered what the strip-malling of the military would do to troop discipline—but they too were enjoying the perks. “Everything with Halliburton was gold-plated,” one told me. “So we weren’t complaining.” As far as Halliburton was concerned, keeping the customer satisfied was good business—it guaranteed more contracts, and because profits were calculated as a percentage of costs, the higher the costs, the higher the profits. “Don’t worry, it’s cost plus,” was a saying made famous in Baghdad’s Green Zone, but the deluxe war spending was pioneered during the Clinton era. In just five years at Halliburton, Cheney almost doubled the amount of money the company extracted from the U.S. Treasury, from $1.2 billion to $2.3 billion, while the amount it received in federal loans and loan guarantees increased fifteenfold.23 And he was well rewarded for his efforts. Before taking office as vice president, Cheney “valued his net worth at between $18 million and $81.9 million, including between $6 million and $30 million worth of stock in Halliburton Co…. Overall, Cheney was given some 1,260,000 Halliburton options, with 100,000 already used, 760,000 eligible to be redeemed and 166,667 to become valid this December [2000].”24

  The push to expand the service economy into the heart of government was, for Cheney, a family affair. In the late nineties, while he was turning military bases into Halliburton suburbs, his wife, Lynne, was earning stock options in addition to her salary as a board member at Lockheed Martin, the world’s largest defense contractor. Lynne’s time on the board, from 1995 to 2001, coincided with a key period of transition for companies like Lockheed.25 The Cold War was over, defense spending was dropping, and with nearly their entire budgets coming from government weapons contracts, these firms needed a new business model. At Lockheed and its fellow arms manufacturers, a strategy emerged to aggressively pursue a new line of work: running the government for a fee.

  In the mid-nineties, Lockheed began taking over information technology divisions of the U.S. government, running its computer systems and a great deal of its data management. Largely under the public radar, the company went so far in this direction that, in 2004, The New York Times reported, “Lockheed Martin doesn’t run the United States. But it does help run a breathtakingly big part of it…. It sorts your mail and totals your taxes. It cuts Social Security checks and counts the United States census. It runs space flights and monitors air traffic. To make all that happen, Lockheed writes more computer code than Microsoft.*26

  It made for a powerful husband-and-wife team. While Dick was steering Halliburton to take over the infrastructure of warfare abroad, Lynne was helping Lockheed to take over the day-to-day running of government at home. At times husband and
wife found themselves in direct competition. In 1996, when the state of Texas announced that corporations could bid to run its welfare program—a contract worth up to $2 billion over five years—both Lockheed and the IT giant Electronic Data Systems, which boasted Dick Cheney as a board member, bid on the contract. In the end, the Clinton administration intervened and halted the auction. Though it was generally an enthusiastic supporter of outsourcing, deciding who was eligible to receive welfare was determined to be an essential role of government, not suitable for privatization. Both Lockheed and EDS cried foul, as did the governor of Texas, George W. Bush, who thought privatizing the welfare system was a terrific idea.27

  George W. Bush didn’t distinguish himself as governor in too many ways, but there was one area in which he excelled: parceling out to private interests the various functions of the government he was elected to run—especially security-related functions, a preview of the privatized War on Terror he would soon unleash. Under his watch, the number of private prisons in Texas grew from twenty-six to forty-two, prompting The American Prospect magazine to call Bush’s Texas “the world capital of the private-prison industry.” In 1997, the FBI launched an investigation into a jail in Brazoria County, forty miles outside Houston, after a local television station aired a videotape of guards kicking unresisting inmates in the groin, shooting them with stun guns and attacking them with dogs. At least one of the violent guards in the video was wearing the uniform of Capital Correctional Resources, a private company contracted to supply guards for the prison.28

  Bush’s enthusiasm for privatization was in no way dampened by the Brazoria incident. A few weeks later, he had what appears to have been an epiphany when he met José Piñera, the Chilean minister who had privatized social security during the Pinochet dictatorship. This is Piñera’s description of the meeting: “By his concentrated focus, his body language [and] his relevant questions, I knew immediately that Mr. Bush had fully understood the essence of my idea: that Social Security reform could be used both to provide a decent retirement and to create a world of worker-capitalists, an ownership society…. He was so enthusiastic that at the end he whispered in myear with a smile, ‘Go and tell all this to my little brother in Florida. He will also love it.’”29

  The future president’s commitment to auctioning off the state, combined with Cheney’s leadership in outsourcing the military and Rumsfeld’s patenting of drugs that might prevent epidemics, provided a preview of the kind of state the three men would construct together—it was a vision of a perfectly hollow government. Though this radical program did not form the centerpiece of Bush’s campaign for the presidency in 2000, there were hints of what was in store: “There are hundreds of thousands of full-time federal employees that are performing tasks that could be done by companies in the private sector,” Bush said in one campaign speech. “I will put as many of these tasks as possible up for competitive bidding. If the private sector can do a better job, the private sector should get the contract.”30

  September 11 and the Civil Service Comeback

  As Bush and his cabinet took their posts in January 2001, the need for new sources of growth for U.S. corporations took on even greater urgency. With the tech bubble now officially popped and the Dow Jones tumbling 824 points in their first two and half months in office, they found themselves staring in the face of a serious economic downturn. Keynes had argued that governments should spend their way out of recessions, providing economic stimulus with public works. Bush’s solution was for the government to deconstruct itself—hacking off great chunks of the public wealth and feeding them to corporate America, in the form of tax cuts on the one hand and lucrative contracts on the other. Bush’s budget director, the think-tank ideologue Mitch Daniels, pronounced, “The general idea—that the business of government is not to provide services, but to make sure that they are provided—seems self-evident to me.”31 That assessment included disaster response. Joseph Allbaugh, the Republican Party operative whom Bush put in charge of the Federal Emergency Management Agency (FEMA)—the body responsible for responding to disasters, including terrorist attacks—described his new place of work as “an oversized entitlement program.”32

  Then came 9/11, and all of a sudden having a government whose central mission was self-immolation did not seem like a very good idea. With a frightened population wanting protection from a strong, solid government, the attacks could well have put an end to Bush’s project of hollowing out government just as it was beginning.

  For a while, that even seemed to be the case. “September 11 has changed everything,” said Ed Feulner, Milton Friedman’s old friend and president of the Heritage Foundation, ten days after the attack, making him one of the first to utter the fateful phrase. Many naturally assumed that part of that change would be a reevaluation of the radical antistate agenda that Feulner and his ideological allies had been pushing for three decades, at home and around the world. After all, the nature of the September 11 security failures exposed the results of more than twenty years of chipping away at the public sector and outsourcing government functions to profit-driven corporations. Much as the flooding of New Orleans exposed the rotting condition of public infrastructure, the attacks pulled back the curtain on a state that had been allowed to grow dangerously weak: radio communications for the New York City police and firefighters broke down in the middle of the rescue operation, air traffic controllers didn’t notice the off-course planes in time, and the attackers had passed through airport security checkpoints staffed by contract workers, some of whom earned less than their counterparts at the food court.33

  The first major victory of the Friedmanite counterrevolution in the United States had been Ronald Reagan’s attack on the air traffic controllers’ union and his deregulation of the airlines. Twenty years later, the entire air transit system had been privatized, deregulated and downsized, with the vast majority of airport security work performed by underpaid, poorly trained, nonunion contractors. After the attacks, the inspector general of the Department of Transportation testified that the airlines, which were responsible for security on their flights, had skimped significantly to keep costs down. The “counterpressures in turn manifested themselves as significant weaknesses in security,” he told the Bush-convened 9/11 Commission. A longtime Federal Aviation Authority security official testifed before the commission that the airlines’ approach to security was “decry, deny and delay.”34

  On September 10, as long as flights were cheap and plentiful, none of that seemed to matter. But on September 12, putting $6-an-hour contract workers in charge of airport security seemed reckless. Then, in October, envelopes with white powder were sent to lawmakers and journalists, spreading panic about the possibility of a major anthrax outbreak. Once again, nineties privatization looked very different in this new light: Why did a private lab have the exclusive right to produce the anthrax vaccine? Had the federal government signed away its responsibility to protect the public from a major public health emergency? It didn’t help that Bioport, the privatized lab in question, had failed a series of inspections and that the FDA wasn’t even authorizing it to distribute its vaccines at the time.35 Furthermore, if it was true, as media reports kept claiming, that anthrax, smallpox and other deadly agents could be spread through the mail, the food supply or the water systems, was it really such a good idea to be pushing ahead with Bush’s plans to privatize the postal service? And what about all those laid-off food and water inspectors—could somebody bring them back?

  The backlash against the pro-corporate consensus only deepened in the face of new scandals like that of Enron. Three months after the 9/11 attacks, Enron declared bankruptcy, leading thousands of employees to lose their retirement savings while executives acting on insider knowledge cashed out. The crisis contributed to a general plummeting of faith in private industry to perform essential services, especially when it came out that it was Enron’s manipulation of energy prices that had led to the massive blackouts in California a few month
s earlier. Milton Friedman, aged ninety, was so concerned that the tides were shifting back toward Keynesianism that he complained that “businessmen are being presented in the public as second-class citizens.”36

  While CEOs were falling from their pedestals, unionized public sector workers—the villains of Friedman’s counterrevolution—were rapidly ascending in the public’s estimation. Within two months of the attacks, trust in government was higher than it had been since 1968—and that, remarked Bush to a crowd of federal employees, is “because of how you’ve performed your jobs.”37 The uncontested heroes of September 11 were the blue-collar first responders—the New York firefighters, police and rescue workers, 403 of whom lost their lives as they tried to evacuate the towers and aid the victims. Suddenly, America was in love with its men and women in all kinds of uniforms, and its politicians—slapping on NYPD and FDNY baseball caps with unseemly speed—were struggling to keep up with the new mood.

  When Bush stood with the firefighters and rescue workers at Ground Zero on September 14—what his advisers call “the bullhorn moment”—he was embracing some of the very unionized civil servants that the modern conservative movement had devoted itself to destroying. Of course he had to do it (even Dick Cheney put on a hard hat in those days), but he didn’t have to do it so convincingly. Through some combination of genuine feeling on Bush’s part, and the public’s projected desire for a leader worthy of the moment, these were the most moving speeches of Bush’s political career.