The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

  Some insight into why there was so little official interest in stopping the looting has since been provided by two men who played pivotal roles in the occupation—Peter McPherson, the senior economic adviser to Paul Bremer, and John Agresto, director of higher education reconstruction for the occupation. McPherson said that when he saw Iraqis taking state property—cars, buses, ministry equipment—it didn’t bother him. His job, as Iraq’s top economic shock therapist, was to radically downsize the state and privatize its assets, which meant that the looters were really just giving him a jump-start. “I thought the privatization that occurs sort of naturally when somebody took over their state vehicle, or began to drive a truck that the state used to own, was just fine,” he said. A veteran bureaucrat of the Reagan administration and a firm believer in Chicago School economics, McPherson termed the pillage a form of public sector “shrinkage.”*30

  His colleague John Agresto also saw a silver lining as he watched the looting of Baghdad on TV. He envisioned his job—“a never to be repeated adventure”—as the remaking of Iraq’s system of higher education from scratch. In that context, the stripping of the universities and the education ministry was, he explained, “the opportunity for a clean start,” a chance to give Iraq’s schools “the best modern equipment.” If the mission was “nation creating,” as so many clearly believed it to be, then everything that remained of the old country was only going to get in the way. Agresto was the former president of St. John’s College in New Mexico, which specializes in a Great Books curriculum. He explained that although he knew nothing of Iraq, he had refrained from reading books about the country before making the trip so that he would arrive “with as open a mind as I could have.”31 Like Iraq’s colleges, Agresto would be a blank slate.

  If Agresto had read a book or two, he might have thought twice about the need to erase everything and start over. He could have learned, for instance, that before the sanctions strangled the country, Iraq had the best education system in the region, with the highest literacy rates in the Arab world—in 1985, 89 percent of Iraqis were literate. By contrast, in Agresto’s home state of New Mexico, 46 percent of the population is functionally illiterate, and 20 percent are unable do “basic math to determine the total on a sales receipt.”*32 Yet Agresto was so convinced of the superiority of American systems that he seemed unable to entertain the possibility that Iraqis might want to salvage and protect their own culture and that they might feel its destruction as a wrenching loss.

  This neocolonialist blindness is a running theme in the War on Terror. At the U.S.-run prison at Guantánamo Bay, there is a room known as “the love shack.” Detainees are taken there after their captors have decided they are not enemy combatants and will soon be released. Inside the love shack, prisoners are allowed to watch Hollywood movies and are plied with American junk food. Asif Iqbal, one of three British detainees known as the “Tipton Three,” was permitted several visits there before he and his two friends were finally sent home. “We would get to watch DVDs, eat McDonald’s, eat Pizza Hut and basically chill out. We were not shackled in this area…. We had no idea why they were being like that to us. The rest of the week we were back in the cages as usual…. On one occasion Lesley [an FBI official]brought Pringles, ice cream and chocolates, this was the final Sunday before we came back to England.” His friend Rhuhel Ahmed speculated that the special treatment “was because they knew they had messed us about and tortured us for two and half years and they hoped we would forget it.”33

  Ahmed and Iqbal had been grabbed by the Northern Alliance while visiting Afghanistan on their way to a wedding. They had been violently beaten, injected with unidentified drugs, put in stress positions for hours, sleep deprived, forcibly shaven and denied all legal rights for twenty-nine months.34 And yet they were supposed to “forget it” in the face of the overwhelming allure of Pringles. That was actually the plan.

  It’s hard to believe—but then again, that was pretty much Washington’s game plan for Iraq: shock and terrorize the entire country, deliberately ruin its infrastructure, do nothing while its culture and history are ransacked, then make it all okay with an unlimited supply of cheap household appliances and imported junk food. In Iraq, this cycle of culture erasing and culture replacing was not theoretical; it all unfolded in a matter of weeks.

  Paul Bremer, appointed by Bush to serve as director of the occupation authority in Iraq, admits that when he first arrived in Baghdad, the looting was still going strong and order was far from restored. “Baghdad was on fire, literally, as I drove in from the airport…. There was no traffic on the streets; there was no electricity anywhere; no oil production; no economic activity; there wasn’t a single policeman on duty anywhere.” And yet his solution to this crisis was to immediately fling open the country’s borders to absolutely unrestricted imports: no tariffs, no duties, no inspections, no taxes. Iraq, Bremer declared two weeks after he arrived, was “open for business.”35 Overnight, Iraq went from being one of the most isolated countries in the world, sealed off from the most basic trade by strict UN sanctions, to becoming the widest-open market anywhere.

  While the pickup trucks stuffed with loot were still being driven to buyers in Jordan, Syria and Iran, passing them in the opposite direction were convoys of flatbeds piled high with Chinese TVs, Hollywood DVDs and Jordanian satellite dishes, ready to be unloaded on the sidewalks of Baghdad’s Karada district. Just as one culture was being burned and stripped for parts, another was pouring in, prepackaged, to replace it.

  One of the U.S. businesses ready and waiting to be the gateway to this experiment in frontier capitalism was New Bridge Strategies, started by Joe Allbaugh, Bush’s ex-head of FEMA. It promised to use its top-level political connections to help U.S. multinationals land a piece of the action in Iraq. “Getting the rights to distribute Procter & Gamble products would be a gold mine,” one of the company’s partners enthused. “One well-stocked 7-Eleven could knock out 30 Iraqi stores; a Wal-Mart could take over the country.”36

  Like the prisoners in Guantánamo’s love shack, all of Iraq was going to be bought off with Pringles and pop culture—that, at least, was the Bush administration’s idea of a postwar plan.

  CHAPTER 17

  IDEOLOGICAL BLOWBACK

  A VERY CAPITALIST DISASTER

  The world is a messy place, and someone has to clean it up.

  —Condoleezza Rice, September 2002, on the need to invade Iraq1

  Bush’s capacity to imagine a different Middle East may actually be related to his relative ignorance of the region. Had he traveled to the Middle East and seen its many dysfunctions, he might have been disheartened. Freed from looking at the day-to-day realities, Bush maintained a vision of what the region could look like.

  —Fareed Zakaria, Newsweek columnist2

  And the one who was seated on the throne said, “See, I am making all things new.” Also he said, “Write this, for these words are trustworthy and true.”

  —Revelation 21:5 (NRSV)

  The war in Iraq has been in damage control mode for so long that it’s easy to forget the original vision for the way it was supposed to work out. But there was a vision, one neatly encapsulated at a conference held by the U.S. State Department in Baghdad in the early months of the occupation. The gathering featured fourteen high-level politicians and bureaucrats from Russia and Eastern Europe—an assortment of finance ministers, central bank chiefs and former deputy prime ministers. They were flown to the Baghdad International Airport in September 2003, kitted out in combat helmets and body armor, then raced to the Green Zone, the walled city within a city that housed the U.S.-run government of Iraq, the Coalition Provisional Authority (CPA), and now houses the U.S. embassy. Inside Saddam’s former conference center, the VIP guests gave a small group of influential Iraqis lessons in capitalist transformation.

  One of the main speakers was Marek Belka, Poland’s former right-wing finance minister who worked under Bremer in Iraq for several months. According to an
official State Department report on the gathering, Belka pounded the Iraqis with the message that they had to seize this moment of chaos to be “forceful” in pushing through policies that “would throw many people out of work.” The first lesson from Poland, Belka said, was that “unproductive state-owned enterprises should be sold off immediately without efforts to salvage them with public funds.” (He failed to mention that popular pressure had forced Solidarity to abandon its plans for rapid privatization, saving Poland from a Russian-style meltdown.) His second lesson was even bolder. It was five months after the fall of Baghdad, and Iraq was in the midst of a humanitarian emergency. Unemployment was at 67 percent, malnutrition was rampant and the only thing holding off mass starvation was the fact that Iraqi households still received government-subsidized food and other essentials, just as they had under the UN-administered oil-for-food program during the sanctions period. They were also able to fill their gas tanks for pennies, when gas was available. Belka told the Iraqis that these market-distorting giveaways had to be scrapped immediately. “Develop the private sector, starting with the elimination of subsidies.” He stressed that these measures were “much more important and divisive than privatization.”3

  Next up was none other than Yegor Gaidar, Yeltsin’s former deputy prime minister, regarded as the architect of Russia’s shock therapy program. In inviting Gaidar to come to Baghdad, the State Department seems to have assumed that the Iraqis would not know that he was regarded as a pariah back in Moscow, tainted by his close association with the oligarchs and by policies that had impoverished tens of millions of Russians.* While it was true that under Saddam the Iraqis had only limited access to outside news, the people at the Green Zone conference were mostly recently returned exiles; in the nineties, while Russia was imploding, they were reading The International Herald Tribune.

  It was Mohamad Tofiq, Iraq’s interim industry minister, who told me about this strange conference, which wasn’t covered in the press at the time. Months later, when we met in his temporary office in Baghdad (the old ministry was a charred shell), Tofiq was still laughing about it. He said the Iraqis had blasted the flak-jacket-wearing visitors, informing them that Paul Bremer’s decision to fling open the borders to unrestricted imports had already dramatically worsened the lives of a war-ravaged people—if it was pushed further by cutting gas subsidies and eliminating food aid, the occupation would have a revolution on its hands. As for the star speaker, Tofiq said, “I told some of the people who organized the conference that if I was to encourage privatization in Iraq, I’d bring Gaidar to tell them, ‘Do exactly the opposite of what we did.’”

  When Bremer started issuing legal decrees in Baghdad, Joseph Stiglitz, the former World Bank chief economist, warned that Iraq was getting “an even more radical form of shock therapy than pursued in the former Soviet world.” That was quite true. In the original Washington plan, Iraq was going to become a frontier just as Russia had been in the early nineties, but this time it would be U.S. firms—not local ones or European, Russian or Chinese competitors—that would be first in line for the easy billions. And nothing would deter even the most painful economic changes because, in contrast to the former Soviet Union, or Latin America and Africa, the transformation would not involve a mannered dance between IMF officials and quixotic local politicians while the U.S. Treasury called the shots from the suite down the hall. In Iraq, Washington cut out the middlemen: the IMF and the World Bank were relegated to supporting roles, and the U.S. was front and center. Paul Bremer was the government; as a top U.S. military official told the Associated Press, there was no point in negotiating with the local government because “at this point, we’d be negotiating with ourselves.”4

  This dynamic was what set the economic transformation of Iraq apart from earlier laboratories. All the careful efforts during the nineties to present “free trade” as something other than an imperial project were abandoned. Elsewhere, there would still be free trade lite, with its hothouse negotiations, but now there would also be free trade heavy, without proxies or puppets, seizing new markets directly for Western multinationals on the battlefields of preemptive wars.

  The proponents of the “model theory” now claim that this was where their war went horribly wrong—as Richard Perle said in late 2006, “the seminal mistake” was “bringing Bremer in.” David Frum concurred, saying they should have had “any kind of an Iraqi face” on the remaking of Iraq right away.5 Instead they had Paul Bremer, ensconced in Saddam’s turquoise-domed Republican Palace, receiving trade and investment laws by e-mail from the Department of Defense, printing them out, signing them and imposing them by fiat on the Iraqi people. Bremer was no quiet American, maneuvering and manipulating behind the scenes. With his movie-of-the-week looks and his fondness for news crews, he seemed intent on flaunting his absolute power over Iraqis, crisscrossing the country in a flashy Blackhawk helicopter flanked by GI Joe private security guards from Blackwater and always in his trademark uniform: immaculately pressed Brooks Brothers suits and beige Timberland boots. The boots were a going-to-Baghdad present from his son; “Go kick some butt, Dad,” the card had said.6

  By his own admission, Bremer knew little of Iraq (“I had lived in Afghanistan,” he told one interviewer). That ignorance hardly mattered, however, because if there was one thing Bremer knew a great deal about, it was the central mission in Iraq: disaster capitalism.7

  On September 11, 2001, he had been working as managing director and “senior political adviser” at the insurance giant Marsh & McLennan. The company had its offices in the North Tower of the World Trade Center and was devastated by the attacks. In the first few days, 700 of its workers were unaccounted for; in the end, 295 were confirmed dead. Exactly one month later, on October 11, 2001, Paul Bremer launched Crisis Consulting Practice, a new division of Marsh specializing in helping multinational corporations prepare for possible terrorist attacks and other crises. Advertising his experience as ambassador-at-large for counterterrorism under the Reagan administration, Bremer and his company offered clients comprehensive counterterrorism services, from political risk insurance to public relations and even advice on what to stockpile.8

  Bremer’s vanguard participation in the homeland security industry was ideal preparation for Iraq. That’s because the Bush administration used the same formula to rebuild Iraq that it had pioneered to respond to 9/11: it treated postwar Iraq as if it was an exciting IPO, brimming with free-wheeling, quick-profit potential. So while Bremer may have stepped on plenty of toes, his mission never was to win Iraqi hearts and minds. Rather, it was to get the country ready for the launch of Iraq Inc. Seen in that light, his early, much-maligned decisions have an unmistakable logical coherence.

  After replacing the cautious general Jay Garner as the top U.S. envoy, Bremer spent his first four months in Iraq almost exclusively focused on economic transformation, passing a series of laws that together make up a classic Chicago School shock therapy program. Before the invasion, Iraq’s economy had been anchored by its national oil company and by two hundred state-owned companies, which produced the staples of the Iraqi diet and the raw materials of its industry, everything from cement to paper and cooking oil. The month after he arrived in his new job, Bremer announced that the two hundred firms were going to be privatized immediately. “Getting inefficient state enterprises into private hands,” Bremer said, “is essential for Iraq’s economic recovery.”9

  Next came the new economic laws. To entice foreign investors to take part in the privatization auction and to build new factories and retail outlets in Iraq, Bremer enacted a radical set of laws described by The Economist in glowing terms as the “wish-list that foreign investors and donor agencies dream of for developing markets.”10 One law lowered Iraq’s corporate tax rate from roughly 45 percent to a flat 15 percent (straight out of the Milton Friedman playbook). Another allowed foreign companies to own 100 percent of Iraqi assets—preventing a repeat of Russia, where the prizes went to the local oligarchs. Even
better, investors could take 100 percent of the profits they made in Iraq out of the country; they would not be required to reinvest, and they would not be taxed. The decree also stipulated that investors could sign leases and contracts that would last for forty years and then be eligible for renewal, which meant that future elected governments would be saddled with deals signed by their occupiers. The one area on which Washington held back was oil: its Iraqi advisers warned that any move to privatize the state oil company or to lay claim to untapped reserves before an Iraqi government was in place would be seen as an act of war. But the occupation authority did take possession of $20 billion worth of revenues from Iraq’s national oil company, to spend as it wished.*11

  The White House was so focused on unveiling a shiny new Iraqi economy that it decided, in the early days of the occupation, to launch a brand-new currency, a massive logistical undertaking. The U.K. firm De La Rue did the printing, and bills were delivered in fleets of planes and distributed in armored vehicles and trucks that ran at least a thousand missions throughout the country—at a time when 50 percent of the people still lacked drinking water, the traffic lights weren’t working and crime was rampant.12