The Shock Doctrine: The Rise of Disaster Capitalism

by Naomi Klein

  But before Sri Lanka could fulfill its destiny as a playground for the plutonomy set, there were a few areas that needed some drastic improvements—fast. First off, to attract top-notch resorts, the government had to drop the barriers to private land ownership (roughly 80 percent of Sri Lanka’s land was owned by the state).10 It needed more “flexible” labor laws under which investors would staff their resorts. And it needed to modernize its infrastructure—highways, swank airports, better water and electricity systems. However, since Sri Lanka had driven itself deep into debt buying weapons, the government could not pay for all these rapid upgrades on its own. The usual deals were on offer: loans from the World Bank and IMF in exchange for agreements to open the economy to privatization and “public-private partnerships.”

  All these plans and terms were neatly laid out in Regaining Sri Lanka, the country’s World Bank-approved shock therapy program finalized in early 2003. Its prime local advocate was a Sri Lankan politician/entrepreneur named Mano Tittawella, a man who bears a striking resemblance to Newt Gingrich, both physically and ideologically.11

  Like all such shock therapy plans, Regaining Sri Lanka demanded many sacrifices in the name of kick-starting rapid economic growth. Millions of people would have to leave traditional villages to free up the beaches for tourists and the land for resorts and highways. What fishing remained would be dominated by large industrial trawlers operating out of deep ports—not wooden boats that launch from the beaches.12 And of course, as has been the case in similar circumstances from Buenos Aires to Baghdad, there would be mass layoffs at state companies, and the prices of services would have to go up.

  The problem for the plan’s advocates was that many Sri Lankans simply didn’t believe that the sacrifices would pay off. This was 2003, and the starry-eyed faith in globalization had long since been extinguished, especially after the horrors of the Asian economic crisis. The legacy of war also proved to be an obstacle. Tens of thousands of Sri Lankans had lost their lives in the conflict in the name of “nation,” “homeland” and “territory.” Now, when peace had finally arrived, the poorest among them were being asked to give up the little plots of land and property they had—a vegetable garden, a simple house, a boat—so that a Marriott or a Hilton could build a golf course (and villagers could pursue careers as street hawkers in Colombo). It seemed like a lousy deal, and Sri Lankans responded accordingly.

  Regaining Sri Lanka was rejected first through a wave of militant strikes and street protests, then, decisively, at the polls. In April 2004, Sri Lankans defied all the foreign experts and their local partners and voted in a coalition of center-leftists and self-identified Marxists who vowed to scrap the entire Regaining Sri Lanka plan.13 At the time, many of the key privatization schemes had not yet gone through, including water and electricity, and the highway projects were being challenged in court. For those dreaming of building a plutonomy playground, it was a major setback: 2004 was supposed to have been Year One of the new investor-friendly, privatized Sri Lanka; now all bets were off.

  Eight months after those fateful elections, the tsunami hit. Among those mourning the demise of Regaining Sri Lanka, the significance of the event was understood immediately. The newly elected government would need billions from foreign creditors to reconstruct the homes, roads, schools and railways destroyed in the storm—and those creditors knew well that when faced with a devastating crisis, even the most committed economic nationalists suddenly become flexible. As for the militant farmers and fishing people who had blocked roadways and staged mass rallies to derail their previous attempts to clear the land for development, well, Sri Lanka’s villagers were otherwise occupied at the moment.

  After the Wave: A Second Chance

  In Colombo, the national government moved instantly to prove to the wealthy countries who control the aid dollars that it was ready to renounce its past. President Chandrika Kumaratunga, elected on an overtly antiprivatization platform, claimed that the tsunami had been, for her, a kind of religious epiphany, helping her to see the free-market light. She traveled to the storm-ravaged coast and, standing amid the rubble, announced, “We are a country blessed with so many natural resources, and we have not made use of them fully…. So nature itself must have thought ‘enough is enough’ and whacked us from all sides and taught us a lesson to be together.”14 It was a novel interpretation—the tsunami as divine punishment for failing to sell off Sri Lanka’s beaches and forests.

  The penance began immediately. Just four days after the wave hit, her government pushed a bill through that paved the way for water privatization, a plan citizens had been forcefully resisting for years. Of course now, with the country still swamped with sea water and graves not yet dug, few even knew it had happened—much like the timing of Iraq’s new oil law. The government also chose this moment of extreme hardship to make life even harder by raising the price of gasoline—a move designed to send lenders an unmistakable message about Colombo’s fiscal responsibility. It also began developing legislation to break up the national electricity company, with plans to open it up to the private sector.15

  Herman Kumara, the head of Sri Lanka’s National Fisheries Solidarity Movement, which represents the small boats, referred to the reconstruction as “a second tsunami of corporate globalization.” He saw it as a deliberate attempt to exploit his constituents when they were most injured and weakened—as pillage follows war, so this second tsunami rushed in after the first. “People were vehemently opposed to these policies in the past,” he told me. “But now they are starving in the camps, and they are just thinking about how to survive the next day—they don’t have a place to sleep, they don’t have a place to be, they have lost their source of income, they have no idea how they will feed themselves in the future. So it’s in that situation that the government pushes ahead with this plan. When people recover, they will find out what had been decided, but by then the damage will already be done.”

  If the Washington lenders were able to move quickly to exploit the tsunami, it was because they had done something remarkably similar before. The dress rehearsal for posttsunami disaster capitalism took place in a little-examined episode following Hurricane Mitch.

  In October 1998, for an entire interminable week, Mitch had parked itself over Central America, lashing the coasts and mountains of Honduras, Guatemala and Nicaragua, swallowing villages whole and killing more than nine thousand people. The already impoverished countries could not dig themselves out without generous foreign aid—and it came, but at a steep price. In the two months after Mitch struck, with the country still knee-deep in rubble, corpses and mud, the Honduran congress passed laws allowing the privatization of airports, seaports and highways and fast-tracked plans to privatize the state telephone company, the national electric company and parts of the water sector. It overturned progressive land-reform laws, making it far easier for foreigners to buy and sell property, and rammed through a radically pro-business mining law (drafted by industry) that lowered environmental standards and made it easier to evict people from homes that stood in the way of new mines.16

  It was much the same in neighboring countries: in the same two months post-Mitch, Guatemala announced plans to sell off its phone system, and Nicaragua did likewise, along with its electric company and its petroleum sector. According to The Wall Street Journal, “The World Bank and International Monetary Fund had thrown their weight behind the [telecom] sale, making it a condition for release of roughly $47 million in aid annually over three years and linking it to about $4.4 billion in foreign-debt relief for Nicaragua.”17 Phone privatization had nothing to do with hurricane reconstruction, of course, except inside the logic of the disaster capitalists at Washington’s financial institutions.

  Over the next few years, the sales went through, often at prices far below market value. The buyers, for the most part, were former state-owned companies from other countries that had been privatized themselves and were now scouring the globe for new purchases that would increas
e their share prices. Telmex, Mexico’s privatized phone company, snapped up Guatemala’s telecom company; the Spanish energy company Unión Fenosa bought up Nicaragua’s energy companies; San Francisco International Airport, now a private company, bought all four Honduran airports. And Nicaragua sold off 40 percent of its telephone company for only $33 million, when PricewaterhouseCoopers had estimated the value at $80 million.18 “Destruction carries with it an opportunity for foreign investment,” announced Guatemala’s foreign minister on a trip to the World Economic Forum in Davos in 1999.19

  By the time the tsunami hit, Washington was ready to take the Mitch model to the next level—aiming not just at individual new laws but at direct corporate control over the reconstruction. Any country hit by a disaster on the scale of the 2004 tsunami needs a comprehensive plan for reconstruction, one that will make the wisest use of the influx of foreign aid and ensure that the funds reach their intended recipients. But Sri Lanka’s president, under pressure from Washington lenders, decided that the planning could not be entrusted to her government’s elected politicians. Instead, just one week after the tsunami leveled the coasts, she created a brand-new body called the Task Force to Rebuild the Nation. This group, and not Sri Lanka’s Parliament, would have full power to develop and implement a master plan for a new Sri Lanka. The task force was made up of the country’s most powerful business executives from banking and industry. And not just any industry—five of the ten members of the task force had direct holdings in the beach tourism sector, representing some of the largest resorts in the country.20 There was no one from the fishing or farming sectors on the task force, not a single environmental expert or scientist or even a disaster-reconstruction specialist. The chair was Mano Tittawella, the former privatization czar. “This is an opportunity to build a model nation,” he declared.21

  The creation of the task force represented a new kind of corporate coup d’état, one achieved through the force of a natural disaster. As in so many other countries, in Sri Lanka, Chicago School policies had been blocked by the normal rules of democracy; the 2004 elections proved that. But with the country’s citizens pulling together to meet a national emergency, and politicians desperate to unlock aid money, the express wishes of voters could be summarily brushed aside and replaced with direct unelected rule by industry—a first for disaster capitalism.

  Somehow, in only ten days, and without leaving the capital, the business leaders on the task force were able to draft a complete national reconstruction blueprint, from housing to highways. It was this plan that called for the buffer zones and that kindly exempted hotels. The task force also redirected the aid money to the superhighways and industrial fishing ports that had met so much resistance before the catastrophe. “We see this economic agenda as a bigger disaster than the tsunami, which is why we had been fighting so hard to prevent it before and why we defeated it in the last elections,” Sarath Fernando, a Sri Lankan land-rights activist told me. “But now, just three weeks after the tsunami, they give us the same plan. It’s obvious that they had it all ready to go before.”*

  Washington backed up the task force with the kind of reconstruction aid that was by now familiar from Iraq: megacontracts to its own companies. CH2M Hill, the engineering and construction giant from Colorado, had been awarded $28.5 million to oversee other major contractors in Iraq. Despite its central role in the Baghdad reconstruction debacle, it was given an additional $33 million contract in Sri Lanka (later expanded to $48 million), primarily to work on three deep-water harbors for industrial fishing fleets and to build a new bridge to Arugam Bay, part of the plan to turn the town into a “tourist paradise.”22 Both of these programs—carried out in the name of tsunami relief—were disastrous for the primary victims of the tsunami, since the trawlers scooped up their fish, and the hotels didn’t want them on the beach. As Kumari put it, “It’s not just that the ‘aid’ isn’t aiding, it is that it is hurting.”

  When I asked him why the U.S. government was spending its aid money on projects that ensured the displacement of tsunami survivors, John Varley, director of USAID’s Competitiveness Program, explained that “you don’t want to restrict the aid so it only goes to tsunami victims…. Let it be for the benefit of all Sri Lanka; let it contribute to growth.” Varley compared the plan to an elevator in a high-rise building: on the first trip it picks up one group of passengers and takes them to the top, where they create wealth that allows the elevator to go back down and pick more people up. The people waiting at the bottom have to know that the elevator will be back for them too—eventually.

  The only direct money that the U.S. government was spending on small-scale fishing people was a $1 million grant to “upgrade” the temporary shelters where they were being warehoused while the beaches were redeveloped.23 It was a good indication that the tin-and-particle-board shelters were temporary in name only; that they were indeed destined to become permanent shantytowns—the kind that ring most major cities in the global South. There are no great relief drives to help the people who live in those slums, of course, but the tsunami victims were supposed to be different. The world watched them lose their homes and livelihoods on live TV, and the arbitrariness of their fate provoked a visceral, global feeling that what was lost needed and deserved to be replaced—not through trickle-down economics, but directly, with hand-to-hand aid. But the World Bank and USAID understood something that most of us did not: that soon enough, the distinctiveness of the tsunami survivors would fade and they would melt into the billions of faceless poor worldwide, so many of whom already live in tin shacks without water. The proliferation of these shacks has become as much an accepted feature of the global economy as the explosion of $800-a-night hotels.

  In one of the most desolate inland camps on the southern coast of Sri Lanka, I met a young mother named Renuka, arrestingly beautiful even in rags, and one of the people waiting for Varley’s elevator. Her youngest child, a girl, was six months old, born two days after the tsunami. Renuka had summoned superhuman strength to grab both of her boys and run, nine months pregnant and in water up to her neck, away from the wave. Yet after this extraordinary feat of survival, she and her family were now quietly going hungry on a parched piece of land in the middle of nowhere. A couple of canoes, donated by a well-meaning NGO, made a pitiful sight: three kilometers from the water, and with not even a bicycle for transportation, they were little more than a cruel reminder of a former life. She asked us to carry a message to everyone who was trying to help the tsunami survivors. “If you have something for me,” she said, “put it in my hand.”

  The Wider Wave

  Sri Lanka wasn’t the only country that got hit by this second tsunami—similar stories of land and law grabs have come out of Thailand, the Maldives, and Indonesia. In India, tsunami survivors in Tamil Nadu were left so impoverished that up to 150 women were driven to sell their kidneys in order to buy food. An aid worker explained to The Guardian that the state government “would prefer the coast was used to build hotels, but the result is desperate people.” All the tsunami-struck countries imposed “buffer zones” preventing villagers from rebuilding on the coasts, freeing up the land for increased development. (In Aceh, Indonesia, the zones were two kilometers wide, though the government was eventually forced to repeal the edict.)24

  A year after the tsunami, the respected NGO ActionAid, which monitors foreign aid spending, published the results of an extensive survey of fifty thousand tsunami survivors in five countries. The same patterns repeated everywhere: residents were barred from rebuilding, but hotels were showered with incentives; temporary camps were miserable militarized holding pens, and almost no permanent reconstruction had been done; entire ways of life were being extinguished. It concluded that the setbacks could not be chalked up to the usual villains of poor communication, underfunding or corruption. The problems were structural and deliberate: “Governments have largely failed in their responsibility to provide land for permanent housing,” the report concluded. “They ha
ve stood by or been complicit as land has been grabbed and coastal communities pushed aside in favour of commercial interests.”25

  When it came to posttsunami opportunism, however, nowhere compared with the Maldives, perhaps the least understood of the affected countries. There, the government wasn’t satisfied with merely clearing the poor people from the coasts—it used the tsunami to try to clear its citizens out of the vast majority of the country’s livable zones.

  The Maldives, a chain of roughly two hundred inhabited islands off the coast of India, is a tourism republic in the same way that certain Central American countries used to be called banana republics. Its export product is not tropical fruit but tropical leisure, with a staggering 90 percent of the state’s revenues coming directly from beach holidays.26 The leisure that the Maldives sells is a particularly decadent, enticing kind. Nearly one hundred of its islands are “resort islands,” patches of lush vegetation surrounded by halos of white sand that are entirely controlled by hotels, cruise lines or wealthy individuals. Some are leased for up to fifty years. The most luxurious of the Maldivian islands cater to an elite clientele (Tom Cruise and Katie Holmes on their honeymoon, as an example) that is drawn not just to the beauty and the diving but to the promise of total seclusion that only private islands can provide.

  With architecture “inspired” by traditional fishing villages, the spa-resorts compete over who can pack their thatched huts on stilts with the most exciting array of plutonomy toys and perks—Bose Surround Sound home entertainment, Philippe Starck fixtures in outdoor bathrooms, sheets so fine that they practically dissolve on touch. The islands also outdo one another to erase the boundaries between land and sea—the villas at Coco Palm are built over the lagoon and have rope ladders from the decks into the water beneath, the Four Seasons’ sleeping quarters “float” on the ocean, and the Hilton boasts the first underwater restaurant, built on a coral reef. Many suites feature maids’ quarters, and on one private island, a twenty-four-houra-day “dedicated Maldivian butler—a ‘Thakuru’” who takes care of such details as “how you like your martini—shaken or stirred.” Villas at these James Bondian resorts go as high as $5,000 a night.27